India: E-Commerce Cash to Drive Warehouse Build-Out

India's e-commerce market has been attracting a lot of attention recently, particularly from investors. The sector attracted a total of $6 billlion in investment in 2014, with more expected to come in 2015.

Essentially, India is seen as the next great e-commerce play and, following China's evolution into a $2 trillion market, investors are piling in. Independent estimates from PWC put India's market potential from e-commerce alone at $10-20 billion by 2020, representing annual growth of 40-50% from the $2.3 billion estimated for 2013.

India: E-Tailing and E-Commerce Revenue ($ Billion) & CAGR, 2009-2017/2020(f)

Source: PWC: Evolution of E-Commerce in India, 2014

India does have potential but does the amount of money heading into the sector represent overenthusiasm on the part of investors?

Perhaps so, but a more compelling justification for the amounts being thrown at the sector comes from the need to spend money to ramp up the quality of infrastructure to support it.

A successful e-commerce sector requires many things but none more important than high quality logistics warehouses to hold goods ready for customer orders. Success in e-commerce requires rapid delivery and those companies capable of holding enough stock in suitably located places to meet demand are best positioned to rule the market.

With this in mind, India's stock of high standard warehousing requires a significant upgrade. Currently consisting of 1.7 million feet in total, estimates of extra required space range between 7.5 million to 15 million sq. ft. to be built by 2020, at an estimated cost of $450 million to $900 million.

India: Logistics Warehousing Requirements, 2013 vs. 2017/2020(f), (million sq.ft.)

Source: PWC: Evolution of E-Commerce in India, 2014

As such, the huge sums being pumped into the sector have some justification. Those companies, such as Flipkart and Amazon India, that are moving fastest to build their warehouse network are investing heavily but, if estimates and China's example are to believed, they have most to gain from what will likely be a huge market.

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