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Initiating Coverage @ Dalal & Broacha

Gati Ltd.
Ankit Panchmatia (Research Analyst)
(022) 6714 1449
Milind Karmarkar (Head Research)
(022) 6630 8667
Sandeep Shah/Nilay Dalal (Equity Sales)
(022) 6714 1443

January 20, 2015

ACCUMLATE

Curre nt Pri ce
Ta rge t Pri ce
Upside
52 We e k Ra nge
KEY SHARE DATA
Ma rket Ca p
EV / Sa l es
EV / EBIDTA
Vol ume (BSE + NSE)
No of o/s s ha res
Fa ce Va l ue
Book Va lue
BSE / NSE
Reuters
Bl oomberg

SHAREHOLDING (%)
Period
Promote rs
MF / Ba nks / FI
FII
Publ i c & Othe rs
Total
900

Rs 277
Rs 332
20%
Rs 32 / Rs 342

India, with 16% of the global population, prospective strong GDP growth and
increasing E-commerce penetration is likely to present huge business opportunity
for the logistics sector. This is also apparent from the fact that international
giants like UPS & DHL see significant growth in their business being driven by
India and China.

Well-geared to capitalize on emerging economy

In India, nearly 40% of the logistics market is unorganized. We expect
Rs 24.0 BN/$399.7MN consolidation in the sector and the share of unorganized sector to reduce further.
With a market share of ~16% in surface segment, Gati is all set to emerge as one
2.2
of the key beneficiaries of the overall GDP and trade growth.
34.4
423764
86.6
2
90.9
532345 / GATI
GATI.BO
GTIC IN Equi ty

Sep-14
38.1
8.1
0.2
53.6
100.0

Gati

Jun-14
34.9
0.3
6.5
58.3
100.0

Sensex

800
700
600

Positive synergies from Kintetsu World Express

KWE caters to supply chain requirements of a wide base of global customers.
Indian operations of these customers will be served by Indian JV (Gati-KWE), due
to which it has recently signed couple of large Japanese customers like Sharp,
Idemitsu, Sony, Pioneer etc. One of the key strategies for KWE is to expand its
presence in emerging countries and India is most preferred.
Vast domestic reach to capitalize on E-Commerce Logistics
Gati is one of the largest players in road segment with a pan India network
present in 667 districts out of 675 districts. Additionally, it offers Cash on Delivery
which is essential for E-commerce service and is offered in more than 10000 pin
codes. Moreover, additional services like Gati e-Pack, Gati e-Pick, Gati Reverse
Pick-up and warehousing will take its scale of operations to a higher level going
ahead.
Broad-based growth to perk up revenues
Opportunities in Gati Kausar & e-Tailing and synergies from KWE will provide a
broad based growth across business segments. We expect the E commerce
business to lead the earnings growth with ~70% CAGR over FY14-FY17E, followed
by Gati Kausar and Gati KWE growing 28% and 27% respectively. Furthermore,
growth in high margin business and winding down losses from Gati Ship will
propel profitability. The consequent revenue growth is estimated at ~31% CAGR
over FY14-FY17E, and likely to be broad-based with all businesses contributing.
Growth in high margin business, buoy return ratios
In Q2FY15 the company has sold its ~30% stake in Gati Kausar for Rs.150 crore.
These funds will primarily be utilized to construct 10 cold chain warehouses.
Going ahead the company intends to increase the package delivery capacity.
Capitalizing on the economies of scale, we expect the company to improve its
ROE from 3% to 10% over CY14-17E.

500
400
300
200
100

Valuation:
At CMP the stock trades at 26x FY16E earnings of Rs. 10.7 and 19x FY17E earnings
of Rs. 15. We recommend a "BUY" with a target price of Rs. 332.

Year
FY 13
FY 14 (9-m th s )
FY 15E
FY 16E
FY 17E

Net Sales
12,729.5
11,165.7
17,432.8
20,997.1
25,226.6

% G rowth
7.2
-12.3
56.1
20.4
20.1

EBID TA
821.7
841.1
1,904.0
2,488.0
3,109.5

OPM %
6.5
7.5
10.9
11.8
12.3

PAT
96.3
234.2
620.4
935.9
1,248.2

Dalal & Broacha Research is available on Bloomberg DBVS<GO>

% G rowth
-76.8
143.3
164.9
50.9
33.4

EPS
1.1
2.7
7.1
10.7
14.8

P/E (x)
46.0
103.2
39.0
25.8
19.4

ROE %
1.6
3.0
7.8
11.1
13.4

RoCE %
7.1
6.1
13.6
17.0
20.1

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Gati Ltd.

