4 - Gati PDF

Initiating Coverage
April 1, 2015
Gati Ltd
Rating matrix
Buy
| 279
12-18 months
29%
FY14 (9-months)
Revenues
(12.3)
EBITDA
2.4
Net Profit
143.3
EPS
141.4
FY15E
47.7
71.3
79.3
79.3
Valuation summary
FY14 (9-months)
P/E
80.8
Target P/E
103.9
EV / EBITDA
27.9
P/BV
2.5
RoNW (%)
3.0
RoCE (%)
6.1
FY15E
45.1
58.0
15.6
2.9
5.9
11.1
Stock data
Bloomberg/Reuters Code
Sensex
Average volumes
Market Cap (| crore)
52 week H/L
Equity Capital (| crore)
Promoter's Stake (%)
FII Holding (%)
DII Holding (%)
Comparative return matrix (%)

Return %
Gati
1M
-10.3
3M
-14.4
TCI
Blue Dart
3.4
0.0
-0.1
15.0
Price movement
10,000
9,000
8,000
7,000
6,000
5,000
4,000
Jan-14
Sep-13
May-13
Dec-12
Aug-12
Apr-12
3,000
Price (R.H.S)
| 216
Gati Ltd (Gati), a market leader in Indian surface logistics is well

positioned to capitalise on the current evolution of transportation in India.
FY16E
FY17E
With growth in the logistics industry pegged at ~1.2x GDP growth,
22.7
18.5
availability of wide spectrum of services will create high growth
27.3
26.4
opportunities for the company. An extensive reach over 20000 pin codes
48.9
34.5
and a JV with Kintetsu World Express (KWE) enables the company to
48.9
34.5
cater the supply chain requirements of various industries. Gati has
embarked on an accelerated growth path driven by asset light eFY16E
FY17E commerce vertical (36% CAGR in FY15E-20E). Setting up of temperature
30.3
22.5 controlled warehousing capabilities in the lucrative cold chain segment
38.9
29.0 through Gati Kausar would contribute to the revenues by the in H2FY16.
11.8
9.1 With the expected economic recovery and GST implementation, an
2.7
2.5 organised player like Gati would garner higher volumes and improve its
9.4
11.6 operating margin. We expect consolidated EPS to grow from | 2.7 (nine
14.6
17.6
months) in FY14 to | 9.5 in FY17E.
Improved economic scenario; GST implementation to energise sector
GITC IN/ GATI NS The Indian logistics market is currently at $275 billion, growing at 16%
27,975 CAGR in 2010-14. The industry is fragmented with small players and the
72,262 unorganised market garnering ~50% market share. With a direct
1,893.7
correlation to GDP and trade growth, an expected improvement in the
341/73
same would buoy revenue growth for logistic players. Implementation of
17.5
Goods and Service Tax (GST) would shift volumes from unorganised
41.4
8.6 markets to specialised and organised players.
0.2 Pan-India presence, multi modal capability to sustain market leadership
Gati, with a current fleet size of 4500 vehicles (owned and leased), caters
to 667 out of 675 districts. Furthermore, cash on delivery & prepaid facility
6M
12M
to
more than 5300 direct pin codes has enabled it to add e-commerce
22.6
188.9
players
to its clientele. Parentage of KWE will add higher value in terms of
24.0
154.0
building
a global client portfolio and sharing quality excellence practices.
35.4
98.2
These capabilities would be difficult to imitate due to the nations
demographic complexity, leading Gati to retain its market leadership.
Burgeoning e-commerce, cold chain to provide revenue visibility
700
The e-tailing industry, currently at $3.5 billion, is expected to grow at
600
~50% CAGR over FY14-17E. Gati provides logistics solutions to a
500
majority of e-commerce players. Moreover, through Gati Kausar, it would
400
be able to tap the growth in the cold chain industry, which is expected to
300
grow at a CAGR of ~15-17% over FY14-17E. Both businesses would
200
provide higher revenue visibility in F14-20E, which is factored in as the
100
high growth phase for our valuation purpose. We have arrived at a DCF
0
based target price of | 277 (28% upside potential) and recommend BUY.
Mar-15
YoY Growth (%)
Capitalising on contemporary logistics!!!
Oct-14
:
:
:
:
Jun-14
Rating
Target
Target Period
Potential Upside
Nifty (L.H.S)
Research Analysts name

Bharat Chhoda
bharat.chhoda@icicisecurities.com
Ankit Panchmatia
ankit.panchmatia@icicisecurities.com
ICICI Securities Ltd | Retail Equity Research
Exhibit 1: Key Financials

(Year-end March)
FY13
FY14 (9-months)
Revenues (| crore)
1,272.9
1,116.6
EBITDA (| crore)
82.2
84.1
Net Profit (| crore)
9.6
23.4
EPS (|)
1.1
2.7
P/E (x)
46.0
80.5
Price / Book (x)
0.6
2.4
EV/EBITDA (x)
10.6
27.8
RoCE (%)
7.1
6.1
RoE (%)
1.6
3.0
Source: Company, ICICIdirect.com Research
FY15E
1,649.1
144.1
42.0
4.8
44.9
2.9
15.5
11.1
5.9
FY16E
2,023.5
183.5
62.5
7.2
30.1
2.7
11.7
14.6
9.4
FY17E
2,397.7
232.0
84.1
9.6
22.4
2.5
9.1
17.6
11.6
Company background
Exhibit 2: Shareholding pattern Q3FY15

(in %)
Promoter
FII
DII
Others
Dec-13
33.9
0.1
0.2
65.8
Mar-14
38.1
0.3
0.6
61.0
Jun-14
34.9
6.5
0.3
58.3
10.0
Sep-14
38.1
8.1
0.2
53.6
8.6
8.1
8.0
Dec-14
41.4
8.6
0.2
49.8
6.5
6.0
0.1
0.2
0.3 0.6
Q4FY14
2.0
Q3FY14
4.0
0.3
0.2
0.2
FII
Q3FY15
Q2FY15
Q1FY15
DII
Gati is a leader in the surface express segment with a substantial market

share. The company was carved out of its former parent in 1989. Since
then, Gati has endeavoured to provide door to door express cargo
service. Besides ground express, the company also provides value-added
services like supply chain solutions, warehousing, international freight
forwarding and custom clearance. Geographically, the company has a
strong market presence in the Asia Pacific region and Saarc countries
with offices in China, Singapore, Hong Kong, Thailand and Nepal. To
establish a global footprint and strengthen its domestic leadership, the
company entered into a joint venture with Kintetsu World Express (KWE),
a Japanese leading logistics company, by transferring 30% of its EDSC
business for | 268 crore. Further, debt of | 330 crore was also transferred
to the JV (Gati-Kintetsu Express Pvt Ltd). Gati-KWE is the key subsidiary of
the company contributing ~70% of total revenues and ~85% of
operating profit. It provides multi-modal logistics services through its
road, rail and air network through its pan-India presence. With its strong
surface capabilities, the company generates ~79% of the revenues from
the road segment, 11% from the air segment and balance 8% from rail.
Furthermore, Gati has embarked on a high growth phase on the back of
soaring growth in e-tailing and temperature controlled warehousing. The
companys e-commerce division provides B2C logistics solutions to ecommerce companies Flipkart, Snapdeal, Jabong, NEXT, etc. Leveraging
on the KWE network and its pan India presence, the company is one of
top five e-commerce logistics provider in the country. Gati has ~80%
market share in the greater than 10 kg segment and 50% market share in
the 5-10 kg segment. Value added services like warehousing, packaging,
cash on delivery and reverse logistics compliment the segment revenues.
For 9MFY14, e-commerce contributed 17% of standalone revenues,
which has increased to 30% of standalone revenues in year-to-date (YTD).
Gati Kausar currently provides temperature controlled trucking solutions
to a wide variety of industries including quick service restaurants (QSRs),
dairy products, etc. With 20% divestment in Q2FY15 (additional 10%
performance based), the company intends to venture into the cold
storage warehousing business.
Exhibit 3: Corporate structure

G ati Limited
(Consolidated)
G A T I-KW E
70% of T otal revenues (70% ow ned)
G ati Limited
23% of T otal revenues (Standalone)
G A T I Kausar
3% of T otal revenues - (80%
ow ned)
W holly O w ned Subsidiaries
Surface Express
(79% segment revenues)
Freight Forw arding

Gati Kausar
(3% of Total revenues)
Others
(3% of Total revenues)
A ir Freight
E-commerce
Rail
Fuel Sales
Others
Page 2
Overview of Indian logistics sector

Exhibit 4: Logistics cost as % of GDP
China
18
11
Japan
Europe
10
US
9
13
India
0
10
15
20
Source: KPMG, ICICIdirect.com Research

The inefficiencies in China are high due to a widespread
geography. However, in India it is high due to lack of
efficient alternatives to roads for long hauls and poor
road infrastructure resulting in low average speed,
significant cess and tolls, higher rate of damage, theft at
toll booths, etc
Logistics is an important component of the global business ecosystem.

