Equity Research

September 11, 2022 GATI Ltd.

NSE: GATI | BSE: 532345
New Management, Express B2B Player

Sector:
Transportation/ Gati Ltd is a logistic-focused small-cap company with a market capitalization of
Logistics ₹2092.3 crore. New Promoters and management: Allcargo is now the Promoter of
Target Price: Rs 250 Gati has initiated slew of reforms. Mr. Pirojshaw Sarkari, the new CEO (Ex CEO of
Rating: BUY Mahindra Logistics)
CMP: 170.15
• Transition to Asset light operations: Also as a part of turn around, there has
been significant transition in business strategy with transition from Asset
Heavy to Asset light operations (Tech focused B2B express logistics & 3PL)
• As a part of this it disposed the cold chain and other loss-making (freight
forwarding and trading) / non-core asset (5 Fuel Stations)
According to the management, current infrastructure is adequate to meet Gati’s
NCR infrastructure needs for the next 10 years. Gati CEO Pirojshaw Sarkari
reiterated the exit revenue run-rate of Rs30bn in three years and the exit FY23E
gross margin/EBITDA run-rate of 29/9% and FY24E exit gross margin / EBITDA
run-rate of 32 /12-15%, respectively. There will not be any meaningful increase in
lease expenses despite Seven new sorting centres coming up as Gati will be
giving up old sorting centres.

Express B2B logistics >> sector growing >15% CAGR

Gati is best placed in Logistics sector as an Express B2B player, which is the
fastest growing logistics segment (>15% CAGR growth over next 5 years)
• Further express B2B is characterised by high margin (>12%), high ROE
(>25%) and is an asset light business. B2B express is characterized by high
entry barriers where moat is the starting volumes, network presence and the
relationships
• 80% market share with organised players (TCI, Bluedart, Gati, Safexpress
etc) in B2B express. Increasing volumes whilst sweating leased assets will
lead to strong cash flow / pre-tax RoCE profile.

Research Analyst
Sagnik Karmakar
+91 9777527849 Source: MNCL Research
Equity Research Price History (TF: Weekly)
September 11, 2022
NSE: GATI | BSE: 532345

Logistics
Target Price: Rs 250
Rating: BUY
CMP: 170.15

Source: StockChart

Average Broker Upside Target% (5Y)

Average of broker reports for GATI show 49.28% upside available.

Source: Trendlyne
Key Financials:

Source: MNCL Research

Valuation Metrics:
We see the potential of a sharp improvement in return ratios for Gati as revenue and margin
reach their potential. Currently, goodwill in Gati (from past) is ~Rs4.3bn and the assets held
for sale stand ~Rs1.8bn.
Peer Factors (Source: I Sec Research)
Gati’s operational margins is shadowed by one-offs on account of discontinued operations and
restructuring costs, normalized EBITDA margins at 8%

• Peers consistently trade at higher PE, >25x EV/EBITDA and >5x price/sales on account
of the growth tailwinds, asset light operations and higher return ratios

• We thus value Gati at 22x FY23 EV/EBITDA arriving at a Mar-22 FV of INR 220. Bull case
FV INR 250 (35% upside): if Gati H2FY22 is able to post >8% EBITDA steady state margins,
it would merit a higher multiple (25x FY23E EV/EBITDA)

• Key Risks: Delay in divestment / asset monetization, Covid disruptions and inability to
expand margins from the current cost base.

Peer Group Analysis:

Overall Score below industry median.

Market Capitalization

2092.3 (Below Industry Median)

25000

21236.59

20000

15000

10000
7104.79
5430.92
5000
2092.32

0
Gati Ltd. VRL Logistics Ltd Bluedart Express Ltd. TCI Express Ltd.

Market Capitalization
PE Ratio TTM: (Lower the Better) / 60.9 (High in Industry)

70

60.88
60
52.14
50
45.21

40

30
25.2

20

10

0
Gati Ltd. VRL Logistics Ltd Bluedart Express Ltd. TCI Express Ltd.

PE Ratio

PB Ratio: (Lower the Better) / 3.29 (High in Industry)

30

24.39
25

20

15 13.24

10 8.33

5 3.29

0
Gati Ltd. VRL Logistics Ltd Bluedart Express Ltd. TCI Express Ltd.

PE Ratio
PEG Ratio TTM: (Lower the Better)

5.08
5

1
0.53 0.56
0.23
0
Gati Ltd. VRL Logistics Ltd Bluedart Express Ltd. TCI Express Ltd.

PE Ratio

Shareholding Factors:

• FII/FPI have decreased holdings from 3.30% to 2.16% in Jun 2022 Quarter
• Promoters have decreased holdings from 51.66% to 51.53% in Jun 2022 Quarter
• Promoters unpledged 0.33% of shares in last quarter. Total pledge stands at 3.80% of
promoter holdings
 Historical FII Holding

Historical Promoter Holding

• Institutional Investors have decreased holdings from 4.53% to 3.44% in Jun 2022 qtr
• Number of FII/FPI investors increased from 35 to 38 in Jun 2022 qtr.
Financials

Profit and Loss Statement

Balance Sheet
Cashflow Statement

Key Ratios