Burdened with huge debts, logistics service provider Gati Ltd has embarked on a financial restructuring plan. The strategy is to pay off the entire debt amount of Rs 300 crore in two years and avoid investments in new assets. In fact, the company has planned to selloff some of its existing assets like ships that are used to transport goods.
Incidentally, a major portion of Gati?s earning before interest, depreciation and tax (Ebidta) gets utilised in servicing the loans, leaving a meagre amount of profit for other productive purposes. In the first half of this financial year, the company paid Rs 23.16 crore as interest on the debt amount, a jump of 76.2% against Rs 13.15 crore a year ago. After paying taxes, the promoter and shareholders received only Rs 6.11 crore as profits.
Last fiscal, which ended on June 30, 2009 for the company, Gati had actually incurred losses due to hefty interest payment. It paid Rs 35.41 crore as interest to service loans of Rs 470.11 crore. After paying interest and taxes and providing for depreciation, the Ebidta of Rs 44.66 crore turned into a net loss of 15.06 crore. That year also the interest payment had increased 264% as compared to the payment in the previous year, in line with the rise in its debt-equity ratio from 0.75:1 to 1.74:1.
?We have engaged some of the top consultants in the industry to prepare a restructuring strategy. The restructuring is already half-way through,? Gati?s managing director and chief executive officer Mahendra Agarwal told FE.
?At present, we are busy servicing our loans, which have reduced to Rs 300 crore. We want to pay off our loans in the next two years. I think a substantial part of that will be paid off by June this year,? he added.
The company has also planned to selloff two of the six ships of Gati Coast to Coast, a shipping division of Gati, to shrink the size of the company. ?These ships are 25-year old and are non-performing. The ships will be sold in this quarter,? Agarwal said.