Indias GDP grew at an average of 6.4% over the last five years. In
contrast, the domestic logistics industry witnessed growth of 16% CAGR
over the same period. The logistics industry continues to play a crucial
role in bridging the gap between area of production and area of
consumption. Growth in the logistics industry is widely pegged at 1.5-2x
the GDP growth. However, with logistics costs estimated at 13% of Indias
GDP, the overall addressable market size is ~$250 billion. Each
manufacturing company is expected to spend approximately 5-35% of
sales on transportation, inventory handling & warehousing, raw material
procuring, order processing, etc. Almost 60% of this cost can be
attributed to inventory handling and transportation. The higher costs are
largely on account of higher inefficiencies in the transport system; lower
average trucking speed, underdeveloped infrastructure and lack of
alternatives. The inefficiency is also because a large portion of the sector
is in the hands of the unorganised sector and small players. The express
segment is estimated to consist of more than 4 million trucks, managed
by just about one million transporters. This has resulted in a lag. These
inefficiencies are clearly reflected in the Logistics Performance Index, in
which India ranks 39th, below major developing and developed nations.
Exhibit 5: Logistics Performance Index (LPI)
Year (2014)
Japan
World Rank
6.00
China
United States
30.00
India
14.00
39.00
Customs
3.79
2.99
3.52
2.69
Infrastructure
4.11
3.20
4.07
2.90
Ease of Shipment
3.77
3.31
3.58
3.08
Logistics Services
4.12
3.40
3.85
3.27
Ease of tracking
4.08
3.37
4.01
3.03
Domestic Logistics Costs
2.02
2.97
2.20
3.08
Timeliness
4.34
3.68
4.11
3.47
Total
4.02
3.32
3.84
3.07
Source: World Bank, ICICIdirect.com Research
For the effective development of the industry, infrastructure and

regulation would be key enablers. In contrast, the industry continues to be
one of the most under invested ones in the country.
Exhibit 6: Infrastructure spend Five Year Plans ($billion)
80,000.00
9.0%
8.1%
70,000.00
Higher infrastructure spends by the government and
regulatory changes like introduction of GST are expected to
lead the growth in the sector. Hence, we expect the
industry volume to continue the growth at current levels of
~16%, with a direct correlation of 1.2x to GDP
7.0%
60,000.00
50,000.00
16390
0.00
10995
6955
7535
4640
6.0%
5.0%
4.0%
23085
3.0%
15130
10995
23085
2.0%
4140
15130
9305
4530
1710
11th Plan (2007- 11th Plan (2012- 11th Plan (2017- 11th Plan (2022- 11th Plan (20272012)
2017)
2022)
2027)
2032)
Rail
Road
Other
8.0%
7.0%
5.8%
30,000.00
10,000.00
8.1%
25010
40,000.00
20,000.00
8.1%
1.0%
0.0%
% of GDP
Source: NTDPC, ICICIdirect.com Research
Page 3
Activities in the Indian logistics sector can be broadly divided into

transportation, warehousing, freight forwarding and value added services.
Freight traffic is ~1900 billion tonne km. Road contributes 60% of the total
freight traffic, which can be attributed to its ability to facilitate last-mile
reach.
Exhibit 7: Freight transport modal contribution
8%
Exhibit 8: Service contribution around logistics
1%
8%
6%
31%
24%
62%
60%
Road
Rail
Water
Air
Transportation
Warehousing
Freight Forwarding
Value Added Services
Within the industry, the road transportation segment (the largest mode of
transport) is highly fragmented. However, with the changing demand and
needs of new businesses, the logistics model will need to evolve. New
transportation businesses like project logistics, outsourced warehousing,
third and fourth party logistics and cold chain have started to generate
higher value. As reflected in exhibit 9, the logistics service provider will
get higher value with a shift in services offered from freight forwarding to
third party logistics. It also compares the inefficiencies of various modes
of transportation vis--vis global capabilities. The shift from pure play
warehousing and transportation to outsourced logistics may result in
differentiated business models among various available players.
Exhibit 9: Comparison India, US and China
India
USA
China
GDP composition
Agriculture & allied services
17%
1%
10%
Industry
18%
20%
47%
Services
65%
79%
43%
Logistics as % of GDP
13%
8.50%
18%
Transportation cost as % of GDP
8.20%
5.30%
9%
Warehousing as % of GDP
3.80%
2.80%
6%
1%
Auto components, Textile,
Pharmaceuticals, Cement
Inadequate road networks
Losses during transportation
0%
Food & Beverages
E-Commerce
High employee costs
2%
Metals, Cement,
Textile, Electronics
High toll charges
Shortage of trained manpower
Other logistics cost as % of GDP

Major Industries driving the logistics sector
Major Challenges
Total containers handled at ports (mn TEU's)
Containers handled by busiest ports (mn TEU's)
Road network (mn km)
9.9
42.9
139.7
4.3 (43% bu JNPT)
7.9 (18% by Los Angeles)
31.7 (23% by Shanghai)
4.8
6.5
1173
1727
7018
Rail network (kms)
64000
228513
66239
Weight of goods moved annually per km. of rail line
14750
8293
59331
Weight of goods moved annually per km. of road
Source: Knight Frank, ICICIdirect.com Research
Page 4
Exhibit 10: Value configuration of transportation & logistics sector

Modes of Transportation and their ineffeciencies(Cargo movement in Billion Tonne kilometres BTKM)
Water (8% of BTKM)
Turnaround time 84hrs v/s 10-15hrs

Global
Port containerization 50% v/s Global 70%
Four ports contribute 82% of the raffic
Road (60% of BTKM)
Rail (31% of BTKM)
Highway Length 66590 kms Global

1900000 kms
Average truck speed 30kmph v/s Global60kmph
Four Lane 7000kms v/s China 34000
Freight movement down from 60% in

1980 to 31% in 2014
Rail freight network 668 btkm v/s 2500
btkm in China
Average speed 50km/hr v/s 90km/hr
Air (1% of BTKM)
Aviation turbine fuel % of operating cost 40% v/s 25% Global.

