Gati Ltd Management Discussions.
Industry Structure & Development
Indian Logistics Sector
Indian logistics sector is presently estimated to be worth around RS 14 trillion and is poised to grow phenomenally over the next two years and reach a size of RS 15.4 trillion billion by 2020, logging 11 per cent compounded annual growth rate (CAGR) in recent years. The logistics sector earned the infrastructure status in 2017 to further drive the investments and support the sector. Between 2018 and 2020, the warehousing segment is poised to receive around RS 50,000 crore investments. Currently, India is ranked 35th in the World Banks Logistics Performance Index (LPI).
In India, the logistics industry continues to grow and prosper due to the improvement in retail, e-commerce, manufacturing and various other sectors. The rise in e-commerce consumption, as well as domestic logistics, also adds to an improvement in the Indian logistics market 2019.
Gatis traditional express distribution strengths stands vastly augmented with significant portfolio expansion now covering warehousing solutions, ecommerce operations, value added transportation, freight forwarding, cold chain solutions and trade inventory management.
Opportunities in Indian Logistics Sector
Economic growth & robust growth in Consumption
The transportation and logistics contribute against the growth of any economy. The global logistics sector is with a valuation of RS 2864 trillion. On average, logistics accounts for anywhere between 8% and 20% of a countrys Gross Domestic Product (GDP). Indias logistics cost represents 13% of GDP. The development in the logistic sector will result in ease of production, and reduce transportation costs and distribution costs.
Growth Drivers for Gati
Gati continues to strengthen its presence and value offering in the express logistics and end to end solutions. There has been a steady growth of number of key accounts, corporate customers and retail market. This has been strongly supported by our deeply rooted customer centricity, technological strength and the high brand equity in the market.
End to End Logistics Services
Gati continuous to grow across its service portfolio and is emerging as a leading end to end logistics provider. Our solutions vary range from express distribution (Surface-Air-Rail), warehousing solutions, e-commerce logistics, M-VATS (point to point bulk and multi point milk run), cross border commerce, freight forwarding, cold chain (Gati Kausar) and basis the customer requirements can be customized and deployed at the right touch points in the supply chain. This upgrade in the DNA of Gati from pure express logistics company to a logistics powerhouse has been accentuated by continuous system changes, regular people training and upskilling, operations enhancements and customer education.
Strong Network & Reach
GATI has been able to reach out to most corners of the India through its widespread network and a long list of partners making it the one of largest logistics company. The company has connectivity to areas like Bay of Bengal, Malacca straits, Arabian sea, Port Blair and operates over 5000 vehicles on road and 4000+ business partners. This network of GATI has enabled it to be one of the strongest players in this industry. The customers requirements are becoming more complex with continuous demand of higher service level. Appointment delivery, Reverse Logistics, Time Specific Pickup and Connectivity, Electric Mobility, Integrated Logistics requirements among many others are now more commonplace. We continue to enhance our fleet of 5000+ across line haul and last mile, increase in routes and transit times, along with continuously increasing warehousing facilities.
Customer Loyalty & Brand Equity
Gati continues to focus on customer retention & enhancement with its best in class logistics services and year over year there is a consistent increase in the count of its loyal and regular customers. We cater to Indian Conglomerates, Large Multinationals and MSME across very diverse industry verticals Automotive, Healthcare & Pharma, Textile & Apparel, FMCG, Electronics & Electrical, Heavy Engineering, E-Commerce, Publishing, Infrastructure, BFSI, Hospitability & Food, Defence, Retail and Education being the key ones. Our new customer service centre in Nagpur was inaugurated in 2019 with improvement in our regional key account & service team to achieve the highest level of customer satisfaction.
Industries across the globe including logistics have been positively affected by technological advancements in areas like digital consumption and interaction of services and data by customer and company, data mining and analytics, real time information flow, security and control, machine learning and automation. Gati has been the pioneer of technology in the logistics industry and with the entry of new age player there is a continuous improvement overall for the industry with a win-win situation. Gati is undergoing a transformation of its technology infrastructure and capabilities with its GEMS 2.0 development and this will set new benchmarks in the Indian logistics space with direct impact on productivity and service levels.
Organized logistics industry share compared to the unorganized is far behind when compared to developed countries. Government Policy initiatives rolled out in the recent years namely GST (and E-way Bill), Make in India, and Infrastructure status to Logistics will really boost the effectiveness of organized player and make it more beneficial for customers to work with organized players.
There are number of external & internal variables and threats which will have a direct impact on revenue, operations and profitability. They range from external factors like fuel prices, competition, economic growth and industrial output across sectors to internal factors like attrition, vendor and partner performance, data and technology risks.
