Directors’ Report Dear Members, Your Directors have great pleasure in presenting the report of the Business and Operations of your Company ('the Compan/ or 'Gati'), along with the audited financial statements, for the financial year ended March 31, 2016. The Consolidated Performance of your Company and its subsidiaries has been referred to wherever required. Dividend Your Directors have recommended dividend of 50% (Rs. 1 per share) for the financial year ended March 31, 2016 (previous year 70%, including special interim dividend of 30%). Review of Operations During the year under review, at consolidated level, your Company achieved a revenue of Rs 16,818 mn, EBITDA of Rs 1,456 mn, PBT of Rs 648 mn and PAT of Rs 492 mn as against a revenue of Rs 16,627 mn, EBITDA of Rs I,538 mn, PBT of Rs 758 mn and PAT of Rs 566 mn respectively in the previous year. At standalone level, your Company recorded a revenue of Rs 4,980 mn, EBITDA of Rs 560 mn, PBT of Rs 223 mn and PAT of Rs 198 mn as against a revenue of Rs 4,546 mn, EBITDA of Rs 526 mn, PBT of Rs 257 mn and PAT of Rs 239 mn in the previous year. e-Commerce In line with expectations, the e-Commerce industry has been abuzz with activity through the course of last year. The established e-Commerce companies have made accelerated progress in terms of customer base expansion, product portfolio enhancement and new vendor acquisition. A trend has emerged wherein many new e-Commerce SMEs are mushrooming across large towns and cities in the country. As per recent reports, tier 2 and 3 cities have seen a 30% to 50% rise in e-Commerce transactions. In such industry context, your company has further evolved its growth strategy by tapping into the emerging e-Commerce SME segment, while also increasing its presence in the lower weight segment of established e-tailers. During the year under review, the e-Commerce division of your company has recorded a revenue of Rs 2,078 mn as against Rs 1,274 mn in the previous period.The number of packages handled has grown in excess of 70%, as compared with last year. Subsidiaries Gati-Kintetsu Express Pvt Ltd. (GKEPL) GKEPL offers solutions in Express Distribution - Surface, Rail and Air; Transport Solutions for bulk transportation; Warehousing and end-to-end Supply Chain Solutions across the logistics value chain. In Financial Year 2015-16, your flagship subsidiary, GKEPL contributed 68% to the consolidated business of your Company. During the year under review, GKEPL recorded a revenue of Rs 11,416 mn, EBITDA of Rs 953 mn and PAT of Rs 440 mn against a revenue of Rs 11,424 mn, EBITDA of Rs I,160 mn and PAT of Rs 575 mn in the previous year. The Express Distribution business registered a YoY growth of 2% (appx) in Surface Express and Air Express. The charged weight YoY growth of 6% in Surface Express and 2% in Air Express helped to partially offset the impact of the fuel price drops vis-a-vis the base year, post the diesel price deregulation in September 2014. The Transport Solutions business performance in Financial Year 2015-16 was severely impacted on account of the loss of the parcel train tender in the west-east corridor. Your company has recently secured two new parcel rail tenders for two crucial lanes in this corridor, and these will help your company to now re-establish its dominance in rail parcel segment. Your company intensified its focus on the Warehousing business by creating a strong pipeline of customers needing 3PL and Fulfilment services. These efforts have yielded positive results with the SCM division registering a more than 50% growth in Financial Year 15-16. Gati Kausar India Ltd. (GKIL) India's cold chain sector forms the backbone of the food processing and food service industry, providing cold storage and refrigerated transportation for a range of businesses including Packaged Foods, Quick Service Restaurants, Pharmaceuticals, Animal Protein, Fresh Fruit and Vegetables. Increasing consumer demand for quality processed food, stringent regulations for food safety and focus on Good Distribution Practices (GDP) in pharmaceuticals, have all helped generate greater need for high-quality cold supply chain solutions. Gati Kausar already has a visible presence in refrigerated transportation and serves many a number of popular brands. During the year under review, Gati Kausar recorded a revenue of Rs. 494 mn, EBITDA of Rs. 47 mn and Loss of Rs. 40 mn against a revenue of Rs. 462 mn, EBITDA of Rs. 25 mn and Loss of Rs. 48 mn in the previous period. Going forward, Gati Kausar aims to provide end-to-end cold chain solutions by offering high quality cold storage capability, in addition to refrigerated trucking. A significant first step in this regard is the scheduled commissioning of its first Refrigerated Express Distribution Centers (REDC) in early financial year 16-17. Gati Kausar plans to build a network of REDCs over time to enable itself to compete more effectively in the cold chain business. Consolidated Financial Statements (CFS) The Consolidated Financial Statements of your Company for the financial year 2015-16 are prepared in compliance with applicable provisions of the Companies Act, 2013 read with the Rules issued thereunder, applicable Accounting Standards and the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as the "Listing Regulations"). The consolidated financial statements have been prepared on the basis of audited financial statements of your Company, its subsidiaries, as approved by the respective Board of Directors. The CFS should therefore be read in conjunction with the directors' report, financial