The e-commerce division of India’s leading express distribution and supply chain solutions group grew at a rapid rate in the latter half of 2013, and is expected to continue that momentum in coming years, reflecting the advancing importance of e-commerce in India’s economy in general.
Gati’s e-commerce segment reported revenue jumped 128 percent to 250 million rupees year-over-year in the first half of fiscal year 2014, ending Dec. 31, 2013. Gati’s management said the division’s second quarter growth was “outstanding” and it sees “significant” opportunity in this segment, expecting to achieve revenue of 650 million rupees for the full fiscal year of 2014. The company noted that its e-commerce focus for the next quarter will be on air shipments, new packaging and e-fulfillment centers at major cities, as well as launching reverse logistics services.
Sanjeev Jain, Gati’s director of finance, said in a January 2014 conference call that Gati believes logistics to be the “backbone” of the “digital economy,” as customer behavior is changing globally and more people are buying through teleshopping and the Internet.
“There is a huge business potential available in e-commerce,” he said.
Jain noted that the company currently delivers around 15,000 packages per day, and aims to raise that to 30,000 packages per day by the end of 2014.
“We have seen a change in the business scenario over the past quarter, partly because of trade momentum picking up on the macro side and also because we as a company are in a ramp-up mode,” said Mahendra Agarwal, founder and CEO of Gati. “While we are focused on our core business of Express Distribution, we have geared ourselves to tap full potential of e-commerce opportunity and emerge as a leader in the segment.”
India’s e-commerce business jumped more than 80 percent in 2013, and that momentum is expected to continue for the next five to six years, according to the country’s largest e-commerce firm, Flipkart, dna reports. Flipkart is currently running a pilot program to begin delivering packages for its competitors, as the company’s logistics arm eKart Logistics opens services for other e-tail ventures, according to The Economic Times.
The size of India’s e-commerce market in 2013 was around $13 billion, said a joint report by KPMG and Mobile Association of India, and it is expected to reach around $50 billion to $70 billion by 2020, according to Sachin Bansal, co-founder and CEO of Flipkart.
An Ernst & Young report, “Rebirth of E-Commerce in India,” said the main factors driving the growth in India’s e-commerce include a “considerable” rise in the number of Internet users, “growing acceptability” of online payments, proliferation of Internet-enabled devices and “favorable” demographics. The report noted that the number of users making online transactions has been on a “rapid growth trajectory” and is expected to grow from 11 million in 2011 to 38 million in 2015.
U.S. e-commerce companies, such as eBay and Amazon, are also looking to capitalize on the industry’s growth in India, Bloomberg Businessweek reported.
E-commerce, together with its core express distribution business, helped lift Gati’s total profit to 87 million Indian rupees in the second fiscal quarter, rising 11.5 percent year-over-year. Quarterly revenue was 3.70 billion rupees, increasing 10.6 percent year-over-year from 3.34 billion and marking the fifth consecutive quarter of double-digit revenue gain. Gati noted that in December 2013, its express distribution, e-commerce and international divisions attained record revenue of 1.00 billion rupees.
Gati’s management said the “good” quarterly performance was partially fueled by “strong synergy” from its Gati Kintetsu Express Private segment, according to Nirmal Bang’s Institutional Equities Research desk, which hosted Gati’s second quarter earnings call. The express distribution unit, a joint venture formed in February 2012 with Japanese forwarder Kintetsu World Express, posted revenue of 2.61 billion rupees, up 16 percent year-over-year, from 2.26 billion rupees.
“Going forward the JV synergy is expected to grow over 20 percent and improve profitability through cost efficiencies,” the company said in a written statement.
Gati currently has a fleet of about 4,500 trucks in India and runs about 18 parcel trains per month between Kalyan, Calcutta and Guwahati, as well as between Bangalore, Calcutta and Guwahati. The Hyderabad-based company is also the No. 2 cargo airline in India, after Blue Dart, according to Gati.
Gati Kausar, the cold chain solutions division, registered a year-over-year growth of 6 percent, while business revenue stood at 116 million rupees. The company said it plans to set up 10 cold chain warehouses at an estimated 1.20 billion rupees to 1.30 billion rupees of capital expenditure invested over the next two to three years. It also said it plans to expand the segment’s fleet size to 350 vehicles by 2015, for long-haul and secondary distribution primarily through lease model, and focus primarily on consumer foods, pharmaceuticals, retail and agri-foods sectors.
Gati Ship’s business continued to incur losses in the second quarter of fiscal year 2014. Gati transferred all of its shipping assets into a wholly owned subsidiary called Gati Ship and subsequently sold a 40 percent stake in it in May 2013, and also disposed of three loss-making ships. Now Gati Ship has two vessels, which are used for coastal shipping. The plan is to dilute its stake further and remain a minority holder or exit the business completely in the next two to three quarters, Jain said.
“For the last three to four years, we were not making money in this business,” said Sanjeev Jain, Gati’s director of finance, in a January 2014 conference call about the company’s finances. “Gati Ship is still running into losses, but losses have come down significantly in view of selling of the loss-making ships and we believe that the losses should further come down in this year.”
In the first half of fiscal year 2014, net income was 145 million rupees, spiking 480 percent year-over-year from 25 million rupees. Revenue was 7.41 billion rupees in the fiscal year-to-date, increasing 15.6 percent from 6.41 billion rupees.