RIL buys into Deccan 360 to bolster logistics support for retail chain

RIL buys into Deccan 360 to bolster logistics support for retail chain

By fe Bureau

Mukesh Ambani-led Reliance Industries (RELIANCE.NS : 1084.25 -6.45) (RIL) on Friday said it has stepped into the aviation space as a "strategic investor" by picking up over 26% stake in Captain GS Gopinath-founded cargo airline, Deccan 360.

Though both the companies did not quantify the investment, reports speculated the deal to be in the $20 million-$30 million range (Rs 90 crore to Rs 130 crore). RIL's stake would be 'over 26% but below 50%'.

RIL said one of its wholly-owned subsidiaries would provide the growth capital for the new cargo airline, though it did not name the subsidiary. The investment will help RIL secure a logistics support to its retail network. Reliance Retail Ltd, an arm of RIL, operates 900 stores in 80 cities across 14 states in India, according to the company's annual report of March 2009. Although Reliance Retail operates stores across various retail segments, the air cargo foray would specially help the company in its perishables business that it runs through the 'Reliance Fresh' brand of stores.

Perishables have to be transported across cities without time lapse, and the company can keep its costs under control by operating its own cargo flights rather than lease out other aircraft. Most of the aircraft available on lease are old and are fuel-guzzlers, calling for high operating costs. On the other hand, buying a new aircraft can be expensive, and the delivery would take at least three years. Significantly, among the assets of Deccan 360 are 60 warehouses spread across various cities.

In a statement, RIL's chairman and managing director Mukesh Ambani said, "We believe that our collaboration with Deccan 360 will see a transformation in the logistics domain in India."

The company further said that RIL's investment would help Deccan 360 increase its air and surface network coverage across the country. RIL's share dipped 0.64% to close the day at Rs 1,083.30 on the Bombay Stock Exchange (^BSESN : 17591.18 -48.08) on Friday.

Gopinath, who founded the low-cost airline Air Deccan in 2003, but subsequently sold it to Vijay Mallya-led Kingfisher Airlines in 2007, said, "We want to make it clear that it is not a share sale. We would rather say they (RIL) have invested in the company via a fresh issue and RIL would have two nominees on Deccan 360's five-member board of directors." Gopinath launched Deccan 360 in 2009 with its hub in Nagpur.

Deccan 360 has an employee strength of 300, and a network of 60 franchises with an additional workforce of 1,500. It is present in 50 cities and would expand to 100 cities in the next 12-18 month, Gopinath said. The air freight business in India has grown 10% by volume in the first three quarters of 2009-10, year-on-year, according to government data.