gati
The growth in e-commerce in India has had a significant impact on the logistics business in India, with Gati’s ecommerce division reporting revenues of Rs 40.7 crore for the nine month period, compared with Rs 25.4 crore the previous year, as per its annual report. As of March 2014, the contribution of e-commerce to Gati’s business had increased to 19%, from 13% in July 2013.  Gati Chairman KL Chugh, said recently that its ecommerce division witnessed a growth of 10% month on month, totalling up to a Compounded annual growth rate (CAGR) of 130%, with major growth coming from Tier 2 and 3 cities across India.

In a May 2014 earnings conference call, its CFO Sanjeev Kumar Jain said that the company was able to exceed its guidance due to the growth in the e-commerce business, for which it had targeted revenues of about Rs 62 crore for the division. “The current run rate of the e-logistics vertical is about Rs 6.8 crores per month,” Jain said on the concall, adding elsewhere that”…in Quarter 1 we did revenue of around Rs. 10 crores. In Quarter 2, we did Rs. 14 crores. In Quarter 3, we did Rs. 16 crores.”

At the moment, we have a dedicated delivery capacity of 16,500 shipments a day, servicing over 7000 pin codes. And as we had mentioned earlier, we are on track to hit about 20,000 shipments a day by June and the target is to do about 30,000 shipments a day by the end of the December quarter.” Gati averages around 14,500 deliveries of its 16,500 delivery capacity.

What people buy online

On the May 2014 concall, in response to a query about how many of the goods purchased online are small items, Agarwal said that it’s been pretty fluid, and there is no set pattern. “But just to give you an idea based on our last quarter to this current quarter, (in) less than 500 grams, we have grown by about 32%. And our major jump has also been: we have seen in the 50 to 100 KG weight slab, which has grown by about 70%.”

Jain, on the concall, said he was surprised with the movement white goods: “…And we are so surprised that people now buy ACs and refrigerators on the net. So this is big development. And as a company, we see a huge opportunity in the white goods. And for Gati, as a group, its expertise lies in handling large parcels.”

Other e-commerce affiliated services 

“Keeping pace with the growing demand of the eTailing industry, one of the main focus areas of the business has been to strengthen its last mile delivery. Challenges that are unique to the industry have pushed the business to deliver tailor made solutions that are particularly customized for each customer,” Chugh said. To this end, Gati has launched services like Gati ePack (packing solutions), Gati ePick model and Gati Reverse Pick-up solutions. “The E-commerce vertical has potential to grow 100% YoY,” according to the company’s annual report.

On the May 2014 conference call, Dhruv Agarwal, VP, Gati, said that “In the month of April, we had revenue of about 60 lakhs that came from the packaging business. And we have opened up packing centers in some of the major metros Delhi, Mumbai, Chennai and Kolkatta. And currently, we are trying to automate part of this packaging in Hyderabad and Delhi. We have also opened up one ship center in Hyderabad and Delhi where Gati goes and picks up the stock and the packages from the various vendors and resellers. And then there other providers come to our warehouse to pick up their part of the packages to deliver to the end customers. In the last nine months, we are seeing a consistent growth in the below 500 gram segment and our network is now suitably geared to handle this small shipments.”

Asset light model, but expanding reach

On the concall, Jain said that “To enhance our network from current 16,000 deliveries per day to 25,000, we are required to make appropriate investments in terms of inducting the people and also creating the network of small offices. So some amount of that cost has gone to building this network and that is impacting EBITDA to some extent. ”

E-commerce is an asset-light model for Gati. The margins are around 12-14%, and increasing, but the company has to invest in hiring more people and growing that business. “So that is impacting the cost. And these costs are not CAPEX. It is operating cost.”…”This is more on outsourced model and this is how this business will grow. But in terms of development, we have already contracted the e-fulfillment centre in Delhi and we have already opened an e-Fulfillment centre in Hyderabad at present.” Jain called the business a highly profitable one.

Gati plans to invest Rs 5-7 crore in IT for the ecommerce segment, as per the May 2014 concall.

Threat: E-commerce companies setting up their own logistics

In its annual report, Gati has pointed out that it has now got extensive reach, in terms of pin-codes that it can deliver to, and a broad delivery capacity that ranges from 50 grams to 50 kg’s, and the capacity to deliver on the same day. However, a key weakness remains a limited air freight network for the company.

A key threat, among those outlined, is that e-commerce companies are shifting to an in-house delivery model. Among its key competitors, the company listed Blue Dart, Aramex, Delivery and “Flipkart’s captive company E-Kart” as key competitors.