Company Overview
Gati Limited founded in 1989 as a cargo management company, pioneered Express Distribution
Services in India. It provides Express Distribution services, Supply Chain Solutions, Cold Chain
Transportation Solutions, Warehousing, International Freight Forwarding, Custom Clearance and
e-Commerce Solutions. Gati has a strong market presence in the Asia Pacific region and SAARC
countries, with offices in China, Singapore, Hong Kong, Thailand and Nepal.
In order to strengthen the leadership position in India and establish its global foot print, the
company signed a strategic Joint venture agreement with Kintetsu World Express-Japan (KWE), a
Japanese logistics player. Financial year 2012-13 was the first full year of the operations of Gati
Limited after the company restructured its business by transferring substantial part of its Express
Distribution and Supply Chain division to its subsidiary Gati-Kintetsu Express Pvt. Ltd. (JV Company).
The division was transferred to JV company under a Business Transfer Agreement (BTA) on a going
concern basis, along with associated assets, liabilities, employees and debts amounting to ` 3300
Mn. with effect from March 31, 2012. Below is the organisation structure post transfer.

Source: Company Presentation, Dalal & Broacha Research

Having successfully completed business restructuring and capital infusion, Gati Ltd. continues to
focus on the growth of e-Commerce, Cold Chain and International Freight Forwarding business.

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Gati Ltd.

Gati Ltd. business is aligned to key business verticals; Gati KWE which contributes ~80% of the
total revenue followed by Gati Standalone (23%), Gati Kausar (3%) and Gati Import Export trading
(3%) and Gati ship (2%). Business wise revenue breakup and EBITDA contribution is shown in
following chart for FY14 (9-months).

Source: Company Annual Report, Dalal & Broacha Research

Brief profile of different verticals is as follows:

1. Partly Owned Subsidiaries
A) Gati-Kintetsu Express Pvt Ltd. (GATI-KWE)
Gati-Kintetsu Express Private Limited (GATI-KWE) is a joint venture company between Gati and
Kintetsu World Express - Japans leading logistics provider. It operates as a business vertical and
offers solutions in Express Distribution transport solutions. It is the main subsidiary of the company
and contributes ~75% of its total revenues and ~95 of its operating profits. It provides integrated
multimodal logistics services by road, rail and air network that covers 99.3% of India with a reach
to 667 districts out of 675 districts. Gatis large fleet of 4000 vehicle and an assured space across 28
airline sector positions it as a most preferred express distribution and supply chain solutions
provider. The company retains its market leadership position in the Road Express with ~19%
market share in non-docs Express segment. Below is the revenue break up of its express distribution
segment:-

Source: Company Presentation, Dalal & Broacha Research

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Gati Ltd.

With the strong involvement of the Japanese partner, the company has embarked on a Quality
Improvement program The GATI-KWE Way aimed at minimizing defects through implementation
of KAISEN, LEAN and 5S Principles. Automation processes like introduction of CCTV, Tablets and
Scanners has been introduced to reduce defects and improve the efficiency of service levels.
For FY14 (9-mths) revenue from the segment grew 20% yoy to Rs.7,823 mn. Road continues to
remain the largest portion which grew by 21% yoy, following which air Cargo grew 10% yoy for the
same period. Auto, Electronics/Computer peripherals and Pharma industry continues to be strong
contributor in overall revenue.
2. Gati Standalone:
A) E-Commerce
Gati is one of the top 5 E-Commerce logistic provider in the country. Its e-Commerce Division
provides services like Forward delivery (last mile), Cash on delivery (COD) facility, Reverse logistics
through its integrated supply chain solutions. The parcel size may vary from less than 500 gms (pen
drive) to 500 kg (furniture). The clientele includes Snapdeal, Jabong, Next & their alikes. The
company is well placed in Metros, Capitals, Tier 2 and Tier 3 cities.
Leveraging the extensive reach of KWE segment it covers 667 districts in India. Additionally it also
offers services like Cash on Delivery and Prepaid facility to 6700 direct pincodes and reach to
14,000 remote pin codes in tier II & III cities. The company has been able to increase its number of
packages delivered month on month, however the size of majority of these packages are less than
500 gms. The company has current capacity to deliver 23000 shipments per day, for which it is
equipped with 525 last mile delivery bikers, 6 e-pick centers & 3 e-pack centers.
500

473

Number of packages delivered (in '000)

431

450

455

402
400

359

350

295

300

246
250

264

269

Nov-13

Dec-13

315

315

Mar-14

Apr-14

257

218

200
150
100
50
0
Sep-13

Oct-13

Jan-14

Feb-14

May-14

Jun-14

Jul-14

Aug-14

Sep-14

Source: Company Presentation, Dalal & Broacha Research

The revenue more than doubled to Rs.407 mn in the nine month period registering a growth of
over 100% as compared to previous period, complementing the same, number of packages delivered
more than double in a year. The company targets to increase the packages to 30000 shipments per
day as compared to current 23000 shipments. Further, it is also targeting traffic from bigger size
packages (>500 gms) which are usually high revenue and high margin.
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Gati Ltd.

