april 1, 2015 rating matrix gati ltd -...

April 1, 2015

Initiating Coverage

ICICI Securities Ltd | Retail Equity Research

Capitalising on contemporary logistics!!! Gati Ltd (Gati), a market leader in Indian surface logistics is well positioned to capitalise on the current evolution of transportation in India. With growth in the logistics industry pegged at ~1.2x GDP growth, availability of wide spectrum of services will create high growth opportunities for the company. An extensive reach over 20000 pin codes and a JV with Kintetsu World Express (KWE) enables the company to cater the supply chain requirements of various industries. Gati has embarked on an accelerated growth path driven by asset light e-commerce vertical (36% CAGR in FY15E-20E). Setting up of temperature controlled warehousing capabilities in the lucrative cold chain segment through Gati Kausar would contribute to the revenues by the in H2FY16. With the expected economic recovery and GST implementation, an organised player like Gati would garner higher volumes and improve its operating margin. We expect consolidated EPS to grow from | 2.7 (nine months) in FY14 to | 9.5 in FY17E. Improved economic scenario; GST implementation to energise sector The Indian logistics market is currently at $275 billion, growing at 16% CAGR in 2010-14. The industry is fragmented with small players and the unorganised market garnering ~50% market share. With a direct correlation to GDP and trade growth, an expected improvement in the same would buoy revenue growth for logistic players. Implementation of Goods and Service Tax (GST) would shift volumes from unorganised markets to specialised and organised players. Pan-India presence, multi modal capability to sustain market leadership Gati, with a current fleet size of 4500 vehicles (owned and leased), caters to 667 out of 675 districts. Furthermore, cash on delivery & prepaid facility to more than 5300 direct pin codes has enabled it to add e-commerce players to its clientele. Parentage of KWE will add higher value in terms of building a global client portfolio and sharing quality excellence practices. These capabilities would be difficult to imitate due to the nation’s demographic complexity, leading Gati to retain its market leadership. Burgeoning e-commerce, cold chain to provide revenue visibility The e-tailing industry, currently at $3.5 billion, is expected to grow at ~50% CAGR over FY14-17E. Gati provides logistics solutions to a majority of e-commerce players. Moreover, through Gati Kausar, it would be able to tap the growth in the cold chain industry, which is expected to grow at a CAGR of ~15-17% over FY14-17E. Both businesses would provide higher revenue visibility in F14-20E, which is factored in as the high growth phase for our valuation purpose. We have arrived at a DCF based target price of | 277 (28% upside potential) and recommend BUY. Exhibit 1: Key Financials

(Year-end March) FY13 FY14 (9-months) FY15E FY16E FY17ERevenues (| crore) 1,272.9 1,116.6 1,649.1 2,023.5 2,397.7 EBITDA (| crore) 82.2 84.1 144.1 183.5 232.0 Net Profit (| crore) 9.6 23.4 42.0 62.5 84.1 EPS (|) 1.1 2.7 4.8 7.2 9.6 P/E (x) 46.0 80.5 44.9 30.1 22.4 Price / Book (x) 0.6 2.4 2.9 2.7 2.5 EV/EBITDA (x) 10.6 27.8 15.5 11.7 9.1 RoCE (%) 7.1 6.1 11.1 14.6 17.6 RoE (%) 1.6 3.0 5.9 9.4 11.6

Source: Company, ICICIdirect.com Research

Gati Ltd| 216

Rating matrix

Rating : BuyTarget : | 279Target Period : 12-18 monthsPotential Upside : 29%

YoY Growth (%)

FY14 (9-months) FY15E FY16E FY17ERevenues (12.3) 47.7 22.7 18.5 EBITDA 2.4 71.3 27.3 26.4 Net Profit 143.3 79.3 48.9 34.5 EPS 141.4 79.3 48.9 34.5

Valuation summary FY14 (9-months) FY15E FY16E FY17E

P/E 80.8 45.1 30.3 22.5 Target P/E 103.9 58.0 38.9 29.0 EV / EBITDA 27.9 15.6 11.8 9.1 P/BV 2.5 2.9 2.7 2.5 RoNW (%) 3.0 5.9 9.4 11.6 RoCE (%) 6.1 11.1 14.6 17.6

Stock data Bloomberg/Reuters Code GITC IN/ GATI NSSensex 27,975 Average volumes 72,262 Market Cap (| crore) 1,893.7 52 week H/L 341/73Equity Capital (| crore) 17.5 Promoter's Stake (%) 41.4 FII Holding (%) 8.6 DII Holding (%) 0.2

Comparative return matrix (%) Return % 1M 3M 6M 12MGati -10.3 -14.4 22.6 188.9

TCI 3.4 -0.1 24.0 154.0Blue Dart 0.0 15.0 35.4 98.2

Price movement

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Price (R.H.S) Nifty (L.H.S)

Research Analyst’s name

Bharat Chhoda [email protected]

Ankit Panchmatia [email protected]


Company background Gati is a leader in the surface express segment with a substantial market share. The company was carved out of its former parent in 1989. Since then, Gati has endeavoured to provide door to door express cargo service. Besides ground express, the company also provides value-added services like supply chain solutions, warehousing, international freight forwarding and custom clearance. Geographically, the company has a strong market presence in the Asia Pacific region and Saarc countries with offices in China, Singapore, Hong Kong, Thailand and Nepal. To establish a global footprint and strengthen its domestic leadership, the company entered into a joint venture with Kintetsu World Express (KWE), a Japanese leading logistics company, by transferring 30% of its EDSC business for | 268 crore. Further, debt of | 330 crore was also transferred to the JV (Gati-Kintetsu Express Pvt Ltd). Gati-KWE is the key subsidiary of the company contributing ~70% of total revenues and ~85% of operating profit. It provides multi-modal logistics services through its road, rail and air network through its pan-India presence. With its strong surface capabilities, the company generates ~79% of the revenues from the road segment, 11% from the air segment and balance 8% from rail. Furthermore, Gati has embarked on a high growth phase on the back of soaring growth in e-tailing and temperature controlled warehousing. The company’s e-commerce division provides B2C logistics solutions to e-commerce companies Flipkart, Snapdeal, Jabong, NEXT, etc. Leveraging on the KWE network and its pan India presence, the company is one of top five e-commerce logistics provider in the country. Gati has ~80% market share in the greater than 10 kg segment and 50% market share in the 5-10 kg segment. Value added services like warehousing, packaging, cash on delivery and reverse logistics compliment the segment revenues. For 9MFY14, e-commerce contributed 17% of standalone revenues, which has increased to 30% of standalone revenues in year-to-date (YTD). Gati Kausar currently provides temperature controlled trucking solutions to a wide variety of industries including quick service restaurants (QSRs), dairy products, etc. With 20% divestment in Q2FY15 (additional 10% performance based), the company intends to venture into the cold storage warehousing business.