Economic growth has been on the lower side with reduction in industrial output and de-growth in multiple customer verticals in FY19 and a continuation of this trend will directly impact the revenue and profitability of logistics sector including Gati.
Fuel prices saw an abnormal increase during select months in FY19 and this resulted disruption in operations and direct reduction in profitability and any such recurrence in FY20 will impact the company adversely.
Data and Technology Risk across the globe with high sensitivity to customers confidential data was witnessed in FY19. Gati would need to further strengthen its security and data protection measures to shield itself from this potential threat.
New players have entered the market in express distribution market with existing players from the ecommerce and other logistics areas are strengthening their capabilities in the express distribution area. This is inevitably leading to price wars and fierce competition and customer conversions in the Indian market which has relatively slowed down.
Way Forward & Outlook
Gati has embarked towards its vision 2022 of achieving 1 million package deliveries per day and becoming an end to end logistics powerhouse. We have identified Key initiatives covering internal capabilities, winning customer confidence, handling ever changing market dynamics, continuous improvement and innovation. FY19 saw significance progress in these programs with many successful rollouts. We look forward to all these progressive and step changes to further enhance the customer satisfaction and our competitive edge in the market.
Marco-economic factors like GST, E-way Bill, Infrastructure status of Logistics, Integrated logistics Need, Technological advancement will work in the favour of organized players and Gati is geared to benefit for its growth.
As an end to end logistics solutions provider, we have enhanced our integrated solutions offering to cover express distribution, warehousing solutions, M-VATS (Point to Point Bulk & Multi Point Milk Run), cross border commerce, e-commerce logistics, cold chain solutions (Gati Kausar) and freight forwarding. We are finding more and more acceptance and value amongst our customers towards our end to end logistics solution and this will be a key differentiator for us in the coming future.
At standalone level, your Company recorded a revenue of RS 5424 mn, EBITDA of RS 447 mn, PBT of RS 256 mn and PAT of RS 243 mn as against a revenue of RS 5247 mn, EBITDA of RS 886 mn, PBT of RS 407 mn and PAT of H 345 mn in the previous year.
During the year under review, at consolidated level, your Company achieved a revenue of RS 18,792 mn, EBITDA of RS 1103 mn, PBT of H 355 mn and PAT of RS 230 mn as against a revenue of RS 18,792 mn, EBITDA of RS 1,549 mn, PBT of RS 780 mn and PAT of H 391 mn respectively in the previous year.
Risks & Concerns
The Financial and related risks have been comprehensively covered in the Annual Accounts of the Company together with the mitigation strategy of the same.
The present and anticipated future risks are reviewed by the management of your company at regular intervals. The Management takes suitable preventive steps & measures to adequately safeguard your companies resources of tangible and intangible assets.
For more detailed information regarding Financial Performance of the Company you may refer Directors Report forming part of this Annual Report
Internal Control System and their adequacy
Your Company has in place an adequate system of internal controls commensurate with its size & nature of operations, along with well-defined organisation structure & documented policy guidelines & procedures, predefined delegation of authority covering all corporate functions and all operating units. These internal controls are designed to provide reasonable assurance regarding the effectiveness and efficiency of operations, the adequacy of protecting your Companies assets from unauthorized use or losses, the reliability of financial controls, and compliance with applicable laws and regulations.
Adequate internal control measures are in the form of various policies & procedures issued by the Management covering all critical and important activities viz. Contract Management, Operations, Procurement, Finance, Human Resources, Safety, etc. These policies & procedures are updated from time to time and compliance is monitored by Internal Audit Function. Your Company has continued its efforts to align all its processes and controls with global and industry best practices. The internal audit function based on the audits of operating units and corporate functions highlights various risks and provide constructive recommendation on regular basis for the Operating Units to improve on moderate & high risk areas.
The effectiveness of internal controls is reviewed through the internal audit process, which is undertaken for every operating unit and all major corporate support functions under the direction of the Head Internal Audit. The focus of these reviews is as follows:
Identify weaknesses and areas of improvement
Compliance with defined policies and processes
Safeguarding of tangible and intangible assets
Management of business and operational risks
Compliance with applicable statutes
Compliance with the Gati Code of Conduct
The Audit Committee of the Board oversees the adequacy of the internal control environment through regular reviews of the audit findings and monitoring implementations of internal audit recommendations through the action taken reports submitted to them.
A gist of the significant features of the internal controls are:
The Audit Committee comprising of independent directors entirely, regularly reviews the audit plans, significant audit findings, implementations of internal audit recommendations, adequacy of internal controls, compliance with accounting standards as well as reasons for changes in accounting policies and practices, if any;
A well-established and independent Internal Audit team consisting of professionally qualified accountants and functional specialists who are empowered to examine/ audit the adequacy, relevance and effectiveness of the control systems, compliance with policies, plans and statutory requirements
Process narratives and Risk Control Matrix for all of major business processes and testing thereof including financial closing, IT General Controls and Entity Level controls which are reviewed for improvements.