B) International Freight Forwarding

Gati International, the international business of Gati Ltd. provides end to end Freight Forwarding
services, specializing in Air, Ocean & Land Freight to SAARC countries. The services offered includes
freight forwarding (both inbound and outbound), CHA for customs clearence, International couriers,
Road movement in SAARC nations, Bonded trucking and Custom bonded warehousing. The revenues
from freight forwarding remained flat at Rs.522 mn, however as the India cargo movement from
Asia Pacific countries has come down, the company has shifted its focus across SAARC countries
and other parts of the world.
C) Fuel Stations
Gati deals in petrol and diesel business along with other motor parts and lubricants through its
fuel stations. Presently Gati is operating four fuel stations at Bangalore, Belgaum, Indore and
Shadnagar (near Hyderabad). This segment continues to generate steady revenue & profitability.
It generates run rate revenue of about Rs. 500 mn per quarter. For FY14, the revenue stood at Rs.
1493 million for a period of 9 months. The company does not consider this segment as strategic,
however it plans to continue with the same due to its nature of steady growth with assured return.
3. Wholly Owned Subsidaries:
A) Gati Kausar
Gati Kausar is one of the bigger players in cold chain industry. Gati Kausar provides temperaturecontrolled storage and distribution to a wide variety of industries that include healthcare, meat
and poultry, bio-pharma, frozen and fresh produce, dairy products, organised retails and quick
service restaurants. The company in Q2FY15 has received funding of Rs. 150 crore to expand its
business in the area of cold warehousing and its associated activities like processing the
temperature controlled product. Additionally, the company intends to offer value added services
like primary processing (sourcing, procurement, collection, cleaning, sorting, grading, IQF,
packaging, stickering, ripening, etc. For nine months FY14, the segment posted revenue of Rs. 350
mn, with a loss Rs. 39 mn at the PAT level.
B) Gati Import Export and Trading Ltd.
This is one of the new growing business in Gati portfolio. The company in FY13 entered into a
integrated supply chain contract with Taj group of hotels to manage its entire inventory requirement.
It buys, stores & supplies inventory on behalf of hotels. The company wants to extend this offering
B2B and B2C by providing an end-to-end solution including international freight forwarding,
customs handling, import of goods, warehousing and last-mile delivery to the end-customer. This
will help clients to improve supply chain framework which in turn will improve efficiency in the
domestic hospitality industry procurement process. The revenues for FY14 nine month period
stood at Rs. 306 million, with a minor loss at PAT level. However, we expect it to turnaround this
year.
C) Gati Ship Ltd.
From FY15 the company has divested its Gati Ship limited division which was a loss making
division. The recepits from the same will be used to lower the obligations Gati Ship Ltd. has on its
book. Further, we believe that the overall all profitability will improve as the share of losses of
division would come down.
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Investment Argument
Outlook for trade growth in India: better times ahead
WTO ranked India as the 19th largest merchandise exporter in the world, with a share of 1.6%
of the global trade and the 10th largest importer with a share of 2.6% of global imports in 2012.
Further, the Emerging Market Survey, 2013, conducted by Transport Intelligence (TI) ranks India
as the second most attractive logistics market in the future after China. The growth of logistics
sector is directly proportional to overall economic growth of India. The GDP projection for India
was upgraded by 20 bps to 5.6% for 2015 and 6.4% for FY16. With ~40% unorganized market
share, the company will is well positioned to gain the same.
With stable government at the centre , with focus on manufacturing and infrastructure, trade
and GDP is bound to grow at a significantly higher rate in the coming years. This augers well for
the logistics sector. A move from the current state tax regime to GST would also promote trade.