Waiting Time Exports 50 hrs v/s 12 hrs
Global & Imports 182 hrs v/s 24 hrs Global
Service / Operations
Freight Forwarding
Offering includes movement of cargo from the

manufacturer to distributor. This involves activities like
contracting with a carrier for movement of goods,
booking of available space, preparation of documents,
freight consolidation, etc.
Contract Logistics & 3PL
Express Logistics
Offering includes outsourcing of logistics activities to

third party players. The companies also handle
activities like designing and planning of supply chains,
warehousing, processing orders, packaging and
collecting payments.
Offering includes time bound movement of

goods/parcels from one place to another. It includes
documents, parcels with weight from 500gms to 20kgs.
It also involves B2C arrangements where door to door
services are offered.
Value configuration
Logistics outsourcing in India stands at 52% of the overall transportation

and logistics market activity. The change in demographics and
consumption patterns of customers is expected to demand enhanced
sophistication in logistics infrastructure and services across all modes of
transportation. The methodologies are expected to be at par with
international standards to make the industry more competitive and
service oriented. In terms of transportation, various infrastructure
development projects related to road, rail and ports like construction of
highways, dedicated freight corridor (DFC), motivating costal shipping
are expected to provide the much needed impetus to the logistics
industry. Additionally, simplifying regulations with regards to GST and toll
collections will have a multiplier effect on the growth rates of existing
logistics players. In return, these players will be required to make
additional investments in terms of building up capacity and capability.
Burgeoning growth from the e-commerce and cold chain segment will
necessitate commodity and geography specific storage and
transportation assets. With this shift, organised players with their
expertise and ability to fund investments would be able to capture the
market of unorganised players.
Exhibit 11: Industry dynamics and its coverage
Road Freight
Scenario
Entry Barrier
Growth
EBITDA margins
Express
Coast-toCoast
Container
Haulage
CFS/ICD
MTO
Growth
Mature
Mature
Growth
Growth
Growth Capital
Intensive
Low
High
High
High
Medium
Low
5-10%
20-22%
15%
20%
35%
10-15%
3-5%
8-10%
25%
30%
40%
4-6%
Source: Industry, ICICIdirect.com Research
Page 5
Investment Rationale
Logistics industry set to see paradigm shift!!!
The Indian logistics industry continues to remain at an underdeveloped
state compared to global players. The level of inefficiency in activity has
been very high across all modes of transport. Recent business activity
and changes in consumption pattern will demand an upgradation in the
existing set-up of infrastructure and services. With the transformation of
India into a manufacturing led economy, there would be greater demand
for various processes to manage transportation of goods and services in
innovative and cost efficient ways. An improvement in infrastructure is
expected to lead to a transformation in the logistics industry. This is
expected to lead to faster movement of goods, increase carrier speed,
increase the throughput rate and enhance the loading capacity.
Additionally, innovation in terms of warehousing would also be required
in terms of consolidation of smaller warehouses into large hubs, adoption
of global standards like modular racking & palletisation, technology
automation and value-added services around warehouse management.
With more importance given to the time, cost and efficiency of
deliverables, there is demand for specialised logistics players in the
industry. The transport industry in India can be largely segregated into
transportation, warehousing and outsourced value logistics. An expected
improvement in trade activity, higher demand from varied industries and
higher e-commerce penetration is expected to buoy package volumes
significantly. Cost efficient ways to transport goods, implementation of
GST and shift of the market towards organised player, which form less
than 50% of the industry, are expected to improve the earnings of
existing organised players.
Exhibit 12: Need for specialised logistic players
Cost reduction
81
Focus on core competence
76
71
Improved customer satisfaction

Increase inventory turns
61
Flexibility in operations
46
Expansion into newer regions
36
Reduced capital investment
25
0
20
40
60
80
100
Reasons for Outsourcing logistics activities (% of respondents)
Source: CII survey, ICICIdirect.com Research
The results of the survey showed that 81% of the respondents

outsourced their logistics activities to third party primarily to reduce their
costs. These companies want to focus on their core competencies and
outsource the ancillary work, which would create huge requirement for
specialised and organised players. The parameters will be rated on the
basis of quality, timely and value-added services provided around the
offerings.
Page 6
Elongated distribution mechanism Boon for logistics players

The overall dynamics and rapid revolution of businesses has necessitated
a special focus on emergence of logistics and distribution properties. The
point of sale occurring through multi channel and omni-channel and
fulfilment of the same through same day, next-day delivery, managing
cash on delivery and returns has displaced the traditional role of parcel
operators. As businesses vouch for newer markets and territories, there
will be need to alter the current distribution network, which will give rise
to new class of logistics and distribution networks including mega efulfilment centres, parcel hubs and delivery centres, local logistics depots
and return processing centres. We believe the more elongated the
distribution chains, the higher will be the requirement of logistic
companies to fulfil the same.
Exhibit 13: Evolving distribution mechanism to create new opportunities
Source: Research, ICICIdirect.com Research
Exhibit 14: Freight movement by road transport and Railways (BTKM)

1400
1128
1200
1000
600
467
494
515
545
595
646
400
200
852
766
800
BTKM
The transportation of freight by road in terms of

billion tonne kilometre (BTKM) has increased at a
CAGR of 8% over 2000-12. Further, the freight
movement by road over 2010-12 increased at a
CAGR of 9.3% while for rail it increased 5.4%,
representing a higher preference towards road
transportation
305
312
333
353
381
2000
2001
2002
2003
2004
920
1212
1015
659
411
442
481
2005
2006
2007
521
551
2008
2009
601
626
2010
2011
668
0
Road
2012
Rail
Page 7
Logistics industry: Beginning of high growth phase

The Indian logistics industry has grown at ~16% CAGR over the last five
years. The industry can be largely segregated into various modes like
road, rail, air and water. Owing to the number of players and advantages
of last mile delivery, roads contribute ~60% of industry volumes. Further,
express logistics alone is estimated to have a market share of | 17400
crore. The industry is highly fragmented with ~53% in the unorganised
sector. The unorganised sector comprises small and mid-sized players
dispersed across multiple geographies offering various forms of services.
This fragmentation brings in opportunities for organised players like Gati,
which has the reach and ability to provide an array of services across the
services.
Exhibit 15: Emerging Markets Logistics Index for countries with GDP more than US$300 billion
Rank
Size and Growth
Compatibility
Connectedness
Total Index
1 China
9.80
6.71
6.75
8.09
2 Saudi Arabia
7.21
6.65
6.29
6.76
3 Brazil
8.48
6.06
4.93
6.71
4 Indonesia
8.94
4.95
4.94
6.70
5 India
9.24
4.51
4.68
6.66
Country
6 UAE
4.80
8.80
7.69
6.63
7 Russia
7.62
6.16
5.53
6.57
8 Malaysia
5.93
6.47
6.82
6.36
9 Mexico
7.89
4.63
5.28
6.30
10 Turkey
6.99
5.38
5.30
6.06
11 Chile
5.39
6.50
6.28
5.93
12 Qatar
4.88
8.04
5.90
5.87
13 Oman
4.14
7.63
6.54
5.70
14 Thailand
6.39
4.58
5.15
5.58
15 South Africa
5.52
4.99
5.64
5.46
Source: Transport Intelligence, ICICIdirect.com Research Source: UB presentation, ICICIdirect.com Research
India is considered to be among the top 5 economies in emerging

markets in the Logistics index based on size, business conditions and
attractiveness. Streamlining of operations and higher investments in
infrastructure will ignite growth in the logistics industry.
Page 8
Express industry Shift from unorganised to organised

Currently, more than 50% of the | 17500 crore express market lies with
the unorganised market, which makes it favourable for organised and
recognised players like Gati, to increase its penetration in the same. The
industry is highly fragmented with ~2500 players but very few integrated
players. In the organised segment, the postal department together with
large players comprise the organised portion of the market. While India
Post holds the lions share of the document segment, other organised
players command significant market share in non-document market.
Major domestic players in the organised segments like Gati, BlueDart,
DTDC, First Flight, etc. in collaboration with global majors like KWE, DHL,
FedEx, TNT and UPS constitute the organised express industry in India.
Exhibit 17: Unorganised market forms major portion
10000
| Crores
8000
6000
5210
5660
6070
6648
7830
7050
Exhibit 16: Modal bifurcation of organised markets
9260
8190
6000
4830
5000
4060
4000
3000
4000
2340
2870
3420
2650
2990
3360
2000
2000
1000
0
0
2012
2013
Organised
2014
2012
2015
2013
2014
Air
Unorganised
2015
Ground
Source: CII survey, ICICIdirect.com Research
Exhibit 18: Players and their capabilities in Indian market

35000
33739
30000
25000
21000
20000
17000
15000
10000
8109
7500
3900
5000
10000
5500
6700
879
0
BlueDart
Gati
Fedex India
Domestic locations
DTDC
Work force
First Flight
Page 9
Gati to maintain market leadership in surface express