Continual programmes to reinforce the Code of Business Conduct & Ethics is done regularly across the organisation.
Anti-fraud programmes including whistle blower mechanisms are operative across the Company.
The Board takes responsibility for the overall process of risk management throughout the organisation. During the financial reporting period ending MarcRs 2019, your Company has conducted an assessment of the effectiveness of the internal financial control over financial reporting and it has in place, adequate internal financial controls with reference to financial statements, commensurate with the size, scale and complexity of its operations. During the year, such controls were tested and no reportable material weaknesses in the design or operation were observed and the controls are continuously reviewed for improvements
Material developments in Human Resources
Gati strongly believes in nurturing talent and enabling growth internally both in terms of providing higher responsibilities and lateral role changes thus providing job enrichment to Gatiites.
The entire framework of employee facing processes and systems has been redesigned to offer a positive and delightful employee experience. Many transactional HR processes and data analysis have been digitized and simplified, thereby enabling the HR team to focus on the most important aspects of human connect such as employee engagement, employee experience, assessments and development. The same philosophy will be rolled out for many other initiatives in coming years.
HR strategy has an important role to play in the success of Vision 2020. This has been the key guiding principle for attracting talent, building requisite capabilities and skills, motivating, developing, assessing at regular intervals across levels and retaining talent to help Gati master the dynamic market challenges and make the most of opportunities available for leveraging as well strengthening the brand and stakeholder value.
Investing in our employees continues to remain paramount. We support and encourage our people to grow in multiple dimensions enabling them to achieve all they can both professionally and personally. Lasting satisfaction is about combining the intellectual, emotional, personal and social well-being of our employees.
Our L&D framework is designed to fuel future ready resources through structured Capability Development initiatives based on a highly scientific approach, aiming at creating domain expertise and Leadership capabilities across levels and functions. We have initiated various learning interventions to meet talent requirement across various levels and functions such as GTRN (Graduate Trainee) Program, BDET (Business Development Executive Trainee) Program, Back2Basics and PDW (Professional Development Workshop) Program for Associates and Executives; AMTR (Assistant Manager Trainee) Program for assessing and developing the right Front-line Managers with the Framework being named as Discovering the Manager in You; Beyond Managing to Leading, a structured Leadership Development Framework for our Mid-Management level, Coaching on Leadership for Senior Leaders and several such domain-specific and behavioural interventions. We have a diverse talent base of 5000 plus high-calibre Gatiites of which Gen Y comprises 65% of workforce. Our online and classroom based training interventions covered 4500 Gatiites ensuring minimum 2 man days of training for everyone.
We also continuously strive to be more open, transparent and objective in our people processes. Through the annual employee engagement survey, a number of key focus areas were identified and many Gatiites were invited and consulted to create action plans to address areas of concerns. We encourage debate and open dialogue on various processes directly impacting Gatiites which helps us to develop and improvise our people strategy for future. This has resulted in significant improvement in Employee Engagement score vis--vis last year.
|Ratios||FY 2018-19||FY 2017-18|
|Inventory Turn Over||119.96||119.37|
|Interest Coverage ratio||2.69||3.10|
|Debt Equity Ratio||0.15||0.19|
|Operating Profit Margin (%)||9%||15%|
|Net Profit Margin (%)||4%||8%|
|Return on Net Worth||0.03||0.05|
The increase in Debtors turnover indicates better management of Accounts receivable.
Inventory Turnover Ratio:
Inventory Turnover has been effective based on the performance.
Interest coverage ratio:
The ratio is better when compared to previous years which had an exceptions income, indicating ability to meet the debt obligation.
The ratio is similar to last year and includes payables to subsidiary and a one provision made last year on guarantee continuing
Debt Equity Ratio:
There was repayment of debt during the year and therefore the debt equity ratio has reduced.
Operating profit Margin:
Increase in operating profit margin compared to Previous year, which had an Exceptional item of 280 Millions.
Net Profit Margin:
Net profit after tax is at the same level, excluding previous year which had exception item.
Return on Net worth
The ratio is at the same level, excluding previous year which had exception item.
Statements in the management discussion and Analysis report describing the companys objectives, projections, estimates, expectations or projections may be "forward looking statements" within the meaning of the applicable laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the companys operations include economic and political conditions in which the company operates, interest rate fluctuations, changes in Government/RBI regulations, Tax laws, other statues and incidental factors.