Exhibit 3: Corporate structure

G ati Limited(Consolidated)

W holly O w ned SubsidiariesG ATI-KW E

70% of Total revenues -(70% ow ned)

G ati Limited23% of Total revenues -

(Standalone)

Surface Express(79% segment revenues)

Fuel Sales(59% segment revenues)

E-commerce(16% segment revenues)

Freight Forwarding(25% segment revenues)

Others(3% of Total revenues)

Gati Kausar(3% of Total revenues)

A ir Freight(11% segment revenues)

Rail(8% segment revenues)

Others(2% segment revenues)

G ATI Kausar3% of Total revenues - (80%

ow ned)


Exhibit 2: Shareholding pattern Q3FY15 (in %) Dec-13 Mar-14 Jun-14 Sep-14 Dec-14Promoter 33.9 38.1 34.9 38.1 41.4FII 0.1 0.3 6.5 8.1 8.6DII 0.2 0.6 0.3 0.2 0.2Others 65.8 61.0 58.3 53.6 49.8

0.3

6.5

8.1 8.6

0.10.2 0.3 0.2 0.20.6

-

2.0

4.0

6.0

8.0

10.0

Q3FY

14

Q4FY

14

Q1FY

15

Q2FY

15

Q3FY

15

%

FII DII



Overview of Indian logistics sector

Logistics is an important component of the global business ecosystem. India’s GDP grew at an average of 6.4% over the last five years. In contrast, the domestic logistics industry witnessed growth of 16% CAGR over the same period. The logistics industry continues to play a crucial role in bridging the gap between area of production and area of consumption. Growth in the logistics industry is widely pegged at 1.5-2x the GDP growth. However, with logistics costs estimated at 13% of India’s GDP, the overall addressable market size is ~$250 billion. Each manufacturing company is expected to spend approximately 5-35% of sales on transportation, inventory handling & warehousing, raw material procuring, order processing, etc. Almost 60% of this cost can be attributed to inventory handling and transportation. The higher costs are largely on account of higher inefficiencies in the transport system; lower average trucking speed, underdeveloped infrastructure and lack of alternatives. The inefficiency is also because a large portion of the sector is in the hands of the unorganised sector and small players. The express segment is estimated to consist of more than 4 million trucks, managed by just about one million transporters. This has resulted in a lag. These inefficiencies are clearly reflected in the Logistics Performance Index, in which India ranks 39th, below major developing and developed nations.

For the effective development of the industry, infrastructure and regulation would be key enablers. In contrast, the industry continues to be one of the most under invested ones in the country.

Exhibit 4: Logistics cost as % of GDP

13

9

10

11

18

0 5 10 15 20

India

US

Europe

Japan

China

Source: KPMG, ICICIdirect.com Research

Exhibit 5: Logistics Performance Index (LPI)

China United States India

World Rank 6.00 30.00 14.00 39.00

Customs 3.79 2.99 3.52 2.69

Infrastructure 4.11 3.20 4.07 2.90

Ease of Shipment 3.77 3.31 3.58 3.08

Logistics Services 4.12 3.40 3.85 3.27

Ease of tracking 4.08 3.37 4.01 3.03

Domestic Logistics Costs 2.02 2.97 2.20 3.08

Timeliness 4.34 3.68 4.11 3.47

Total 4.02 3.32 3.84 3.07

Year (2014) Japan

Source: World Bank, ICICIdirect.com Research

Exhibit 6: Infrastructure spend Five Year Plans ($billion)

1710 4640 9305 1513023085

45307535

1099515130

23085

41406955

10995

16390

250105.8%

7.0%

8.1% 8.1% 8.1%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

11th Plan (2007-2012)

11th Plan (2012-2017)

11th Plan (2017-2022)

11th Plan (2022-2027)

11th Plan (2027-2032)

Rail Road Other % of GDP

Source: NTDPC, ICICIdirect.com Research

The inefficiencies in China are high due to a widespread geography. However, in India it is high due to lack of efficient alternatives to roads for long hauls and poor road infrastructure resulting in low average speed, significant cess and tolls, higher rate of damage, theft at toll booths, etc

Higher infrastructure spends by the government and regulatory changes like introduction of GST are expected to lead the growth in the sector. Hence, we expect the industry volume to continue the growth at current levels of ~16%, with a direct correlation of 1.2x to GDP


Activities in the Indian logistics sector can be broadly divided into transportation, warehousing, freight forwarding and value added services. Freight traffic is ~1900 billion tonne km. Road contributes 60% of the total freight traffic, which can be attributed to its ability to facilitate last-mile reach.

Exhibit 7: Freight transport modal contribution

8% 1%

60%

31%

Road Rail Water Air


Within the industry, the road transportation segment (the largest mode of transport) is highly fragmented. However, with the changing demand and needs of new businesses, the logistics model will need to evolve. New transportation businesses like project logistics, outsourced warehousing, third and fourth party logistics and cold chain have started to generate higher value. As reflected in exhibit 9, the logistics service provider will get higher value with a shift in services offered from freight forwarding to third party logistics. It also compares the inefficiencies of various modes of transportation vis-à-vis global capabilities. The shift from pure play warehousing and transportation to outsourced logistics may result in differentiated business models among various available players.

Exhibit 9: Comparison – India, US and China

India USA ChinaGDP composition

Agriculture & allied services 17% 1% 10%Industry 18% 20% 47%Services 65% 79% 43%Logistics as % of GDP 13% 8.50% 18%Transportation cost as % of GDP 8.20% 5.30% 9%Warehousing as % of GDP 3.80% 2.80% 6%Other logistics cost as % of GDP 1% 0% 2%Major Industries driving the logistics sector Auto components, Textile,

Pharmaceuticals, CementFood & Beverages

E-CommerceMetals, Cement,

Textile, ElectronicsMajor Challenges Inadequate road networks

Losses during transportationHigh employee costs High toll charges

Shortage of trained manpower

Total containers handled at ports (mn TEU's) 9.9 42.9 139.7Containers handled by busiest ports (mn TEU's) 4.3 (43% bu JNPT) 7.9 (18% by Los Angeles) 31.7 (23% by Shanghai)Road network (mn km) 4.8 6.5 4Weight of goods moved annually per km. of road 1173 1727 7018Rail network (kms) 64000 228513 66239Weight of goods moved annually per km. of rail line 14750 8293 59331

Source: Knight Frank, ICICIdirect.com Research

Exhibit 8: Service contribution around logistics

62%24%

8%6%

Transportation Warehousing Freight Forwarding Value Added Services



Exhibit 10: Value configuration of transportation & logistics sector

Air (1% of BTKM)•Aviation turbine fuel % of operating cost -40% v/s 25% Global.•Waiting Time Exports 50 hrs v/s 12 hrs Global & Imports 182 hrs v/s 24 hrs Global•

Water (8% of BTKM)•Turnaround time 84hrs v/s 10-15hrs Global•Port containerization 50% v/s Global -70%•Four ports contribute 82% of the raffic

Rail (31% of BTKM)•Freight movement down from 60% in 1980 to 31% in 2014•Rail freight network 668 btkm v/s 2500 btkm in China • Average speed 50km/hr v/s 90km/hr

Service / Operations

Road (60% of BTKM)•Highway Length 66590 kms Global 1900000 kms•Average truck speed 30kmph v/s Global-60kmph•Four Lane 7000kms v/s China 34000

Modes of Transportation and their ineffeciencies(Cargo movement in Billion Tonne kilometres – BTKM)

Express LogisticsOffering includes time bound movement of goods/parcels from one place to another. It includes documents, parcels with weight from 500gms to 20kgs. It also involves B2C arrangements where door to door services are offered.

