By Prashant Tarwadi

India Ratings and Research (Ind-Ra) has downgraded Gati Limited’s (Gati) Long-Term Issuer Rating to ‘IND BBB(ISSUER NOT COOPERATING)’ from ‘IND A-(ISSUER NOT COOPERATING)’ and has simultaneously withdrawn the rating. The issuer did not participate in the surveillance exercise, despite continuous requests and follow-ups by the agency. Thus, the rating is on based on the best available information. Therefore, investors and other users are advised to take appropriate caution while using these ratings. The instrument-wise rating actions are given below:

Instrument Type

Date of Issuance

Coupon Rate (%)

Maturity Date

Size of Issue (million)

Rating

Rating Action

Term loan*

-

-

-

INR798.3

WD

Downgraded and withdrawn

Fund-based working capital limits#

-

-

-

INR450

WD

Downgraded and withdrawn

Non-fund-based working capital limits^

-

-

-

INR50

WD

Downgraded and withdrawn

Proposed fund-based working capital limits

-

-

-

INR200

WD

Withdrawn (the company did not proceed with the instrument as envisaged)

Proposed term loan

-

-

-

INR200

WD

Withdrawn (the company did not proceed with the instrument as envisaged

Note: ISSUER NOT COOPERATING: Issuer did not cooperate; based on the best available information. The rating was last fully reviewed with adequate information on 10 May 2016

* Downgraded to ‘IND BBB(ISSUER NOT COOPERATING)’ from ‘IND A-(ISSUER NOT COOPERATING)’ before being withdrawn

# Downgraded to ‘IND BBB(ISSUER NOT COOPERATING)’/‘IND A3+(ISSUER NOT COOPERATING)’ from ‘IND A-(ISSUER NOT COOPERATING)’/‘IND A2+(ISSUER NOT COOPERATING)’ before being withdrawn

^Downgraded to ‘IND A3+(ISSUER NOT COOPERATING)’ from ‘IND A2+(ISSUER NOT COOPERATING)’ before being withdrawn

The downgrade reflects a sharp erosion in Gati’s operational and financial metrics in FY18. While revenue growth has stagnated, EBITDA margins continued to deteriorate from its historical levels. On a standalone level, the company’s interest coverage (operating EBITDA/total gross interest) declined below 1.0x in FY18 exposing it to debt servicing risk. Also, the company’s debt repayment obligation in FY19 stands high at INR326 million, while cash flows are relatively stretched. Ind-Ra is unable to assess the impact of support extended to Gati Infrastructure Private Limited and the ongoing legal proceeding due to lack of information. However, Ind-Ra derives comfort from additional liquidity avenues available with the company in terms of cash deposits, unutilised bank limits and its refinancing ability.

Despite Ind-Ra’s best efforts, the company has not provided information such as management representation certifying timely debt service, business plans (capex and growth), detailed financial projections, and detailed clarification on support extended to Gati Infrastructure. Gati has also not articulated its future strategy to improve margins and leverage to Ind-Ra.

KEY RATING DRIVERS

Weak Financial & Credit Metrics in FY18: While assigning the ratings in March 2015, Ind-Ra had taken a standalone view of Gati excluding key joint venture (JV) subsidiaries which have strong minority partners, and therefore their cash flow may not be always available to Gati for debt servicing. On a standalone level, Gati’s gross interest coverage and net leverage (net debt/operating EBITDA) deteriorated significantly to 0.5x in FY18 (FY17: 1.0x) and 12x (14x), respectively. In FY18, revenue declined 10% yoy, while EBITDA margins declined to 2.2% (FY17: 4.2%). However, dividend and rental income of INR164 million from subsidiaries may have helped Gati in servicing its debt obligations at a standalone level. Ind-Ra also derives comfort from cash deposits of INR 121 million as on 31 March 2018 and unutilised bank limits of INR450 million as additional liquidity support.

However, Gati’s credit profile is relatively better on a consolidated level. In FY18, Gati’s consolidated revenue growth remained muted at 2.6% yoy (FY17: up 1.4% yoy growth reported in FY17).
EBITDA margins declined to 4.4% in FY18 (FY17: 5.7%; historical average 7%-8%). Interest coverage deteriorated to 1.6x in FY18 (FY17: 1.9x). However, net leverage improved to 3.7x in FY18 (FY17: 4.7x) as the company reached a settlement with its foreign currency convertible bond (FCCB) holders in May 2017, post which it has redeemed one-third of FCCBs for USD10 million while converting the remaining into shares.

