Due Diligence for GATI Ltd

Financial Consulting Project

Neha Butala (C008)

Vaibhav Khurana (C031)

Ruchita Sen (C049)

Sanchit Jhunjhunwala (D022)

Ishaan Arora (H004)

Hanisha Sharma (H054)

About the Company - Gati Ltd.

Incorporated in April 25th, 1989

Movement of cargo via road, rail, air & sea

1996 strategic alliance with Indian Airlines

1997 third party logistics (3PL)

1999 entered international market; tie ups with Bhutan & Maldives postal department

2004 worldwide saver

2007 acquired 73.27% stake in Kausar India Ltd transportation of of perishable goods in
refrigerated trucks
2008 strategic alliance with General Logistics System in Europe.

2008 acquired 97.24% shares of Zen Cargo Movers Pvt Ltd (clearing house)

Source:
Annual
Reports

About the Company - Gati Ltd.

Source: Annual
Reports

About the Company TCIL Ltd.

TCI Freight

TCI XPS

Leading
surface
transport
entity
Multimodal

Door-todoor
express
delivery
solution
13000
locations in
India
200
countries

TCI Supply
Chain
Solutions
Inbound &
Outbound
logistics
1100
owned
trucks
38
refrigerate
d trucks

TCI Global

TCI Seaways

End-to-end
logistics
solutions
across
boundaries

Well
equipped
ships &
caters to
coastal
cargo
requiremen
ts

Source: Annual
Reports TCIL

Segmental Revenue
Breakdown

mparative Analysis for Shareholding Pattern

TCIL

GATI Shareholding Pattern

TCIL Shareholding Pattern

38.11
60.99

TCI Freight

Others

Others

FIIs

Indian
Institutions

Promoters

24.68
5.67
66.87

2.78

DIIs
FIIs

TCI XPS

41 2

TCI Supply chain

17

TCI Seaways

50

Promoters

TCI Global

26

Others

Stock Price Comparison

Gati

350
300
250
200
150
100
50
0

EDSC
22

Kausar Cold chain

Shipping

Other
73

Gati Ltd.

TCI Ltd.

TCIL has a diversified portfolio as compared to Gati.

Source: Annual Reports,
Moneycontrol

Financial Comparison of Gati and TCIL Ltd.

Parameters
Debt-Equity Ratio
Long Term DebtEquity Ratio
Current Ratio
Fixed Assets Turnover
Ratio
Debtors Turnover
Interest Cover Ratio
PBIDTM (%)
PBITM (%)
PBDTM (%)
CPM (%)
APATM (%)
ROCE (%)
RONW (%)
Price Earning (P/E)
Price to Book Value
( P/BV)
Price/Cash EPS
(P/CEPS)
EV/EBIDTA
Current
Market Price
Market Cap/Sales
Market Cap
Net Sales
Total Debt
Cash in Hand

Gati Ltd.
0.39

TCIL
0.61

0.3
1.36

0.11
1.11

4.32
8.82
3.06
11.88
9.6
8.74
8.28
6.01
4.76
4.27
79.14

3.26
5.94
4.07
8.36
6.11
6.86
5.71
3.46
16.57
15.05
26.7

3.08

3.47

55.67
43.37
143.35
4.26
1253.99
1648
472.7
59.9

15.98
12.3
296.2
0.9
2253.30
2196.75
852.22
270.98

Gati was carved out of parent

company TCIL in 1989.
Gati commands a leadership position
with 28% market share in the ground
express segment.
Besides ground express, the
company has a significant presence
in provision of cold-chain
warehousing and transportation
solution (Gati-Kausar) and shipping
facilities within the countrys
territorial water (Gati Ship).
TCIL is a bigger company with
market cap
and sales Double that of Gati .
TCIL is more levered although
its interest coverage is more than
Gati.
So its excess debt is not affecting it
interest
Payment due to higher EBITDA.
Gati has higher fixed asset turnover
ratio
which shows that it has been able to
use assets more efficiently.
Source: CapitalLine
By Dupont analysis
TCIL is able to

nancial Due Diligence

Operating Strategies
Gatis business strategy is to achieve and maintain leadership positions in its current areas of
operations and areas they plan to expand into.
PRINCIPLE STRENGTHS

Integrated service offering: A large spectrum of services is available for the customers. With growing complex
needs, clients are looking towards companies with broad service offerings.
Strong network coverage and wide geographical reach: Gati operates through 550 operating units in six
countries. This aids their e-commerce business and express delivery offerings.
Information Technology capabilities: It has developed proprietary enterprise resource planning software,
GEMS (Gati Enterprise Management Systems). It ensures sharing of operations data between operations,
customers and service providers in order to facilitate warehouse management, route optimization, freight
consolidation, back office functions and other services.
Long term relationship with clients: It has built a leading and trusted brand that stands for quality service
and reliability.

Accounting Policies

Gati changed its accounting policy during the financial year 2013-14, to be in line with the provisions of the
Companies Act, 2013.
Financial year changed from July June to April March
Recognition of income is done on an accrual basis, fixed assets are stated at historical costs,
depreciation is provided on straight line method over the useful life of assets.
Investments are stated at cost or at the fair values.
Petroleum products are valued at lower of cost or net realisable value.

