Gati Limited: A Market Leader in India

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Gati Limited (BSE: 532345) is a logistics solutions company operating in India since 1989. The company provides express distribution and supply chain solutions, cold chain transportation solutions, warehousing, international freight forwarding, custom clearance, e-commerce and coast-to-coast services to customers across diverse industry verticals. Gati operates a fleet of 4000 vehicles on road, two marine vessels and has over 7000 business partners across India.

The company operates in three segments: Express Distribution and Supply Chain, which covers integrated cargo services – road / rail and air transportation; Shipping, which covers sea transportation, and Fuel Stations, which covers fuel stations dealing in petrol, diesel and lubricants, etc. During the fiscal year ended June 30, 2012, Gati Limited entered into a joint venture (JV) with Kintetsu World Express (KWE) under the name Gati-Kintetsu Express Pvt. Ltd. (JV Company), in which the company holds a 70% interest, with 30% held by KWE.

Gati is a market leader in India; it has a strong market presence in the Asia Pacific region and SAARC countries. Gati has offices in China, Singapore, Hong Kong, Thailand, Nepal and has plans to foray into other markets.

Earlier last week Gati has announced its third quarterly result. It shows consolidated YoY total income rises 23 percent to Rs. 31.7 billion as against Rs. 25.7 billion for the quarter ended March 2012.

If we look at last four quarters consolidated results, sales were on rise every quarter. Last year in June 2012, the profit was very high because of other income.

Quarter Mar ’13 Dec ’12 Sep ’12 Jun ’12 Mar ’12
Total Income 314.55 326.89 298.29 287.81 250.55
Other Income 2.74 10.72 3.68 96.87 6.59
Net Profit 5.67 5.06 -7.79 39.46 -3.48
EPS 0.49 0.24 -0.45 4.6

(Source: )

It pays dividend of Rs 1.1 in financial year ending March 2012 including a special dividend of Rs 0.60. It yields around 3.7% at current market price.

Gati is merging five of its wholly owned subsidiaries, namely Gati Express Distribution ltd, Sumeru Commercial & Trading Pvt Ltd., Ocimum Commercial & Trading Pvt Ltd, Trymbak Commercial & Trading Pvt Ltd. and Newatia Commercial & Trading Pvt Ltd, in order to reap the benefits of consolidation. This will enable the company to reduce duplication of systems and processes, thereby increasing economies of scale.

Express industry is a popular courier services in India.  In India, Express industry’s 76% of the business constitutes documents handling while the remaining 26% are shared by the non-documents consignments. Besides this, services also range from- Door to Door (by Air or Surface), Door to Airport &viz. and other value added services.  The industry is growing at a pace of around 20-25% annually. Consignment of documents and non-documents forms the basic product of all express service providers.

According a report by KPMG, Overall export-import (EXIM) cargo at Indian ports is projected to increase to around 2,800 MMT by 2020 from approximately 890 MMT currently.

Air cargo serves as a vital link between domestic and international markets. While the total volume of air cargo traffic currently constitutes about 1 percent of total trade, it accounts for close to 29 percent of total trade value. The sector has witnessed significant growth from 0.7 MMT in 1995–96 to 2.7 MMT in 2011–12.

Rail freight has grown at around 7 percent over the past five years. It is expected touch the 1 billion ton mark in 2013, with a 31 percent share of total freight movement across all modes of transport.

Roads continue to constitute the most significant component of India’s logistics industry, accounting for 60 percent of total freight movement in the country. Road freight in India has increased since its 1950–51 level of 6 billion tonne kilometers (BTKMs) to an estimated 1,250 BTKMs in 2011–12.

At the same time water as a mode of cargo movement contributes only 8 percent by volume of the India’s cargo movement. From a cost perspective, shipping transport costs 21 percent of that by road and 42 percent of that by rail.

In recent times, the Indian warehousing segment in India has evolved significantly, resulting in a gradual metamorphosis from the traditional concept of godowns to modern formats. This will be game changers across India’s logistics landscape. The demand for warehousing services in India was estimated at approximately INR245–270 billion in 2011–1246.

Gati is currently trading at around Rs 29. At present price its market cap is Rs 25.3 billion and earnings per share for trailing twelve month is 0.34 (source: moneycontrol). Looking at the current earning valuations looks high. As the Sensex is trading at its highs around 2000, there is a high possibility of correction. investors can avoid buying at current price in anticipation of future fall.

The share touched its 52-week high Rs 45.90 and 52-week low Rs 24.55 on 09 October, 2012 and 26 March, 2013, respectively. Its book value is Rs 40.