GATI: KEY TAKEAWAYS

CMP: Rs.34.60

Gati Limited was the pioneer and is now the leader in Express Distribution and Supply Chain Solutions in India. Having started as a cargo management company in 1989, Gati has grown into an organization with more than 3500 employees and an annual turnover of Rs.12094 mn covering 622 out of 626 districts in India. Gati has over 4500 vehicles on the road not including their fleet of refrigerated vehicles, container shipping vessels and world class warehousing facilities across India. Furthermore Gati has a strong market presence in the Asia Pacific region and SAARC countries. Today, Gati has offices in Singapore, Beijing, Shanghai, Qingdao, Hong Kong, Bangkok, Kuala Lumpur and Dubai apart from SAARC countries that concentrate on India- centric distribution solutions.
A market leader in India, Gati has a strong market presence in the Asia Pacific region and SAARC countries. Today, Gati has offices in China, Singapore, Dubai, Hong Kong, Thailand, Nepal, Bhutan,  Mauritius and Malaysia and has plans to foray into other markets. Some of the points which needs to be highlighted:

1. GATI Ltd has invested huge money in the last couple of years to increase the warehouse space to 2 mn sq ft. This would help to maintain its robust growth in revenues and profitability, going forward. 

2. In May 2007, GATI Ltd entered into an agreement with the state-owned airline Indian to operate freighter aircrafts, which would carry parcels, documents and cargo. The agreement is for the wet lease of five B737-200 freighter aircrafts for five years to run these cargo freighters on various routes covering all metros and other parts of the country.
The agreement was primarily aimed at expanding its business across the country and creating a dominant position in the express cargo segment. The agreement also has the provision of extension after five years for further periods by mutual consent. 

3. Gati Ltd. earlier informed the BSE/ NSE that the Company had successfully closed the re-issue of its Foreign Currency Convertible Bonds ("FCCBs") aggregating to USD 22,182,000 as on December 12, 2011 with Goldman Sachs International. The funds raised from the new FCCBs are being utilized to refinance the existing FCCBs and have helped company to meet its obligation well in time. 

4. The express distribution and supply chain business of Gati is set to grow aggressively in the years to come, which will lead to higher revenues and profitability for the company, going forward.

5. Gati has offices in China, Hong Kong, Sri Lanka, Singapore, Mauritius, Dubai and Thailand. India-centric distribution is happening through these wholly-owned subsidiaries and business is gradually picking up in these offices. The international business is typically high margin business for Gati and the company is looking to expand its presence in the Indian centric distribution business.

6. The company would continue to grow in the coming days, as of 594 out of 602 districts in India with strong infrastructure support like more then 2 mn sq ft of warehouse space, pan-India express distribution centers, web-based tracking, growing international business through wholly-owned subsidiaries, three ships and now five leased freighter aircrafts. Gati is ideally placed to take advantage of the logistics boom that is going to unfold over the next few years in the country. 

7. The P/E of the shares of the company is 20.84; now since it is a market leader in its space and  hence it can command a P/E of 30. This gives the natural price of the scrip to Rs.45-49. This means from the CMP of Rs.34.60, it can fetch at least 30% appreciation,  based on the current fundamentals.  Now if the Q3FY12 results are good, then the price could shoot to Rs.51-52 in the short term. 
8. During FY11, the company extended its reach by opening 4 new  depots, operating through a total number of 436 depots, reaching 20,000  locations across the country.company has continued to provide an extensive road, air and rail  network to its clients. Railway utilisation in FY1 has been increased by 39%  over the previous year through increasing the number of leased Parcel  trains. In the year 2010-11 the rail movement share has increased from  13% to 19%. Along with 224 company owned vehicles the company engaged 1,157 vendor  vehicles to operate its road network, a total of 1,381 vehicles on road. The company increased the value added services it offers to its  clients especially in the area of ecommerce and teleshopping which is a  fast growing sector catering to home delivery. The company continues to remain the market leader and provides express distribution and  supply chain solutions to its clients in the automotive,  telecommunications, white goods and FMCG verticals. 

From the charts it is found that, after giving a minor break out, it is on the verge of giving another break out probably in this week. Investors should aggressively buy the scrip at Rs.34.6, for a target of Rs.45-49 in the coming days. Please keep a SL of Rs.31. I have learnt that this stock has also been recommended by an eminent Mumbai based brokerage house.