notes, cash flow statements and the individual auditor reports of the subsidiaries. Pursuant to provisions of section 129(3) of the Companies Act, 2013, a statement containing salient features of the financial statements of the Company's subsidiaries is attached to the financial statements of the Company. Abridged Annual Accounts Pursuant to the provisions of the first proviso to Section 136(1) of the Act and Rule 10 of Companies (Accounts) Rules, 2014, the abridged annual accounts are being sent to all shareholders whose e-mail id's are not registered with the Company. The full annual report is available on the website of your Company at www.gati.com and available for inspection at the registered office of the Company during working hours. Any member interested in obtaining the full annual report may write to the Company Secretary and the same will be furnished on request. Air India and Gati Arbitration In the year 2009, your Company discontinued Freighter Aircraft operations as per the arrangement with National Aviation Company of India Ltd (NACIL) (erstwhile Indian Airlines Ltd.,) and now Air India (AI), due to continuous failure and defaults by NACIL. The Learned Arbitral Tribunal adjudicating on the disputes between your Company and Air India Limited in respect of the discontinued freighter operations of the Company, has passed its Award dated September 17, 2013, whereby, it has inter alia directed Air India Limited to pay an amount of Rs. 26.82 Crs to your Company against which an amount of Rs. 26.59 Crs is included in the Loans and Advances being the difference between the amount of bank guarantee invoked by NACIL and claims acknowledged by the Company. Further, the Learned Tribunal has directed Air India Limited to pay interest @ 18% per annum on the awarded amount. Air India Limited took up the matter before the Honorable High Court of Delhi by filing an application for setting aside the award, in which the High Court has upheld the Arbitral Tribunal award except the claim for damages of Rs. 4.97 crores. Both Air India and your Company have filed cross appeals before the division bench of the Honourable High Court of Delhi. The Honourable High Court has directed Air India to deposit Rs. 22.00 crores. Air India has since deposited the amount with the Court pending adjudication of appeals filed by Air India and your company. Appeals are also scheduled for hearing shortly. Pending disposal of the said appeals, the said amount of Rs. 22.00 only crores having been deposited in the court has been made over to your company pursuant to the direction of the division bench of the Honorable High Court of Delhi. Future Prospects By all accounts, India stands alone as an island of hope in an otherwise volatile, and uncertain, global economy. Recent policy initiatives and regulatory changes pursued by the government, are aimed at accelerating India's GDP growth to 7.6% and beyond, in the near future. The logistics industry will be a direct beneficiary of this growth momentum. Equally, the ultimate winner within the logistics industry will be one who is able to outpace competition by delivering on the ever increasing demands of service, quality and cost in both B2B and B2C sectors. As part of its 'Vision 2020' exercise, your company has embarked on an ambitious mission of ramping up its operations towards delivering "a million packages a day, while ensuring zero delays and zero damages." To this end, the company has identified three key pillars of change namely Technology, People and Customer Satisfaction. Technology - Your Company has always been a pioneer in the logistics industry when it comes to introducing new technology and adopting global best practices. In the last few months, your company has undertaken an ambitious project to automate its all-India network operations using Barcode Scans on each and every package across the country. Such expansive technology automation is unprecedented in the Express Distribution industry in India,especially in the context of Gati's scale and network reach. Once this rollout is completed, enroute track-n-trace will improve from today's docket level visibility to 100% visibility at an individual package level, and thereby, operational issues such as shortages, misrouting, etc. will stand significantly reduced. Thus, your company is in the process of adding on a significant new operations capability that will help deliver value to the customers. Furthermore, your company is evaluating new state-of-the-art IT technologies for a de-novo development of an Enterprise Management System, than can handle the varied needs of the B2B and B2C in an integrated manner, both to help improve efficiency and productivity in our operations and also to excel satisfying our customer expectations. People - Significant changes are being effected in your company to address the talent needs of the future. The leadership has been reorganized along inter-dependent functional chains to drive greater functional excellence and to support an improved performance culture. Talent mix is also being overhauled to infuse further technology capability and build higher-order analytics skills at each operating level. Customer Satisfaction - In the emerging market context, logistics business is no more restricted to being a provider of distribution or warehouse service, but has expanded in scope to becoming an effective business partner to the customers. Recognizing this change, your company is continuously evolving its approach by placing customer satisfaction at the very centre of the business decision