Management Discussion & Analysis Overview of the Economy Global As per International Monetary Fund, Global recovery continues, but at an ever-slowing and increasingly fragile pace. Notwithstanding this cloudier picture of economic fundamentals, financial markets in advanced economies have, at this writing, partially reversed their downtrend of the first weeks of 2016. Some improved data releases, a firming of oil prices, lower capital outflows from China, and decisions by major central banks have all contributed to improved sentiment. The baseline projection for global growth in 2016 is a modest 3.2 percent, broadly in line with last year, as per the latest World Economic Outlook. Growth in China and India has been broadly in line with projections, but trade growth has slowed down noticeably. Indian Economy The Indian economy expanded by 7.6 per cent in financial year 2015-16 to log the fastest growth among larger countries, also outpacing China. While this was also the fastest growth it is generally perceived as an indication of economic recovery gaining momentum. As per International Monetary Fund, growth is projected to notch up to 7.5 percent in financial year 2016-17, as forecast in October. Growth will continue to be driven by private consumption, which has benefited from lower energy prices and higher real incomes. With the revival of sentiment and pickup in industrial activity, a recovery of private investment is expected to further strengthen growth. The Index of Industrial Production (IIP), for the entire financial year 2015-16 fiscal, grew at 2.4 percent, down from 2.8 percent in the brvious fiscal. The IIP decelerated in financial year 2015-16, mainly pulled down by weak manufacturing in an environment of subdued investment demand and weak rural consumption. Indian Logistics Sector Introduction According to 'Indian Logistics Industry 2016 Outlook' a Frost & Sullivan report economic reforms, trade co-operation, improved transportation infrastructure, and industrial growth are ushering in increasing opportunities for the Logistics Service Providers (LSP) in India. Presently, the Indian logistics industry is witnessing development and expansion of its existing infrastructure and emergence of e-commerce-specific logistics solutions; it has strong focus on manufacturing, but also has large brsence of unorganized service providers. The report finds that the industry is likely to grow at a CAGR of 8.6% between 2015 and 2020; it grew at a CAGR of 9.7% during 20I0-2015. The key drivers of this growth are infrastructure investment associated with ports, airports and other logistics development plans, domestic demand growth and increasing trade. Dedicated freight corridor, increased port connectivity and proposed auto hub are likely to increase share of railways in land transport. Despite economic uncertainties, the Indian logistics sector is likely to grow above 6% in 2016. India Logistics issues and challenges Roads are the main source of transportation. Despite major developments in road development in India in the last decade India's investment to develop roads are still insufficient. Worldwide experience says that effective use of rail logistics can be more cost effective, reliable and timely. Rail infrastructure in India though is ignored and is underdeveloped. The development of ports also suffers from a similar story. The rise of the public-private partnership in infrastructure has not helped much and thus the transportation and network costs of doing business in India leads to disadvantage for the Indian firms. This along with huge administrative costs including insurance and government taxes and the inefficiency of the clearing process by border control agencies including customs, makes logistics a costly affair in this country. Despite numerous efforts, we have been able to make only marginal progress as far as Logistic performance indicators are concerned. Emerging opportunities and Trends Good & Service Tax (GST) The Government of India has been taking several steps to rationalise the tax systems in the country.Among the major initiatives of the past being the introduction of Value Added Tax (VAT) System. Subsequent to the success of the VAT regime, the Government embarked on efforts for implementation of a much more refined and globally brferred tax system known as Goods and Services Tax (GST) in 2007. GST is defined as a 'nationwide uniform taxation system' which replaces multiple taxations by central and state governments in a country. The concept is that a specific product or service would have the same level of taxation across the entire country irrespective of being manufactured and sold in different sub-national territories (states). Across the world, GST is the most popular trade tax regime practiced by over 150 countries. Benefits to Logistics Sector due to GST • Centralization of inventory into larger regional warehouses • Move from Local to regional distribution (service levels to areas outside major distribution centers will have to improve) • Shift to larger full truckload movements servicing inventory transfers to the larger warehouses • Improved travel speeds due to reduction in regulatory delays e-tail Logistics Indian e-tailing industry is valued at US$ 17 billion and growing at a CAGR of 35%, fuelled by increasing internet and mobile usage as well as online shopping. Logistics cost in e-tailing is estimated to be 7-9% and with increasing tendency to focus on core competent areas of the business e-tailing companies are more and more de-verticalizing complex logistic services from