Freight ForwardingOffering includes movement of cargo from the manufacturer to distributor. This involves activities like contracting with a carrier for movement of goods, booking of available space, preparation of documents, freight consolidation, etc.

Contract Logistics & 3PLOffering includes outsourcing of logistics activities to third party players. The companies also handle activities like designing and planning of supply chains, warehousing, processing orders, packaging and collecting payments.

Value configuration

Source: KPMG, ICICIdirect.com Research Logistics outsourcing in India stands at 52% of the overall transportation and logistics market activity. The change in demographics and consumption patterns of customers is expected to demand enhanced sophistication in logistics infrastructure and services across all modes of transportation. The methodologies are expected to be at par with international standards to make the industry more competitive and service oriented. In terms of transportation, various infrastructure development projects related to road, rail and ports like construction of highways, dedicated freight corridor (DFC), motivating costal shipping are expected to provide the much needed impetus to the logistics industry. Additionally, simplifying regulations with regards to GST and toll collections will have a multiplier effect on the growth rates of existing logistics players. In return, these players will be required to make additional investments in terms of building up capacity and capability. Burgeoning growth from the e-commerce and cold chain segment will necessitate commodity and geography specific storage and transportation assets. With this shift, organised players with their expertise and ability to fund investments would be able to capture the market of unorganised players.

Exhibit 11: Industry dynamics and its coverage

Road Freight ExpressCoast-to-

CoastContainer

Haulage CFS/ICD MTO

Scenario Mature Growth GrowthGrowth Capital

IntensiveGrowth Mature

Entry Barrier Low High High High Medium Low

Growth 5-10% 20-22% 15% 20% 35% 10-15%

EBITDA margins 3-5% 8-10% 25% 30% 40% 4-6%

Source: Industry, ICICIdirect.com Research


Investment Rationale Logistics industry set to see paradigm shift!!! The Indian logistics industry continues to remain at an underdeveloped state compared to global players. The level of inefficiency in activity has been very high across all modes of transport. Recent business activity and changes in consumption pattern will demand an upgradation in the existing set-up of infrastructure and services. With the transformation of India into a manufacturing led economy, there would be greater demand for various processes to manage transportation of goods and services in innovative and cost efficient ways. An improvement in infrastructure is expected to lead to a transformation in the logistics industry. This is expected to lead to faster movement of goods, increase carrier speed, increase the throughput rate and enhance the loading capacity. Additionally, innovation in terms of warehousing would also be required in terms of consolidation of smaller warehouses into large hubs, adoption of global standards like modular racking & palletisation, technology automation and value-added services around warehouse management. With more importance given to the time, cost and efficiency of deliverables, there is demand for specialised logistics players in the industry. The transport industry in India can be largely segregated into transportation, warehousing and outsourced value logistics. An expected improvement in trade activity, higher demand from varied industries and higher e-commerce penetration is expected to buoy package volumes significantly. Cost efficient ways to transport goods, implementation of GST and shift of the market towards organised player, which form less than 50% of the industry, are expected to improve the earnings of existing organised players.

The results of the survey showed that 81% of the respondents outsourced their logistics activities to third party primarily to reduce their costs. These companies want to focus on their core competencies and outsource the ancillary work, which would create huge requirement for specialised and organised players. The parameters will be rated on the basis of quality, timely and value-added services provided around the offerings.

Exhibit 12: Need for specialised logistic players

25

36

46

61

71

76

81

0 20 40 60 80 100

Reduced capital investment

Expansion into newer regions

Flexibility in operations

Increase inventory turns

Improved customer satisfaction

Focus on core competence

Cost reduction

Reasons for Outsourcing logistics activities (% of respondents)

Source: CII survey, ICICIdirect.com Research


Elongated distribution mechanism – Boon for logistics players

The overall dynamics and rapid revolution of businesses has necessitated a special focus on emergence of logistics and distribution properties. The point of sale occurring through multi channel and omni-channel and fulfilment of the same through same day, next-day delivery, managing cash on delivery and returns has displaced the traditional role of parcel operators. As businesses vouch for newer markets and territories, there will be need to alter the current distribution network, which will give rise to new class of logistics and distribution networks including mega e-fulfilment centres, parcel hubs and delivery centres, local logistics depots and return processing centres. We believe the more elongated the distribution chains, the higher will be the requirement of logistic companies to fulfil the same.

Exhibit 13: Evolving distribution mechanism to create new opportunities

Source: Research, ICICIdirect.com Research

Exhibit 14: Freight movement by road transport and Railways (BTKM)

467 494 515 545595

646 659766

852920

10151128

1212

305 312 333 353 381 411 442 481 521 551601 626 668

0

200

400

600

800

1000

1200

1400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

BTKM

Road Rail


The transportation of freight by road in terms of billion tonne kilometre (BTKM) has increased at a CAGR of 8% over 2000-12. Further, the freight movement by road over 2010-12 increased at a CAGR of 9.3% while for rail it increased 5.4%, representing a higher preference towards road transportation


Logistics industry: Beginning of high growth phase

The Indian logistics industry has grown at ~16% CAGR over the last five years. The industry can be largely segregated into various modes like road, rail, air and water. Owing to the number of players and advantages of last mile delivery, roads contribute ~60% of industry volumes. Further, express logistics alone is estimated to have a market share of | 17400 crore. The industry is highly fragmented with ~53% in the unorganised sector. The unorganised sector comprises small and mid-sized players dispersed across multiple geographies offering various forms of services. This fragmentation brings in opportunities for organised players like Gati, which has the reach and ability to provide an array of services across the services.

Exhibit 15: Emerging Markets Logistics Index for countries with GDP more than US$300 billion

Rank Country Size and Growth Compatibility Connectedness Total Index

1 China 9.80 6.71 6.75 8.09

2 Saudi Arabia 7.21 6.65 6.29 6.76

3 Brazil 8.48 6.06 4.93 6.71

4 Indonesia 8.94 4.95 4.94 6.70

5 India 9.24 4.51 4.68 6.66

6 UAE 4.80 8.80 7.69 6.63

7 Russia 7.62 6.16 5.53 6.57

8 Malaysia 5.93 6.47 6.82 6.36

9 Mexico 7.89 4.63 5.28 6.30

10 Turkey 6.99 5.38 5.30 6.06

11 Chile 5.39 6.50 6.28 5.93

12 Qatar 4.88 8.04 5.90 5.87

13 Oman 4.14 7.63 6.54 5.70

14 Thailand 6.39 4.58 5.15 5.58

15 South Africa 5.52 4.99 5.64 5.46

Source: Transport Intelligence, ICICIdirect.com Research Source: UB presentation, ICICIdirect.com Research

India is considered to be among the top 5 economies in emerging markets in the Logistics index based on size, business conditions and attractiveness. Streamlining of operations and higher investments in infrastructure will ignite growth in the logistics industry.


“Express industry” Shift from unorganised to organised

Currently, more than 50% of the | 17500 crore express market lies with the unorganised market, which makes it favourable for organised and recognised players like Gati, to increase its penetration in the same. The industry is highly fragmented with ~2500 players but very few integrated players. In the organised segment, the postal department together with large players comprise the organised portion of the market. While India Post holds the lion’s share of the document segment, other organised players command significant market share in non-document market. Major domestic players in the organised segments like Gati, BlueDart, DTDC, First Flight, etc. in collaboration with global majors like KWE, DHL, FedEx, TNT and UPS constitute the organised express industry in India.

