Gati's earnings to improve post deleverage of balance sheet

MUMBAI: Hyderabad based Gati has been able to bring down its debt due to restructuring of its operations in the past one year. As a result, the company's earnings are likely to improve in the coming quarters.

In February this year, Japan based KWE bought 30% stake in Gati's express distribution subsidiary for Rs 270 crore. The subsidiary currently contributes nearly 70% to the total revenues of Gati. The deal allowed the company to significantly de-leverage its balance sheet. The company's debt-to-equity, which stood at 1 in June 2011, reduced to 0.67 in June 2012.

The company has planned a capex of Rs 185 crore over the next three years to set up the various supply chain infrastructure. It intends to raise it through internal accruals and disposing part of land worth Rs 200 crore. This would help the company to maintain its growth momentum in the long term.

In year ending June 2012, the slowdown in the economy adversely impacted the company's revenues. Its revenues fell 2% to Rs 1180 crore in year ending June 2012. However, with lower interest expense, a revival in the economy is likely to boost the company's revenues in future.

At current market price of Rs 36, the stock is trading at a price-to-book value of 0.77.