their core activities. Both the e-retailers and their logistics service providers need to have a very well integrated (seamless) communication system and technology infrastructure along with the physical logistics infrastructure to deal with this dynamic nature of the business. Exbrss transportation and time definite transportation services are a default need of this industry. Lean warehousing with a high efficiency of inventory holding and turnover is also a default expectation of logistics service users of this industry. In addition, usage of value added logistics services such as packaging, labelling, bundling, etc. is significantly higher than traditional channels. Further, brmium logistics service features such as continuous consignment visibility, flexible delivery times, end-to-end reverse logistics flow, are also considered as basic services by industry participants. In order to gain economies of scale and to remain focused on the core business e-tailing companies are outsourcing their order management, logistics and fulfilment services to 3PL partners like GATI. Cold chain Logistics Indian Cold Chain industry valued at ? 24,500 cr. (financial year 201213) is expected to grow at a CAGR of ~28% over the next 4 years and reach a market size of ? 50,000 cr. in 2017. Fruits & Vegetables, items for Quick Service Restaurants (QSR), Dairy, Pharma products, Meat & Fish, Ice Cream & Confectionary and Flowers are the prominent items transported and stored using cold chain logistics. It is estimated that about 104 million metric tons of perishable products are transported between the cities in India every year and of this only 4 million metric ton is transported though reefer mode (Refrigerated Container) thus exposing the test 100 million metric ton to damage at the farm gate, while in transit or depletion in freshness and quality. Review of GATI’s Business GATI was established in 1989. Gati Group is primarily into exbrss distribution, supply chain solutions, e-Commerce & cold chain logistics. Exbrss distribution business & supply chain solutions of the group is managed by Gati-Kintetsu Exbrss Pvt. Ltd. (GKEPL), a Joint Venture (JV) between Gati and Kintetsu World Exbrss, Japan's leading logistics provider. The JV manages the exbrss distribution and supply chain of the group and accounts for 68% of the overall business. Exbrss Logistics Exbrss distribution is time sensitive movement of commercial packages on door-to-door delivery concept and Gati is a pioneer in developing this concept in India more than 25 years back. Over the years, the company has developed multi-model capabilities and delivers more than 70 million packages yearly by road, air and rail. Exbrss distribution division of GATI has over 5000 clients from industry sectors such as Pharma, FMCG, Engineering, Auto ancillary, Textiles & IT hardware. Exbrss distribution division has a combined fleet of 5000 vehicles and a warehousing capacity of 3 mn. sq. ft. e-tail Logistics Quick facts • Help companies access specialized e-tailing logistics expertise • e-tailer can focus on growth and enhancing customer loyalty • Reduced operating costs • Flexibility to match the e-tailer's D2C strategy • Reduce Risks • Eliminate Administrative Headaches • Scale on Demand • Increase customer service levels Leveraging its extensive exbrss logistic network GATI introduced e-tail logistics services in the year 2008 and today it is the fastest growing vertical within the exbrss distribution business. The management is adding new pin codes every quarter of the year. Presently Gati's e-tail logistics have built a capacity to deliver more than 70,000 packets per day. Cold Chain Logistics Quick facts • ISO 9001:2008 and FSSAI certified company • HACCP procedures for safety and brvention of contamination • State-of-the-art modern refrigerated units from France and USA Containers with insulation to withstand the harsh India climate zones • Tamper-proof vehicles to mitigate pilferage risk Unmatched Infrastructure and Network • Fleet comprising of over 200 refrigerated vehicles Load Capacity from 1.3 tonnes to 24 tonnes, temperature range from +25°C to -25°C • Transporting approximately 2,00,000 tonnes annually unmatched network, we covered over 300 districts in India • IT capabilities, Modern Vehicle Tracking System, Data loggers to monitor in-transit conditions throughout the journey • In house capabilities, In-house dedicated solutions team, reefer trucking team and refrigeration team In-house workshop, with inventory of approximately 3000 SKUs Gati Kausar is a prominent player in the fast emerging Indian cold chain industry. The strength of the company lies in its state-of-the-art temperature controlled, integrated transport and storage facilities for agriculture produces, processed food and other temperature sensitive products. Gati Kausar has modern fleet of 187 refrigerated vehicles with advanced climate control systems. Company have also commenced work for its first cold storage warehouse near Gurgaon which will be operational in the financial year 2016-17. Import /Export & Trading Gati Import Export Trading Limited (GIETL), a subsidiary of Gati Limited, offers clients a unique business partnership in domestic distribution management with logistics efficiency as focus. Some of the services GIETL provides are imports/exports of products as importer/exporter of record billing & distribution to end customers and high sea sales management. As IOR/EOR Company provides end-to-end solutions such as international freight forwarding, customs handling, importation of goods, warehousing