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Buy This Small-Cap Logistics Stock For 116% Potential Gains, Given More Than 100% Returns In 3 Years


Stock Overview

On June 21, 2022, the shares of the Gati Ltd closed at Rs 133.35/share, it was opened at Rs 131.60/share. As of now, the CMP is trading just Rs 13.35 above the 52-week low of Rs 120/share level, and Rs 88.55 below the 52-week high of Rs 221.90/share level.

As mentioned, the stock has given more than 100% returns in 3 years, to be particular 104.21% returns. However, it has not performed well in terms of returns over the last 1 year. In 1 year it gave a negative return of 12.41%, and in 3 months it gave 12.87% of negative returns.

Potential Gains– The stock has the potential to jump 116%, according to the estimated Target Price & the CMP.

Farukh Nagar sorting centre

Farukh Nagar sorting centre

Commissioning of Farukh Nagar sorting centre has helped improve service parameters for Gati. Management expects the same to be visible in western zone once Mumbai sorting centre commissions by end June, early July, ’22; and in South zone with the commissioning of Bangalore sorting centre by Dec, ’22. There is a turnaround of ~200 trucks (average tonnage of 12te with minimum being 3te and maximum being 16.5te) handled by the facility. The rent is paid to Allcargo, and the facility is BTS in keeping with Gati’s needs and incorporating the best practices to maximise throughput.

Management focus on the enhancing MSME mix

Management focus on the enhancing MSME mix

Management focus remains on enhancing MSME mix. However, the path to gaining traction from the existing 3,000+ MSME customer set (many inactive) is through sales relationship and management doesn’t feel particularly threatened from the incremental competitive intensity either from new entrants or incumbents. It is also clear, given the nature of MSME operations, there’s very little difference that technology can bring for the incumbents, which can make a difference for key enterprise accounts (KEA) e.g. creating an API for uploading multiple orders or integration for consolidated e-way bills. MSME calls for cluster marketing, differential engagement and entrenched relations.

Technology front-end digitisation

Technology front-end digitisation

Management reshuffling is largely complete; technology (backend) will be upended. Senior resource positioning is largely complete and, to our comfort, the four experienced Gati-ites have been placed in charge of the four zones. While lateral hires have been placed to improve processes (i.e. reducing TAT through route optimisation), core business of service delivery is still in the hands of the experienced personnel. While the technology front-end digitisation is largely complete, management expects GEMS (Gati enterprise management system) backend to shift from legacy oracle platform to microsystems.

ICICI Securities suggest buying for a target price of Rs 288/share

ICICI Securities suggest buying for a target price of Rs 288/share

The brokerage said, “We maintain BUY on Gati with a target price of Rs 288/share, at 30x FY24E earnings. 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 at ~Rs1.8bn. We showcase the company’s RoCE trajectory in the chart below (Chart 1) adjusting for the same. Adjusted FY24E RoCE (exgoodwill and ex-assets held for sale) comes to ~47%.”

Company Overview- Gati Ltd

Company Overview- Gati Ltd

Gati Ltd, founded in 1989 & headquartered in Hyderabad, is one of India’s premier Express Distribution and Supply Chain Management company with a strong presence across Asia and coverage that spans the whole of India. After strategically acquiring Gati in 2020, Allcargo Logistics is now the promoter and the single largest shareholder of Gati with more than 50% ownership, followed by Japan’s Kintetsu World Express (KWE) with about 3.5% shares in the company. Gati-Kintetsu Express Private Limited (Gati-KWE) is a Joint Venture between Gati and KWE where KWE holds 30% stake and Gati holds the remaining 70%.





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