CARE has retained the ‘PR 1+’ [PR One Plus] rating assigned to the Rs.25 crore Commercial Paper (CP) /Short-term Non-Convertible Debenture (NCD) programme of Gati Limited (Gati). The CP/NCD issue will be carved out of the working capital limits. Instruments with this rating would have strong capacity for timely payment of short-term debt obligations and carry lowest credit risk.

The rating derives strength from Gati’s comfortable liquidity position following the equity infusion, its established position in express cargo industry, rich experience of its promoter, multi-modal transportation network, wide reach, improved IT infrastructure, improved profitability of cargo as well as shipping business and overall good prospects for logistics industry.

Gati is mainly engaged in transportation of goods through all modes of conventional transportation viz., air, road, rail and sea-way (shipping) and provides services ranging from traditional point-to-point transportation to complex end-to-end integrated logistics and supply chain management solutions. Gati operates out of its three divisions viz., Express Distribution and supply chain (EDSC), Coast-to-Coast (C2C) and Fuel Station division (FSD).

Gati operates through a network of 'hub' and 'spokes' and has a reach in 594 districts out of 602 in the country. Gati also has overseas offices in some Asian countries like Sri Lanka, Nepal, Singapore, Hong Kong, Mauritius, Thailand and China and has tie-ups with overseas service providers. Gati has incorporated wholly owned subsidiaries in Singapore, Hong Kong and Mauritius under the holding company Gati Holdings Ltd., incorporated in Mauritius and wholly owned by Gati. It has increased its shipping fleet during FY’06 and has decided to hive off FSD into four separate companies. While the demerger of fuel stations into separate companies would lead to a decline in the Gati’s income base, the same would improve the overall profitability considering the very low margins of FSD. The company also has good IT infrastructure in place that provides cargo tracking facility apart from offering various other value-added services.

Gati’s gross operating income grew by 27% in FY’06 to Rs. 456 cr largely due to higher growth in the income of EDSC division and C2C division. PAT was up by 93% in FY06 to Rs.20cr on account of the increased volume and margins. Gati’s profitability has seen continuous improvement during the last few years.  PAT margin was up from 2.89% in FY05 to 4.4% in FY06. Overall gearing ratio after adjusting for group exposure decreased substantially to 0.58 as on June 30, 2006 from 1.52 as on June 30, 2005, mainly due to increase in the tangible net worth. Interest coverage ratio increased from 3.77 in FY05 to 5.97 in the FY06, on the back of improvement in profitability and stagnant interest expenses.

Gati's current ratio improved to 1.50 as on June 30, 2006 due to utilization of equity proceeds for repayment of short term loans. Average collection period improved marginally from 42 days for FY’05 to 39 days for FY’06 largely due to improvement in the collection period for EDSC and C2C divisions as a result of increased focus on collections.

Sourced From: Careratings