making process. Focus on new product innovations has been ramped up. Integrated solution selling to address end-to-end logistics needs of the customer has been initiated as the new go-to-market approach. Your Directors are very confident that fact based progress on these three pillars of change will help accelerate your company's growth towards achieving the dream of delivering one million packages a day over the next few years, to our customers satisfaction and to our shareholders delight. Fixed deposits (FD) As on March 31, 2016, fixed deposits of your Company stood at Rs. 361.44 mn out of which Rs. 9.94 mn remain unclaimed and there were no overdue deposits as on that date. During the year under review, your Company has accepted deposits to the tune of Rs. 32.83 mn. There was no default in repayment of deposits or payment of interest thereon during the year and there are no deposits which are in non-compliance with the requirements of the Companies Act, 2013. The current fixed deposits carry a rating of "A Minus" issued by Credit Analysis and Research Limited (CARE). Directors & Key Managerial Personnel (KMP) In accordance with the provisions of Section 152 of the Companies Act, 2013, Mr. Yoshinobu Mitsuhasi, Director who retires by rotation and being eligible, has offered himself for re-appointment. The present tenure of Mr. Mahendra Agarwal, Founder & CEO is completion on July 31, 2016. Further your Directors at its meeting held on April 27, 2016 have approved the re-appointment of Mr. Mahendra Agarwal w.e.f August 01, 2016, without remuneration from your company, for a further period of five (5) years, subject to the approval of the shareholders at the ensuing Annual General Meeting. In compliance with Regulation 36(3) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015, brief resume of all the Directors proposed to be appointed / re-appointed are attached along with the Notice of the ensuing Annual General Meeting. Mr. VSN Raju, Company Secretary & Compliance Officer resigned w.e.f April 28, 2016 and his resignation was accepted by the Board of Directors. Your directors place on record their sincere appreciation for the valuable contribution made by Mr.VSN Raju during his tenure. Apart from above, there have been no changes in Directors and KMP. Particulars of Employees and related disclosures The remuneration paid to your Directors is in accordance with the Nomination and Remuneration Policy formulated in accordance with Section 178 of the Companies Act, 2013 and Regulation 19 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015 (including any statutory modification(s) or re-enactment(s) for the time being in force). The salient aspects covered in the Nomination and Remuneration Policy have been outlined in the Corporate Governance Report which forms part of this report. The information required under Section 197 (12) of the Act read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is annexed as Annexure - A. Declaration on Independent Directors Pursuant to sub section (6) of Section 149 of the Companies Act, 2013 and Regulation 16(I)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirement) Regulations, 2015, all the Independent Directors of your Company have given declaration that they have met the criteria of independence as required under the Act and the regulations. Remuneration Policy: Your Directors has, on the recommendation of the Nomination & Remuneration Committee, framed a policy for selection and appointment of Directors, Senior Management Personnel and their remuneration. The Remuneration Policy forms part of the Corporate Governance Report. Board Evaluation Pursuant to the provisions of the Companies Act, 2013 and the Securities and Exchange Board of India (Listing Obligation and Disclosure Requirements) Regulations, 2015, the Board of Directors has carried out an annual performance evaluation of their own, the directors individually as well as the evaluation of the working of its Audit, Nomination & Remuneration and other Committees. The manner in which the evaluation has been carried out has been explained hereunder. A structured questionnaire was prepared after taking into consideration inputs received from the Directors, covering various aspects of the Board's functioning such as adequacy of the composition of the Board and its Committees, Board culture, execution and performance of specific duties, obligations and governance. A separate exercise was carried out to evaluate the performance of individual Directors including the Chairman of the Board, who were evaluated on parameters such as level of attendance, engagement and contribution, independence of judgement, safeguarding the interest of the Company and its minority shareholders etc. The performance evaluation of the Independent Directors was carried out by the entire Board, excluding the director being evaluated. The performance evaluation of the Chairman and the Non-Independent Directors was carried out by the Independent Directors. The Directors expressed their satisfaction with the evaluation process. Board Committees Detailed composition of the mandatory Board committees namely Audit Committee, Nomination and Remuneration Committee, Corporate Social Responsibility Committee, Stakeholders Relationship Committee, number of meetings held during the year under review and other related details are set out in the Corporate Governance Report which forms a part of this Report. Particulars of Loans, Guarantees and Investments Details of Loans, Guarantees and Investments covered under the provisions of