Exhibit 16: Modal bifurcation of organised markets

23402650

29903360

28703420

4060

4830

0

1000

2000

3000

4000

5000

6000

2012 2013 2014 2015

Air Ground


Exhibit 17: Unorganised market forms major portion

52106070

70508190

56606648

7830

9260

0

2000

4000

6000

8000

10000

2012 2013 2014 2015

| Cr

ores

Organised Unorganised

Source: CII survey, ICICIdirect.com Research

Exhibit 18: Players and their capabilities in Indian market

33739

21000

879

1000067008109

39007500

5500

17000

0

5000

10000

15000

20000

25000

30000

35000

BlueDart Gati Fedex India DTDC First FlightDomestic locations Work force



Gati to maintain market leadership in surface express

Gati continues to maintain its market leadership in the express distribution industry. The express distribution market is currently valued at | 17500 billion. This can be further broadly divided into the documents and non-documents segments. Gati remains a market leader in the non-documents market with ~19% market share. It has a moat around its business model by providing one-stop solutions to all logistic requirements from warehousing, freight forwarding, supply chain solutions, temperature controlled solutions, B2C couriers and fulfilment centres. With coverage of over 21000 pin codes and 653 districts, the company has a reach of 99.3% of the Indian geography. Express distribution derives ~79% of revenues from surface movement. Former parent’s association with major auto OEM’s gave Gati a head start which resulted in bulk of the revenues for the auto industry segment. However, over a period of time, with higher market penetration this dependence was de-risked followed by a diversified current customer profile.

Gati caters to the logistics requirements of eight of the top 10 auto companies (Ford, Tata, Hero, Suzuki, etc), top seven of the electronic companies (Samsung, Canon, Ricoh, etc), five of the top seven pharmaceutical companies (Cipla, Novartis, Torrent, etc) and three of the top five FMCG companies (HUL, Dabur, Godrej, etc). Through surface logistics, the company also carries out transportation of temperature controlled products. With the company catering to the needs of diversified industries, its growth rate can be correlated to the performance of these industries, which further extrapolates to the GDP growth rate. Gati derives 75% of its business from institutional clients and the remaining 25% from the retail segment. It provides a credit period of ~60 days to institutional clients. These agreements include the “diesel surcharge” clause. The clause benchmarks the “Diesel price hike index” wherein the billing is adjusted with a variation in the same. Thus, customers pay the additional cost calculated by the specified “Diesel price hike index”. As majority of the business flows from institutions with whom Gati has formal agreements, it provides enhanced revenue visibility and lower tonnage volatility.

Exhibit 19: Mode of transport contribution

79%

8%

11%

2%

Surface Rail Air Others


Exhibit 20: Industry wise contribution

15%

14%

13%

13%8%

6%

31%

Pharma IT Hardware Auto ancillary EngineeringTextiles FMCG Others



Pan-India network, multimodal capability to put Gati at vantage point Gati’s wide range of services ranging from freight forwarding, warehousing, packaging, last mile delivery to reverse logistics caters to a 360* presence in supply chain for customer requirements. We believe these supply chain activities, if managed by a single player across the supply chain, would tend to be a value proposition in terms of cost efficiency and superior quality. We expect Gati to be the market leader in contract logistics, as it has capability in warehousing, managed transport and value added service throughout the supply chain in a variety of industries. Gati’s “multi-modal” and “multi-service” expertise positions it as the most favoured player for contract logistics. Gati currently operates a fleet size of ~4,500,200 reefer trucks through 76 warehouses. The current asset base is managed by Gati KWE, which commands a market share of 80% and 50% in greater than 10 kg and 5-10 kg segments, respectively. It also provides an assured cargo space across multiple air carriers and has proportionate market share in air logistics. We consider the network to be next best after Blue Dart as the latter also hold appreciable market share.

Exhibit 21: Organised air express market share

52%

15%

11%

9%

14%

Blue Dart Competitor 1 Competitor 2 Competitor 3 Others


On the back of a widespread network managed by multi-modal capabilities, leadership in surface and incremental revenues from a ramp up of volumes at e-fulfilment centres, we expect Gati KWE’s revenues to grow at a CAGR of 17% over 2015E-20E. However, the same is expected to moderate to 10% CAGR in 2020E-25E.

Exhibit 22: Organised ground express market share

15%

27%

25%

15%

18%

Blue Dart Competitor 1 Competitor 3 Competitor 4 Others


Exhibit 23: “Multi modal” & “Multi-service” offerings of Gati

Road Air Rail Water Cold Chain Express 3PL

Gati Limited Yes Yes Yes - Yes Yes Yes

Blue Dart Yes Yes - - - Yes Yes

TCI Yes Yes - Yes Yes Yes Yes

Snowman - - - - Yes - -

Company NameTransportation Services


Gati is the only organised player to offer variety of services across the supply chain logistics


KWE – Client mining, qualitative synergies for Gati’s ambitious strategy

Kintetsu World Express (KWE), the Japanese counterpart of Gati’s express distribution business, currently has a 30% stake in the segment. Globally, KWE offers freight forwarding services through airlines and shipping companies. Approximately 54% of revenues are contributed by air while 24% is contributed by sea. In the medium-term, Gati plans to focus on increasing the market share through sizeable investments in emerging countries. Gati compliments KWE’s requirements by helping it to foray into surface logistics in emerging markets. Further, KWE provides logistics services in India through Gati JV to its major global clients like Sharp, Idemitsu, Sony, Emerson, Pioneer, etc. As global trade activities will increase these customer synergies will lead to incremental revenues for Gati. Apart from customer synergies, the capital infusion in terms of equity is expected to facilitate Gati’s growth plans. Apart from quantitative aspects, the good practices and process of KWE would enhance the quality of the service at the group level.

Exhibit 24: Kintetsu World Express – Revenue statistics

13705

1879420106

1800616865

482 835 1051 965 823296 553 726 6630

5000

10000

15000

20000

25000

FY10 FY11 FY12 FY13 FY14

| cr

Revenue EBITDA PAT


With KWE as the business partner, Gati is poised for growth and expansion making informed structural changes based on advanced analytical tools around network and route optimisation. The parent’s focus on implementation of various quality improvement techniques like KAIZEN, 5S and LEAN principles, is expected to augment the quality of service. These efforts are to minimise the defects and achieve the next level of quality excellence. The company incurs regular capital expenditure in terms of automation of processes like installation of CCTV, tablets & scanners and to reduce defects and improve efficiency of service levels.