Gati continues to maintain its market leadership in the express
distribution industry. The express distribution market is currently valued
at | 17500 billion. This can be further broadly divided into the documents
and non-documents segments. Gati remains a market leader in the nondocuments market with ~19% market share. It has a moat around its
business model by providing one-stop solutions to all logistic
requirements from warehousing, freight forwarding, supply chain
solutions, temperature controlled solutions, B2C couriers and fulfilment
centres. With coverage of over 21000 pin codes and 653 districts, the
company has a reach of 99.3% of the Indian geography. Express
distribution derives ~79% of revenues from surface movement. Former
parents association with major auto OEMs gave Gati a head start which
resulted in bulk of the revenues for the auto industry segment. However,
over a period of time, with higher market penetration this dependence
was de-risked followed by a diversified current customer profile.
Exhibit 19: Mode of transport contribution
Exhibit 20: Industry wise contribution
2%
15%
11%
31%
8%
14%
6%
79%
Surface
Rail
Air
13%
8%
Others
Pharma
Textiles
13%
IT Hardware
FMCG
Auto ancillary
Others
Engineering
Gati caters to the logistics requirements of eight of the top 10 auto

companies (Ford, Tata, Hero, Suzuki, etc), top seven of the electronic
companies (Samsung, Canon, Ricoh, etc), five of the top seven
pharmaceutical companies (Cipla, Novartis, Torrent, etc) and three of the
top five FMCG companies (HUL, Dabur, Godrej, etc). Through surface
logistics, the company also carries out transportation of temperature
controlled products. With the company catering to the needs of
diversified industries, its growth rate can be correlated to the
performance of these industries, which further extrapolates to the GDP
growth rate. Gati derives 75% of its business from institutional clients and
the remaining 25% from the retail segment. It provides a credit period of
~60 days to institutional clients. These agreements include the diesel
surcharge clause. The clause benchmarks the Diesel price hike index
wherein the billing is adjusted with a variation in the same. Thus,
customers pay the additional cost calculated by the specified Diesel price
hike index. As majority of the business flows from institutions with
whom Gati has formal agreements, it provides enhanced revenue
visibility and lower tonnage volatility.
Page 10
Pan-India network, multimodal capability to put Gati at vantage point

Gatis wide range of services ranging from freight forwarding,
warehousing, packaging, last mile delivery to reverse logistics caters to a
360* presence in supply chain for customer requirements. We believe
these supply chain activities, if managed by a single player across the
supply chain, would tend to be a value proposition in terms of cost
efficiency and superior quality. We expect Gati to be the market leader in
contract logistics, as it has capability in warehousing, managed transport
and value added service throughout the supply chain in a variety of
industries. Gatis multi-modal and multi-service expertise positions it
as the most favoured player for contract logistics. Gati currently operates
a fleet size of ~4,500,200 reefer trucks through 76 warehouses. The
current asset base is managed by Gati KWE, which commands a market
share of 80% and 50% in greater than 10 kg and 5-10 kg segments,
respectively. It also provides an assured cargo space across multiple air
carriers and has proportionate market share in air logistics. We consider
the network to be next best after Blue Dart as the latter also hold
appreciable market share.
Exhibit 22: Organised ground express market share
Exhibit 21: Organised air express market share
14%
15%
18%
9%
11%
15%
52%
27%
15%
Blue Dart
Competitor 1
25%
Competitor 2
Competitor 3
Blue Dart
Others
Competitor 1
Competitor 3
Competitor 4
Others
Exhibit 23: Multi modal & Multi-service offerings of Gati

Gati is the only organised player to offer
variety of services across the supply chain
logistics
Company Name
Transportation
Road
Air
Services
Rail
Water
Gati Limited
Yes
Yes
Blue Dart
Yes
Yes
TCI
Yes
Yes
Snowman
Yes
Cold Chain Express

-
Yes
Yes
Yes
Yes
3PL
Yes
Yes
Yes
Yes
Yes
Yes
-
On the back of a widespread network managed by multi-modal

capabilities, leadership in surface and incremental revenues from a ramp
up of volumes at e-fulfilment centres, we expect Gati KWEs revenues to
grow at a CAGR of 17% over 2015E-20E. However, the same is expected
to moderate to 10% CAGR in 2020E-25E.
Page 11
KWE Client mining, qualitative synergies for Gatis ambitious strategy

Kintetsu World Express (KWE), the Japanese counterpart of Gatis express
distribution business, currently has a 30% stake in the segment. Globally,
KWE offers freight forwarding services through airlines and shipping
companies. Approximately 54% of revenues are contributed by air while
24% is contributed by sea. In the medium-term, Gati plans to focus on
increasing the market share through sizeable investments in emerging
countries. Gati compliments KWEs requirements by helping it to foray
into surface logistics in emerging markets. Further, KWE provides
logistics services in India through Gati JV to its major global clients like
Sharp, Idemitsu, Sony, Emerson, Pioneer, etc. As global trade activities
will increase these customer synergies will lead to incremental revenues
for Gati. Apart from customer synergies, the capital infusion in terms of
equity is expected to facilitate Gatis growth plans. Apart from quantitative
aspects, the good practices and process of KWE would enhance the
quality of the service at the group level.
Exhibit 24: Kintetsu World Express Revenue statistics
Exhibit 25: Kintetsu World Express Cash & cash equivalent

3500.0
25000
18794
20000
18006
13705
| cr
2000.0
10000
2908.0
2677.7
2637.7
FY12
FY13
2300.3
2500.0
16865
| cr
15000
3000.0
20106
1665.2
1500.0
1000.0
5000
0
482 296
835553
1051 726
965 663
823
FY10
FY11
FY12
FY13
FY14
Revenue
EBITDA
PAT
500.0
0.0
FY10
FY11
FY14
Cash & cash Equivalents
With KWE as the business partner, Gati is poised for growth and
expansion making informed structural changes based on advanced
analytical tools around network and route optimisation. The parents
focus on implementation of various quality improvement techniques like
KAIZEN, 5S and LEAN principles, is expected to augment the quality of
service. These efforts are to minimise the defects and achieve the next
level of quality excellence. The company incurs regular capital
expenditure in terms of automation of processes like installation of CCTV,
tablets & scanners and to reduce defects and improve efficiency of service
levels.
Page 12
E-tailing To bolster medium-term growth

The opening up of the Indian retail industry to e-tailing has fashioned a
big opportunity from small packages. Of the overall retail market size in
India at | 25,28,600 crore, a mere 7% i.e. | 1,76,700 crore is in the
organised segment. Further, the online segment (excluding online
ticketing) has less than 1% market share at | 13,900 crore. Indian retail
urbanisation is rapidly gathering pace with nearly 68 cities expected to
have more than one million population from the current 42 cities by 2030.
As per an Assocham-PwC study, the annual e-commerce spending per
person in India is expected to increase from | 6000 to | 10000. With an
increase in internet penetration through digitisation and higher adoption
of smart phones, the opportunities for e-tailing seem bright.
When the deliveries generated by e-commerce mature they will offset the
falling mail and maturing express volumes for integrators, delivery and
postal companies. Approximately, 50-65% of e-commerce sales generate
physical delivery, necessitating that logistics companies master the art of
business to consumer (B2C) segment. B2C delivery services require a
different delivery infrastructure compared to the business to business
(B2B) segment. The differentiation is in terms of coverage, various touch
points, vehicle size, personnel, routing, etc. Top e-retailers including
international players like Amazon, Alibaba and domestic players like
Flipkart, Jabong and Snapdeal emphasise the importance of delivery
speed, quality, fulfilment and data.
In the last year, major players committed an investment of $3.5 billion in
the Indian market. Another characteristic of the e-commerce business that
is predominant in India is payment through cash-on-delivery (COD) mode.
Around 23% of online shoppers in metropolitan India choose to pay
through the COD mode. This mode of payment is imperative in customer
trust building mechanism. However, return rates are higher in such
transactions. With the favourable age demographic and budding
consumption, the growth potential of Alibaba can be replicated.
Exhibit 26: Opportunity in e-commerce
Exhibit 27: Alibaba revenue growth and margin expansion

9,000
60000
50400
50000
8,000
22400
20000
9100
10000
13900
5554
28.3
27.7
5,000
4,000
31.2
30
25.0
3172
20
3,000
2,000
1,000
836
1011
CY10
CY11
10
0
1500
2400
3800
5800 2011-122012-13 2013- 2014- 2015-16

14P
15E
E
0
FY12
Annual Revenue
FY13
FY14
Operating Margin
Source: Crisil report, ICICIdirect.com Research

Source: Alibaba AR , ICICIdirect.com Research
Indias present online retail market is similar to Chinas market in 2004-05.

