CMP: Rs. 62.30; Accumulate between Rs. 55.00 to Rs. 59.00 levels and at every dipps.
Medium to Long term Target Rs. 74; Short term Target: Rs. 65; STOP LOSS – Rs. 56.22; Market Cap: Rs. 539.40 Cr; 52 Week High/Low:
Rs. 68.40 / Rs. 22.65.
Total Shares: 8,65,82,287 shares;
Promoters : 3,28,88,430 shares – 37.99 %; Total Public holding : 5,36,93,857
shares – 62.01 %; Book Value: Rs. 97.19; Face
Value: Rs. 2.00; EPS: Rs. 3.01; Div: 00.00 % ; P/E: 20.69 times; Ind. P/E: 40.76; EV/EBITDA: 8.10.
Total Debt: 375.94 Cr; Enterprise Value: Rs. 868.87 Cr.
GATI INDIA LIMITED: GATI INDIA LTD was incorporated
in 1989, and is based in Secunderabad, India. Gati Limited provides express distribution and supply chain
solutions to business customers in various industry verticals in India and
internationally. GATI offers air, road, ocean and rail transportation
services, surface cargo movement services for shipments, parcel train services, air movement services for non-commercial shipment, secure box and desk to desk
services, art pieces packaging and transporting services and Student Express
service for transporting luggage. It also provides managed, temperature
sensitive, re-engineering, and upstream supply chain management services, cold
chain transportation solutions by air, road, and ocean freight forwarding
services, road and air movement to SAARC nations, warehousing solutions, customs clearance and in bound and out bound courier services. In addition,
the company offers shipping services, such as break-bulk cargo, container,
non-vessel operator container carrier and route services as well as project
cargo services to oil and gas, pulp and paper, automotive, construction, power
and energy and other shipments. Further, its e-commerce business provides
services through e-hubs or e-fulfilment centres as well as owns online
shopping portal for vendors to register and sell their products. Additionally,
the company operates four fuel stations that deals in petrol, diesel,
lubricants, etc. It operates a fleet of approximately 4,000 on road vehicles
and 2 marine vessels. Gati has offices in China, Singapore, Bhutan,
Dubai, Hong Kong, Thailand, Nepal and Sri Lanka and has plans to foray into
other markets. Its Subsidiaries includes – Gati Holdings Ltd, Gati Asia Pacific
Pte. Ltd, Gati Hong Kong Ltd, Gati China Holdings Ltd, Gati Cargo Express (Shanghai)
Co. Ltd, Gati Japan Ltd, Gati Middle East Fze. Ltd, Newatia Commercial & Trading Pvt. Ltd, Trymbak Commercial & Trading Pvt. Ltd, Ocimum Commercial
& Trading Pvt. Ltd, Sumeru Commercial & Trading Pvt. Ltd, Kausar India
Ltd, Zen Cargo Movers Pvt. Ltd, Gati Import Export trading Ltd, Gati Skyways
Ltd. GATI INDIA Limited is locally compared with Container Corporation of
India Ltd, Gateway Distriparks Ltd, Transport Corporation of India Ltd, Ruchi
Infrastructure Ltd, Kesar Terminals & Infrastructure Ltd, Shreyas Shipping
& Logistics Ltd, Blue Dart Express Ltd, Patel Integrated Logistics Ltd,
Global Vectra Helicorp Ltd, SICAL Logistics Ltd and Globally compared with Royal
Mail Plc of London, Postal Services mail Plc of London, Deutsche Post AG of
Germany, PostNL N.V. of Netherlands, Hanjin Transportation Co., Ltd of South
Korea, Pos Malaysia Berhad of Malaysia, Singapore Post Ltd of Singapore, Yusen
Logistics Co Ltd, Hyundai Glovis Co Ltd of Korea, Atlas Air Worldwide Holdings
of USA, Bpost NV-SA Brussels, Belgium, Kintetsu World Express Inc of Japan, UPS
– United parcel Service Inc of USA, Fedex Corp of USA, Air transport Services
Group of Ohio, Hub Group Inc of Illinois, Xpo Logistics Inc of USA, Echo Global
Logistics Inc of Illinois, Uti Worldwide Inc of British Virgin Islands, Chichibu Railway Co., Ltd of Japan, Kobe
Electric Railway Co., Ltd of Japan, Keifuku Electric Railroad Co. Ltd.
