ICICI Securities maintains a 'buy' on Gati with a potential upside of over 110%

GATI Ltd. is a small-cap logistics stock with a market capitalization of ₹1,654 crore. It offers surface and air express logistics, warehousing and supply chain, air freight, and e-commerce services. The company has a strong presence in Asia and coverage that spans the whole of India (across more than 19,800 PIN Codes in 735 of India’s 739 districts). After strategically acquiring Gati in 2020, Allcargo Logistics is now the promoter and the single largest shareholder of Gati, its website shows.

Gati's shares have declined 31.24 per cent so far in 2022. The stock has dropped 39.36% from its 52-week high and with Wednesday's closing price of Rs.134, the stock is 11.10% away from its 52-week low. However, Stock gave a 3-year return of 106.2% as compared to Nifty Smallcap 100 which gave a return of 34.32%.

The stock traded at a price-to-earnings (P/E) multiple of 192.71, while the price-to-book value ratio stood at 2.60.

Brokerage firm ICICI Securities said the commissioning of the Farukh Nagar sorting centre in Haryana, a 113,000 square feet facility located inside Allcargo Logistics Park, will allow Gati to consolidate three different erstwhile NCR hubs across 84,000 sq ft, allowing the benefits of consolidation, cross-docking (having 89 bays), dock lever, improved planning for IT integration and better connectivity. It said the management's current infrastructure is adequate to meet Gati’s NCR infrastructure needs for the next 10 years.

Further, the management's focus on enhancing the MSME mix is another positive for the stock. "The path to gaining traction from the existing 3,000+ MSME customer set (many inactive) is through sales relationships, and management doesn’t feel particularly threatened by the incremental competitive intensity either from new entrants or incumbents," ICICI Securities said.

Earlier, Gati reported a 7.3% decline in net sales at ₹376.73 crore in the quarter ending March 2022, down from ₹406.64 crore in March 2021. The quarterly net loss came in at Rs. 22.38 crore in March 2022, up 86.38% from Rs. 164.36 crore in March 2021.

ICICI Securities has maintained a 'BUY' rating on Gati with a target price of ₹288/share. This equates to a potential 114% upside from the current level.

"We see the potential of a sharp improvement in return ratios for Gati as revenue and margin reach their potential." Currently, goodwill in Gati (from the past) is ₹4.3bn and the Assets held for sale stand at ₹1.8bn. “We showcase the company’s RoCE trajectory, adjusting for the same. Adjusted FY24E RoCE (ex-goodwill and ex-assets held for sale) comes to 47%,” ICICI Securities said.

The promoters hold 51.66 per cent of the shares, while foreign institutions own 3.3 per cent and regular shareholders own 43.8 per cent.

An average of 03 analysts polled by MintGenie have a 'buy' call on the stock.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.