ICICI Direct's research report on Gati
FY19 was a year of revival for Gati in terms of revenue and EBITDA growth. Consolidated revenues for FY19 increased by 7% YoY to Rs 1863 crore, while EBITDA grew by 22% YoY to Rs 94 crore. However on the quarterly performance front, Gati’s Q4FY19 revenues remained flat YoY, mainly as 4% de-growth in express distribution and supply chain segment (~80% of the revenues) was negated by 10% and 58% growth in the fuel (16%) and other segment (14%), respectively. After eight quarters, margins clocked 5.7% (previous high at 6% in Q3FY17) signalling improved asset utilisation, cost control measures employed by the management. Subsequently, EBITDA improved 69% and PAT came in at Rs 8.3 crore vs. loss of Rs 5 crore. For year FY19, the statutory auditor has qualified matters pertaining to a) overdue advances of Rs 18 crore given by Gati in the form of advances to two companies (the management is hopeful on recovering the amount) b) Gati has received income tax demand of Rs 21 crore relating to 2012-13 due to disallowance of capital loss for MAT computation.
Outlook
The management has been on the lookout for a strategic/financial partner since Q4FY18. As per media sources, it is in advanced talks with a domestic player. A strategic buyer could supplement the company with newer growth opportunities whereas a financial buyer would aid in improving the company’s balance sheet. Given the uncertainty surrounding the strategic decisions we have a HOLD recommendation on the stock with a target price of Rs 95.
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