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Gati - Buy Stock Data 17/06/2013 Investment overview Current Mkt Price (Rs) 29.20 • Gati is ’s pioneer and leader in express distribution and supply chain solutions. 52 Week High 45.90 • The company’s E-commerce business has evolved over the 52 Week Low 24.55 last quarter and is growing rapidly. Mkt Cap (Rs. in Cr) 252.80 • Gati’s synergies business with JV partners has progressed Return in last one Month (%) -0.68 well. • The company is spending a major portion of its capex on cold Share Holding chain business and the rest for IT and other infrastructure. Business Overview Gati Limited is India’s pioneer in Express Distribution and Supply Chain Solutions. The company offers an integrated Express Distribution and customized Supply Chain Solutions to customers across diverse industry verticals. Gati operates a fleet of 4000 vehicles on road, 2 marine vessels and over 7000 plus business partners across India. Gati was one of the first companies to print its delivery date on the docket and offer money back guarantee, by accepting payment after producing proof of delivery - a POD. Gati started the practice which is now perceived as a standard norm in the industry. Gati’s legal separation from TCI took place in 1996 through a de-merger process that marked a period of rapid growth as the Performance in last one year Gati took over parts of the TCI’s business, the shipping division was named as Gati Coast to Coast and the TCI Highways division was taken over by Gati. Gati took its first steps towards acquiring a corporate identity, the beginnings of . In 2001, Gati launched the first millennium parcel express service, an exclusive cargo train between and Kolkata in association with Indian Railways. Further, Gati went on looking for a centroid to base its business operations and found Singapore, an international business hub, ideally suited for its purposes. Gati Kausar, a subsidiary of Gati Ltd. is a cold chain transportation solutions company with over 4 years of unmatched cold chain distribution expertise. Gati Kausar offers customized solutions for temperature sensitive shipments through its cutting edge technology and a vast fleet of refrigerated vehicles equipped Y-o-Y Performance with advanced climate -control systems. (Rs. in Cr.) Gati International, the global wing of Gati is one of the leading Particulars Jun 2012 Jun 2011 Change(%) providers of freight forwarding and logistics services, specialized Net Sales 1180.18 1202.98 -1.90 in air freight and ocean freight shipments and associated Supply Other Income 108.90 8.34 1206.35 Chain Management Solutions. A market leader in India, Gati Total Expenditure 1108.92 1110.52 -0.14 has a strong market presence in the Asia Pacific region and Operating Profit 180.15 100.80 78.73 SAARC countries. Today, Gati has offices in China, Singapore, Interest 61.92 51.64 19.91 Hong Kong, Thailand, Nepal and has plans to foray into other Profits After Tax 41.51 14.10 194.33 markets. Reserve & Surplus 401.37 259.71 54.54 Financial Health Reported EPS(Rs) 4.79 1.64 192.38 Gati Ltd posted a net profit after tax of Rs 7.5 crore for the third Core EBITDA Margin (%) 6.04 7.69 -21.45 LSE Securities

quarter ended March 31, 2013, as against a loss of Rs 3.5 crore Q-o-Q Performance during the corresponding period a year ago. The company’s (Rs. in Cr.) consolidated revenues for the third quarter ended March 31 Particulars Mar 2013 Mar 2012 Change(%) rose by 23 per cent to Rs 317 crore as against Rs 257 crore for Net Sales 314.55 247.28 25.86 the quarter ended March 2012. Expenditure 296.7 235.35 26.07 The company’s total revenue rose 6 per cent to Rs 957 crore Other Income 2.74 6.59 -58.42 for the nine-month ended March 2013 as against Rs 904 crore EBITDA 20.59 21.79 -5.51 in the previous nine months ended March 2012. For the nine months, the company has posted profit after tax of Rs 10.07 Interest 10.55 19.57 -46.09 crore compared to Rs 2.00 crore. Net Profit 7.55 -3.54 313.28 Segment wise, the revenue of the Express Distribution and EBITDA Margin (%) 6.55 8.70 -24.73 Supply Chain increased by 24.71 percent to Rs 262.28 crore NPM (%) 2.40 0.32 647.15 from Rs 210.31 crore of same quarter last year. Shipping EPS 0.65 -0.41 259.72 revenue showed huge increase to Rs 6.73 crore from Rs 0.08 crore, while Fuel Sales revenue were up to Rs 42.81 crore from Profit & Loss Rs 3.90 crore in the same quarter last year. (Rs. in Cr.) Industry Scenario Particulars Jun 2012 Jun 2011 Change(%) Net Sales 1180.18 1202.98 -1.90 The country’s organized logistics market represents 6% of the total market. This share of the market is projected to increase to Total Income 1289.08 1211.32 6.42 12% by the end of FY2015. The Logistics industry includes five Total Expenditure 1108.92 1110.52 -0.14 broad segments ‘ ocean freight, rail freight, air freight, trucking Operating Profit 180.15 100.80 78.73 and third party Logistics (3PL) services. Several factors helped Profits After Tax 41.51 14.10 194.33 the growth of logistics industry in India over the last decade that include changing tax system as well as a rapid growth Balance Sheet in industries such as automobile, pharmaceuticals, FMCG and (Rs. in Cr.) Particulars Jun 2012 Jun 2011 Change(%) retail. Share Capital 17.32 17.20 0.67 The current size of the Indian Logistics Industry is estimated around $225bn and is expected to reach around $350bn by 2015. Reserve & Surplus 401.37 259.71 54.54 The logistics sector in India is evolving rapidly and its growth Total Liabilities 1103.97 975.24 13.20 is dominated by the interplay of infrastructure, technology and Investments 0.00 0.00 0.00 new types of service providers. Current Liabilities 19.03 69.82 -72.74 The sector provides lucrative business opportunities today for Net Current Assets 171.74 -63.93 -368.63 new players in terms of margins, low-entry barriers and high Total Assests 1103.97 975.24 13.20 growth prospects. To improve infrastructure facilities and in turn the logistics Key Ratios industry government implemented several projects such as golden quadrilateral project, east-west and north-south corridors Particulars Jun 2012 Jun 2011 (connecting four major metros), Free Trade and Warehousing Reported EPS (Rs) 4.79 1.64 Zones (FTWZ) and private participation in the sector. Core EBITDA Margin (%) 6.04 7.69 While the industry is still dominated by small marginal players, EBIT Margin (%) 10.90 6.27 anticipated structural changes to the operation of the industry ROA (%) 3.99 1.55 expected from the introduction of GST and FDI in multi-brand ROE (%) 12.36 5.30 retail will primarily benefit larger organized players with a ROCE (%) 16.05 10.24 pan-India presence. However, continued delays in progressing these initiatives, has stalled transformation within the domestic Price/Book (x) 0.87 1.98 logistics industry. Net Sales Growth (%) -1.90 29.90 Investment Rationale EBIT Growth (%) 70.71 18.18 • Gati came up with a good set of numbers for the quarter ended PAT Growth (%) 194.33 48.48 March 31, 2013, while its consolidated income increased by Total Debt/Mcap (%) 1.31 0.84 LSE Securities

