Allcargo Gati Q1 FY26: The Bold Strategy to Boost Profitability in Indian Logistics

Navigating the Crossroads: Allcargo Gati’s Q1 FY26 - A Strategic Pivot Towards Profitability

The Indian economy continues its robust march forward, with a projected GDP growth of 6.5-7% for FY26, resilient domestic demand, and a stable policy environment. The logistics sector, in particular, is riding a significant wave of government-led infrastructure development and policy support, from Bharatmala to PM Gati Shakti. Against this backdrop of broader economic optimism, Allcargo Gati Limited (ACLGATI) has unveiled its Q1 FY26 results, signaling a conscious and strategic shift.

In a quarter marked by market volatility and cautious global sentiment, Gati’s earnings call highlighted a pivot from simply chasing volumes to diligently pursuing profitable growth. While top-line figures remained largely flat, a deeper dive reveals management’s efforts to enhance efficiency and set the stage for future synergies.

The Volume vs. Value Dilemma: Gati’s Strategic Pivot

For the express business, Q1 FY26 saw 299,000 metric tonnes handled, a slight dip from 304,000 MT in Q1 FY25 and similar to the previous quarter. At first glance, a volume decline might raise eyebrows, especially in a growing economy. However, management clarified this was a conscious decision to shed less profitable volumes. This isn’t necessarily a red flag; rather, it indicates a re-evaluation of the business portfolio.

Crucially, new business additions in Q1 FY26 were a robust 120% higher compared to the same period last year, primarily from the top 500 businesses. This suggests a strategic rebalancing towards higher-value clients. The internal target for volume growth remains around 8-10%, aiming to outpace the market by a percentage point. This ambition implies that while Gati is currently selective, it expects to resume healthy volume growth once the portfolio is optimized, driving quality over quantity.

Revenue Resilience and Yield Enhancement

Despite the slight volume decline, Allcargo Gati’s Express business revenue stood at INR 357 crores in Q1 FY26, marginally lower than INR 358 crores in Q1 FY25 and a dip from INR 385 crores in Q4 FY25. What’s encouraging is the realization per tonne, which increased 2% year-on-year to INR 11,961. This indicates that the strategy of shedding unprofitable volumes is already yielding results in terms of better pricing and improved quality of business.

The client mix remained stable, with Key Enterprise Accounts (KEA) at 67%, SME at 14%, and Retail at 19%. Management’s renewed focus on the SME segment is particularly noteworthy, given its extensive pan-India coverage and the potential for better yields compared to larger KEA accounts. The Air Express segment is also earmarked for aggressive growth, with a dedicated team and an ambitious target of 3-4% CAGR year-on-year, significantly above market growth due to a low base. These targeted segment plays are key to driving future revenue quality and growth.

Unpacking Operational Efficiency: Margins on the Rise

The most compelling story from Gati’s Q1 FY26 results is the visible improvement in operational efficiency and margins. The Gross Margin improved to 25% in Q1 FY26 from 23% in Q4 FY25, a healthy 170-basis point jump. This translated to the EBITDA Margin for the Express business rising to 4% in Q1 FY26 from 3% in Q4 FY25, a 100-basis point improvement.

While the absolute EBITDA of INR 14 crores in Q1 FY26 shows a year-on-year decline from INR 20 crores (Q1 FY25), it marks a sequential improvement from INR 12 crores in Q4 FY25. This indicates a positive trajectory following the strategic decisions made in previous periods. The margin expansion was driven by:

• Employee expenses reduced by approximately 10% year-on-year, even with increments.
• Other expenses maintained at similar levels despite 7-8% input cost inflation, through data analytics.
• A reduction of INR 2 crores in doubtful debt provision due to stronger collection efforts.
• An improvement of INR 1 crore in reducing customer deductions.

Management is sticking to an ambitious EBITDA margin target of 6.5% to 7% for the full financial year. Achieving this from the current 4% in Q1 FY26 will require sustained operational discipline, successful integration of the merger, and robust growth in higher-yield segments. This target will be a critical metric to watch in the coming quarters to assess management’s execution capabilities.

The Power of Consolidation: Merger Synergies on the Horizon 🚀

Perhaps the most significant long-term catalyst for Allcargo Gati is the impending merger with its Supply Chain business. The demerger order is progressing, with the combined entity (Express and Supply Chain) expected to emerge from October onwards. This merger is poised to unlock immense synergies:

• Cross-selling opportunities: Both entities serve similar customer sets (automotive, quick commerce, e-commerce, consumer durables). The combined offering allows for a “single point of contact” for diverse logistics needs, expanding wallet share.
• Enhanced service offerings: The merged entity can provide a broader range of express and consultative logistics services, including specialized expertise like chemical logistics (handling hazardous materials in PESO certified warehouses).
• Operational efficiencies: Consolidation of back-end functions, network optimization, and shared resources are likely to further drive cost savings.

This strategic move aligns perfectly with the prevailing market trend of integrated logistics solutions and could significantly enhance Gati’s competitive positioning and future earnings quality.

Strengthening the Foundation: Working Capital & Asset Monetization

The company showed signs of improving working capital management. Cash flow improved in Q1 FY26, partly aided by IT refunds. The reduction in doubtful debt provision and customer deductions highlights stronger collection efforts, which directly benefits the cash conversion cycle. Additionally, the sale of a large, non-core fuel station asset, with realization expected in Q2 FY26, demonstrates a focus on asset light growth and efficient capital allocation. While specific CapEx details were not provided, the emphasis is on “network optimization” and leveraging technology, suggesting efficient use of existing assets rather than significant new investments for now.

Gati’s Growth Trajectory: Where to from here? 🛤️

Allcargo Gati Limited’s Q1 FY26 results paint the picture of a company in a Turnaround phase, actively reshaping its business for sustainable, profitable growth. The conscious decision to shed unprofitable volumes, coupled with significant improvements in gross and EBITDA margins sequentially, indicates a management team committed to efficiency and quality over sheer scale.

While absolute EBITDA saw a year-on-year dip, the strategic intent and sequential improvements are positive. The aggressive growth targets for the SME and Air Express segments, alongside the transformative potential of the upcoming merger with the Supply Chain business, offer strong tailwinds. India’s favorable economic environment, coupled with the government’s robust push for logistics infrastructure, provides a conducive backdrop.

The festive season ahead, with its expected surge in B2B express services, will be a crucial test of Gati’s optimized network and cost-efficiency measures. Investors should closely monitor the realization of the ambitious 6.5-7% EBITDA margin target and the progress of the merger synergies. If management continues to execute on its profitability agenda and successfully integrates the businesses, Allcargo Gati could transition from a turnaround story to a compelling Fast Grower in the Indian logistics space. Stock-picking remains critical, and Gati’s focus on domestic growth themes and improving earnings visibility makes it an interesting watch in the current market.

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