Allcargo hires Alvarez & Marsal to script Gati turnaround

P Manoj Mumbai | Updated on May 18, 2020 Published on May 18, 2020

Allcargo Logistics Ltd has hired turnaround specialist Alvarez & Marsal to work out a strategy for Gati Ltd, the express logistics company it had acquired earlier this year. Allcargo now holds a 46.4 per cent stake in Gati.

“We have appointed Alvarez & Marsal as consultants to help us make the company grow and also become efficient,” Allcargo Chairman Shashi Kiran Shetty said in an interview on Monday.

Just as Allcargo moved into the company, it hit the roadblock of a lockdown and the business came to a complete standstill, he said.

It’s too early to say what Allcargo plans to do with Gati in terms of restructuring, he added.

“It is not conducive to do anything right now. The priority is to get the company off the ground. Obviously, when the company is affected by the lockdown, we have 5,000 employees in that business and revenue is almost zero. Now, of course, it has revived with volumes returning to 35 per cent of what it was earlier,” he said.

Salvage mode

Looking at the year ahead, Shetty said, he does not have a “clear answer” on how Gati’s business will pan out. “(The year) 2020, anyway, from a business standpoint, is almost like a washout. We are only in salvage mode. Fortunately, we have done all the right things, except that our deal with Blackstone has not gone through, in the sense there were still two conditions precedent which we have to clear. Once that is done, then we are debt-free in spite of the acquisition of Gati,” he said.

In January, private equity firm Blackstone agreed to invest ₹380 crore in Allcargo Logistics to develop industrial and logistics parks across India.

“Because of the lockdown, Allcargo was not able to move forward on clearing the conditions precedent because government offices were closed. That’s not a concern but there is a delay and it doesn’t cost us anything. We have time till December to close the deal,” Shetty said.

Blackstone deal

The Blackstone deal valued the warehousing business of Allcargo at about $200 million. For each warehousing project, Allcargo had created a fully-owned subsidiary in which it will sell a 90 per cent stake to Blackstone.

“We are getting out completely from all the warehousing assets except the container freight stations (CFS) because we needed money for the acquisition of Gati. We didn’t want to do an acquisition through debt. The second point is, the construction of warehouses is a real estate play. It normally has a very low return on equity of about 11 per cent, but has got a good internal rate of return. But, for that, you have to wait for 10 years,” he said.

Allcargo has put a freeze on capital expansion for the year, though it will continue with its earlier committed investment of ₹350 crore to complete the construction of the warehouses, which was halted due to the lockdown.

“The strategy is very simple. Conserve cash, minimise the losses, bring in more efficiency and try to increase market share. Because there will be many companies who could be in trouble out there, we have to wait for opportunities to grab customers,” he added.

Published on May 18, 2020

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