Financial Due Diligence

Quality of Earnings
PRINCIPLE FINDINGS
Revenues from other is on a decline - Positive for
the company. Gati Ltd. has negligible amount of
exceptional items added to the profit over the years
A sharp increase in the trade receivables not
reflected in the sales turnover possibly due to
longer credit given to customers, economic downturn,
intense competition in the industry. Affecting the
earnings quality in a negative way.
Inventories check - Gati Ltd. has negligible amount of
inventories on ending of each year. Positive for the
company.

Years
Revenues
from noncore
operations
Total
Revenues

2015

2014

2013

2012

11.324

8.763

8.122

96.576

454.574

262.58
4

169.41
4

801.25
8

% of other
income

2.49%

3.34%

4.79%

12.05%

Exceptional
Items

-2.959

0.34

Trade
Receivables

62.629

37.912

28.105

25.729

Inventories

0.906

1.568

1.214
-

Net profit margin - has declined by huge percentage

over the years. Not good for the company, a huge
Earnings
quality
of Gatiquality.
Ltd. is a mixed bag with
negative on
the earnings

increasing trade receivables and decreasing profit

margins causing concerns.

Net Profit
Margin

5.38%

8.15%

15.71%

10.32%

nancial Due Diligence

Customers & Suppliers
It caters to large corporate across various industry sectors.
Auto
Sector

Electronic
s

Pharmace
uticals

Ford

Samsu
ng

Cipla

Honda

Canon

Sun
Pharma

Suzuki

Sony

Novarti
s

Tata
Motors

Toshiba

Supply
Chain
In all, Gati serves over 9,000 customers
across the supply chain services.

ECommerc
e Gati has
Gati has
also
expanded
its base to
providing
eCommerc
e
logistics,
and
catering
to leading
ecommerc
e players
in India

Source: Annual
Reports

FMCG
s
Dabur

Nestle

Amul

HUL
Domino
es Pizza

Cold Chain
Solutions
GatiKausar,
the subsidiary providing cold
chain solutions has a strong customer base.

nancial Due Diligence

Status of Corporate Governance
Strong adherence to Clause 49 of the Listing Agreements entered into with
the stock exchanges
None of the Directors on the Board are Members of more than ten
Committees or Chairman of more than five Committees across all the public
companies in which they are Directors
Independent Directors, however, are on boards of several companies which
could harm their unbiased and non-conflicting contribution to the company,
and also might not be able to contribute in full capacity.
Attendance of the directors not mentioned on the report which could have
helped in gauging their interest indirectly.
Source: Annual
Reports

nancial Due Diligence

Taxes Direct and Indirect
Provision for tax is made for both
current and deferred taxes
Provision for current income tax is
made on the current tax rates based
on the working results of the year
The company provides for deferred
tax based on the tax effect of timing
differences resulting from the
recognition of items in the accounts
and in estimating its current tax
provision
The effect on deferred taxes of a
change in tax rate is recognised in the

TAX EXPENSE

Twelve Months
Ended 31st
March 2015

Nine months
ended 31st
March 2014

Current Tax - -

Deferred Tax

17.97

1.27

Taxes for earlier

years

0.14

Reversal of
Excess Deferred
Tax Liability

(78.20

Source: Annual
Reports

Financial Due Diligence

Net Assets Position FA, CA and Investments
Substantial reduction in all inventories suggest Gatis move to an inventory-light
company.
Key Points
Change in Tangible Assets: The Tangible Assets this year have decreased
from Rs 3,778.97 Crores to Rs 2,916.40 with the sale of Assets and
adjustments in Depreciation
Sale of Assets: The primary sale is the entire divestment of ships gaining
about Rs 1300 Crore in return
Moving towards conservative approach: It has reduced its Long Term
Loans and Advances reducing Capital Advances by 72%, advances and rental
deposits from Rs 662 Crores to 206 Crores
Reduction in Inventory: Gati has taken considerable effort to reduce the
inventories from Rs 119 Crores to Rs 34 Crores in the last fiscal year
Source: Annual Reports

Financial Due Diligence

Shareholding Pattern
An increase in shareholding of promoters suggests the promoters confidence in
the company.
Key Points
Individual Promoters have increased their shareholding by 3% to 9% in the last
fiscal year
FIIs have invested heavily in the sector, increasing their shareholding percentage
from a mere 0.28% to a strong 9.33%.
Goldman Sachs India Fund Ltd. Bought 2.17% stake in the company in June 2014
highlighting strong valuations for the company
Legal and Regulatory
Key Points
GST roll out would prove to be a big opportunity for the logistics industry.
They have Courier Legal Liability, Commercial General Liability and Directors and
Officers Liability policy to mitigate the risk involved in business operations.
Many customers of the company would be revamping their supply chains,
realigning the locations of warehouses thus generating tremendous business
opportunities for logistics firms specializing in supply chain reengineeringSource: Annual
Reports

Financial Due Diligence

Capital Structure Long & Short Term

D/E ratio is at 0.39 in March 2015 up from 0.28 from the last year owing to increase in
long term borrowing and liabilities. The long term borrowing has increased by Rs 40
Crores to Rs 2,709.38 Crores. This is because of increase in Term Loans from banks by
Rs 164 Crores, unsecured loans in form of Fixed Deposits have also increased by Rs
149 Crores.