Strong parentage with KWE to improve business metrics

In FY12 Gati transferred 30% of its Express Distribution and Supply Chain business to GatiKintetsu Express Pvt. Ltd. (GKEPL), a subsidiary of the company to form a joint venture with
Kintetsu World Express, Japan (KWE).
Kintetsu World Express-Japan (KWE), a global logistic leader listed at Tokyo offers freight
forwarding, customs clearance, warehousing, packing, temporary staffing, property management,
and insurance agency services. They have developed long-term relationships with major global
corporate clients.
According the latest annual report of KWE, this JV has attracted plenty of client interest due to
the appeal of a logistics network that covers 99% of Indias territory and a cargo tracking service
based on an advanced IT infrastructure. Going forward, they aim to increase the amount of
freight moving to and from India by fostering joint sales activities between Gati-Kintetsu Express
Pvt. Ltd. and the KWE Group, and further increase KWEs presence in India. This is visible as in
previous few quarters Gati has signed a couple of large Japanese customers due to the synergy
benefit. Large Japanese companies like Sharp, Sony, Emerson, NTN, Pioneer etc which have India
operations have become a part of Gati clientele.
Apart from the pipeline of customers, we believe that the qualititative synergy benefits will also
start flowing in from the Japanese JV. The company has embarked on a Quality Improvement
program to further enhance its commitment to high quality, with guidance from its JV partner
KWE. Automation processes like introduction of CCTV, Tablets and Scanners has been introduced
to reduce defects and improve the efficiency of service levels. Further, implementation of
KAIZEN, LEAN and 5S principles will help the company to achieve next level of quality excellence.
We believe that this exercise will help company to achieve next level of quality excellence &
thus will help it penetrate the unorganized sector.

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E-commerce logistics: the growth driver
According to Gartner, in 2014 India eCommerce market is estimated at $3.5 billion, which is
expected to grow annually by ~60-70 percent. It is estimated that the e-Commerce industry
would contribute around 4 percent to the GDP by 2020. In recent years, the growth of the global
e-Commerce market has made cross-border transactions an intensifying force in Indias foreign
trade, offering millions of enterprises, most of which are SMEs/MSMEs, to expand beyond the
domestic market. Over 15,000 sellers export a variety of Indian handcrafted products to 112
million customers in over 190 countries.
Online shopping accounts for less than one percent of the total shopping in the country. Total
global online sales reached $1.22 trillion in 2013. In China alone it was around $200 billion. We
believe that this growth is likely to be triggered by two significant developments. One, mobile
devices such as smartphones and tablets make it easier for shoppers to access the web on the
go. Secondly, traditional retailers too are investing heavily in bolstering their web divisions,
fearing loss of sales to e-enabled competitors.

The ongoing boom in the e-tailing industry whose size is expected to grow at about 52% CAGR till
2020 augurs well for the logistics industry.
Gati is well geared to capitalize the huge opportunity of E-Commerce Logistics, owing to its
coverage throughout India and an established brand name. The company's focus will be to
develop more capabilities in E-com logistics. It is uniquely placed to provide services in Metros,
Capitals, Tier 2 and 3 cities, which is the current need of E-Commerce industry due to surge in
demand from smaller towns. One of the main focus areas of the business has been to strengthen
its last mile delivery.

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Further it is increasing its business through setting up of e-Fulfilment centres, Packaging Centres,
small offices and delivery partners. To strengthen the offering, it has launched value added
services like Gati ePack (packing solutions), Gati ePick model and Gati Reverse Pick-up. The
company is ramping up the delivery capacity so as to meet the growing requirements of the etailing clients which is complementing the revenues.

Delivery capacity in last 7 quarters increased 25% CQGR, complementing the same the revenue
increased 23% CQGR for the same period. This was higher than the company revenue growth of
4% CQCR for the same period.
In E-Commerce solutions the company is integrating supply chain solutions and distribution
through e-fulfillment centers. E-fulfilment centers are basically warehouses where vendors
store their inventory and this primarily allows the vendor to outsource the warehousing
function. The company offers current available 150000 sq.ft as a warehouse to its clients to
store goods. In Q2FY15, the company has started to offer this service to their e-commerce
clients. This service has an additional delivery capacity of 25000 packages/day which is
currently utilized to 5000 packages/day. The company plans to increase this offering with
higher leasing of the space to 300000 sq.ft. Growing traffic from e-commerce will pent up
the remaining available capacity and thus will generate higher revenues going forward.
With the burgeoning growth in the e-tailing and improvement in retail sales e-commerce
logistics revenues for Gati are set to grow at a CAGR of 72~% over FY14-17E. We believe that
Tier II and Tier III cities are likely to lead this growth, because of unavailability of certain
products in those areas. However, the value added service will improve the margins and
thus the overall profitability.

