This Small Cap Logistics Stock Grew 231.45% In 3 Years, Buy For 26% Upside, Says Hem Securities

Hem Securities in its recent report rated Gati Limited "buy" for potential gains up to 26% with a target price of Rs 230 per share. It is a small-cap logistics sector stock having a market capitalization of Rs 2,246.64 crore.

Gati Limited, one of India's top Express Distribution and Supply Chain Management firms, is dedicated to satisfying customers with smooth, end-to-end logistics solutions supported by cutting-edge digital tools and technology.

Stock Outlook & Returns

The current market price (CMP) of the Gati stock is Rs 181.95 apiece, today opened at Rs 180.50 apiece. At the time of writing the stock is trading 1.20% up from its previous close. Its 52-week low is Rs 126 and 52 week high is Rs 221.90, respectively.

The stock gained 11.19% over the past one week and 6.85% over the past one month, respectively. It has given 24.99% in the past three months and 3.3% in the past 6 months, respectively. Over the past one year, the stock has gained 20.88% positive return. In the past 3 years, it gave a multibagger return of 231.45% to shareholders. However, in the past 5 years, the returns declined to 59.12%.

Result Preview

Gati Ltd Q1 FY23 consolidated revenues came in at Rs 431 Cr, up by 44% YoY and 14% QoQ.

Op Profit for Q1FY23 stood at Rs 18.98 Cr, up by 450% QoQ.

Op margins for Q1FY23 came at 4.40%, +568bps YoY and +348bps QoQ. PAT for Q1FY23 stood at Rs 6.59 Cr.

Management Commentary

Management has given a Margin guidance of 9% for FY23.

Company will be starting their Mumbai operations in current quarter.

They are planning to launch other similar hubs by the first half of FY24. This will improve their turnaround times and service levels.

Gem 2.0 which is a technological up gradation programme will be completed in next 12-18 months.

Segmental Analysis

Q1FY23 Revenue Breakup: Surface Express contributed 92% to the overall revenue. Whereas, Air and SCM contributed 5% and 3% respectively.

 

 

Concall summary

Company will be looking to get into contract logistics in future after consolidating its position in Express logistics. They have price escalation clause with their customers i.e. when diesel prices go up they pass on the prices to their customers and vice versa. Gati is planning to revamp its franchise model and is looking to add 100 more franchises in next 12 months. They want to hit 10 crore revenue benchmark every month for Air express from current levels of 6 crores every month.

Other developments

Company is running pilot run for pickup and last mile delivery using electric vehicle. In air express 100% customers are linked to fuel price escalation clauses unlike surface express clients.

Valuation & outlook

The brokerage commenting on the stock has said, "We believe company will continue to post good results in the coming few quarters on the back of seasonal demand. Company is expected to become profitable in the current fiscal. National Logistics policy will play a key role as it focuses on reduced turnaround times and technology up gradation. The policy will help organized players like Gati to attract market share and grow at a pace i.e. faster than the industry. We give a "BUY" rating on the stock and value the stock at 30x of FY23E earnings to arrive at a target price of Rs.230."

Disclaimer

The stock has been picked from the brokerage report of Hem Securities. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.