Mumbai: Secunderabad-based logistics company Gati Ltd on Monday signed an agreement with Kintetsu World Express Inc. (KWE) to set up a joint venture in which the Japanese company will invest Rs 267.7 crore for a 30% stake.
Shift in progress: Gati CEO Mahendra Agarwal says the express distri- bution and supply chain business will be transferred to the new JV.
KWE, according to a media statement, is a Tokyo Stock Exchange-listed company offering air and ocean freight services with a presence in 32 countries. KPMG Corporate Finance was the exclusive financial adviser to Gati and the transaction will be completed in the next two months.
“We will transfer our express distribution and supply chain business to the new joint venture” in which Gati will hold a 70% stake and KWE the rest, said Mahendra Agarwal, founder and chief executive officer of Gati. The business unit will operate under the name Gati-Kintetsu Express. Agarwal said debt worth Rs 330 crore will be transferred to the new venture and the rest will be brought under the coastal shipping business. As of 30 June, the company’s consolidated debt was Rs 468.34 crore.
Agarwal said the funds raised from the KWE transaction will be used to reduce debt and the joint venture will be consolidated in Gati’s financials. Gati Ltd will be the holding company and will control the subsidiaries. “Besides, Gati will own land and properties across the country and manage the e-commerce business, which is the road ahead,” Agarwal said.
The partnership will enable KWE to further expand and strengthen its global operations, with the Indian market increasingly growing in size and importance, said Satoshi Ishizaki, chief executive officer of KWE.
Gati dropped 9.99% to Rs 41.90 on Monday on BSE. The benchmark Sensex rose 0.14% to close at 17,772.84 points.
The move is part of the company’s plan to restructure its business by creating three strategic business units and introducing investors in each of these. The units include small parcel and warehousing (express distribution and supply chain management), coastal shipping, and cold-chain services.
“We are exploring the induction of a strategic investor in our coast-to-coast shipping business, too. But there are no immediate plans to induct an investor in our cold-chain business,” Agarwal said.
On Friday, Mint reported that Gati was in talks with potential investors to sell a stake of up to 25% and that it was likely to close the deal with an Asian investor. The report added that Gati was talking to private equity investors as well.
Leading logistics companies such as Allcargo Logistics Ltd and Transport Corp. of India Ltd have been separating their various businesses into discrete units.
For instance, Allcargo Logistics has created an umbrella brand called Avashya Group that will have units for project logistics, warehousing, ship chartering and container freight stations.
Transport Corp. has created Group TCI as the holding company that runs business divisions including surface transport, express distribution, warehousing, freight forwarding and coastal shipping.
“Most Indian logistics companies have invested significant focus and effort on creating a network organically but often through buying top line inorganically. If this focus on top line has left profitability eroded, it might be useful to find a partner with a desire for top line as deep as their pockets,” said Gautami Seksaria, founder and partner, Supply Chain Leadership Council, an organization of logistics professionals in India.
At least four mergers and acquisitions (M&A) deals were announced by Indian and Japanese companies in January. Mitsubishi Electric Corp. acquired Pune-based Messung Group, a manufacturer of programmable logic controllers and human machine interfaces, while Nippon Life Insurance Co. purchased a 26% stake in Reliance Capital Asset Management Ltd, the mutual fund arm of the Anil Ambani-controlled Reliance Group, for Rs 1,450 crore.
According to Bloomberg, Japanese companies have been involved in 18 transactions in India valued at $990.69 million in calendar year 2011. In shipping and logistics alone, there have been 12 investments, of which five transactions have been valued at a total of $115 million, according to Venture Intelligence, a research service focused on PE and M&As.
The logistics sector has been seeing increased private equity interest in recent months. General Atlantic Llc announced an investment of $104 million in Mumbai-based Fourcee Infrastructure Equipments Pvt. Ltd on 9 January. India Equity Partners invested an undisclosed sum to acquire the domestic road operations of freight and logistics company TNT Express in India on 5 January.
Warburg Pincus India Pvt. Ltd invested $100 million in Chennai-based logistics firm Continental Warehousing Corp. Ltd on 11 April 2011, and Aegis Logistics Ltd raised Rs 64 crore from Kaup Capital’s Infrastructure India Holdings Fund Llc on 25 February 2011.
pr.sanjai@livemint.com
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