Secured Debentures of Rs 240 Crores have been initiated in the last fiscal year. These
undertakings have increased the D/E ratio for the short term.

The long term trend of the capital structure shows Gati aiming to decrease its debt
levels. The Long term Debt/Equity Ratio was 1.37 in the year 2010, and consistent
efforts were made by Gati to decrease it to 0.30 over the last five years.

Relating to interest payments the interest coverage ratio has increased from 1.41 in
2010 to 3.06 this year, showing healthy growth and stability in the company.

Source: Annual Reports

inancial Due Diligence

Board Of Directors

Mr. Chugh was the Chairman of the ITC Group from November 1991 to December 1995. On his retirement he
honored with the title of Chairman Emeritus ITC. Mr. Chugh was also appointed as a Director on the Central B
Reserve Bank of India

endra Agarwal is the Founder & CEO of Gati Ltd. leader and pioneer in Express Distribution and Supply Chain
ons. Under his visionary leadership, Gati has evolved into a major ILSP (Integrated Logistics Service Provider).

CEO
Mr.Yoshinobu Mitsuhashi graduated from Keio University, Faculty of Law, and Department of
Political Science.He joined Kintetsu World Express Inc., in 1979 and after serving in various positions,
became the Managing Director of Kintetsu Integrated Air Services Sdn Bhd.

Management
Mr. Sanjeev Kumar Jain is a seasoned and result oriented professional with an experience of over
25 years in key financial positions. Mr. Jain has varied industry expertise with business verticals like
telecom, logistics and fertilizers.

CFO

Bablu Tewari is Chief Supply Chain Operations Officer, Gati Ltd. In this role, he provides leadership and oversight th
Gati's Operations Team towards greatest value for both internal and external stakeholders. He is instrumental in dev
the operational strategy and plan for Gati Ltd. and leads Gati's operations team in meticulously implementing it.
Source: Annual Reports

nancial Due Diligence

Share price Performance
Gati has outperformed with
respect to NSE, BSE Sensex
and its competitor Blue
Dart Express in the past 3
Years.
The overall growth in the
same time period has been
phenomenal with an
increase of 364.88% as
opposed to returns of BSE
Sensex of 46.03% and NSE
a 46.03%.
It has bettered the returns
as against BlueDart

Source: Moneycontrol

aluation of GATI Ltd.

DCF Assumptions

Net sales have been projected on the basis of 3 year

moving average y-o-y growth rate

WACC Calculations
.
Depreciation has been projected using last 5
years' moving average of depreciation

Risk Free Rate (Rf)

Market Premium (Rm)
Beta
CMP(17/11/2015)
No. of shares

7.66%
15%
1.13
141.6
8.75

Market cap

1239

Debt Value

237.88

Cost of equity

15.95%

NPV

debt

Equity
Value

no. Of
shares

fair price

2247.944
237.88

Terminal growth rate has been

conservatively assumed to be 6%, as that
of Indian Economy for the long run

2010.064
8.75

Return on Market has been assumed

on average of 15%, which gives an
Equity Risk Premium of 7.34%

229.7216
Beta Value has been sourced
from reuters as the 3 year
Beta

aluation of GATI Ltd.

Sensitivity
Analysis
229.72161
5%
5.50%
6%
6.50%
7%

12%
279.202
9
300.291
7
324.895
4
353.972
4
388.864
8

13%
237.703
1
253.274
6
271.070
7
291.604
6
315.560
8

14%
205.456
5
217.350
9
230.732
1
245.897
5
263.229
3

15%
16%
179.689 158.636
4
4
189.019
9 166.114
174.339
199.387
3
210.973 183.430
8
5
224.008 193.531
9
8

Deal Structure

Key Points

zero acquisition premium exchange ratio of 0.176

For any exchange ratio of less than 0.1729, the deal
would be accretive for the buyer.
For any exchange ratio greater than 0.1729, the deal
would be dilutive for the buyer.
Assumed combination of cost and revenue synergies
is around 20%

HUL
Gati
EPS
19.83
3.43
Number of shares outstanding (in Cr) 216.35
8.75
CMP
797.1 140.35
4290.2 30.012
Earnings
21
5
zero acquisition premium exchange
ratio

0.1760
76

When the deal is neither accretive

nor dilutive

0.1729
7

P/E ratio with synergy comes out to be 32.16

P/E without synergy comes out to be 40.21

Synergy
25%
Combined price to earning ratio with 32.161
Synergy
39
Combined price to earning ratio
40.201
without Synergy
69
Minimum acceptable exchange ratio 0.1760

Thank you