Gati hires consultant for makeover, plans buyouts

Logistics major Gati is in a makeover mood.

From being a company offering logistics and inventory management services, it is working on a strategy to emerge as a multi-modal logistics company by leveraging the strengths of each of its verticals.

It has appointed a global-scale consultant to draw a blueprint for the makeover.

“Acquisitions are going to play a key role in the entire strategy. We are just coming out of the impact of the slowdown and we find an immediate need to rework the scale of operations. Though we are yet to decide on the new corporate structure, the verticals will become entities on their own,” Harry Lagad, executive director of Gati, told DNA.

The company operates various verticals including express services, international, supply chain management, cold storage, distribution and shipping. However, for all reporting purposes, the revenues from each of these verticals are not reported separately. All these operational arms are considered a part of a single vertical called logistics.

“This would change shortly. We are expecting the consultants to give their report in three months. Then we will decide on making the changes. In addition to re-arranging and strengthening the verticals, the focus would also be on making forays into new areas,” he said.

Courier services were a major focus area for the company for many years. However, of late it had realised that the scale of its courier services was not giving it the required returns. “Now, we are looking at acquiring a mid-sized courier company. This supported by our existing logistics network should give us the right scale,” he said.

Similarly, the company is planning to make foray into railway networks. “We are already operating railway freight. But the fact is that there is no proper connectivity to take the freight to critical distances. Developing networks is partly related to infrastructure. But we are working on that,” he said. Improving the scale of operations in air freight too is part of the strategy.

Additionally, the company is giving final touches to its strategy to develop cold storages in Delhi, Bangalore and a location in Maharashtra. “At least two of them should become operational this year,” he said.

“The activity in cold storages is more a value added service than the basic logistics service. There is no problem in transporting the perishables for the first mile. The issue is about the last mile. To meet that gap, we are focusing more on urban locations for setting up of cold storages,” Lagad said.

Shipping and international verticals, too, are being readied for M&A play. “We are evaluating certain targets that would strengthen our existing networks. Even in the international market, we are keen on acquiring mid-sized companies that would bring in more scale to our existing operations,” he said.

Though the cost of the restructuring is yet to be ascertained, it is estimated to be about Rs400-500 crore.

“We are not looking at raising any funds by divesting equity at the parent-company level. The plan is to divest at the vertical level, that too in favour of a partner for strengthening the verticals. We are not thinking of raising funds from PE or any such funding partner by way of divestment,” he said.

The company has a consolidated revenue of about Rs1,000 crore and the restructuring is expected to result in a turnover of Rs2,500 crore by 2015. 

The margins at Ebidta level are still in single digit though the target for 2015 is at about 15-18%.

“Right now, the margins are at single digit primarily due to the increasing input costs,” he said.