The introduction of the Goods and Services Tax will cut inventory costs by almost half for corporates, says Mahendra Agarwal, Founder & CEO, Gati .
In an interview with CNBC-TV18, Agarwal says the tax will lead to sharp reduction in the number of corporate warehouses. He sees logistic costs shrinking to 10 percent of GDP from 14 percent at present, because of GST.
He says the express distribution market size in India is around Rs 10,000-11,000 crore at present, with organized players like Gati accounting for 25 percent of it.
Below is the verbatim transcript of Mahendra Agarwal's interview with Ekta Batra & Anuj Singhal on CNBC-TV18.
Ekta: Can you just detail for us that once a goods and service tax (GST) and if GST comes about how exactly will it impact GATI?
A: We are all looking forward for the implementation of GST for the last five years. We have in this country 14 percent logistic cost of the gross domestic product (GDP). Half of the logistic cost is because of inventory and wastage. With the implementation of GST multiple level of taxation procedure will come down and will reduce the cost of inventory by half because customers do not have to stock so much of inventory in multiple warehouses across the country.
Warehouses will get consolidated into four-five against 20-25 across the country. That is going to bring down logistic cost from 14 percent to 10 percent of GDP. It will also reduce the time it takes for us to move a parcel from point A to point B because of the multiple check posts on the way and the multiple checking being done because of indirect taxes that each of the states levy on movement and delivery of goods. So, the cost is going to come down, the time is going to come down and inventory cost in the country is also going to come down.
Anuj: Can you quantify for us in terms of a company like GATI for example hypothetically if it is introduced say in next fiscal annually how much you will save?
A: It is very difficult to quantify because lot of the cost is in terms of time and lot of our parcels are not able to enter in a particular state because certain forms are not there related to indirect taxes. Parcels have to wait outside the state and even if it does enter the state it cannot be delivered.
So it is very difficult to quantify the inefficiency that we have in the system. I am sure that the inventory cost will come down by four percent so our cost will also come down somewhere around that region of 4-5 percent in terms of movement of the parcels across the country.
Ekta: I wanted to get a sense in terms of the logistic industry at this point in time how much market share does the unorganised segment have? How much does the organised segment have at this point and with in that where would GATI come in?
A: In express distribution, which is the delivery of parcel all over the country, the total market is about Rs 10,000-11,000 crore and in that the organised sector would be about 25-28 percent and the balance would be unorganised sector. I am leaving out the pure transport trucking industry, the freight business which is a very large business. We are not connected with the transport business, we are more connected with the delivery of parcels.
Ekta: When it does rollout, would you be competent to adapt it?
A: We are already technologically adapted to implementation of GST. We have created large warehouses in different parts of the country and we have developed a software to manage the warehouses and mange the inventory in those warehouses for our customers.
Gati stock price
On December 19, 2014, at 14:12 hrs Gati was quoting at Rs 263.00, up Rs 0.40, or 0.15 percent. The 52-week high of the share was Rs 341.60 and the 52-week low was Rs 29.00.
The company's trailing 12-month (TTM) EPS was at Rs 2.95 per share as per the quarter ended September 2014. The stock's price-to-earnings (P/E) ratio was 89.15. The latest book value of the company is Rs 73.34 per share. At current value, the price-to-book value of the company is 3.59.
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