Exhibit 25: Kintetsu World Express – Cash & cash equivalent

1665.2

2300.3

2677.7 2637.72908.0

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0

FY10 FY11 FY12 FY13 FY14

| cr

Cash & cash Equivalents



E-tailing – To bolster medium-term growth The opening up of the Indian retail industry to e-tailing has fashioned a big opportunity from small packages. Of the overall retail market size in India at | 25,28,600 crore, a mere 7% i.e. | 1,76,700 crore is in the organised segment. Further, the online segment (excluding online ticketing) has less than 1% market share at | 13,900 crore. Indian retail urbanisation is rapidly gathering pace with nearly 68 cities expected to have more than one million population from the current 42 cities by 2030. As per an Assocham-PwC study, the annual e-commerce spending per person in India is expected to increase from | 6000 to | 10000. With an increase in internet penetration through digitisation and higher adoption of smart phones, the opportunities for e-tailing seem bright. When the deliveries generated by e-commerce mature they will offset the falling mail and maturing express volumes for integrators, delivery and postal companies. Approximately, 50-65% of e-commerce sales generate physical delivery, necessitating that logistics companies master the art of business to consumer (B2C) segment. B2C delivery services require a different delivery infrastructure compared to the business to business (B2B) segment. The differentiation is in terms of coverage, various touch points, vehicle size, personnel, routing, etc. Top e-retailers including international players like Amazon, Alibaba and domestic players like Flipkart, Jabong and Snapdeal emphasise the importance of delivery speed, quality, fulfilment and data. In the last year, major players committed an investment of $3.5 billion in the Indian market. Another characteristic of the e-commerce business that is predominant in India is payment through cash-on-delivery (COD) mode. Around 23% of online shoppers in metropolitan India choose to pay through the COD mode. This mode of payment is imperative in customer trust building mechanism. However, return rates are higher in such transactions. With the favourable age demographic and budding consumption, the growth potential of Alibaba can be replicated.

Exhibit 26: Opportunity in e-commerce

910013900

22400

33400

50400

0

10000

20000

30000

40000

50000

60000

1500 2400 3800 5800 2011-122012-13 2013-14P

2014-15E

2015-16 E

| cr

ore

Source: Crisil report, ICICIdirect.com Research

Exhibit 27: Alibaba revenue growth and margin expansion

836 1011

3172

5554

8505

27.728.3

25.0

31.2

47.5

0

10

20

30

40

50

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

CY10 CY11 FY12 FY13 FY14

%

$ m

illion

Annual Revenue Operating Margin

Source: Alibaba AR , ICICIdirect.com Research

India’s present online retail market is similar to China’s market in 2004-05. With improved internet penetration and growing popularity of smart phones coupled with a burgeoning middle income group and favourable demography, we expect the online retail market in India to witness sharper growth. Temasek Holdings, the Singaporean sovereign wealth fund with a $180 billion investment portfolio, was an early investor in China’s Alibaba. Recently, it invested in Indian e-tailer Snapdeal. with the expectation that the volume of transactions in the country’s burgeoning e-commerce market will increase six times over the next three to four years.


Gati e-connect revenues – Galloping ahead with industry pace According to Gati, it is one of the top five e-commerce logistics service provider in India. Keeping in mind, the B2C requirements of the industry, for the e-commerce division, Gati currently has 500 two-wheelers and about 320 four wheelers and serves ~15000 pin codes. The company offers cash on delivery (COD) services in 13000 pin codes. Gati further intends to deepen the B2C reach by adding another 300 two-wheelers and 200 four-wheelers, adding up to ~1300 dedicated vehicles for last mile deliveries. Keeping pace with the growth of the industry and a smaller base, the company’s e-commerce revenues witnessed ~10% month on month (MoM) growth in FY14. Currently, e-connect revenues have grown at a CAGR of 140% in the last two years and now account for 19% of the standalone revenues compared to 13% a year ago. The number of packages delivered and improvement in realisation complimented the revenue growth.

Exhibit 29: Delivered packages surging with e-commerce revenues (in ‘000)

163 199 218 246 264 269 295257

315 315402

359

473431 455

960

800 830

-

200

400

600

800

1,000

1,200

Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14

Source: Company , ICICIdirect.com Research

Currently, Gati has a delivery capacity of 40,000 packages per month. Apart from last mile delivery, the company also offers integrated supply chain and value added solutions like e-fulfilment services, packaging solutions and reverse logistics. By managing end-to-end solutions, Gati offers premium services like AM – PM in metros, which assure same day delivery. Currently, B2C contributes 75-80% of the total e-commerce revenues. The company has opened three e-fulfilment centres in Delhi, Hyderabad and Mumbai of 1.5 million square feet (sq ft), with a handling capacity of 25,000 packages per day. These fulfilment centres especially cater to the warehouse outsourcing requirements of e-commerce players. Within just two quarters of operations, the company is managing 4000 packages/day with |2 crore revenues. Gati plans to add another three fulfilment centres of ~1.5 mn sq ft with an additional capacity of 25000 packages per day. The capacity at fulfilment centres is added to existing customer requirements by committing minimum volumes. The ramp up happening at the packages and deliverable levels, affirm our expectations that the packages delivered will grow at a CAGR of 32% over 2015E-20E. However, due to value-added service, the realisation per parcel is expected to improve over the same period due to higher tonnes carried. Following the high growth period, we expect the delivered packages to grow at 16% CAGR and realisation to improve at 1% CAGR over 2020E-25E. The above is expected to result in e-commerce revenues growing at 25% CAGR over 2015E-25E.

Exhibit 28: Estimated growth in E-tailing

0.8

1.9

4.6

0.00.51.01.52.02.53.03.54.04.55.0

2017E 2019E 2021E

| La

kh c

rore

Etailing



Gati Kausar –Prolonged growth strategy The domestic retail industry is estimated at | 300000 crore and is expected to grow at nearly 13% CAGR to | 864000 crore by 2021. Further, the “food & grocery” segment forms nearly 60% of the retail industry and is expected to grow at nearly 14-15%. This is expected to fuel demand for cold chain and temperature controlled logistics. As the organised retail industry in India has low penetration (~8% of total market), it provides significant scope to organised players to increase their penetration as well as share in the retail industry. Moreover, the Indian food processing industry, valued at | 750000 crore, is witnessing healthy growth and is expected to grow at ~17% CAGR over the next two to three years due to the change in lifestyle and growing number of nuclear families. The cold chain industry in India is nearly | 12000-15000 crore. It is anticipated it will grow at a CAGR of ~15-17% in the next three to five years led by growth in the organised retail segment and maturation of the Indian food processing industry. With less than 10% of perishable produces utilising the temperature controlled facility, India falls in the category of low cold chain adaptation countries, thereby providing tremendous scope to growth in the segment. In terms of volume, the cold chain industry in India is estimated at around 30 million tonnes (MT) of warehousing capacity with nearly 7000-8000 reefer vehicles. With a mere 7% of the organised segment in cold chain warehousing and ~15% in temperature controlled transportation, growth in the segment is well supported by overall market growth of 15% and 20% growth in temperature controlled services.

Gati Kausar is currently into the cold storage trucking business through its current fleet size of ~200 refrigerated trucks. It caters to a variety of industries across quick service restaurants (QSRs), pharmaceuticals, retail and agri-food sectors. In Q2FY15, Gati Kausar raised | 150 crore from Mandala Capital, which was structured as | 30 crore of equity and the remaining | 120 crore of debt. Leveraging on the demand from the current trucking clientele, the company plans to set up 10 cold storage warehouses, comprising a capacity of ~43000 pallets, for which the land parcels are earmarked and outlay has been decided. We expect revenues to start contributing from Q4FY16.

Incremental addition of reefer trucks and warehousing capabilities will provide supplementary revenues to Gati Kausar. Following this, we expect revenues to grow 40% CAGR over 2015E-20E, with moderation to 16% CAGR over 2020E-25E.