With improved internet penetration and growing popularity of smart
phones coupled with a burgeoning middle income group and favourable
demography, we expect the online retail market in India to witness
sharper growth. Temasek Holdings, the Singaporean sovereign wealth
fund with a $180 billion investment portfolio, was an early investor in
Chinas Alibaba. Recently, it invested in Indian e-tailer Snapdeal. with the
expectation that the volume of transactions in the countrys burgeoning ecommerce market will increase six times over the next three to four years.
50
30000
6,000
$ million
33400
47.5
40
7,000
40000
| crore
8505
Page 13
| Lakh crore
Exhibit 28: Estimated growth in E-tailing

5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
4.6
1.9
0.8
2017E
2019E
2021E
Etailing
Gati e-connect revenues Galloping ahead with industry pace

According to Gati, it is one of the top five e-commerce logistics service
provider in India. Keeping in mind, the B2C requirements of the industry,
for the e-commerce division, Gati currently has 500 two-wheelers and
about 320 four wheelers and serves ~15000 pin codes. The company
offers cash on delivery (COD) services in 13000 pin codes. Gati further
intends to deepen the B2C reach by adding another 300 two-wheelers and
200 four-wheelers, adding up to ~1300 dedicated vehicles for last mile
deliveries. Keeping pace with the growth of the industry and a smaller
base, the companys e-commerce revenues witnessed ~10% month on
month (MoM) growth in FY14. Currently, e-connect revenues have grown
at a CAGR of 140% in the last two years and now account for 19% of the
standalone revenues compared to 13% a year ago. The number of
packages delivered and improvement in realisation complimented the
revenue growth.
Exhibit 29: Delivered packages surging with e-commerce revenues (in 000)
1,200
1,000
960
800
800 830
600
400
402
200
163
315 315
295
257
246 264 269
218
199
473
359
431 455
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Source: Company , ICICIdirect.com Research
Currently, Gati has a delivery capacity of 40,000 packages per month.

Apart from last mile delivery, the company also offers integrated supply
chain and value added solutions like e-fulfilment services, packaging
solutions and reverse logistics. By managing end-to-end solutions, Gati
offers premium services like AM PM in metros, which assure same day
delivery. Currently, B2C contributes 75-80% of the total e-commerce
revenues. The company has opened three e-fulfilment centres in Delhi,
Hyderabad and Mumbai of 1.5 million square feet (sq ft), with a handling
capacity of 25,000 packages per day. These fulfilment centres especially
cater to the warehouse outsourcing requirements of e-commerce players.
Within just two quarters of operations, the company is managing 4000
packages/day with |2 crore revenues. Gati plans to add another three
fulfilment centres of ~1.5 mn sq ft with an additional capacity of 25000
packages per day. The capacity at fulfilment centres is added to existing
customer requirements by committing minimum volumes. The ramp up
happening at the packages and deliverable levels, affirm our expectations
that the packages delivered will grow at a CAGR of 32% over 2015E-20E.
However, due to value-added service, the realisation per parcel is
expected to improve over the same period due to higher tonnes carried.
Following the high growth period, we expect the delivered packages to
grow at 16% CAGR and realisation to improve at 1% CAGR over 2020E25E. The above is expected to result in e-commerce revenues growing at
25% CAGR over 2015E-25E.
Page 14
Exhibit 30: Industry-wise cold storage industry

120
100
12
20
92
88
80
80
60
40
20
0
FY12
FY16
Un-organised
FY20
Organised
Gati Kausar Prolonged growth strategy

The domestic retail industry is estimated at | 300000 crore and is
expected to grow at nearly 13% CAGR to | 864000 crore by 2021. Further,
the food & grocery segment forms nearly 60% of the retail industry and
is expected to grow at nearly 14-15%. This is expected to fuel demand for
cold chain and temperature controlled logistics. As the organised retail
industry in India has low penetration (~8% of total market), it provides
significant scope to organised players to increase their penetration as well
as share in the retail industry. Moreover, the Indian food processing
industry, valued at | 750000 crore, is witnessing healthy growth and is
expected to grow at ~17% CAGR over the next two to three years due to
the change in lifestyle and growing number of nuclear families.
The cold chain industry in India is nearly | 12000-15000 crore. It is
anticipated it will grow at a CAGR of ~15-17% in the next three to five
years led by growth in the organised retail segment and maturation of the
Indian food processing industry. With less than 10% of perishable
produces utilising the temperature controlled facility, India falls in the
category of low cold chain adaptation countries, thereby providing
tremendous scope to growth in the segment. In terms of volume, the cold
chain industry in India is estimated at around 30 million tonnes (MT) of
warehousing capacity with nearly 7000-8000 reefer vehicles. With a mere
7% of the organised segment in cold chain warehousing and ~15% in
temperature controlled transportation, growth in the segment is well
supported by overall market growth of 15% and 20% growth in
temperature controlled services.
Exhibit 31: Segment-wise size & products in food processing industry
Size (million
tonnes)
Expected Growth
(%)
Dairy Products
121
Key Products
Value added Milk, Butter, Cheese
Fruits & veg
233
Raw F&V,pulp, canned food
7
18
Segment
Meat & Poultry
11
Poultry, Beef
Seafood
Packaged Products
8.4
Sea food products
|8000 crore
Ready to Eat & Ready to Cook
Source: Snowman RHP, ICICIdirect.com Research
Gati Kausar is currently into the cold storage trucking business through its
current fleet size of ~200 refrigerated trucks. It caters to a variety of
industries across quick service restaurants (QSRs), pharmaceuticals, retail
and agri-food sectors. In Q2FY15, Gati Kausar raised | 150 crore from
Mandala Capital, which was structured as | 30 crore of equity and the
remaining | 120 crore of debt. Leveraging on the demand from the
current trucking clientele, the company plans to set up 10 cold storage
warehouses, comprising a capacity of ~43000 pallets, for which the land
parcels are earmarked and outlay has been decided. We expect revenues
to start contributing from Q4FY16.
Incremental addition of reefer trucks and warehousing capabilities will
provide supplementary revenues to Gati Kausar. Following this, we
expect revenues to grow 40% CAGR over 2015E-20E, with moderation to
16% CAGR over 2020E-25E.
Page 15
Goods and services tax Impetus for organised players like Gati
The Indian logistics industry is plagued by multiple levels of state and
central taxes. The product is prone to double taxation as taxes already
paid on inputs are not adjusted while calculating taxes on the final
product. There are further complications in the form of interstate
transactions, which are taxed separately, for which no input tax credit is
available. The manufacturers need their finished product to be cost
competitive. To avoid these complications, they restrict their transactions
within the state. Thus, introduction of Goods and Services Tax (GST)
remains a much awaited reform, which will simplify these complications
and benefit consumers, producers as well as the government. More than
140 markets have implemented GST in some form or the other. With
numerous benefits at both firm/consumer and economy level, GST is
expected to add over 1% to the GDP. Implementation of GST is expected
to lead to a simplified tax structure with a majority of taxes pooled under
one uniform rate, thereby resulting in more efficient tax administration
and reduction in tax seepages.
Due to multiple taxation issue, firms had resorted to setting up multiple
warehouses in different states. This was adding up to firms costs, as they
were unable to take advantage of economies of scale from using larger
but fewer warehouses. Implementation of GST will overhaul and
compress the entire transportation set-up.
Exhibit 32: Total additional space required for warehousing
2014
2019E
CAGR
Total additional
space required
(2014-2019)
Annual additions
required
Manufacturing
631
939
8%
308
61.6
Consumption
76
115
9%
39
7.8
Exim
211
386
13%
175
35
Total Warehousing
918
1440
9%
522
104.4
Source: Knight Frank Report, ICICIdirect.com Research
It is estimated that under the GST system, tax will be levied on stock
transfers and full credit will be given on inter-state transactions. The
outcome of the same will enable the manufacturer to plan the
warehousing and decisions on the basis of operational and logistics
efficiency. The current supply chain arrangements would be realigned
leading to proximity to manufacturing locales or consumption markets,
resulting into diverse hub and spoke models. Post GST, demand for
warehousing is expected to grow at an annual rate of 9% from the current
918 mn sq ft to 1440 mn sq ft.
Gati, with its widespread reach and warehousing capability, is well
positioned to seize these opportunities. Implementation of GST is
expected to lead to consolidation of widely spread warehouses. In
contrast, free movement of goods and services would necessitate tighter
logistics networks. Gati provides integrated and seamless transportation
and routing of goods through its reach of ~21000 pin codes, 16 major
hubs and 50 additional warehouses stretched across multiple locations.
Page 16
Financials
Strong revenue growth to be driven by ecommerce segment
Gati is expanding its e-commerce delivery capacity at a rapid pace. This
would enable it to grow its e-commerce revenues at a CAGR of 77% in
FY14-17E. On the other hand, its express distribution and supply chain
business under Gati KWE is expected to grow at 15.3% CAGR over FY1417E while its cold chain business under Gati Kausar is expected to grow
at 34.1% CAGR over the same period.
Exhibit 33: Standalone revenue trend
Exhibit 34: Subsidiaries revenue trend
500
254
149
200
79
64 41
193
141
247
203
| cr
400
100
1600
413
300
Gati KWE revenue CAGR FY14 -17E: 15.2%
633
546
600
| cr
2000
FY14 -17E CAGR: 23.2%
700
302
213
117
96
1147
1200
800
1598
1354
782
400
112 55
74 48
46 42
35 45
0
0
FY14 (9 months)
Freight Forwarding
FY15E
Ecommerce
FY16E
Fuel Sales
FY14
(9 months)
FY17E
Total Standalone Revenue
Source: Company, ICICIdirect.com Research: CAGR is calculated based on FY14