and last-mile delivery to the end-customer (B2B, B2C) customized solutions for companies not having set up in India but wanting to expand their sales and services. Company also provide unique supply chain solutions to consumer goods companies. Gati International Gati international is the global wing of Gati Ltd. and one of the leading providers of freight forwarding and logistics services, specialized in air freight, ocean freight shipments and associated Supply Chain Management Solutions. Being experts at India centric operations, we have an expansive reach of more than 99% of districts and have a network of 61 warehouses pan India. Backed by in-depth industry knowledge, unmatched reach across India, APAC and SAARC nations, world-class infrastructure, experienced staff and state-of-the-art IT systems, Gati International provides a combrhensive supply chain expertise and logistics infrastructure that work seamlessly to ensure highly cost-effective solutions. To enable seamless multi-modal logistics solution, Gati International has offices in Singapore, Hong Kong, China, Nepal, Thailand and an agency network that spans across I00 countries. Review of GATI's Preparedness against emerging opportunities GST: Overall, simplification of the current indirect tax structure will encourage efficient supply chain management rather than a tax-based network decisions. Gati, being a long term provider of parcel and Light Truck Load (LTL) freight services to industry, will see a corresponding level of organic growth in freight volumes. It is well recognized that the introduction of GST will lead to the centralization of inventory instead of the current network of 20+ warehouses for a traditional pan-India organization, resulting in reduction of inventory. As our customers look to consolidate warehouses into 4-5 regional centers, our 3PL business is gearing up to support this transition to meet the needs of current and future customers. There will be a corresponding shift to full truckload movements servicing inventory transfers to these major warehouses. That being the case, we also recognize that service levels to areas outside these major centres will have to improve, so there will be a corresponding increase in the levels of LTL movements to regional markets that require de-consolidation and more frequent deliveries of replenishment inventory. While our current pan-india network is ideally placed to service these regional needs, we are looking to increase the space available to support LTL cross-dock and de-consolidation services across our network. With the general consensus supporting warehouse rationalization the current national transportation fleet is mismatched as it is dominated by less efficient 9-12 tonne vehicles. Gati is a major consumer of higher capacity fleet assets so securing load capacity either through vendor development or investment in owned assets will be critical. e-tail Logistics: GATI's e-tail logistic services come with the expertise to achieve complex needs in managing customised e-tailing logistics solutions. Leveraging its extensive exbrss logistic network, strong e-fulfilment capabilities and innovative supply chain technologies, GATI is ready to ride on the rapid growth of e-commerce. To further increase the competitive advantage of the company, the management strategy is to focus on expanding networks, strengthening and growing capabilities, increasing the number of eFCs, and talent acquisition. In financial year 15-16 the company procured IBM's Sterling Commerce, a Tier-I warehouse management systems for providing efficient e-logistic services to e-tailers. Sterling Commerce has the ability to handle complex operations of a fulfilment centre - especially supporting multi user fulfilment centres. Sterling Commerce is task based (automated) and highly scalable. This will allow the operation team to address the varying needs of different customers in same location. It will help to further improve company's operational efficiency and drive the flow of product through eFCs in an automated fashion. Scalability is another key advantage of this technology. Risk Assessment & Mitigation The brsent and anticipated future risks are reviewed by the management of your company at regular intervals. Based on its past experiences, the management tries to remain vigilant about all prospective risks and takes suitable brventive steps & measures to adequately safeguard your companies resources like property & personnel, so that the business continues as usual even during difficult situations. Internal Control Systems and their adequacy Your company has in place an adequate system of internal controls commensurate with its size & nature of operations, along with well-defined organisation structure & documented policy guidelines & procedures, brdefined delegation of authority covering all corporate functions and all operating units. These internal controls are designed to provide reasonable assurance regarding the effectiveness and efficiency of operations, the adequacy of protecting your Companies assets from unauthorized use or losses, the reliability of financial controls and compliance with applicable laws and regulations. Adequate internal control measures are in the form of various policies & procedures issued by the Management covering all critical and important activities viz., Contract Management, Operations, Procurement, Finance, Human Resources, Safety, etc. These policies & procedures are updated from time to time and compliance is monitored by Internal Audit Function.Your Company has continued