Gati will scale up the wallet share from a few key accounts as a growth lever for achieving the sales target of Rs 3,000 crore by FY26, Chief Financial Officer (CFO) Anish Mathew told Moneycontrol in an interview.
He said the Key Enterprise Accounts (KEA) are from industries like automobiles, apparel, pharma, electronics and consumer appliances, and fast-moving consumer goods (FMCG). The focus on gaining wallet share from KEAs is to bolster volume growth, he said.
Gati has said in its investor presentation that more than 30 strategic accounts have been elevated to KEAs due to increased wallet share.
Though the company targets to improve volumes by gaining wallet share from some KEAs, the express distribution company is planning to better yields by adding more retail and micro, small and medium enterprise (MSME) customers. It aims to increase the retail and MSME mix to 50 percent combined from 39 percent currently.
Improving the sales mix would not only steer Gati towards better revenue but also better yields, Mathew explained.
Market participants said that the company’s focus on yield improvement and network optimisation is likely to positively impact future margins. The company’s EBITDA margin in Q4 of FY23 expanded by 183 basis points (bps) to 2.7 percent.
Another important growth lever he sees is the synergy derived from Allcargo Logistics’ acquisition of Gati. With the help of Allcargo Logistics and Contract Logistics’ customer base, Gati aims to clock more volume share.
Gati commands about 13-14 percent market share in the organised sector but Mathew pointed out that there is a huge untapped unorganised market. The market-share of Gati in both organised and unorganised sectors together is around 9 percent.
The logistics company had set a revenue target of Rs 3,000 crore, 12-15 percent earnings before interest, taxes, depreciation and amortisation (EBITDA) margin and 20-25 percent return on capital employed (RoCE) by FY26.
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Gati is on a high earnings growth trajectory for the next two-three years, which got initiated post-acquisition of the company by AllCargo Logistics in March 2020, market participants said. The restructuring involves divestment of subsidiaries and unrelated businesses, sale of land and buildings, a significant reduction in debt and contingent liabilities, deep rationalisation of costs, streamlined working capital, and senior leadership changes, which would help the company focus on its core businesses.
The Allcargo Group company is now on a path to regain its leadership positioning through accelerated sales, digitisation and capacity expansion.
Fuel biz sale
Gati has been trying to sell the fuel business for the last two years, but somehow it has not been able to get approval from the oil marketing companies (OMCs), Mathew said.
The Fuel Station segment is managing fuel stations and sells diesel, lubricants, and petroleum products.
The Board of Directors of the company at its meeting held on May 19, 2023, granted an in-principle approval for the sale of its fuel station business consisting of three fuel pumps located at Bengaluru, Belgaum and Indore to wholly-owned subsidiary Gati Projects. This transaction will materialise once the Allcargo Group company gets approval from OMCs followed by formal approval of the Board and the shareholders of the company for the effective implementation of the transaction at a future date.
Mathew said that it is a process, and the company will have to wait for approval from OMCs. Post this, Gati will negotiate on the pricing, go back to the board for approval, and then approach shareholders for final approval. “We have initiated the process of taking approval from OMCs, yet it is difficult to put a timeline on that,” he said.
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“Our intention was very clear since the beginning. We are eagerly waiting to get this approval and sell the fuel business. The proceeds would help us in paying off debts and focus on our core express business,” Mathew said.
Gati had said in November 2022, that it targets to be debt-free by the end of March 2024.
Earlier, the management was using fuel stations as a base for its commercial vehicles. It does not have any trucks of its own now and wants to focus on its core Express business.
“We are talking about a margin of 2 percent compared with a margin of around 27-30 percent. So, there's no point in investing our time on a business, which does not yield any material valuation,” Mathew said. He highlighted that revenue from the fuel business formed merely 5 percent of the total sales of Gati.
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