Section 186 of the Companies Act, 2013 read with the Companies (Meetings of Board and its Powers) Rules, 2014, forms part of the Financial Statements. Corporate Social Responsibility (CSR) In terms of section 135 and Schedule V11 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014 made thereunder, the Board of Directors of your Company have constituted a CSR Committee. The CSR Committee has framed a CSR Policy which forms part of the Annual Report on CSR, annexed as Annexure - B to this report. GKEPL had earmarked a budget of Rs. 12.57 mn (i.e. 2% of average net profits of the previous 3 years) for FY 2015-16 and spent Rs. 12.99 mn during the year towards CSR activities across India. Related Party Transactions Related party transactions that were entered during the financial year were on an arm's length basis and were in the ordinary course of business. There were no materially significant related party transactions with the Company's Promoters, Promoter Group, Directors, Senior Management Personnel or their relatives, which could have had a potential conflict with the interests of your Company. Accordingly, Form AOC-2 is not applicable to your Company. Further all Related Party Transactions are placed before the Audit Committee for approval. Prior omnibus approval for normal company transactions is also obtained from the Audit Committee for the related party transactions which are of repetitive nature as well as for the normal company transactions which cannot be foreseen and accordingly the required disclosures are made to the Committee on quarterly basis in terms of the approval of the Committee. Your Directors have on the recommendation of the Audit Committee, adopted a policy to regulate transactions between your Company and its Related Parties, in compliance with the applicable provisions of the Companies Act 2013, the Rules made thereunder and the Securities and Exchange Board of India (Listing Obligations and Disclosures Requirements) Regulations, 2015. Meetings of the Board and Committees Five Meetings of the Board of Directors were held during the year. For further details on the meetings and the attendance of directors/ members, please refer report on Corporate Governance of this Annual Report. Vigil Mechanism Pursuant to the provisions of section 177(9) & (10) of the Companies Act, 2013 and Regulation 22 of Securities and Exchange Board of India (Listing Obligation & Disclosure Requirements) Regulations, 2015, a Vigil Mechanism for directors and employees to report genuine concerns about any instance of any irregularity, unethical practice and/ or misconduct has been established. Further, the details as aforesaid is available on the website of your company at www.gati.com . Familiarisation Programme for Independent Directors Pursuant to Securities and Exchange Board of India (Listing Obligation & Disclosure Requirements) Regulations, 2015 the Company shall familiarise the Independent Directors with the Company, their roles, rights, responsibilities in the Company, nature of the industry in which the Company operates, business model of the Company, etc., through various programmes. Accordingly, your Company arranged a technical session on January 19, 2016 to familiarize the Independent Directors, the details of which are disclosed on the website of the company at <http://www>. gati.com/pdf/Investors/Familiarization-Programmes-for-Independent- Directors-Jan-19-2016.pdf. Directors' Responsibility Statement Pursuant to the requirement under section 134(5) of the Companies Act, 2013 with respect to the Directors' Responsibility Statement relating to the Company (Standalone), it is hereby confirmed: 1. That in the preparation of the Accounts for the financial year ended March 31, 2016, the applicable accounting standards and schedule 111 of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force), have been followed and there is no material departure; 2. That the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that were reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company as at March 31, 2016 and of the profit and loss of the Company for the financial year ended March 31, 2016; 3. That the proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 (including any statutory modification(s) or re-enactment(s) for the time being in force) for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; 4. That the accounts have been prepared on 'going concern' basis, for the financial year ended March 31, 2016; 5. That the Company, had laid down internal financial controls and that such internal financial controls are adequate and were operating effectively; 6. The directors have devised proper systems to ensure compliance with the provisions of all applicable laws and such systems are adequate and operating effectively. Extract of Annual Return The details forming part of the extract of the Annual Return in Form MGT-9 in accordance with Section 92(3) of the Companies Act, 2013 read with Companies (Management and Administration) Rules, 2014, is annexed as Annexure - C. Development and Implementation of Risk Management Your Company has an elaborate risk Management process and has adopted systematic approach to mitigate risk associated with accomplishment of objectives, operations and revenues etc. The details of Risk Management as practiced by your company is provided as part of Management Discussion and Analysis Report which forms part of this Annual Report. Internal Financial Controls Your Company has established and maintained a framework of internal financial controls and compliance