annualised number
FY15E
Gati KWE
FY16E
Gati Kausar
FY17E
Others
Exhibit 35: Consolidated revenue trend

3000.0
2397.3
2500.0
2021.7
| cr
2000.0
1500.0
1649.3
1116.6
1000.0
500.0
0.0
FY14 (9 months)
FY15E
FY16E
FY17E
Gati Consolidated Revenue
The share of e-commerce revenues is expected to move up from 3.6% in

FY14 to 12.6% in FY17E while the share of Gati KWE is expected to come
down from 70% in FY14 to 67% in FY17E. We expect the share of Gati
Kausar to increase from 3.1% in FY14 to 4.7% in FY17E as revenues from
the warehousing segment start contributing towards the second half of
FY16E.
Page 17
Improvement in EBITDA margin, controlled fixed cost to spur net profit

growth
We expect consolidated EBITDA to grow at a CAGR of 27.6% in FY14-17E
to | 232 crore in FY17E, primarily on the back of a 214 bps YoY
improvement in EBITDA margins from 7.5% in FY14 to 9.7% in FY17E.
The improvement in EBITDA margin is expected to be driven by
increased proportion of revenues coming from the comparatively high
margin business of e-commerce and cold chain. Also, even in express
distribution, margins are expected to improve through route and network
optimisation. Further, scaling up of warehousing revenues which has
higher margins will further improve the margins.
Exhibit 37: EBITDA and EBITDA margin trend
250.0
19.1
18.5
18.0
200.0
60.0
48.1
40.0
47.8
47.8
47.8
| cr
% to sales
80.0
0.0
9.2
8.7
8.9
9.0
15.7
15.7
15.7
15.5
FY14 (9 months)
FY15E
FY16E
FY17E
Employee Expense
Freight Expense
Raw Material Cost
8.7
7.5
150.0
4.0
2.0
0.0
0.0
FY14 (9 months)
FY15E
Other Expenses
50
22.4
21.7
10
19.4
19.6
0
FY14 (9 months)
FY15E
Interest as % of EBITDA
FY16E
FY17E
Depreciation as % of EBITDA
Source: Company, ICICIdirect.com, Research
| cr
38.6
29.1
25.6
FY16E
FY17E
EBITDA
Exhibit 39: PAT and PAT margin trend
26.2
8.0
50.0
Exhibit 38: Interest and depreciation as percentage of EBIDTA
20
10.0
84.1
30
9.7
9.1
144.1
40
183.5
6.0
100.0
20.0
12.0
232.0
19.5
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
3.5
3.1
2.5
2.1
23.3
42.0
62.5
84.1
FY14 (9
months)
FY15E
FY16E
FY17E
PAT
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
PAT margin (%)
Higher EBITDA generation and control over fixed costs would enable
strong growth in net profit. We expect consolidated net profit to grow at a
CAGR of 39% to | 82.6 crore over FY14-17E and PAT margin to improve
by 136 bps over the same period.
Page 18
100.0
% to sales
Exhibit 36: Expense trend
Debt-equity to remain moderate; return ratios to improve

We expect debt to remain at ~ | 500 crore in FY15E-17E with the debtequity ratio increasing marginally from 0.6x in FY14 to 0.7x in FY17E. The
management has indicated that further expansions would be funded
through equity infusion as they want to maintain low leverage on the
balance sheet.
Exhibit 40: Debt equity trend
0.8
0.7
times
0.7
0.6
0.6
0.6
0.4
FY14 (9 months)
FY15E
FY16E
FY17E
Debt Equity Ratio
With improved profitability, we expect return ratios to improve, going

ahead. We expect RoE to improve from 3% in FY14 to 11.6% in FY17E.
Also, the RoCE is expected to increase from 6.1% in FY14 to 17.4% in
FY17E.
Exhibit 41: RoCE and RoE trend

20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
17.6
14.6
11.1
6.1
11.6
9.4
5.9
3.0
FY14 (9 months)
FY15E
ROE (%)
FY16E
FY17E
ROCE (%)
Company, ICICIdirect.com Research
Page 19
Risks & Concerns

Pledging of promoter holding
Gatis promoters have constantly resorted to pledging their shareholding.
In March 2013, promoter holding was pledged to the extent of 94.8%.
Though over the last two years, the level of promoter holding pledged
has come down to ~50%, such level of pledging creates a risk that the
stock price may correct if the lenders start to sell the pledged shares in
the open market.
Exhibit 42: Pledging trend of Indian promoters
100
90
80
70
60
50
40
30
20
10
0
94.8
82.7
63.2
61.9
49.5
Mar-13
Sep-13
Mar-14
Sep-14
Dec-14
% of promoter holding pledged
Source: Capitaline, ICICIdirect.com Research
Investment in unrelated company managed by promoters

