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Business News/ Companies / News/  Domino’s Pizza expansion drives Gati unit stake sale
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Domino’s Pizza expansion drives Gati unit stake sale

Gati plans to sell a minority stake to fund its expansion as Domino's Pizza to Nestle drive demand for refrigerated storage

Gati is among companies planning to tap the market in India, where the government estimates about 18% of fruits and vegetables valued at Rs 13,300 crore is wasted annually for want of cold storage.Premium
Gati is among companies planning to tap the market in India, where the government estimates about 18% of fruits and vegetables valued at Rs 13,300 crore is wasted annually for want of cold storage.

Mumbai: The cold-chain unit of Gati Ltd, India’s biggest goods mover by market share, plans to sell a minority stake to fund its expansion as Domino’s Pizza Inc. to Nestle SA drive demand for refrigerated storage.

“Gati Kausar is in talks to partner with overseas investors as it seeks to raise 1,200 crore to build 10 warehouses across the South Asian country over the next three years," vice-president Manish Agarwal said.

“There isn’t much scope to boost sales and profitability if a company just does trucking," Agarwal said in an interview in Mumbai. “There’s a lot of synergy when a company has both transportation and warehousing."

Gati is among companies planning to tap the market in India, where the government estimates about 18% of fruits and vegetables valued at 13,300 crore is wasted annually for want of cold storage. While the US and Thailand use refrigerated trucks to move about 85% and 40% of the farm produce, the figure for India is negligible, according to a study by KPMG Llp.

Wastage, inflation

Prime Minister Narendra Modi, whose administration was sworn in last month, is seeking to improve infrastructure and cut food wastage blamed for runaway inflation.

Gains in consumer prices that averaged more than 10% in 2013 are preventing the Reserve Bank of India (RBI) from lowering borrowing costs, while hindering economic revival after growth slipped to near a decade’s low.

KPMG expects the Indian cold-chain industry, valued at $3.1 billion in 2013, will grow 16% a year in the five years through March 2017. It estimates transportation will rise 18% annually in the same period and the storage industry at 16%.

The outlook for the cold-chain industry has fuelled a rally in the stock of parent Gati, which is the best performer on the CNX 500 Index in the past six months. Shares rose 1.8% to 123.80 as of 10:01am in Mumbai, according to data compiled by Bloomberg. They have almost surged fivefold in the past year versus a 30% gain in the benchmark S&P BSE Sensex index.

Rival Blue Dart Express Ltd., in which DHL Express holds 75% stake, rose 48% in the same period and was up 0.8% at 3,939.05 rupees. Gati leads the non-courier distribution market in the South Asian country, with a share of 19%.

Growth drivers

“Quick-service restaurants and processed foods will be one of the biggest growth drivers," Agarwal said. Gati Kausar’s customers include Jubilant FoodWorks Ltd, the local franchisee of Domino’s, Dabur India Ltd, and the local units of Nestle, Unilever Plc and Mondelez International Inc., according to the company’s website.

Among India’s food-services chains, QSRs and cafes exemplify the most promising and scalable model, CLSA said in a report in July 2013. Outlets including those of Domino’s, McDonald’s Corp. and Yum! Brands Inc.’s KFC have the potential to more than triple their businesses by 2020, CLSA said.

“Jubilant FoodWorks plans to maintain last year’s expansion pace of 150 new restaurants in the year through 31 March," chief executive officer Ajay Kaul said in an earnings conference call on 19 May. “The company declined to comment on its cold storage requirements."

Fleet expansion

“Gati Kausar expects one of its 10 warehouses, with a capacity of 4,500 tons, to start operations this year. The company’s pace of adding refrigerated trucks to its fleet of more than 200 will slow down compared with the previous year’s 65," Agarwal said.

He expects sales to rise as much as 15% in the 12 months ending 31 March over a year earlier. “That may not translate into similar growth in net income due to planned investment in warehousing," he said.

Rival Snowman Logistics Ltd, a unit of Gateway Distriparks Ltd., plans to use most of the proceeds from a planned initial public offering to build six cold-chain warehouses and two ambient warehouses in six cities, according to a draft prospectus filed in August.

Snowman plans to spend 14,200 crores to build the warehouses, according to the filing. Shares will start trading on the exchanges in 2014, Gateway said in its fiscal fourth-quarter earnings statement on 2 May.

“India’s refrigerated transportation is operated mainly by small, non-integrated firms, which do not use modern technology, while as much as 85% of the total storage capacity of 30 million tons is unorganized," according to Prahlad Tanwar, transport and logistics director at KPMG India.

“More than 250 transport operators run about 6,000 refrigerated vehicles in India to move commodities, excluding milk," he said.

“There’s going to be consolidation in the industry and it will take a couple of years for the market structure to change," Gati Kausar’s Agarwal said. Bloomberg

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Published: 17 Jun 2014, 01:53 PM IST
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