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Gati Kausar - Augmenting the opportunities
Gati Kausar aims to be one of the bigger players in cold chain industry which at present
stands at $5 billion. The current players can can handle only 12-14% of the total agriculture
produce, leaving a huge gap or opportunity to tap the market. Large unorganized market
(~85%), inefficiencient infrastructure and increasing demand for perishable items, creates a
huge opportunity for an integrated cold chain service provider.
GatiKausar currently transports refrigerated goods across verticals such as healthcare, meat
& poultry, bio-pharma, frozen & fresh produce, dairy products, organised retail and quick
service restaurants with a fleet size of close to 200 vehicles. It wants to change its positioning
from a refrigerated trucking company to an integrated cold chain solutions provider.
Additionally it wants to offer value added services like primary processing (sourcing,
procurement, collection, cleaning, sorting, grading, IQF, packaging, stickering, ripening, waxing,
polishing, weighing), tracking, express services, inventory management, bulk breaking and
order picking.
In Q2FY15, the company has done a much awaited private placement of ~30% in Gati Kausar
for a value of Rs. 150 crore. Of the 150 crore, Rs. 30 crore has been infused in the form of
equity and Rs. 6 crore debt (compulsorily convertible preferential shares & non-convertible
bonds). The funding will be used to set up 10 cold chain warehouse across the country over
the next three years which will completely modify its revenue and profitability mix in next
two years.
We believe that the growth in the cold chain logistics is likely to be maintained ~18-20% on
account of accelerated growth in quick service restaurants, meat, poultry sector, government
initiatives and subsidies. Given the small base, Gati Kausar can deliver ~27% CAGR for next
five years by expanding and penetrating more into unorganized sector.

Growth in high margin business & improved utilization to drive up return ratios
Gati currently has a fleet size of 500 & 520 2-wheelers and 4-wheelers, respectively which the
company intends to increase to 800 2-wheelers & 620 4-wheelers. Further, it plans to double it
e-fulfilment centre by leasing another 150000 sq.ft which will more than double the package
handling capacity. The company plans to increase its e-commerce delivery capacity to 30000
packages/day coupled with value added services. The expansion will be done on a asset light
model which will improve the margins. Gati ship, which was loss making will stop denting the
profits, due to divestment. Further, ramping up investments in Gati Kausar will lead to a broad
based profitable growth. Additionally, Gati Import Export Trading Ltd. (GIETL) is creating another
business model for the company, which can be incrementally scaled up.
Summing up the business opportuinities, we estimate the consequent revenue growth at ~20%
CAGR over FY14-FY17E, likely to be broad-based, however the profitability growth will be much
higher at ~58% CAGR for the same period. In the short term we expect margins to be subdued
due to higher investments made in business, however subsequently higher contribution from
better margin segments will bolster the profitability.
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Redemption of FCCBs continues to be a concern
On December 12, 2011 the company has allotted 22,182 zero coupon unsecured Foreign
Currency Convertible Bonds (FCCB) of $1,000 each, thereby raising $22.18 million which
are listed with Singapore Stock Exchange Limited. These are convertible any time from
December 12, 2012 upto the close of business on November 13, 2016 by holders of the
Bonds into fully paid equity shares of the company. The conversion price on the face of
the bond is Rs. 38.51.
The company has applied to Reserve Bank of India (RBI) seeking permission for repay
part of these FCCBs from the disposal of land. Following the same, RBI stated that the
company was not eligible to raise such funds and thus levied a compounding fee of
Rs.29.6 million. This was challenged by the company in AP high court which has directed
RBI to take the appropriate decision.
We believe that this will continue to be a major concern as the conversion will lead to
a significant dilution in equity which inturn will adversly affect the EPS. We would
further re-rate the stock once the issue is resolved.

Financials Overview
Consolidated revenue has increased by 12% CAGR for FY12-FY14(annualized) period
while PAT grew by 20% CAGR for the same period. Revenue from E-commerce increased
by 53% for FY13-FY14 period with a 16% annualized (12-mths) growth in KWE and 4%
growth in Kausar. GIETL grew more than 100% for the same period.
16,000.00

1200

Net Sales

EBITDA

PAT

14,000.00

1000
12,000.00

800
10,000.00

600

8,000.00

6,000.00

400
4,000.00

200
2,000.00

2012

2013

2014 (9-mths)

2014 (annualized-adjusted)

2012

2013

2014 (9-mths)

2014 (annualized-adjusted)

Source: Company Annual Report, Dalal & Broacha Research

Outlook & Valuation

We believe that trade recovery, coupled with traction across business segments with
an asset light model will bolster the operating profitability margins from 7.5% in FY14
to ~12.3% in FY17E.
At CMP of Rs. 277 stock trades at 26x FY16E earnings of Rs. 10.7 and 19x FY16E earnings
of Rs. 15. We recommend a "ACCUMLATE" with a target price of Rs. 332.
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Valuation:
Weighted average target price
Methodologies
Target price using DCF approach
Target price using EV/EBITDA approach
Target price using P/E approach
Weighted average target price
Current price
Upside/(downside) from current levels