systems. Based on the same and the work performed by the internal auditors, statutory auditors and external agencies and the reviews performed by Top Management team and the Audit Committee, your Directors are of the opinion that your Company's Internal Financial Controls were adequate and effective during the financial year 2015-16. Further the statutory auditors of your company has also issued an attestation report on internal control over financial reporting (as defined in section 143 of Companies Act 2013) for the financial year ended March 31, 2016, which forms part to the Statutory Auditors Report. Transfer of unclaimed dividend Pursuant to the provisions of Companies Act, 1956/2013, the unclaimed dividend amount pertaining to the financial year 2007-08 was transferred by your Company to the Investor Education and Protection Fund (IEPF) and the unclaimed dividend pertaining to the financial year 2009-10 is due for transfer to IEPF. Auditors a) Statutory Auditors Pursuant to the provisions of section 139 of the Act and the rules framed thereafter, M/s. R S Agarwala and Co., Chartered Accountants, Kolkata were appointed as statutory auditors of the Company from the conclusion of the 19th AGM of the Company held on August 5, 2014 till the conclusion of the 22nd AGM to be held in the year 2017, subject to ratification of their appointment at every AGM. b) Secretarial Audit Pursuant to the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, your Company has appointed M/s. dvmgopal & Associates, Practising Company Secretaries, to undertake the Secretarial Audit of your Company. The Report of the Secretarial Audit is annexed as Annexure - D. Further, M/s. dvmgopal & Associates, Practising Company Secretaries, carries out Reconciliation of Share Capital Audit every quarter and the report thereon is submitted to the Stock Exchanges. Conservation of Energy, Technology Absorption and Foreign Exchange Earnings & Outgo The above information as required under the Companies Act, 2013, is annexed as Annexure - E. Employees Stock Option Scheme Details of the shares issued under Employee Stock Option Scheme (ESOS), as also the disclosures, in compliance with Section 62 of the Companies Act, 2013 and Rule 12 of Companies (Share Capital and Debentures) Rules, 20I4 and Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 as on March 31, 2016, is annexed as Annexure - F to this Report. Further the details as aforesaid is available on the website of your company at <http://www.gati.com/wp-content/uploads/2016/06/> ESOS-disclosure.pdf. Change in Capital Structure and Listing at Stock Exchanges The equity shares of your Company continue to be listed and traded on the BSE Ltd. (BSE) and National Stock Exchange of India Ltd. (NSE) During the period under review, 2,45,400 equity shares were allotted on exercise of the options vested under the Employee Stock Option Scheme and admitted for trading on NSE and BSE. Consequently, the Equity Share Capital of your Company increased from 8,74,77,537 equity shares of Rs. 2/- each to 8,77,22,937 equity shares of Rs 2/-each. Corporate Governance Your Company is committed to maintain the high standards of corporate governance and adhere to the corporate governance requirements set out by Securities and Exchange Board of India. The Report on corporate governance as stipulated under Securities and Exchange Board of India (Listing Obligation & Disclosure Requirements) Regulations, 2015 forms part of the Annual Report and is annexed as Annexure-G. The requisite certificate from the Practicing Company Secretary confirming compliance with the conditions of corporate governance as stipulated under the aforesaid Regulations is part of this report. Management Discussion and Analysis (MD&A) MD&A Report for the financial year under review, as stipulated under Regulation 34 of Securities and Exchange Board of India (Listing Obligations & Disclosure Requirements) Regulations, 2015, is presented in a separate section forming part of the Annual Report. Your Directors state that no disclosure or reporting is required in respect of the following items as there were no transactions on these items during the year under review: 1. Issue of equity shares with differential rights as to dividend, voting or otherwise. 2. Issue of shares (including sweat equity shares) to employees of your Company under any scheme save and except ESOS referred to in this Report. 3. No significant or material orders were passed by the Regulators or Courts or Tribunals which impact the going concern status and Company's operations in future. 4. During the year under review, there were no cases filed pursuant to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. 5. There were no material changes commitments affecting the financial position of your Company between the end of financial year (March 31, 2016) and the date of the report (April 27, 2016). Acknowledgment Your Directors thank various departments of Central and State Government, Organizations and Agencies for the continued help and co-operation extended by them to your company. Your Directors also gratefully acknowledge all stakeholders of the Company viz. members, customers, dealers, vendors, Financial Institutions, banks and other business partners for the excellent support received from them during the year. Your Directors place on record their sincere appreciation to all employees of the Company for their unstinted commitment and continued contribution to the Company. For and on behalf of the Board K L Chugh Chairman DIN:00140124 Place: Hyderabad Date: April 27, 2016 |