Gati has invested | 19 crore and | 34 crore in equity and unsecured
optionally convertible debentures, respectively, of Amrit Jal Ventures Pvt
Ltd (promoter group company). As per CARE rating, Amrit Jal has a D
rating, which raises concern over the recovery of the said investment.
Delay in capacity expansion
Gati has embarked on aggressive expansion of its e-commerce delivery
capacity along with setting up of cold storage warehouses. Any delay in
implementation of expansion projects would negatively impact the
revenue and profitability of the company.
FCCB conversion may bring in significant equity dilution
The company raised $22.18 million on December 12, 2011 by issuing zero
coupon unsecured foreign currency convertible bonds (FCCB) with a face
value of $1000, listed on the Singapore Stock Exchange. Unless
previously converted, redeemed or purchased and cancelled, the bonds
are eligible for redemption by December 13, 2016 at 132.83% of face
value. Approximately 80% of these FCCBs are held by Goldman Sachs
and they have requested for conversion of these bonds into shares. The
conversion has been set at a price of | 39, with a structured reset clause,
which has been referred to the Reserve Bank of India (RBI) for
clarification. Further, the company is seeking permission for repaying part
of these FCCBs from the disposal of land or QIP.
We believe this will continue to be a major concern as the conversion will
lead to a significant (~26%) dilution in equity. This will negatively impact
investor sentiments and our estimates.
Page 20
Valuation
The logistics industry in India recorded growth at ~17% CAGR in 2009-14
with growth further pegged at 1.2x of the GDP growth rate. Gatis
standalone revenues grew at 10% CQGR over seven quarters, primarily
due to an increase in e-commerce revenues from | 8 crore to | 42 crore
with volume growth of 33% in the same period. Gati, with its leading
market share of ~26%, widespread reach across the Indian geography
and one-stop logistics service provider with parent (KWE) support, is
expected to further expand its market share from the highly unorganised
market in the industry. The theme around e-tailing, cold chain and
implementation of GST is expected to play out in a phased manner and
may result in a multiplier effect on the sectors fundamentals, thereby
providing multiple re-ratings.
As the advantages will be in a phased manner, we have employed the
two phase free cash flow to the firm (FCFF) model over FY14-25E for our
discounted cash flow methodology. We believe Gati will undergo these
two phases of transformation, which will transform the company to a
matured player in the supply chain mechanism. The first phase will be the
high growth phase over FY15E-20E, where revenues will grow at a CAGR
of 18% mainly due to higher volumes from e-tailing segment, additional
revenues generated from fulfilment services and cold chain warehousing
& improvement in realisation on the back of value-added services.
Higher utilisation levels and better infrastructure management are
expected to bring in an improvement in return ratios, thereby improving
the cash flow generation. In the next phase, we have built in a stable
growth period (FY20E-25E), wherein we believe the company will achieve
a normalised growth rate of ~11% CAGR. Thereafter, it is expected to
grow at a terminal growth rate of ~4%. Finally, with a risk free rate of
7.5% and beta of 0.85 together with a market risk premium of 7.5% we
arrive at a cost of equity of 13.9%. For FCFF valuation, we have assumed
a post tax WACC of 12.4%. Our back of the envelope calculation enables
us to arrive at a target price of | 279 (upside potential of 29%) and
recommend BUY.
Exhibit 43: DCF valuation
Valuation
PV of High growth period
PV of Stable growth period
PV of Terminal value
Less: Debt
Add: Cash & Investment
Targeted Market Capitalization
No. of shares
Target Price (|)
| Cr
799.0
707.52
1322.5
(480.22)
85.03
2,433.87
8.73
279
Exhibit 44: Sensitivity to DCF valuation
Terminal
Growth
Rate
278.9
2%
3%
4%
5%
6%
10.0%
264.1
277.8
294.6
315.8
343.2
WACC
11.0%
255.9
269.6
286.4
307.6
335.0
12.0%
248.2
261.9
278.8
299.9
327.4
13.0%
241.1
254.8
271.7
292.8
320.3
14.0%
234.5
248.2
265.1
286.2
313.7
Page 21
Exhibit 45: Peer comparison (Financials)

Sales (| crore)
EBITDA (| crore)
EBITDA Margin (%)
PAT (| crore)
CY13/FY14
CY13/FY14
CY13/FY14
CY13/FY14
CY11/FY12 CY12/FY13 (9 months) CY11/FY12 CY12/FY13 (9 months) CY11/FY12 CY12/FY13 (9 months) CY11/FY12 CY12/FY13 (9 months)
Market
Cap
Debt
Gati
1884
480
1187
1273
1117
166
92
94
14.0
7.2
8.4
42
17
Snowman
1417
150
61
114
153
13
25
38
21.0
22.4
24.8
20
22
Blue Dart
17790
1495
2172
1938
202
309
212
13.5
14.2
10.9
123
191
121
Company
28
Exhibit 46: Global players Operating metrics

Sales ($ mn)
EBITDA ($ mn)
EBITDA Margin (%)
PAT ($ mn)
Company
Market
Cap
Debt
UPS
90813
9864
54127
55438
58232
1343
7034
4968
2.5
12.7
8.5
807
4372
3032
Fedex Corp
49067
4736
42680
44287
45567
3186
2551
3446
7.5
5.8
7.6
2032
1561
2097
CSX Corp
9139
5992
6080
6565
531
552
595
8.9
9.1
9.1
333
349
377
CY11/FY12 CY12/FY13 CY13/FY14 CY11/FY12 CY12/FY13 CY13/FY14 CY11/FY12 CY12/FY13 CY13/FY14 CY11/FY12 CY12/FY13 CY13/FY14
Exhibit 47: Peer Comparison Valuation metrics

P/E (x)
Market
Cap (|
Company
crore)
EV/EBITDA (x)
P/B (x)
ROE (%)
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
FY15E
FY16E
FY17E
Gati
1884
48.8
30.7
22.9
16.0
11.7
9.1
3.0
2.8
2.5
5.5
9.3
11.6
Snowman
1417
34.5
28.5
19.5
15.8
12.3
9.5
1.8
1.7
1.6
5.2
5.9
8.0
Blue Dart
17790
140.4
111.3
80.6
84.5
63.4
48.2
27.3
26.1
24.6
19.4
23.4
30.5
Source: ICICI direct estimates
Page 22
Financial Summary (Consolidated)

Exhibit 48: Profit & Loss
(Year-end March)
Revenue
Growth (%)
Cost of Sales
Employee Costs
Operating Expenses
Op. Expenditure
EBITDA
Growth (%)
Depreciation
EBIT
Interest
Other Income
PBT
Growth (%)
Tax
Reported PAT
Exceptional Items
Minority Interest
Reported PAT (adjusted MI)
Growth (%)
EPS
(| Crore)
FY 13
1,272.9
7.2
171.4
123.6
785.9
109.9
82.2
(19.1)
24.8
57.4
43.7
16.6
30.3
(71.0)
6.0
24.4
(7.1)
(7.6)
9.6
(62.3)
1.1
FY 14 #
1,116.6
(12.3)
174.8
102.7
662.7
92.3
84.1
2.4
22.1
62.0
32.5
10.6
40.2
32.4
11.8
28.3
(4.9)
23.4
16.3
2.7
FY 15E
1,649.1
47.7
258.2
144.3
961.8
140.8
144.1
71.3
36.1
108.0
41.1
13.1
79.9
99.0
20.0
59.9
(3.0)
(15.0)
42.0
111.7
4.8
FY 16E
2,023.5
22.7
317.7
180.3
1,166.7
175.2
183.5
27.3
40.1
143.4
41.4
13.8
115.8
44.9
32.4
83.4
(20.8)
62.5
39.1
7.2
FY 17E
2,397.7
18.5
371.7
216.4
1,366.4
211.3
232.0
26.4
45.7
186.3
45.2
14.6
155.7
34.5
43.6
112.1
(28.0)
84.1
34.5
9.6
Exhibit 49: Balance Sheet

