Int costs to fall 50%; see FY13 sales at Rs 1500cr: Gati

Post its joint venture with Japanese company Kintetsu World Express, Gati interest costs to be halved and sees total topline come in at Rs 1,500 crore in FY13.

Speaking exclusively to CNBC-TV18, the founder and CEO of Gati, Mahendra Agarwal says that KWE will infuse Rs 267 crore into the JV for a 30% share, and that these funds will be used to pay off the company’s debts. “Presently for the year 2011-12, we are paying Rs 50 crore as interest cost. Moving forward in the year 2012-13, this interest cost would come down to half, which is Rs 25 crore,” he said. For FY12, Gati reported flat growth in revenues due to poor performance from its shipping business. Going forward, however, Agarwal says that segment will start recording profits. “Shipping business has stopped making losses from June this year, but we are on course to find strategic partner for the shipping business,” he said. He further adds that the profit of the company will come in at Rs 60-70 crore, almost 70% of which is because of extraordinary items like the JV. Below is an edited transcript of his interview with Latha Venkatesh and Gautam Broker. Also watch the accompanying video. Q: Could you take us through the JV and what it means for your business? How much will it add to revenues in couple of years? A: Gati has hived off its express distribution business into a subsidiary to form a Joint Venture (JV) with Kintetsu World Express (KWE), a global logistics and freight forwarding player head quartered out of Tokyo, Japan. The new company, Gati-Kintetsu Express, will operate as subsidiary of the main company Gati, where Gati will hold 70% shares and 30% shares will be held by KWE. Q: What does that do to the balance sheet of Gati, does your debt reduce? A: Yes, KWE is infusing Rs 267 crore for their 30% share and this money will primarily be used to reduce our debt. Presently for the year 2011-12, we are paying Rs 50 crore as interest cost. Moving forward in the year 2012-13, this interest cost would come down to half, which is Rs 25 crore, and the balance Rs 25 crore will straight go down to the bottomline of the company. Q: Your revenues have been flat, so how will things pan out in FY13? A: It is not really that it is flat; it so happened that in the year 2011-12 our shipping business did not do well. Moving forward, we expect shipping business to bring in a topline of Rs 100 crore, which was very marginal and low in the year 2011-12. We have restructured the shipping business. It has stopped making losses and we have hived off the shipping business to another subsidiary. So we expect the shipping business to make profit in the year 2012-13. In the current year, express distribution has grown up by 12%. We expect the total topline of the company to be Rs 1200 crore in 2011-12. Moving forward in the year 2012-13, we are expecting this topline to increase to Rs 1500 crore. Primarily the business would come from supply chain because of the new partnership; we will have access to global customers of KWE like Texas Instrument, Hewlett Packard, Panasonic, Toshiba etc, customers with whom we don’t have access today. We also will have growth coming in from our e-commerce business which is a home delivery business where we are giving extra focus on the business. Of course the primary business of the company would also see better growth than what it has seen in the past. Q: There were also expectations that you would sell some of your stake or deleveage the balance sheet in the shipping business. Is that on the cards or because the shipping business is not performing well? A: As I mentioned, shipping business has stopped making losses from June this year, but we are on course to find strategic partner for the shipping business. We have given a mandate to our consultant to look for good strategic partner which should help to further grow the business. It is not the question of making losses, it is question of how can shipping division add greater value in the total scheme of things In the current year 2011-12, we are expecting bottomline of PAT of Rs 60-70 crore which would also be contributed by extraordinary items coming out of this JV with the Japanese company. Q: How much of this would be extraordinary? A: Almost 60-70% of that would be extraordinary items. For the year 2012-13, we expect the bottomline to be Rs 60-70 crore without extraordinary item. This would give earning per share of Rs 6-7 minimum in the current year and moving forward in the next year too.