its efforts to align all its processes and controls with global and industry best practices. The internal audit function based on the audits of operating units and corporate functions highlights various risks and provide constructive recommendation on regular basis for the Operating Units to improve on moderate & high risk areas. The effectiveness of internal controls is reviewed through the internal audit process, which is undertaken for every operating unit and all major corporate support functions under the direction of the Head Internal Audit. The focus of these reviews is as follows: • Identify weaknesses and areas of improvement; • Compliance with defined policies and processes; • Safeguarding of tangible and intangible assets; • Management of business and operational risks; • Compliance with applicable statutes; • Compliance with the Gati Code of Conduct. The Audit Committee of the Board oversees the adequacy of the internal control environment through regular reviews of the audit findings and monitoring implementations of internal audit recommendations through the action taken reports submitted to them. A gist of the significant features of the internal controls are: • Your Company has established and maintained a framework of internal financial controls, implemented adequate procedures and compliance systems, which provide reasonable assurance regarding reliability of financial reporting and brparation of financial statements. • The Audit Committee of the Board of Directors, comprising of independent directors and functional, regularly reviews the audit plans, significant audit findings, adequacy of internal financial control frame work and test reports, implementations of internal audit recommendations, compliance with accounting standards as well as reasons for changes in accounting policies and practices, if any; • A well-established and independent Internal Audit team consisting of professionally qualified accountants and functional specialists who are empowered to examine/audit the adequacy, relevance and effectiveness of the control systems, test the key controls as per Internal financial controls, compliance with policies, plans and statutory requirements; • As part of Internal financial Controls we have Process narratives and Risk Control Matrix for all of major business processes and testing thereof including financial closing, IT General Controls and Entity Level Controls; • Continual programmes to reinforce the Code of Business Conduct & Ethics is done regularly across the organisation. Anti-fraud programmes including whistle blower mechanisms are operative across the Company. The Board takes responsibility for the overall process of risk management throughout the organisation. During the financial year ending March 31, 2016, your company has conducted an assessment of the effectiveness of the internal financial control over financial reporting and it has in place, adequate internal financial controls with reference to financial statements, commensurate with the size, scale and complexity of its operations. During the year, such controls were tested and no reportable material weaknesses in the design or operation were observed. Human Resources @ Gati We truly believe that Gati's biggest strength is its people, fondly called as Gati'ites, and is the single most important factor to ensure sustainable business growth and become 'Future Read/. This is why we have a relentless focus on strengthening our talent management and employee engagement processes. For effective and meaningful Human Resource management at Gati, we concentrate on all aspects of the employee lifecycle to provide a holistic experience to the Gati'ites. During their tenure with Gati, a Gati'ites is motivated through various skill development interventions, including job rotations, customized training programme and engagement and volunteering programs. To ensure good mix of experience with fresh perspective, we have been focusing both on hiring high potential candidates from brmier campuses and other companies as well as internal promotion to grow and nurture existing talent pool.We have a diverse talent base of 4000 plus high-calibre Gati'ites of which Gen Y comprises 65% of workforce. Our Learning & Development program is designed to fuel future ready resources through structured "Capability Development" initiatives aiming at creating domain expertise and Leadership capabilities across levels and functions. Our online and classroom based training interventions covered 4200 Gati'ites ensuring minimum two days of training for everyone. We also strived to be more open, transparent and objective in our people processes. Through the annual employee engagement survey, a number of key focus areas were identified and many Gati'ite were invited and consulted to create action plan to address it. We encourage debate and open dialogue on various processes directly impacting Gati'ites which helps us to develop and improvise our people strategy for future. Our people practices have received recognition at different forums and we are committed to provide professional and enabling working environment at all levels envisaging a boundary less workplace, ensuring free flow of ideas and information through unified organisation structure and defined processes. We are a non-discriminating employer ensuring our HR and CSR initiatives are devoid of any brjudices protected by law. Our affirmative actions include actively hiring women candidates, support hiring of differently abled and other CSR initiatives which touches more than 15000 lives. |