Investment Rationale:
Gati
Limited is a pioneer and leader in the Express Distribution and Supply Chain Solutions
in India. It was the revolutionary approach adopted by Gati that helped launch
many path-breaking initiatives in the logistics segment and many were the firsts
for the Indian market. Having started as a cargo management company in 1989,
Gati has grown into an organization with more than 3,500 employees and covering 603 out of 611 districts in India. The logistics
sector presents an incredible arena of opportunity because nearly 90 % of the
market is still controlled by the unorganized sector. The size of the logistics
market is just $230 billion and it is expected to grow at about 15 % CAGR for
next several years, So there is no dearth of opportunity for companies seeking
to bring some cost and time saving innovation to this field. Gati has joined
with Kintetsu world Express, Japan's leading logistics service provider and formed GATI-KWE which is an unmatched leader in express distribution & Supply chain Solutions in this sector. GATI's Express Distribution & Supply chain (EDSC) business has been transfered to the joint venture company through a business transfer agreement between Gati and KWE wherein KWE has
invested around Rs. 267.70 Cr in the JV for its 30 % stake. Gati’s
announced a dedicated Shipping route service between Chennai -Yangon -
Chennai which will help businesses to maximize trade potential between the two
countries. Gati Kausar is expected to expand its Reefer fleet (Refrigerator
fleet) size to 350 by the year 2015. GATI Kausar business strategy is to focus
on primarily organize retail logistics including food chains, pharmaceuticals, dairy
products, agro products and FMCG. The Company is setting up its own cold storage units
and plans to develop customized cold storage units to cater to temperature
sensitive products. Company’s GATI E commerce business focuses on B2C and C2C
segments and is expanding its the capacity size to cater to 30,000 home delivery
per day in FY 13. GATI E commerce caters to some of the top notch large online
retailers, home shopping channels and provides franchisee solution to
multinational brands. Gati has over 4,000 vehicles on road, fleet of refrigerated
trucks, container vessels and world class mechantronic warehousing facilities
across India. Gati plans to capture
logistic demand by strengthening its Road network by way of greater
automation and better material handling facilities by introducing the market with Multimodal
plus products that have better transit times, Gati's Premium plus is a product offered between air, road and rail, such connectivity to the network and independently focusing on the growing market for the demand of Cold Chain Solutions, e Commerce and International Freight
forwarding will surely benefite Gati as an first mover advantage. We may also see that E Shopping is going through an revolutionary changes with an offering of Same Day Shipping and Free Returns to their customers, many retailers are competing to offer the fastest delivery on time or adding an enhanced services such as improved courier services. Recently, an online shopping major announced that it will deliver its orders on same day in US which gives consumers a faster and improved shopping experience. With such intense competetions among online retailers to offer better and faster services, delivery becomes an key and is increasingly becoming a way for retailers to stand out from their competitors and there's were the companies like Gati play an pivotal role, Gati being market leader in logistics will sooner or later would be beneficiary from the online shopping platform.
Outlook and Valuation:
Gati Limited is a pioneer and leader in the
Express Distribution and Supply Chain Solutions in India. Gati has a strong
vertical integration and have been gaining market share because unorganised
players find it difficult to operate due to high wage cost and other procedural
hurdles. Expectation of FDI in E-Commerce makes logistics sector very much
attractive. FDI will allow big-ticket MNC's to set up JV's so as to tackle supply
chain constraints and logistics. The news that the top brass in the government
is keen to allow foreign direct investment in retail E-Commerce before the end
of FY2014 and as Gati being a stronger player in the logistics sector will be
the main beneficiary. GATI’s Core business continues to perform well
in subdued market even though it suffered a loss due to its shipping division;
however Gati’s management is confident enough that its core business is
expected to grow by 20 % which contributes around 75 % to the total revenues
and expects its shipping business to turn positive in FY2014 and expects FY14
would be a good year with expected revenue growth of 15 % and EBITDA growth of
30 %. In addition, Gati in association with IBM has initiated Business
Transformation process in May 2013 wherein the management expects to save
around Rs. 20 Cr of management and admin cost by FY14. Currently, Gati has 2 vessels out of which 1
were dry docked, Gati has divested 40 % in its Shipping business for Rs. 8 Cr
to HNI group in Hyderabad, this has now seen an turnaround in the shipping business and making some profit. Consequently, Gati has signed MoU with International
Shipping Logistics FZE (ISL) which is a subsidiary of Tata Steel and has
launched a new coastal service line across Kandla-Mundra-Cochin Ports,and Gati
managements expects this segment to turn profitable in coming quarter. GATI is independently focusing on
the growing market demand for Cold Chain Solutions, e Commerce and International
Freight forwarding. Gati has over 4,000 vehicles on road, fleet of refrigerated
trucks, container vessels and world class mechantronic warehousing facilities
across India. Gati was also the first to run the millenium parcel express train
in October 2001 between Mumbai and Kolkata with 10 VPUs. The initiative to run
a parcel express train between KYN (Mumbai) and NGC (Guwahati) was again taken
by Gati - this is a classic example of PPP (Public Private Partnership). The
Gati advantage of seamless connectivity across air, road, ocean and rail has
resulted in large amount of offerings to the customers which is unmatched in the industry.
Besides having a strong network in India, Gati has a strong market presence in
the Asia Pacific region and SAARC countries. Gati's shipping division, Gati
Coast to Coast based at Chennai, with two decades of experience in the industry
has many firsts to its credit: first in operating direct service to Yangon;
first in operating a direct container service from Ranong Port, Thailand; and
the first in operating direct container service from Penang, Malaysia. Gati
Coast to Coast has a tonnage of 43,581 DWT and a fleet strength of six vessels.
At the current market price of Rs. 62.30,
the stock is bit expensive but it trades at a PE of 17.30x FY14E. The
company can post Earnings per share (EPS) of Rs. 3.60 in FY14E and One can buy GATI INDIA LTD with a target price of Rs. 74.00 for Medium to Long
term investment and for the SHORT TERM PLAYERS it should be Rs. 65.00.
| KEY FINANCIALS | FY11 | FY12 | FY13 | FY14E |
|---|
| SALES (₹ Crs) | 1,203.00 | 1,189.00 | 1,273.40 | 1,462.30 |
| NET PROFIT (₹ Cr) | 14.10 | 41.50 | 9.60 | 31.10 |
| EPS (₹) | 1.60 | 4.80 | 1.10 | 3.60 |
| PE (x) | 16.50 | 5.60 | 20.50 | 6.40 |
| P/BV (x) | 0.70 | 0.50 | 0.30 | 0.20 |
| EV/EBITDA (x) | 6.80 | 8.70 | 6.50 | 6.10 |
| ROE (%) | 4.80 | 11.70 | 1.60 | 3.90 |
| ROCE (%) | 7.50 | 11.70 | 4.30 | 6.00 |
I would buy GATI INDIA LTD for Medium to Long term for target of Rs. 74 and for the shorter term the target would br Rs. 65.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 56.22 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
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