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Gati: Interest cost takes toll on margins
Aug 17, 2009

Performance summary
  • On a standalone basis, topline grows by 12% YoY during FY09. The subdued growth reported by express distribution and supply chain business restricted the overall growth in topline.
  • Operating margins contract 0.6% YoY as costs grow at a faster pace as compared to the topline.
  • At the PBT level the company reports a 93% YoY decline in profits, while at the net level it reports a loss of Rs 150 m.
  • On a consolidated basis, topline grows by 10.3% YoY, while bottomline declines by 87% YoY.


Financial performance snapshot
  Standalone Consolidated
(Rs m) FY08 FY09 Change FY08 FY09 Change
Net sales 5,521 6,181 12.0% 7,168 7,904 10.3%
Expenditure 5,047 5,688 12.7% 6,683 7,408 10.8%
Operating profit (EBITDA) 474 493 4.0% 486 497 2.2%
EBITDA margin 8.6% 8.0%   6.8% 6.3%  
Other income 234 123 -47.7% 243 126 -48.4%
Interest 97 354 263.9% 113 366 222.7%
Depreciation 146 230 57.9% 186 264 42.2%
Profit before tax/(loss) 465 31 -93.3% 430 (7) -101.7%
Exceptional item (151) (169)   (151) (169)  
Tax 77 13 -83.2% 82 11 -87.1%
Profit after tax/(loss) 238 (150)   198 (187)  
Net margin 4.3% -2.4%   2.8% -2.4%  
No of shares (m) 85 85   85 85  
Diluted EPS (Rs)*   (1.8)        
P/E (times)   -        
*trailing twelve month earnings

What has driven performance in FY09?
  • On a standalone basis during FY09, Gati reported a 12% YoY growth in the topline largely led by its coast to coast business that contributes over 12% to the total revenues. The express distribution and supply chain business (80% of total revenues) grew by a subdued 9.5% YoY during the same period under consideration and therefore restricted the overall growth in the topline. While the company has not divulged any details, the second half of the financial year was particularly bad for the company as during 1HFY09, the company reported over 20% YoY growth in the topline. Recessionary trends impacted overall trade and hence the performance of the company.

  • Operating margins contracted by 0.6% YoY as costs grew at a faster pace as compared to the topline. The increase in costs was witnessed across the board. However, significant increase was witnessed in cost of sales and employee costs (as percentage of sales). The same could be attributed to higher fuel charges, freight costs and inflationary trends witnessed during the beginning of the year.

  • The freighter business dragged the overall profitability of the company as it reported loss to the tune of Rs 183 m in FY09. The company exited this business during the quarter as it had been bleeding at the net level on account of load factor issues. The company terminated its wet lease of five Boeing 737-200 cargo freighters from Air India. However, strategic alliance with Air India will continue as usual without affecting the air cargo movement business.

  • At the PBT level, the company reported 93% YoY decline in profits. More than three fold growth in interest costs dented the profitability of the company. At the net level, the company reported a loss of Rs 150 m. Despite lower tax expenses, the company reported a loss on account of an exceptional item that represented loss on derivative transactions.

What to expect?
The prospects of the express industry are primarily dependent on the growth in GDP and world trade. With the Indian economy expected to grow at 6%-8% annually, coupled with an average annual growth rate of 16% in India’s global merchandise trade (Source: Foreign Trade Policy), the Indian express industry is expected to grow at an impressive rate of 20% over the long-term. Gati, being one of India’s oldest and largest express distribution company providing end-to-end multi-modal logistics solutions, is likely to benefit form the same. However, the medium term prospects of the company have been impacted by the economic slowdown and high cost of fuel. The air freight business was expected to give a fillip to the company’s overall growth, which did not happen, forcing the company to exit the freighter business.

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