India’s cold storage assets offer immense opportunity for growth

V Nagarajan

The cold storage market in India is currently very fragmented and unorganised with facilities being largely setup on an ad-hoc basis. As of 2020, India has about 8,200 cold storage facilities, 75 per cent of which are suitable only for storing single commodities, mainly potatoes, according to a survey on Indian cold chain assets by Colliers.

With a surge in online grocery sales, demand for exotic fruits and vegetables, and the pressing need for vaccines and drugs storage, Colliers forecast the cold storage sector revenue to grow at 14 per cent CAGR by 2023. This is, in part, likely to be driven by 57 per cent CAGR growth of online grocery sales in India over the next three years followed by 22.4 per cent CAGR growth in the pharmaceutical sector sales.

It has been estimated that total cold storage capacity in India is likely to reach 40.7 million metric tonnes of total perishables by 2023, rising 8.2 per cent from 2020. Over the next three years, it is expected that the segment will become more organised, with increased interest from third party logistics providers and institutional funds.

According to Colliers, there is a pressing need for development of multi-product cold storage facilities, not only for the variety of horticulture products, but also for pharmaceutical products amidst the current COVID-19 vaccination drive. Operators should diversify their cold storage facilities to offer space for higher-value commodities such as chemicals and pharmaceuticals.

 Cold storage facilities are hugely capital intensive and the cost of setting up a cold storage is about double a traditional warehouse. However, their rental premium is about 3 to 4 times higher than traditional warehouses. Over the next three years, rents will strengthen, led by the limited cold storage stock amidst high demand from several sectors, like online grocery, food processing and pharmaceuticals.

Colliers’ estimates that a Greenfield cold storage facility can fetch gross yields of about 12 per cent, with a break-even period of nine years. Akin to data centres, cold storage facilities too provide an immense opportunity for developers and institutional funds with a long-term view to develop leasable built-to-suit assets with superior building specifications such as higher ceilings.

Third-party logistics players may expand their cold storage space and rent out palette racks, as they look to grab burgeoning demand from occupiers.

Over the last 11 years, the government has initiated policies to support integrated cold chain management and encourage the private sector to develop facilities. Countries like China and Hong Kong are witnessing strong demand for cold storage facilities, led by increased appetite for frozen food and drugs storage, triggered by COVID-19.

The cold storage market in India is largely fragmented and ripe for consolidation.

There is ample interest from institutional investors in Hong Kong’s cold storage facilities, with such facilities offering a rental premium of about 20 per cent- 25 per cent higher than traditional warehouses.

In India, institutional investors are investing in warehousing facilities over the last three years, but not specifically into cold storages.

Colliers’ forecasts the Indian cold chain revenues are set to grow at 14 per cent CAGR during next three years, driven by a surge in online grocery, processed foods and pharmaceuticals sales.

I have recently sold my property to a resident Indian and TDS was deducted. What are the rules governing TDS while selling the property in India ? Is it on capital gains or sale consideration? Kindly clarify. Santosh Rane, Sharjah.

It is not clear about the quantum of consideration received, however, for an NRI, there is no monetary limit for the purpose of TDS in case of sale of property. TDS on property at 1 per cent on all immovable property transactions of Rs50 lakh or more need to be deducted.

Where the seller is an NRI and a certificate of capital gains is obtained from ITO, 20 per cent of the capital gain need to be deducted. Where the seller is an NRI and no certificate has been obtained from the ITO, then 20 per cent of the sale consideration has to be deducted.

My mother passed away and my father has two children from his second marriage. He has self-acquired properties in Delhi. Can I claim my share in the property? Yogesh Rawal, Dubai.

You cannot claim stake to his property as it is a self-acquired one and as long as he is alive. He has the freedom and right to transfer it to anyone he desires. However, if he dies intestate, you can stake a claim as class I heir to the property.