EV/EBIDTA method
Figures (Rs mn)
Company
Blue Dart
TCI
Sical Logistics
Gati
Patel Intergrated logistics
Average EV/EBIDTA
Valuation metrics
Target EV/EBITDA multiple
2016E EBITDA
2016E EV
2016E Debt
2016E Cash
2016E Market Cap.
No. of shares
Target Price
CMP
Upside/(Downside)
P/E method
Figures (Rs mn)
Company
Blue Dart
TCI
Sical Logistics
Gati
Patel Intergrated logistics
Average P/E
Valuation metrics
Target P/E multiple
2016E EPS
Target Price
CMP
Upside/(Downside)

Target Weight Weighted

Comments
price assigned Avg price
325.4
40.0%
130.2 Based on DCF for 10 years & 5% terminal growth rate
314.6
30.0%
94.4
Based on 10x EV/EBIDTA FY17E
107.3
Based on 25x P/E FY17E
357.6
30.0%
332.0
277.0
19.9%

Price
Sales
6,171.0 19,761.0
244.0 20,329.0
159.0 6,017.5
252.0 11,165.7
144.0 5,458.0

EBIDTA
2,145.0
1,564.7
852.7
841.1
167.3

FY14
OPM
10.9
7.7
14.2
7.5
3.1

PAT
1,244.0
620.1
110.5
283.2
23.5

PAT %
6.3
3.1
1.8
2.5
0.4

EV/EBIDTA
FY16E FY17E
47.1
39.3
9.2
7.7
13.1
11.0
10.6
8.5
10.3
8.6
18.1
15.0

10.0
3,109.5
31,094.8
4,922.5
1,281.5
27,453.7
87.3
314.6
277.0
13.6

Price
6,171.0
244.0
159.0
252.0
144.0

FY14
42.8
9.5
2.9
2.7
1.5

FY15E
51.4
11.4
3.5
7.0
1.8

EPS
FY16E
61.6
12.6
4.2
10.7
2.1

FY17E
74.0
15.1
5.0
14.3
2.5

P/E
FY16E FY17E
120.2
100.1
21.4
19.4
45.5
37.9
36.1
23.5
82.2
68.5
61.1
49.9

25.0
14.3
357.6
277.0
29.1
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DCF Valuation:
Year
Y14 (9-mths)
EBIT
620.5
Effective Tax Rate
(30.0)
EBIT*(1-Tax Rate)
434.3
Depreciation / Amortization
220.7
Change in Working Capital
387.7
Capex
(75.2)
FCFF
FCF Growth
Cost of Capital

967.5
-306.7%
15.5%

Present Value
Sum of PV of FCFF
Terminal Value calculation
Terminal Growth rate
Terminal year Free Cash Flow
Terminal Value
PV of Terminal Value

12,916.5

Enterprise Value
Less: Debt
Add: Cash & Investment
Market Capitalization
No. of Shares
Value per Share

32,341.9
(4,802.2)
855.8
28,395.5
87.3
325.4

5%
5,592.8
62,742.3
19,425.5

FY 15E
1,592.0
(30.0)
1,114.4
312.0
(36.0)
(500.0)

FY 16E
2,135.8
(30.0)
1,256.3
352.2
(323.3)
(800.0)

FY 17E
2732.2
(30.0)
1,626.1
377.3
(388.0)
(500.0)

FY 18E
3545.5
(30.0)
2,138.1
396.2
(465.6)
(526.1)

FY 19E
4511.1
(30.0)
2,745.3
416.0
(558.7)
(402.1)

FY 20E
5670.4
(30.0)
3,474.3
436.8
(659.3)
(422.2)

FY 21E
6870.0
(30.0)
4,215.0
458.6
(777.9)
(443.3)

FY 22E
8302.4
(30.0)
5,098.9
481.5
(894.6)
(465.5)

FY 23E
9596.0
(30.0)
5,861.8
505.6
(1,028.8)
(488.8)

FY 24E
10667.0
(30.0)
6,440.5
530.9
(1,131.7)
(513.2)

