ICICI Direct recommended hold rating on Gati with a target price of Rs 75 in its research report dated January 28, 2019.
ICICI Direct's research report on Gati
Revenues for Q3FY19 grew 7% YoY to Rs 481 crore (I-direct estimate: Rs 493 crore). Express distribution & supply chain (EDSC) grew 2% to Rs 378 crore. Growth was supported by 29% and 31% YoY growth in fuel and other sales to Rs 78 crore and Rs 27 crore, respectively EBITDA margins fell 39 bps to 5% (I-direct estimate: 5.1%). Higher operating cost to sales ratio (up 165 bps to 76.9%) was negated to an extent by a fall in employee cost (down 101 bps YoY to 10%) & other expenses to sales ratio falling 24 bps YoY to 8.2%. Subsequently, EBITDA was flat at Rs 24 crore (I-direct estimate: Rs 25 crore) However, higher tax rate (42.8% vs 30.1% in Q3FY18) mainly led to 12% de-growth in PAT to Rs 4.2 crore (I-direct estimate: Rs 6.1 crore).
Outlook
Post, the resolution of the foreign currency convertible bonds (FCCB) issue, Gati would now be able to bring in a strategic investor and raise funds for expansion and/or de-merge its business into separate entities. Given these strategic decisions, we have a HOLD recommendation on the stock with a target price of Rs 75.
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