This logistic stock trading at a discount of 40% from high, buy for 118% upside


Gati Ltd is a logistic-focused small-cap company with a market capitalization of 1,631 crore. On the NSE, Gati Ltd shares reached a 52-week high of 221.90 on January 18, 2022, and a 52-week low of 120.00 on August 23, 2021, implying that the stock is now trading at a 40% discount from its 52-week high of 132 per share. ICICI Securities has issued a buy call on Gati with a target price of 288. This represents a potential upside of 118 per cent from the current level.

ICICI Securities has said in a note that “We visited the Farukh Nagar sorting centre of Gati in Haryana. It’s 113,000 sqft facility is located inside Allcargo Logistics Park. Farukh Nagar has helped Gati consolidate three different erstwhile NCR hubs across 84,000 sqft allowing the benefits of consolidation, cross docking (having 89 bays), dock lever, improved planning for IT integration and better connectivity. According to the management, current infrastructure is adequate to meet Gati’s NCR infrastructure needs for the next 10 years. Gati CEO Pirojshaw Sarkari reiterated the exit revenue run-rate of Rs30bn in three years and the exit FY23E gross margin/EBITDA run-rate of 29/9% and FY24E exit gross margin / EBITDA run-rate of 32 /12-15%, respectively. There will not be any meaningful increase in lease expenses despite Seven new sorting centres coming up as Gati will be giving up old sorting centres.”

The brokerage has said “We maintain BUY on Gati with a target price of Rs288/share, at 30x FY24E earnings. We see the potential of a sharp improvement in return ratios for Gati as revenue and margin reach their potential. Currently, goodwill in Gati (from past) is ~Rs4.3bn and the assets held for sale stand at ~Rs1.8bn.”

The shares of Gati gained today by 1.29% after 5 days of consecutive falls of 3.86%. In one year, the stock has dropped 12.45 per cent, and year-to-date (YTD), the stock has fallen 29.32 per cent so far in 2022. The stock has fallen 19.48 per cent in the last six months and 4.27 per cent in the last month. Gati is now trading at a lower price than the 5 days, 20 days, 50 days, 100 days, and 200-day moving averages. The stock has a P/E of 190.07 and a book value per share of 49.77, implying that it is now trading at 2.67 times its book value.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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