Cash on Delivery is now up to around 60% of ecommerce deliveries for logistics player Gati, up from 50% last quarter. While the effect of demonetization on the business has worn off, Bala Agnihotri, Deputy MD at Gati said on the earnings conference call, that there is a residual effect: “The COD residual effect of demonetization is the change of COD business that has come down. If you remember previously we used to share with you numbers of 70%-80%.
It is now stabilized”, at “around 60%.

Q1 wasn’t great for Ecommerce at Gati – it is the weakest quarter of the year for the company, but the year on year comparison doesn’t look good: Ecommerce was down 27.2% year on year to Rs 42.2 crores in Q1 vs Rs 58 crores in Q1 last year (pre-demonetization and GST). Quarter on quarter, even though QoQ isn’t relevant for such a seasonal business, was down 17.6%. This is in comparison with a situation where there was 70-100% growth for Gati, year-on-year. “But in the last year the industry growth fell precipitously low and this is through across all retailers, this is through across all logistics companies in e-commerce space as well.” Gati expects “FY17-18 e-commerce business to be around 30%-35% growth”.

Signals

A few signals from the conference call:
1. “unmistakable pricing pressures also in the e-commerce industry”
2. Larger parcel sizes: “a change that we are experiencing in e-commerce which looks like there is going to be a revival in the interest for large appliance sales through e-commerce,” and “large players are now showing more aggression, more interest in larger appliances”. “The e-commerce industry had moved towards the smaller weight segments”, and this is reflected in Gati’s current parcel mix. Last quarter, parcels less than 3kgs were around 70% of total. This quarter it is 65% less than 3 kg. Last quarter (Q4-FY17), the parcels greater than 5kg were about 20%, and in Q1-FY18, that increased to about 26%.
4. Things are likely to look up, “now that everybody has got some more funding etc. this Q2, Q3 should be much better.” “the peak season is about a month-month and a half away.”

Gati and GST

Gati said it had zero downtime transition to GST across its subsidiaries. “Customers while the transition to the GST
era, are exploring various ways to optimize their supply chains and we at Gati are geared up
well to help address these moves in the short to medium term. Also, the E-Way bill rules are anticipated shortly. This bill requires significant technology intervention in the everyday goods transportation and we expect that this will trigger further movement away from unorganized players to organized players like us.”

“Secondly, we have also introduced a new product called value added transportation. We have done this in the context of GST, starting the month of July. In general, in the past, Gati has been well named for express distribution and also warehousing. Transportation is something that we have stayed away from, but we have carved
out a very niche portion and looked at value added transportation at an additional opportunity. This is a new addition to the portfolio and hence we expect to build this portion of the business
as well in future.

GST impact on Fulfilment Center business

Remember that Gati used to run 6-7 fulfillment centers for e-commerce companies, which brought that business in-house. So Gati decided to set up fulfillment centers for sellers. That business barely took off, and had a negative GST impact: “a couple roadblocks based on because of GST. So in the month of June, customers actually stopped moving much of the inventory into a new business model like Gati Fulfillment Service. July, of course, was also little slow on that front. However, in this quarter is when we will see that starting to pick up. I think we can say that GFS go live in full swing has been delayed by about a quarter and that was primarily due to GST and lot of sellers little hesitant to get into a new model of doing their business.”