Exhibit 30: Industry-wise cold storage industry

92 88 80

8 12 20

0

20

40

60

80

100

120

FY12 FY16 FY20

%

Un-organised Organised


Exhibit 31: Segment-wise size & products in food processing industry

SegmentSize (million

tonnes) Key ProductsExpected Growth

(%)

Dairy Products 121 Value added Milk, Butter, Cheese 8

Fruits & veg 233 Raw F&V,pulp, canned food 7

Meat & Poultry 11 Poultry, Beef 18

Seafood 8.4 Sea food products 7Packaged Products |8000 crore Ready to Eat & Ready to Cook 8

Source: Snowman RHP, ICICIdirect.com Research


Goods and services tax – Impetus for organised players like Gati

The Indian logistics industry is plagued by multiple levels of state and central taxes. The product is prone to double taxation as taxes already paid on inputs are not adjusted while calculating taxes on the final product. There are further complications in the form of interstate transactions, which are taxed separately, for which no input tax credit is available. The manufacturers need their finished product to be cost competitive. To avoid these complications, they restrict their transactions within the state. Thus, introduction of Goods and Services Tax (GST) remains a much awaited reform, which will simplify these complications and benefit consumers, producers as well as the government. More than 140 markets have implemented GST in some form or the other. With numerous benefits at both firm/consumer and economy level, GST is expected to add over 1% to the GDP. Implementation of GST is expected to lead to a simplified tax structure with a majority of taxes pooled under one uniform rate, thereby resulting in more efficient tax administration and reduction in tax seepages.

Due to multiple taxation issue, firms had resorted to setting up multiple warehouses in different states. This was adding up to firms costs, as they were unable to take advantage of economies of scale from using larger but fewer warehouses. Implementation of GST will overhaul and compress the entire transportation set-up.

Exhibit 32: Total additional space required for warehousing

2014 2019E CAGR

Total additional space required

(2014-2019)Annual additions

required

Manufacturing 631 939 8% 308 61.6

Consumption 76 115 9% 39 7.8

Exim 211 386 13% 175 35

Total Warehousing 918 1440 9% 522 104.4

Source: Knight Frank Report, ICICIdirect.com Research

It is estimated that under the GST system, tax will be levied on stock transfers and full credit will be given on inter-state transactions. The outcome of the same will enable the manufacturer to plan the warehousing and decisions on the basis of operational and logistics efficiency. The current supply chain arrangements would be realigned leading to proximity to manufacturing locales or consumption markets, resulting into diverse hub and spoke models. Post GST, demand for warehousing is expected to grow at an annual rate of 9% from the current 918 mn sq ft to 1440 mn sq ft.

Gati, with its widespread reach and warehousing capability, is well positioned to seize these opportunities. Implementation of GST is expected to lead to consolidation of widely spread warehouses. In contrast, free movement of goods and services would necessitate tighter logistics networks. Gati provides integrated and seamless transportation and routing of goods through its reach of ~21000 pin codes, 16 major hubs and 50 additional warehouses stretched across multiple locations.


Financials Strong revenue growth to be driven by ecommerce segment

Gati is expanding its e-commerce delivery capacity at a rapid pace. This would enable it to grow its e-commerce revenues at a CAGR of 77% in FY14-17E. On the other hand, its express distribution and supply chain business under Gati KWE is expected to grow at 15.3% CAGR over FY14-17E while its cold chain business under Gati Kausar is expected to grow at 34.1% CAGR over the same period.

Exhibit 33: Standalone revenue trend

64 79 96 11741

141

247302

149193 203 213

254

413

546

633

0

100

200

300

400

500

600

700

FY14 (9 months) FY15E FY16E FY17E

| cr

Freight Forwarding Ecommerce Fuel Sales Total Standalone Revenue

Source: Company, ICICIdirect.com Research: CAGR is calculated based on FY14 annualised number

Exhibit 34: Subsidiaries revenue trend

782

11471354

1598

35 46 74 11245 42 48 550

400

800

1200

1600

2000

FY14 (9 months)

FY15E FY16E FY17E

| cr

Gati KWE Gati Kausar Others


Exhibit 35: Consolidated revenue trend

1116.6

1649.3

2021.7

2397.3

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0


| cr

Gati Consolidated Revenue


The share of e-commerce revenues is expected to move up from 3.6% in FY14 to 12.6% in FY17E while the share of Gati KWE is expected to come down from 70% in FY14 to 67% in FY17E. We expect the share of Gati Kausar to increase from 3.1% in FY14 to 4.7% in FY17E as revenues from the warehousing segment start contributing towards the second half of FY16E.

FY14 -17E CAGR: 23.2% Gati KWE revenue CAGR FY14 -17E: 15.2%


Improvement in EBITDA margin, controlled fixed cost to spur net profit growth We expect consolidated EBITDA to grow at a CAGR of 27.6% in FY14-17E to | 232 crore in FY17E, primarily on the back of a 214 bps YoY improvement in EBITDA margins from 7.5% in FY14 to 9.7% in FY17E. The improvement in EBITDA margin is expected to be driven by increased proportion of revenues coming from the comparatively high margin business of e-commerce and cold chain. Also, even in express distribution, margins are expected to improve through route and network optimisation. Further, scaling up of warehousing revenues which has higher margins will further improve the margins.

Exhibit 36: Expense trend

15.7 15.7 15.7 15.5

9.2 8.7 8.9 9.0

48.1 47.8 47.8 47.8

19.5 19.1 18.5 18.0

0.0

20.0

40.0

60.0

80.0

100.0


% to

sal

es

Raw Material Cost Employee Expense Freight Expense Other Expenses


Exhibit 37: EBITDA and EBITDA margin trend

84.1

144.1

183.5

232.0

7.58.7

9.1 9.7

0.0

2.0

4.0

6.0

8.0

10.0

12.0

0.0

50.0

100.0

150.0

200.0

250.0


%

l

| cr

EBITDA


Exhibit 38: Interest and depreciation as percentage of EBIDTA

38.6

29.122.4 19.426.2 25.621.7 19.6

0

10

20

30

40

50


%

Interest as % of EBITDA Depreciation as % of EBITDA

Source: Company, ICICIdirect.com, Research

Exhibit 39: PAT and PAT margin trend

23.3 42.0 62.5 84.1

2.12.5

3.1

3.5

0.00.51.01.52.02.53.03.54.0

0.010.020.030.040.050.060.070.080.090.0

FY14 (9 months)

FY15E FY16E FY17E

% to

sal

es

| cr

PAT PAT margin (%)


Higher EBITDA generation and control over fixed costs would enable strong growth in net profit. We expect consolidated net profit to grow at a CAGR of 39% to | 82.6 crore over FY14-17E and PAT margin to improve by 136 bps over the same period.


Debt-equity to remain moderate; return ratios to improve We expect debt to remain at ~ | 500 crore in FY15E-17E with the debt-equity ratio increasing marginally from 0.6x in FY14 to 0.7x in FY17E. The management has indicated that further expansions would be funded through equity infusion as they want to maintain low leverage on the balance sheet.

Exhibit 40: Debt equity trend

0.6

0.70.7

0.6

0.4

0.6

0.8


times

Debt Equity Ratio


With improved profitability, we expect return ratios to improve, going ahead. We expect RoE to improve from 3% in FY14 to 11.6% in FY17E. Also, the RoCE is expected to increase from 6.1% in FY14 to 17.4% in FY17E.

