GATI -- ? turnaround company

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   GATI
Incorporated in 1995, Gati has evolved as a leader in the fast-growing express cargo distribution business. It provides services across the entire value chain, from traditional point-to-point transportation to end-to-end integrated logistics and supply chain management. It operates in three different business segments viz., logistics, coast-to-coast, and fuel stations. Logistics is the company’s mainstay, contributing 71% to revenues.

FINANCIALS

Market cap 475 crores cmp 56 (FV Rs 2)
Equity share capital is 16.98 crores.
Debt is around 470 crores as on March 09.
For FY 08 sales was around 716 crores and NP was 19.8 crores
For FY 09 sales was 790 crores and net loss was around 18 crores.
For FY 10, sales expected to be 900 crores and NP around 16.5 crores giving EPS of around 1.9.
Promoter holding is 49% and they have pledged 63% of their holding.
Institutions and HNIs hold around 27%.

FOCUS ON HIGH MARGIN SCM BUSINESS

The company has the strategy in place to focus on its core business of Express
distribution and supply chain management.   With impressive assets like 18 Express
distribution centers, more then 2 mn square feet of warehouse space, capability
to reach and deliver in 603 out of 611 districts in India, cover 3 lakh km  per day, deliver 3 mn packages per month and handle 46000 MT per month,  GATI is ideally poised to capture the opportunities in supply chain management business.

COAST TO COAST SHIPPING BUSINESS

Gati currently has fleet strength of six vesssels for this business. 

TERMINATION OF AIR FREIGHT BUSINESS

Last year, GATI exited the loss making Air Freight business. It is facing a claim from NACIL(National Aviation Company Ltd.). in terms of invoking a bank guarantee to the tune of 30 crores for termination of the air freight business. 

KAUSAR INDIA

This is a cold chain business in which GATI acquired a 99% stake and which could provide additional business and profitability going forward.  The cold chain logistics business has very good potential going forward.

ALLOTMENT OF WARRANTS

The board of directors of GATI have approved issue of 4.8 mn warrants to promoter
group entity i.e. Mahendra Investment Advisors Pvt. Ltd. The warrants would carry an option of conversion into equal number of equity shares with face value to Rs.2 and premium of Rs.79 per share within a period of 18 months from the date of allotment of warrant.

The board of directors of GATI have also approved issue of 5.36 mn warrants to its
promoter i.e. Mahendra Kumar Agarwal. The warrants would carry an option of
conversion into equal number of equity shares with face value to Rs.2 and premium
of Rs.56 per share within a period of 18 months from the date of allotment of
warrant.

INVESTMENT THEME:

Investment in GATI should be made considering following points

1.    It is a market leader in Express Distribution Business
2.    The scrip is a turnaround candidate having exited air freight business
3.    Infusion of funds by promoters at higher than market price indicates promoter commitment to the company.
4.    With recovery in economy, there is a good chance of its business picking up and with its investment in cold chain logistics business, things could improve going forward.

NEGATIVES:

      1. There is high debt burden as per the latest balance sheet.
      2.  The issue pending with NACIL could amount to provision of 30 crores if the decision           goes against the company.

TECHNICAL VIEW:
GATI made an all time high of 215 in Jan 08 and fell down to a low of 27 in OCT 08.  Since July 09, the stock is in a triangular consolidation with a high at 73 and a low at 40. Currently 200 dema is at 54.8 and  the breakout level from triangle is at 60.

GATI LOOKS LIKE A MODERATE RISK HIGH REWARD TYPE OF SCRIP WHERE IF THINGS FALL INTO PLACE, THE STOCK CAN GAIN A LOT AND IF THINGS DONT THEN THERE COULD BE SOME MORE DOWNSIDE.

Disclosure:  I have made a dip stick entry into the stock based on certain chart patterns and possible turnaround in the company.