Buy Gati Corporation: Edelweiss

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Buy Gati Corporation: Edelweiss

Broking house, Edelweiss Research is bullish on Gati Corporation and has maintained buy rating on the stock.

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Gati BSE | NSE 25/05/12 Are Mutual Funds betting on Gati?

Broking house, Edelweiss Research is bullish on Gati Corporation and has maintained buy rating on the stock.

Edelweiss Research report on Gati Corporation:

Gati's Q3FY07 (June ending) results were in line with our expectations on the revenue and profitability fronts. Revenue, at INR 1.3 bn, was up 18.4% Y-o-Y, while net profits, at INR 68 mn, grew by 31.3% Y-o-Y and 60% Q-o-Q. Higher profitability on a Q-o-Q basis is on account of one-time expense of INR 26.5 mn which Gati incurred on brand building and renovation and maintenance of its trucking fleet in the last quarter. Adjusted for this, the company's net profit was flat on a Q-o-Q basis.

Performance of both XPS (express distribution) and coast-to-coast divisions continues to be robust with the former registering growth of 16.7% Y-o-Y at INR 992 mn and revenues for the latter at INR 161 mn grew by 30.7% Y-o-Y and 12.3% Q-o-Q. Growth in the XPS division was fuelled by addition of new contracts and new trucks, whereas growth in the coast-to-coast division was driven by achieving near 100% capacity utilization. Segmental margins improved by 330bps for the former and declined by 420bps for the latter.

Gati has outlined INR 4.5 bn capex over FY06-09E in high margin businesses such as warehousing and coast-to-coast. The capex is expected to provide 45% PAT CAGR over FY06-09E. We expect Gati to register revenues of INR 6.6 bn and INR 8.4 bn in FY08E and FY09E and net profit of INR 446 mn and INR 626 mn during the same period. The stock trades at a P/E of 20.2x and 14.4x our FY08E and FY09E earnings, respectively. With the express industry expected to grow at 20-25% in the coming years and warehousing and shipping divisions to be Gati's next growth drivers, we maintain our 'BUY' recommendation.