Buy this small-cap logistics stock for 116% potential gains, with a return of more than 100% in 3 years

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Stock overview

On 21 June 2022 Gati Ltd shares closed at Rs 133.35/share, opened at Rs 131.60/share. As of now, the CMP is trading just Rs 13.35 above the 52-week low of Rs 120/stock and Rs 88.55 below the 52-week high of Rs 221.90/stock.

As mentioned, the stock has returned more than 100% in 3 years, specifically 104.21% return. However, it hasn’t fared well in terms of returns over the last year. In 1 year there was a negative return of 12.41% and in 3 months there was a 12.87% negative return.

Possible gains– The stock has the potential to rise by 116% according to the estimated target price and the CMP.

Sorting Center Farukh Nagar

Sorting Center Farukh Nagar

The commissioning of the Farukh Nagar sorting center has helped improve the service parameters for Gati. Management expects the same to be visible in the West Zone once the sorting center in Mumbai becomes operational by late June, early July ’22; and in the South Zone with the commissioning of the sorting center in Bangalore by December 22nd. Approximately 200 trucks (average tonnage of 12 tons with a minimum of 3 tons and a maximum of 16.5 tons) are handled by the facility. Rent is paid to Allcargo and the facility is BTS, which meets Gati’s requirements and incorporates best practices to maximize throughput.

Management focuses on the improving MSME mix

Management focuses on the improving MSME mix

Management’s focus remains on improving the MSME mix. However, the way to gain a foothold from the 3,000+ MSME customers (many of which are inactive) is through distribution relationships and management does not feel particularly threatened by increasing competition from either new entrants or incumbents. It is also clear that given the nature of MSME operations, the technology can bring very little difference to the incumbents, which can make a difference to Key Enterprise Accounts (KEA), e.g. B. creating an API to upload multiple orders or integration for consolidated e-way invoices. MSME calls for cluster marketing, differentiated engagement and established relationships.

Technology frontend digitization

Technology frontend digitization

The change in management has largely been completed; Technology (backend) is turned upside down. Positioning of the senior resources is largely complete and for our convenience the four experienced gati-ites have been put in charge of the four zones. While lateral entrants were hired to improve the process (e.g. reducing the TAT through route optimization), the core business of service delivery is still in the hands of the experienced staff. While the digitization of the technological front-end is largely complete, management expects the back-end of GEMS (Gati Enterprise Management System) to be migrated from the legacy Oracle platform to microsystems.

ICICI Securities proposes to buy at target price of Rs 288/share

ICICI Securities proposes to buy at target price of Rs 288/share

The brokerage firm said, “We stand by BUY on Gati with a price target of Rs 288/share at 30x earnings in fiscal 2024. We see the potential for a significant improvement in Gati’s return ratios as sales and margin reach their potential. Currently goodwill in Gati (from the past) is ~Rs4.3 crore and assets held for sale are at ~Rs1.8 crore. We show the RoCE development of the company in the chart below (Chart 1), which is adjusted for the same. assets held for sale) is ~47%.”

Company Overview- Gati Ltd

Company Overview- Gati Ltd

Gati Ltd was established in 1989 and is headquartered in Hyderabad. It is one of India’s leading express distribution and supply chain management companies with a strong presence across Asia and coverage spanning all of India. Following the strategic acquisition of Gati in 2020, Allcargo Logistics is now the promoter and the largest single shareholder of Gati with a stake of more than 50%, followed by Japan’s Kintetsu World Express (KWE) with approximately 3.5% stake in the Company. Gati-Kintetsu Express Private Limited (Gati-KWE) is a joint venture between Gati and KWE, in which KWE owns 30% and Gati the remaining 70%.

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