890.4
-8.0%
13.5%
0
890.4

485.2
-45.5%
13.5%
1
427.7

1,115.4
129.9%
13.5%
2
866.6

1,542.5
38.3%
13.5%
3
1056.4

2,200.4
42.6%
13.5%
4
1328.3

2,829.6
28.6%
13.5%
5
1505.5

3,452.4
22.0%
13.5%
6
1619.1

4,220.3
22.2%
13.5%
7
1744.6

4,849.8
14.9%
13.5%
8
1767.2

5,326.4
9.8%
13.5%
9
1710.7

11.4%
296.5
316.4
340.7
371.2
410.6

12.4%
288.6
308.5
332.9
363.4
402.8

WACC
13.4%
281.4
301.2
325.6
356.1
395.5

14.4%
274.5
294.4
318.8
349.3
388.7

15.4%
268.2
288.1
312.4
342.9
382.3

325.4

3%
4%
5%
6%
7%

Calculation of WACC
WACC for explicit forecast
Expected Market Return (Rm)
Risk Free Rate (Rf)
Risk Premium
Beta
Cost of Equity
Cost of Debt
Tax rate
Post Tax Cost of Debt
WACC
Debt
Equity
Total

15.0%
7.5%
7.5%
0.97
14.8%
9.7%
30.0%
6.8%
13.5%
4802.2
24172.4
28974.6

WACC for terminal growth

Expected Market Return (Rm)
Risk Free Rate (Rf)
Risk Premium
Beta
Cost of Equity
Cost of Debt
Tax rate
Post Tax Cost of Debt
Long term debt to capital ratio
WACC

15.0%
7.0%
8.0%
0.97
14.8%
9.7%
35.0%
6.3%
10.0%
13.9%

Terminal Growth Rate

Terminal Year Free Cash Flow
Terminal Enterprise Value
Weight Assigned
Terminal Value

5.0%
2971.1
33330.8
6.0
15254.1

12

Dalal & Broacha

Stock Broking Pvt. Ltd.

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FINANCIALS

Profit & Loss (Rs Mn)

Net Sales

FY 14 (9-mths)
FY 15E
FY 16E
11,165.7 17,432.8 20,997.1

Raw Materials
Employee Cost
Operating Expenses
Other expenses
Cost of Sales

(1,748.1) (2,702.1) (3,254.5)

(1,026.9) (1,654.8) (1,889.7)
(6,627.0) (10,111.0) (12,178.3)
(922.6) (1,060.9) (1,186.5)
(10,324.6) (15,528.8) (18,509.1)

Gati Limited - Financials

FY 17E
Cash Flow Statement (Rs Mn)
25,226.6
Net Profit
Add: Dep. & Amortization
(3,910.1)
Cash Profit
(2,270.4)
(14,631.4)
(Inc) / Dec in
(1,305.2)
Sundry Debtors
(22,117.1)
Inventories
Loans & Advances
3,109.5
Sundry Creditors
(377.3)
Others
2,732.2
Change in Working Capital
122.8
CF from Operating Activities
(477.5)
CF from Investing Activities
2,377.5
(713.3)
CF from Financing Activities
1,664.3
Cash Generated (Utilised)
(416.1)
Cash at the start of year
0.0
Cash at the end of year
1,248.2

Operating Profit
Depreciation
PBIT
Other Income
Interest

841.1
(220.7)
620.5
106.1
(325.0)

1,904.0
(312.0)
1,592.0
111.4
(465.3)

2,488.0
(352.2)
2,135.8
117.0
(470.0)

Profit Before Tax

Provision for Tax
PAT

401.6
(118.4)
283.2

1,238.0
(371.4)
866.6

1,782.7
(534.8)
1,247.9

Minority Interest
Extraordinary Items
Reported PAT

(49.0)
0.0
234.2

(216.7)
(29.6)
620.4

(312.0)
0.0
935.9

FY 14 (9-mths)
174.5
7,553.9
7,728.4

FY 15E
174.5
7,928.8
8,103.3

FY 16E
174.5
8,619.2
8,793.8

FY 17E
174.5
9,622.0
9,796.5

Def. Tax Lib + Minority Int.

Secured Loan
Unsecured Loan
Total Debt
Capital Employed

1,234.0
3,149.1
1,653.1
4,802.2
13,764.6

1,234.0
3,212.1
1,686.2
4,898.2
14,235.5

1,234.0
3,244.2
1,703.1
4,947.2
14,975.0

1,234.0
3,228.0
1,694.5
4,922.5
15,953.0

Gross Block
Accumulated Depreciation
Net Block
Capital WIP
Total Fixed Assets

5,716.3
(1,922.4)
3,794.0
387.1
4,181.0

6,216.3
(2,234.4)
3,981.9
50.0
4,031.9

7,016.3
(2,586.6)
4,429.7
50.0
4,479.7

7,516.3
(2,963.9)
4,552.4
50.0
4,602.4

Goodwill
Investments
Inventories
Sundry debtors
Cash & bank
Loans & advances and Other CA
Sundry creditors
Other Liabi.
Provisions
Working Capital
Deffered Tax
Misc. Expense
Capital Deployed