Peer group comparison (Rs. crore) *latest based on last traded price Company Year End Net Sales PBDIT PAT PATM% EPS P/E* GATI 201206 697.45 309.02 72.00 10.32 8.32 3.20 201203 1079.43 126.09 184.07 17.05 14.10 11.15 201203 225.99 55.74 82.01 36.29 7.57 21.00 Aegis Logistics 201203 284.30 65.96 41.06 14.44 12.30 11.21

over 23 percent to Rs 317 crore, it reported profit of Rs owned subsidiary of TM International Logistics Limited 7.5 crore against a loss of Rs 3.5 crore in the same quarter ( A Tata Steel, subsidiary ) and will be launching a joint last year. All the business segments of the company showed container service operating from Gujarat to Kerala. Recently, good improvement. Further, in the passing quarter Andhra the company sold 40 per cent of its stake in Gati Ship to Pradesh High Court sanctioned the scheme of Arrangement the city based Riba Constructions. The company has been according to which five wholly owned subsidiaries got valued at Rs 20 crore and Riba has acquired 40 percent state amalgamated with the company, with this the company for Rs 8 crore, the move is seen to help drive profitability moved a step further in its effort to consolidate its business. of the company. Gati plans to divest further in the shipping The amalgamation will help Gati to bring in better financial division and eventually hold minority stake in Gati Ships as capabilities resulting in enhanced shareholders value. It the shipping division is dragging and it suffered Rs 12 crore would be spending Rs 60 crore and Rs75 crore in FY14E and loss before tax for the period of nine months ended March FY15E respectively as per its capex plan. Altogether, it had 31, 2013. decided to spend Rs 70 crore for the cold chain business and • Gati Infrastructure commissioned its first 110 MW hydro the rest for IT and other infrastructure from its Rs 185 crore thermal power plant in Sikkim, constructed at an estimated capex plan of last year. cost of Rs 1150 crore, the first independent power project • As part of its worldwide expansion strategy Gati in (IPP) for hydroelectric sector in the state. The company February last year formed a joint venture with Japanese had entered into a pact with the Sikkim government for forwarder Kintetsu World Express KWE, which had invested implementing three hydro power projects on build, operate, approximately $50 million in the Indian company, named own and transfer basis (BOOT). Gati Infrastructure is a Gati-Kintetsu Express Pvt. Ltd. Under the JV agreement, Gati subsidiary of Amrit Jal Ventures (AJVL) promoted by Gati will hold 70 percent stake and 30 percent will be held by KWE. founder and CEO Mahendra Agarwal. The commissioning of As part of the transaction, Express Distribution and Supply the hydro power project is a big milestone for the Gati Group Chain (EDSC) business of Gati will move into the joint venture as being a logistic expert the success into the power sector company through a Business Transfer Agreement. KWE will has given a way forward to a completely diverse industry. invest Rs 267.70 crore for its 30 percent stake in the JV AJVL is implementing two more hydro electric power projects through a combination of primary and secondary acquisition in Sikkim--54 MW Bhasmey Hydro Electric project (under of shares. The proposed Joint Venture will combine Gati’s construction) and 71 MW Sada Mangder project. expertise in 3PL and express distribution in India with KWE’s • At the CMP of Rs 29.20, Gati is trading at a consolidated freight forwarding expertise and global customer base. In TTM P/E of 6.09x and EV/EBITDA of 3.19x respectively, we the passing quarter its JVs generated net revenue of around recommend ‘BUY’ in the scrip with a price target of Rs 42. Rs 1 crore and the company has further increased its focus Gati, the Express distribution and supply chain solutions on quality improvement through implementation of various provider came back into black in the passing quarter by operations. posting a good profit number. The stocks of the company • Gati Ship, a subsidiary of Gati, is a one stop logistics solution that have been under pressure due to concerns in the overall provider for all sea bound cargo shipments. Over the last economy and shipping business are likely to see recovery two decades, Gati Ship has evolved to provide an end-to- now. The company had created an additional warehousing end logistics solutions with Shipping Cargo Services right space of 250,000 sft in for three product logistics from origin to port, port to port and port to destination using operations. Further, as the business with partner KWE JV is multimodal connectivity. Gati Ship had signed an MoU with progressing along with additional focus on the SME sector, International Shipping and Logistics FZE, Dubai, a wholly the company is likely to see good growth in coming days. LSE Securities

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