Exhibit 41: RoCE and RoE trend

3.0

5.9

9.411.6

6.1

11.1

14.6

17.6

0.02.04.06.08.0

10.012.014.016.018.020.0


%

ROE (%) ROCE (%)

Company, ICICIdirect.com Research


Risks & Concerns Pledging of promoter holding Gati’s promoters have constantly resorted to pledging their shareholding. In March 2013, promoter holding was pledged to the extent of 94.8%. Though over the last two years, the level of promoter holding pledged has come down to ~50%, such level of pledging creates a risk that the stock price may correct if the lenders start to sell the pledged shares in the open market. Exhibit 42: Pledging trend of Indian promoters

94.8

82.7

63.2 61.9

49.5

0102030405060708090

100

Mar-13 Sep-13 Mar-14 Sep-14 Dec-14

% of promoter holding pledged

Source: Capitaline, ICICIdirect.com Research Investment in unrelated company managed by promoters Gati has invested | 19 crore and | 34 crore in equity and unsecured optionally convertible debentures, respectively, of Amrit Jal Ventures Pvt Ltd (promoter group company). As per CARE rating, Amrit Jal has a “D” rating, which raises concern over the recovery of the said investment. Delay in capacity expansion Gati has embarked on aggressive expansion of its e-commerce delivery capacity along with setting up of cold storage warehouses. Any delay in implementation of expansion projects would negatively impact the revenue and profitability of the company. FCCB conversion may bring in significant equity dilution The company raised $22.18 million on December 12, 2011 by issuing zero coupon unsecured foreign currency convertible bonds (FCCB) with a face value of $1000, listed on the Singapore Stock Exchange. Unless previously converted, redeemed or purchased and cancelled, the bonds are eligible for redemption by December 13, 2016 at 132.83% of face value. Approximately 80% of these FCCBs are held by Goldman Sachs and they have requested for conversion of these bonds into shares. The conversion has been set at a price of | 39, with a structured reset clause, which has been referred to the Reserve Bank of India (RBI) for clarification. Further, the company is seeking permission for repaying part of these FCCBs from the disposal of land or QIP. We believe this will continue to be a major concern as the conversion will lead to a significant (~26%) dilution in equity. This will negatively impact investor sentiments and our estimates.


Valuation The logistics industry in India recorded growth at ~17% CAGR in 2009-14 with growth further pegged at 1.2x of the GDP growth rate. Gati’s standalone revenues grew at 10% CQGR over seven quarters, primarily due to an increase in e-commerce revenues from | 8 crore to | 42 crore with volume growth of 33% in the same period. Gati, with its leading market share of ~26%, widespread reach across the Indian geography and one-stop logistics service provider with parent (KWE) support, is expected to further expand its market share from the highly unorganised market in the industry. The theme around e-tailing, cold chain and implementation of GST is expected to play out in a phased manner and may result in a multiplier effect on the sector’s fundamentals, thereby providing multiple re-ratings. As the advantages will be in a phased manner, we have employed the two phase free cash flow to the firm (FCFF) model over FY14-25E for our discounted cash flow methodology. We believe Gati will undergo these two phases of transformation, which will transform the company to a matured player in the supply chain mechanism. The first phase will be the high growth phase over FY15E-20E, where revenues will grow at a CAGR of 18% mainly due to higher volumes from e-tailing segment, additional revenues generated from fulfilment services and cold chain warehousing & improvement in realisation on the back of value-added services. Higher utilisation levels and better infrastructure management are expected to bring in an improvement in return ratios, thereby improving the cash flow generation. In the next phase, we have built in a stable growth period (FY20E-25E), wherein we believe the company will achieve a normalised growth rate of ~11% CAGR. Thereafter, it is expected to grow at a terminal growth rate of ~4%. Finally, with a risk free rate of 7.5% and beta of 0.85 together with a market risk premium of 7.5% we arrive at a cost of equity of 13.9%. For FCFF valuation, we have assumed a post tax WACC of 12.4%. Our back of the envelope calculation enables us to arrive at a target price of | 279 (upside potential of 29%) and recommend BUY.

Exhibit 43: DCF valuation

Valuation | CrPV of High growth period 799.0PV of Stable growth period 707.52 PV of Terminal value 1322.5Less: Debt (480.22) Add: Cash & Investment 85.03 Targeted Market Capitalization 2,433.87 No. of shares 8.73 Target Price (|) 279


Exhibit 44: Sensitivity to DCF valuation

278.9 10.0% 11.0% 12.0% 13.0% 14.0%2% 264.1 255.9 248.2 241.1 234.53% 277.8 269.6 261.9 254.8 248.24% 294.6 286.4 278.8 271.7 265.15% 315.8 307.6 299.9 292.8 286.26% 343.2 335.0 327.4 320.3 313.7

Terminal Growth

Rate

WACC



Exhibit 45: Peer comparison (Financials)

CY11/FY12 CY12/FY13CY13/FY14 (9 months) CY11/FY12 CY12/FY13

CY13/FY14 (9 months) CY11/FY12 CY12/FY13

CY13/FY14 (9 months) CY11/FY12 CY12/FY13

CY13/FY14(9 months)

Gati 1884 480 1187 1273 1117 166 92 94 14.0 7.2 8.4 42 17 28

Snowman 1417 150 61 114 153 13 25 38 21.0 22.4 24.8 5 20 22

Blue Dart 17790 0 1495 2172 1938 202 309 212 13.5 14.2 10.9 123 191 121

CompanyMarket

Cap Debt

Sales (| crore) EBITDA (| crore) EBITDA Margin (%) PAT (| crore)

Source: Capitaline, ICICIdirect.com Research

Exhibit 46: Global players – Operating metrics

CY11/FY12 CY12/FY13 CY13/FY14 CY11/FY12 CY12/FY13 CY13/FY14 CY11/FY12 CY12/FY13 CY13/FY14 CY11/FY12 CY12/FY13 CY13/FY14

UPS 90813 9864 54127 55438 58232 1343 7034 4968 2.5 12.7 8.5 807 4372 3032

Fedex Corp 49067 4736 42680 44287 45567 3186 2551 3446 7.5 5.8 7.6 2032 1561 2097

CSX Corp 9139 0 5992 6080 6565 531 552 595 8.9 9.1 9.1 333 349 377

CompanyMarket

Cap Debt

Sales ($ mn) EBITDA ($ mn) EBITDA Margin (%) PAT ($ mn)

Source: Capitaline, ICICIdirect.com Research

Exhibit 47: Peer Comparison – Valuation metrics

FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E FY15E FY16E FY17E

Gati 1884 48.8 30.7 22.9 16.0 11.7 9.1 3.0 2.8 2.5 5.5 9.3 11.6

Snowman 1417 34.5 28.5 19.5 15.8 12.3 9.5 1.8 1.7 1.6 5.2 5.9 8.0

Blue Dart 17790 140.4 111.3 80.6 84.5 63.4 48.2 27.3 26.1 24.6 19.4 23.4 30.5

P/B (x) ROE (%)

Company

Market Cap (|

crore)

P/E (x) EV/EBITDA (x)

Source: ICICI direct estimates


Financial Summary (Consolidated) Exhibit 48: Profit & Loss (| Crore)

(Year-end March) FY 13 FY 14 # FY 15E FY 16E FY 17ERevenue 1,272.9 1,116.6 1,649.1 2,023.5 2,397.7 Growth (%) 7.2 (12.3) 47.7 22.7 18.5 Cost of Sales 171.4 174.8 258.2 317.7 371.7 Employee Costs 123.6 102.7 144.3 180.3 216.4 Operating Expenses 785.9 662.7 961.8 1,166.7 1,366.4 Op. Expenditure 109.9 92.3 140.8 175.2 211.3 EBITDA 82.2 84.1 144.1 183.5 232.0 Growth (%) (19.1) 2.4 71.3 27.3 26.4 Depreciation 24.8 22.1 36.1 40.1 45.7 EBIT 57.4 62.0 108.0 143.4 186.3 Interest 43.7 32.5 41.1 41.4 45.2 Other Income 16.6 10.6 13.1 13.8 14.6 PBT 30.3 40.2 79.9 115.8 155.7 Growth (%) (71.0) 32.4 99.0 44.9 34.5 Tax 6.0 11.8 20.0 32.4 43.6 Reported PAT 24.4 28.3 59.9 83.4 112.1 Exceptional Items (7.1) - (3.0) - - Minority Interest (7.6) (4.9) (15.0) (20.8) (28.0) Reported PAT (adjusted MI) 9.6 23.4 42.0 62.5 84.1 Growth (%) (62.3) 16.3 111.7 39.1 34.5 EPS 1.1 2.7 4.8 7.2 9.6


Exhibit 49: Balance Sheet (| Crore)

(Year-end March) FY 13 FY 14 # FY 15E FY 16E FY 17ESource of FundsEquity Capital 17.3 17.5 17.5 17.5 17.5 Reserves & Surplus 769.7 755.4 628.5 672.1 737.3 Shareholder's Fund 787.0 772.8 646.0 689.6 754.8 Secured Loan 323.3 314.9 283.4 269.2 255.8 Unsecured Loan 153.7 165.3 173.6 190.9 210.0 Total Loan Funds 477.0 480.2 457.0 460.2 465.8 Deferred Tax Liability 10.7 6.1 6.1 6.1 6.1 Minority Interest 115.4 117.3 119.7 122.1 124.5 Source of Funds 1390.1 1376.5 1228.7 1277.9 1351.2Application of FundsGross Block 564.1 571.6 451.6 501.6 571.6 Less: Acc. Depreciation 177.0 192.2 228.4 268.5 314.2 Net Block 387.1 379.4 223.3 233.1 257.4 Capital WIP 24.3 38.7 50.0 50.0 50.0 Total Fixed Assets 411.4 418.1 273.3 283.1 307.4 Goodwill 446.9 446.9 446.9 446.9 446.9 Investments 20.2 54.8 57.5 60.4 63.4 Inventories 11.8 11.9 4.5 5.5 6.6 Debtors 220.3 241.4 248.5 304.9 361.3 Cash 46.4 30.3 106.5 192.2 246.2 Loan & Advance, Other CA 402.9 373.5 377.2 350.8 354.3 Total Current assets 681.5 657.0 736.8 853.4 968.4 Creditors 66.3 73.2 120.2 148.0 178.2 Other Current Liabilities 44.2 43.1 64.7 97.0 111.6 Provisions 59.4 84.0 100.8 120.9 145.1 Total CL and Provisions 169.9 200.3 285.7 365.9 434.9 Net Working Capital 511.6 456.7 451.0 487.5 533.5 Miscellaneous expense - - - - - Application of Funds 1,390.1 1,376.5 1,228.7 1,277.9 1,351.2

Source: Company, ICICIdirect.com Research; # - FY14 is for a period of 9 months


Exhibit 50: Cash flow (| crore)

(Year-end March) FY 13 FY 14 # FY 15E FY 16E FY 17EProfit after Tax 17.3 28.3 57.0 83.4 112.1 Less: Dividend Paid 5.5 19.5 18.9 18.9 18.9 Add: Depreciation 24.8 22.1 36.1 40.1 45.7 Add: Others - - - - - Cash Profit 36.5 30.9 74.2 104.6 138.9 Increase/(Decrease) in CL 13.1 30.5 85.4 80.2 69.0 (Increase)/Decrease in CA (112.2) 8.3 (3.4) (31.0) (60.9) CF from Operating Activities (64.6) 84.3 160.1 151.8 137.8 (Add) / Dec in Fixed Assets (34.3) (28.8) 108.7 (50.0) (70.0) Goodwill (436.8) (0.0) - - - (Inc)/Dec in Investments (0.0) (34.6) (2.7) (2.9) (3.0) CF from Investing Activities (471.1) (63.4) 106.0 (52.9) (73.0) Inc/(Dec) in Loan Funds 15.3 3.2 (23.2) 3.2 5.6 Inc/(Dec) in Sh. Cap. & Res. - 0.1 - - - Others 427.4 (40.4) (166.5) (16.5) (16.4) CF from financing activities 442.7 (37.0) (189.8) (13.3) (10.8) Change in cash Eq. (93.0) (16.1) 76.3 85.7 54.0 Op. Cash and cash Eq. 140.1 46.4 30.3 106.5 192.2 Cl. Cash and cash Eq. 47.0 30.3 106.5 192.2 246.2


Exhibit 51: Ratios

(Year-end March) FY 13 FY 14 # FY 15E FY 16E FY 17EPer share data (|)

Book Value 90.9 88.6 74.0 79.0 86.5 EPS 1.1 2.7 4.8 7.2 9.6 Cash EPS 4.0 5.2 9.0 11.8 14.9 DPS 0.6 1.8 1.8 1.8 1.8 Profitability & Operating RatiosEBITDA Margin (%) 6.5 7.5 8.7 9.1 9.7 PAT Margin (%) 0.8 2.1 2.5 3.1 3.5 Fixed Asset Turnover (x) 0.9 0.8 1.3 1.6 1.8 Inventory Turnover (Days) 3.2 3.9 1.0 1.0 1.0 Debtor (Days) 58.7 75.5 55.0 55.0 55.0 Current Liabilities (Days) 141.9 145.7 170.0 170.0 175.0 Return Ratios (%)RoE 1.6 3.0 5.9 9.4 11.6 RoCE 7.1 6.1 11.1 14.6 17.6 RoIC 5.4 4.9 9.2 10.9 12.9 Valuation Ratios (x)PE 46.0 80.5 44.9 30.1 22.4 Price to Book Value 0.6 2.4 2.9 2.7 2.5 EV/EBITDA 10.6 27.8 15.5 11.7 9.1 EV/Sales 0.7 2.1 1.4 1.1 0.9 Leverage & Solvency RatiosDebt to equity (x) 0.6 0.6 0.7 0.7 0.6 Interest Coverage (x) 2.4 3.3 4.4 5.4 6.1 Debt to EBITDA (x) 5.8 5.7 3.2 2.5 2.0 Current Ratio 4.0 3.3 2.6 2.3 2.2 Quick ratio 3.9 3.2 2.6 2.3 2.2

Source: Company, ICICIdirect.com Research; # - FY14 is for a period of 9 months


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Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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