4,468.9
4,468.9
4,468.9
4,468.9
547.8
520.4
494.4
469.7
119.1
167.2
115.1
138.2
2,414.2
2,770.1
3,336.5
4,008.6
308.0
913.9
908.3
1,281.5
3,734.5
3,921.2
4,117.3
4,323.2
(732.3) (1,110.4) (1,337.5) (1,606.9)
(431.3)
(439.9)
(448.7)
(457.7)
(839.8) (1,007.8) (1,158.9) (1,274.8)
4,572.4
5,214.3
5,532.0
6,412.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
13,764.6 14,235.5 14,975.0 15,953.0

Balance Sheet (Rs Mn)

Equity Capital
Reserves
Net Worth

FY 14 (9-mths)
234.2
220.7
454.9

FY 15E
620.4
312.0
932.4

FY 16E
935.9
352.2
1,288.1

FY 17E
1,248.2
377.3
1,625.5

(211.4)
(0.7)
295.0
69.4
235.5
387.7
842.6

(355.9)
(48.1)
(186.7)
378.1
176.6
(36.0)
896.4

(566.4)
52.1
(196.1)
227.0
160.0
(323.3)
964.8

(672.1)
(23.2)
(205.9)
269.4
124.9
(506.8)
1,118.6

(633.5)

(135.5)

(774.0)

(475.3)

(370.5)

(149.4)

(196.5)

(270.2)

(161.4)
467.9
306.5

611.4
308.0
919.4

(5.6)
913.9
908.3

373.2
908.3
1,281.5

FY 14 (9-mths)
7.5
2.1
(29.5)

FY 15E
10.9
3.6
(30.0)

FY 16E
11.8
4.5
(30.0)

FY 17E
12.3
4.9
(30.0)

(12.3)
2.4
143.3

56.1
126.4
164.9

20.4
30.7
50.9

20.1
25.0
33.4

Per Share
Earning Per Share (EPS)
Cash Earnings (CPS)
Dividend
Book Value
Free Cash flow

2.7
5.2
1.8
88.6
2.4

7.1
10.7
2.4
92.9
8.7

10.7
14.8
2.4
100.8
2.2

14.3
18.6
2.4
112.3
7.4

Valuation Ratios
P/E (x)
P/B (x)
EV / Sales
EV / EBIDTA
Div. Yield (%)
FCF Yield (%)

103.2
3.1
2.6
34.1
0.7
0.9

39.0
3.0
1.6
14.8
0.9
3.1

25.8
2.7
1.3
11.3
0.9
0.8

19.4
2.5
1.1
8.9
0.9
2.7

3.0
6.1

7.8
13.6

11.1
17.0

13.4
20.1

Ratios
OPM
NPM
Tax Rate
Growth Ratio
Net Sales
Operating Profit
PAT

Return Ratios (%)

ROE
ROCE

13

Dalal & Broacha

Stock Broking Pvt. Ltd.

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Disclaimer
This document has been prepared and compiled from reliable sources. While utmost care has been taken to ensure that
the facts stated are accurate and opinions given are fair and reasonable, neither the Company nor any of its Directors,
Officers or Employees shall in any way be responsible for the contents. The Company, its Directors, Officers or Employees
may have a position or may otherwise be interested in the investment referred in this document. This is not an offer or
solicitation to buy, sell or dispose off any securities mentioned in this document.
For Further details
Contact
Mr. Milind Karmarkar

Email ID
milind.karmarkar@dalal-broacha.com

Contact No.
022 67141445

Sector
Head Research

Mr. Sandeep Shah

Mr. Nilay Dalal

sandeep.shah@dalal-broacha.com
nilay.dalal@dalal-broacha.com

022 67141420
022 67141443

Mr. Kunal Bhatia

Mr. Lalitabh Shrivastawa

kunal.bhatia@dalal-broacha.com
lalitabh.s@dalal-broacha.com

022 67141442
022 67141450

Auto, Auto Ancillary, FMCG

Banking & NBFCs

Ms. Purvi Shah

Mr. Chinmay Gandre

purvi.shah@dalal-broacha.com
chinmay.gandre@dalal-broacha.com

022 67141446
022 67141448

Pharma
Capital Goods

Mr. Ankit Panchmatia

ankit.panchmatia@dalal-broacha.com

022 67141449

IT, Logistics

Head Institution Sales

Institution Sales

Address :- 508, Maker Chambers V, 221 Nariman Point, Mumbai 400 021 Tel: 91-22- 2282 2992, 2287 6173, (D) 6630 8667
91-22-2287 0092, E-mail: equity.research@dalal-broacha.com.

Fax: