Gati, Kintetsu of Japan to set up supply chain joint venture

Amit Mitra Hyderabad Feb. 13 | Updated on March 12, 2018 Published on February 13, 2012

Mr Mahendra Agarwal

Supply chain solutions provider Gati is joining hands with Japanese logistics services firm Kintetsu World Express (KWE) to form a joint venture, which will see the merger of the express distribution and supply chain businesses of both the firms.

While Gati will hold a majority stake of 70 per cent in the joint venture, Gati-Kintetsu Express, the Japanese partner, will hold the remaining 30 per cent. Gati's entire express distribution and supply chain (EDSC) business will move into the joint venture through a business transfer agreement, a process that will take another two months for completion. KWE will be infusing a capital of Rs 267 crore for its 30 per cent share in the joint venture through a combination of primary and secondary acquisition of shares.

The company has a significant client base in Japan, including some of the top names in the electronics and IT industries.

Reduce debt

“The deal will significant reduce the debt on the books of the parent company. The debt of Rs 330 crore that is carried by Gati's EDSC business will now move to the joint venture,” Mr Mahendra Agarwal, Chief Executive Officer, Gati, told Business Line over phone from Tokyo.

The investment of Rs 267 crore from KWE will be primarily used to retire this debt in the new venture.

“Gati's bottom-line will improve as dividends from the joint venture will come to the parent company, while its profits will be seen in the consolidated results of Gati. Furthermore, the deal will reduce the interest burden by about Rs 35 crore of Gati,” he said.

Gati's EDSC business is expected to rake in revenues of Rs 950 crore this fiscal, up from Rs 800 crore last year.

Shipping biz

Gati will become debt-free after it finalises another joint venture with a global shipping company, in which it will move its entire shipping business.

“We are likely to finalise a deal in the next two months. We will hold 50 per cent stake in this joint venture,” Mr Agarwal said.

As in the case of the Gati-KWE deal, the shipping venture will also take on its book Gati's debt of Rs 120 crore currently carried by its shipping division.

“Hence, after the shipping deal, Gati will become entirely debt free,” he pointed out.

The Gati-KWE venture will combine Gati's expertise in 3PL (third party logistics) and express distribution in India with KWE's freight forwarding expertise and global customer base.

“The joint venture will also invest in high end 3PL facilities, including temperature controlled warehouses,” he said.

> amitmitra@thehindu.co.in

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Published on February 13, 2012
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