Kintetsu JV will help us deleverage, boost profits: Gati

In this joint venture, the external distribution business of Gati would be transferred to a subsidiary, where KWE will hold 30% stake and 70% will be held by Gati, Mahindra Agarwal, managing director and chief executive officer, Gati told CNBC-TV18.

Gati would be transferring Rs 330 crore of debt into the subsidiary. Post this transfer, the company would be left with Rs 130 crore debt on its books. "It will significantly deleverage the company and improve the profitability," he added.

KWE would invest Rs 277 crore in this joint venture.

Below is the edited transcript of Agarwal’s interview with CNBC-TV18. Also watch the accompanying video.

Q: Can you tell us what kind of a JV it is? What does it mean in financial terms?

A: I am glad to announce the signing of this joint venture agreement between Gati and KWE (Kintetsu World Express). KWE is a Japanese company and a global logistics player. In this joint venture, the external distribution business of Gati would be transferred to a subsidiary.

This subsidiary KWE will have 30% stake and Gati will have a 70% stake. The JV will have unmatched distribution services, facilities and IT capabilities among any Indian logistics company. That will result in a significant expansion of KWE's presence and capabilities in India.

Q: What will be the revenue of that express division that you are transferring? What is the kind of debt you are transferring?

A: We are transferring Rs 330 crore of debt into the subsidiary. We are transferring the express distribution and supply chain business into the subsidiary.

With this transfer, we will have under Gati the holding of 70% of the subsidiary, holding of the cold chain business. We will have international business, e-commerce business and all the land and the properties would be in the main company.

Q: How long will this entire process of integration and the completion of this take?

A: We have just signed the joint venture agreement with the president of KWE. The final legal process to take about 1.5-2 months time to complete. Through the business transfer agreement the total business would be transferred to the subsidiary. It will significantly deleverage the company and improve the profitability.

Q: What is the balance debt on Gati’s books?

A: After transferring Rs 330 crore we will have balance debt of about Rs 130 crore. We will have Rs 90 crore coming from the subsidiary to Gati, so substantially it will also take care of that debt in the main company.

Q: What is the revenue of the express distribution unit that you are shifting? What was the share of that unit in the total revenues of Gati? How much money did it make in the last full year?

A: The revenue is almost 85-90% that we had in the main company. Keeping aside the revenue of the shipping division, which we are separately planning to get to another subsidiary. So, the revenue of the total will be left about 10-15% in the main company.

Q: If you are transferring 80-90% of your sales to the joint venture, why is it that you didn’t transfer 80-90% of your debt?

A: No, we are transferring Rs 330 crore of debt and the subsidiary would be paying back to the company about Rs 90 crore. So, then you are looking at about Rs 40-50 crore debt remaining in the main company.

Q: What exactly is the Japanese company paying for taking nearly 30% of your business?

A: The Japanese company is paying Rs 277 crore.