and Elara Securities, which recently visited the group-promoted company’s Farukh Nagar Surface Transhipment Centre (STC), said there is a potential of a sharp improvement in return ratios for Gati as revenue and margin reach their potential.
The two brokerages see the stock rallying up to 108 per cent over the prevailing level but added that corporate restructuring or intensified competition in the sector may pose risks to the stock’s upside.
On an otherwise weak day, shares of Gati were trading 3.64 per cent higher at Rs 138.20 on BSE.
Seasoned investor Mukul Mahavir Agrawal held 5.69 per cent stake in the logistics company as of March 31. His Gati holding is valued at Rs 95.90 crore as of Wednesday’s price.
The company management has maintained its FY23 guidance of double-digit volume growth, 29 per cent gross margin and 9-10 per cent Ebitda margin.
Elara Securities on Wednesday said it has maintained its ‘buy’ rating on the stock, with a one-year forward target of Rs 275, valuing Gati at 30 times FY26 earnings, discounted back to FY23 estimates at a WACC of 15 per cent. WACC refers to weighted average cost of capital.
The brokerage noted that the Farukh Nagar STC is spread across 1.1 lakh sq ft with 89 docks and has a capacity to handle 89 trucks simultaneously.
Prior to this, Gati operated three different hubs with a combined size of 0.8 lakh sqft. That has now been converted into a single hub, leading to a 50 per cent volume rise (since inception).
“This has pared turnaround time (TAT) by 45 minutes for a truck. All inbound/outbound shipment movement from Delhi-NCR now is managed under one roof,” Elara said while noting that north India is one of Gati’s largest markets.
The Farukh Nagar hub also enjoys synergy with
as it is located in the Allcargo Industrial Park. Agrawal entered the Allcargo Logistics counter by buying 3,300,000 shares or 1.34 per cent stake in March quarter, which is valued at Rs 90 crore today.
Elara noted that through FY23, Gati plans to commission STCs in Mumbai (by July), Bengaluru (by December) and Nagpur, Indore and Hyderabad (in Q4FY23) by consolidating existing hubs in respective areas.
“These are crucial to enable handling of large volumes as fewer docks in smaller hubs choke parcels’ express movements during peak hours. The management aims to handle volumes more than the industry average,” the brokerage said on Wednesday.
ICICI Securities said there will not be any meaningful increase in lease expenses despite seven new sorting centres coming up as Gati will be giving up old sorting centres.
The company management said the path to gaining traction from the existing 3,000 MSME customer set — including many inactive customers — is through sales relationships. It does not feel particularly threatened from the incremental competitive intensity either from new entrants or incumbents.
Given the nature of MSME operations, the management feels there’s very little difference that technology can bring for the incumbents, which can make a difference for key enterprise accounts (KEA).
Delhivery has recently acquired Spoton as it wants to make a deeper dent in the express logistics industry But ICICI Securities believes there will be enough opportunities for everyone.
Meanwhile on corporate actions, the brokerage said: “Also, Allcargo is mindful of the current holding company discount that Gati attracts for Allcargo – as clarified by Mr. Shashi Kiran Shetty. As value unlocking starts happening in Gati, a revised structure will be thought of – we hope the corporate action then is a demerger rather than a merger.”
(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)