(Year-end March)
Source of Funds
Equity Capital
Reserves & Surplus
Shareholder's Fund
Secured Loan
Unsecured Loan
Total Loan Funds
Deferred Tax Liability
Minority Interest
Source of Funds
Application of Funds
Gross Block
Less: Acc. Depreciation
Net Block
Capital WIP
Total Fixed Assets
Goodwill
Investments
Inventories
Debtors
Cash
Loan & Advance, Other CA
Total Current assets
Creditors
Other Current Liabilities
Provisions
Total CL and Provisions
Net Working Capital
Miscellaneous expense
Application of Funds
(| Crore)
FY 13
FY 14 #
FY 15E
FY 16E
FY 17E
17.3
769.7
787.0
323.3
153.7
477.0
10.7
115.4
1390.1
17.5
755.4
772.8
314.9
165.3
480.2
6.1
117.3
1376.5
17.5
628.5
646.0
283.4
173.6
457.0
6.1
119.7
1228.7
17.5
672.1
689.6
269.2
190.9
460.2
6.1
122.1
1277.9
17.5
737.3
754.8
255.8
210.0
465.8
6.1
124.5
1351.2
564.1
177.0
387.1
24.3
411.4
446.9
20.2
11.8
220.3
46.4
402.9
681.5
66.3
44.2
59.4
169.9
511.6
1,390.1
571.6
192.2
379.4
38.7
418.1
446.9
54.8
11.9
241.4
30.3
373.5
657.0
73.2
43.1
84.0
200.3
456.7
1,376.5
451.6
228.4
223.3
50.0
273.3
446.9
57.5
4.5
248.5
106.5
377.2
736.8
120.2
64.7
100.8
285.7
451.0
1,228.7
501.6
268.5
233.1
50.0
283.1
446.9
60.4
5.5
304.9
192.2
350.8
853.4
148.0
97.0
120.9
365.9
487.5
1,277.9
571.6
314.2
257.4
50.0
307.4
446.9
63.4
6.6
361.3
246.2
354.3
968.4
178.2
111.6
145.1
434.9
533.5
1,351.2
Source: Company, ICICIdirect.com Research; # - FY14 is for a period of 9 months
Page 23
Exhibit 50: Cash flow
(| crore)
FY 13
17.3
5.5
24.8
36.5
13.1
(112.2)
(64.6)
(34.3)
(436.8)
(0.0)
(471.1)
15.3
427.4
442.7
(93.0)
140.1
47.0
FY 14 #
28.3
19.5
22.1
30.9
30.5
8.3
84.3
(28.8)
(0.0)
(34.6)
(63.4)
3.2
0.1
(40.4)
(37.0)
(16.1)
46.4
30.3
FY 15E
57.0
18.9
36.1
74.2
85.4
(3.4)
160.1
108.7
(2.7)
106.0
(23.2)
(166.5)
(189.8)
76.3
30.3
106.5
FY 16E
83.4
18.9
40.1
104.6
80.2
(31.0)
151.8
(50.0)
(2.9)
(52.9)
3.2
(16.5)
(13.3)
85.7
106.5
192.2
FY 17E
112.1
18.9
45.7
138.9
69.0
(60.9)
137.8
(70.0)
(3.0)
(73.0)
5.6
(16.4)
(10.8)
54.0
192.2
246.2
(Year-end March)
Per share data (|)
FY 13
FY 14 #
FY 15E
FY 16E
FY 17E
Book Value
EPS
Cash EPS
DPS
Profitability & Operating Ratios
EBITDA Margin (%)
PAT Margin (%)
Fixed Asset Turnover (x)
Inventory Turnover (Days)
Debtor (Days)
Current Liabilities (Days)
Return Ratios (%)
RoE
RoCE
RoIC
Valuation Ratios (x)
PE
Price to Book Value
EV/EBITDA
EV/Sales
Leverage & Solvency Ratios
Debt to equity (x)
Interest Coverage (x)
Debt to EBITDA (x)
Current Ratio
Quick ratio
90.9
1.1
4.0
0.6
88.6
2.7
5.2
1.8
74.0
4.8
9.0
1.8
79.0
7.2
11.8
1.8
86.5
9.6
14.9
1.8
6.5
0.8
0.9
3.2
58.7
141.9
7.5
2.1
0.8
3.9
75.5
145.7
8.7
2.5
1.3
1.0
55.0
170.0
9.1
3.1
1.6
1.0
55.0
170.0
9.7
3.5
1.8
1.0
55.0
175.0
1.6
7.1
5.4
3.0
6.1
4.9
5.9
11.1
9.2
9.4
14.6
10.9
11.6
17.6
12.9
46.0
0.6
10.6
0.7
80.5
2.4
27.8
2.1
44.9
2.9
15.5
1.4
30.1
2.7
11.7
1.1
22.4
2.5
9.1
0.9
0.6
2.4
5.8
4.0
3.9
0.6
3.3
5.7
3.3
3.2
0.7
4.4
3.2
2.6
2.6
0.7
5.4
2.5
2.3
2.3
0.6
6.1
2.0
2.2
2.2
(Year-end March)
Profit after Tax
Less: Dividend Paid
Add: Depreciation
Add: Others
Cash Profit
Increase/(Decrease) in CL
(Increase)/Decrease in CA
CF from Operating Activities
(Add) / Dec in Fixed Assets
Goodwill
(Inc)/Dec in Investments
CF from Investing Activities
Inc/(Dec) in Loan Funds
Inc/(Dec) in Sh. Cap. & Res.
Others
CF from financing activities
Change in cash Eq.
Op. Cash and cash Eq.
Cl. Cash and cash Eq.
Exhibit 51: Ratios
Source: Company, ICICIdirect.com Research; # - FY14 is for a period of 9 months
Page 24
RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them
as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional
target price is defined as the analysts' valuation for a stock.
Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;
Buy: >10%/15% for large caps/midcaps, respectively;
Hold: Up to +/-10%;
Sell: -10% or more;
Pankaj Pandey
Head Research
pankaj.pandey@icicisecurities.com
ICICIdirect.com Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No. 7, MIDC,
Andheri (East)
Mumbai 400 093
research@icicidirect.com
Page 25
ANALYST CERTIFICATION
We /I, Bharat Chhoda, MBA and Ankit Panchmatia, MBA, Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately
reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this
report.
Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is
a wholly-owned subsidiary of ICICI Bank which is Indias largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general
insurance, venture capital fund management, etc. (associates), the details in respect of which are available on www.icicibank.com.
ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking
and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts
and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.
The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and
meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without
prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.
Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended
temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this
company, or in certain other circumstances.
This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This
report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
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ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment
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It is confirmed that Bharat Chhoda, MBA and Ankit Panchmatia, MBA, Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding
twelve months.
Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.
ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the
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Initiating Coverage

Comparative return matrix (%)

Gati Ltd (Gati), a market leader in Indian surface logistics is well

YoY Growth (%)

Capitalising on contemporary logistics!!!

Research Analysts name

ICICI Securities Ltd | Retail Equity Research

Exhibit 1: Key Financials

Exhibit 2: Shareholding pattern Q3FY15

Source: Company, ICICIdirect.com Research

Gati is a leader in the surface express segment with a substantial market

Exhibit 3: Corporate structure

W holly O w ned Subsidiaries

Freight Forw arding

Source: Company, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Overview of Indian logistics sector

Source: KPMG, ICICIdirect.com Research

Logistics is an important component of the global business ecosystem.

Domestic Logistics Costs

Source: World Bank, ICICIdirect.com Research

For the effective development of the industry, infrastructure and

Source: NTDPC, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Activities in the Indian logistics sector can be broadly divided into

Exhibit 8: Service contribution around logistics

Source: Company, ICICIdirect.com Research

Value Added Services

Source: Company, ICICIdirect.com Research

Transportation cost as % of GDP

Other logistics cost as % of GDP

4.3 (43% bu JNPT)

7.9 (18% by Los Angeles)

31.7 (23% by Shanghai)

Rail network (kms)

Weight of goods moved annually per km. of rail line

Weight of goods moved annually per km. of road

Source: Knight Frank, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Exhibit 10: Value configuration of transportation & logistics sector

Turnaround time 84hrs v/s 10-15hrs

Road (60% of BTKM)

Rail (31% of BTKM)

Highway Length 66590 kms Global

Freight movement down from 60% in

Air (1% of BTKM)

Aviation turbine fuel % of operating cost 40% v/s 25% Global.

Offering includes movement of cargo from the

Contract Logistics & 3PL

Offering includes outsourcing of logistics activities to

Offering includes time bound movement of

Logistics outsourcing in India stands at 52% of the overall transportation

Source: Industry, ICICIdirect.com Research

ICICI Securities Ltd | Retail Equity Research

Focus on core competence

Improved customer satisfaction

Expansion into newer regions

Reduced capital investment

Reasons for Outsourcing logistics activities (% of respondents)

Source: CII survey, ICICIdirect.com Research

The results of the survey showed that 81% of the respondents

ICICI Securities Ltd | Retail Equity Research