Reduction in Promoter’s Stake
: Gati’s credit profile derives strength from its experienced promoters led by Mr. Mahendra Agarwal, who have a significant experience in express distribution and supply chain solutions. However, promoters’ stake has significantly reduced to 24.39% as of June 2018 (June 2016: 30.38%) on account of the FCCB conversion into equity and sale of pledged shares by financial institutions. As of June 2018, the promoters have pledged 77.82% of their shareholding, which increases the risk of a further dilution in the promoters’ stake. Ind-Ra does not have information on the nature and trigger event of the pledged shares.


COMPANY PROFILE

Gati was carved out of Transport Corporation of India in 1989. The company is listed on both BSE Limited and National Stock Exchange of India Limited. The company hived-off its express distribution and supply chain solutions business into a new JV GKEPL, where Kintetsu World Express Inc is a 30% JV partner. On a standalone basis, Gati has three key source of revenue; e-commerce business, fuel stations and management fees from rendering services to its group companies GKEPL, Gati Kausar (cold chain business) and Gati Import-Export Private Limited. Gati also receives regular dividend income from GKEPL in which it holds a 70% stake.


FINANCIAL SUMMARY (CONSOLIDATED)

Particulars

FY18

FY17

Revenue (INR million)

17,358

16,910

Operating EBITDA (INR million)

771

959

Operating EBITDAR (INR million)

 1,456

 1,599

Interest cover (x)

 1.6

 1.9

Net leverage (x)

 3.7

 4.7

Source: Company, Ind-Ra


RATING HISTORY

Instrument Type

Current Rating

Historical Rating/Outlook

Rating Type

Rated Limits (million)

Rating

21 August 2017

10 May 2016

17 March 2015

Issuer rating

Long-term

-

WD

IND A-(ISSUER NOT COOPERATING)

IND A-/Negative

IND A-/Stable

Term loan

Long-term

INR798.3

WD

IND A-(ISSUER NOT COOPERATING)

IND A-/Negative

IND A-/Stable

Fund-based working capital limits

Long-term/Short-term

INR450

WD

IND A-(ISSUER NOT COOPERATING)/IND A2+(ISSUER NOT COOPERATING)

IND A-/Negative/IND A2+

IND A-/Stable/IND A1

Non-fund-based working capital limits

Short-term

INR50

WD

IND A2+(ISSUER NOT COOPERATING)

IND A2+

-

Proposed fund-based working capital limits

Long-term/Short-term

INR200

WD

Provisional IND A-(ISSUER NOT COOPERATING)/Provisional IND A2+(ISSUER NOT COOPERATING)

Provisional IND A-/Negative/Provisional IND A2+

-

Proposed term loan

Long-term

INR200

WD

Provisional IND A-(ISSUER NOT COOPERATING)

Provisional IND A-/Negative

-


COMPLEXITY LEVEL OF INSTRUMENTS

For details on the complexity level of the instruments, please visit https://www.indiaratings.co.in/complexity-indicators.

SOLICITATION DISCLOSURES

Additional information is available at www.indiaratings.co.in. The ratings above were solicited by, or on behalf of, the issuer, and therefore, India Ratings has been compensated for the provision of the ratings. 

Ratings are not a recommendation or suggestion, directly or indirectly, to you or any other person, to buy, sell, make or hold any investment, loan or security or to undertake any investment strategy with respect to any investment, loan or security or any issuer.

ABOUT INDIA RATINGS AND RESEARCH

About India Ratings and Research: India Ratings and Research (Ind-Ra) is India's most respected credit rating agency committed to providing India's credit markets accurate, timely and prospective credit opinions. Built on a foundation of independent thinking, rigorous analytics, and an open and balanced approach towards credit research, Ind-Ra has grown rapidly during the past decade, gaining significant market presence in India's fixed income market. 

Ind-Ra currently maintains coverage of corporate issuers, financial institutions (including banks and insurance companies), finance and leasing companies, managed funds, urban local bodies and project finance companies. 

Headquartered in Mumbai, Ind-Ra has seven branch offices located in Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata and Pune. Ind-Ra is recognised by the Securities and Exchange Board of India, the Reserve Bank of India and National Housing Bank. 

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Applicable Criteria

Analyst Names

  • Primary Analyst

    Prashant Tarwadi

    Director
    India Ratings and Research Pvt Ltd Wockhardt Towers, 4th floor, West Wing Plot C-2, G Block. Bandra Kurla Complex Bandra (East), Mumbai 400051
    +91 22 40001772

    Media Relation

    Namita Sharma

    Manager – Corporate Communication
    +91 22 40356121