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GATEWAY DISTRIPARKS LTD
PRICE: RS.145 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.160 FY13E P/E: 11.1
GDL reported its consolidated net profit at Rs 335 mn (+63% YoY, but +1%
QoQ). It was a tad above our expectations of Rs 332 million. Revenues have
grown by ~35% YoY to Rs 1,841 mn. CFS revenues have increased to Rs 794
mn (+14% QoQ and +50% YoY). This is due to volumes increasing 4% YoY
in the CFS business. Revenue per TEU has significantly improved to Rs 9,138
from Rs 6,323 per TEU (YoY). As a result the margins from CFS business have
improved to 50% in the quarter from 46% YoY. This is 3rd consecutive
quarter that the rail business has reported positive PAT. The fill factor has
improved in the rail business from 78% in Q2FY11 to 87% in the current
quarter which has improved the margins of the business from 12% in
Q2FY11 to 17% in the current quarter. Cold chain business continues to be a
small part of the consolidated entity.
Financial highlights are:
n Consolidated revenues grew by 35% YoY and 1% QoQ in Q2FY12 to
Rs.1,841mn.
n Consolidated operating margins has improved by ~800 bps to 35.1% YoY led by
margins improving in the CFS business to 50% from 46% YoY. Margins have
also improved in the rail business to 17% in the current quarter from 12% in
Q2FY11.
n The effective tax rate has increased for the company to 30% in the current quarter
from average of 15% over FY07 to FY11.This was due to the CFS business
attracting full tax from FY12 (benefit under section 80IA until FY11).
n Net profit after minority interest has increased by ~ 63% YoY to Rs 1841 mn in
Q2FY12.
n The company has announced an interim dividend of Rs 3 per share for the financial
year FY12
Vallarpadam Container Freight Station (CFS)
Company in Q3FY11 had won a contract to operate a CFS at Vallarpadam (Kochi)
close to International Container Transshipment Terminal (ICTT), which would boost
the CFS business of the company from FY13E. This is 60:40 joint-venture of the company
and the Chakiat group. Vallarpadam is a transshipment port and would primarily
replace the transshipment requirement of India shifted from Colombo and
Singapore. Currently dredging work is being undertaken at the port to increase the
draft to enable large size container vessels to enter the port which would be over by
end of FY12E.
Volume at Vallarpadam- At Vallarpadam the company has one plot of land which is
of 6.5 acres and on which the company is currently constructing a CFS which would
have a capacity of 50,000 TEUs from FY13E. GDL has another plot of 20 acres
which is at some distance from the port and which the company would utilise in
future to expand the CFS capacity. We estimate GDL's Vallarpadam CFS to handle
about 25,000 TEUs in FY13E and 27,000 TEUs in FY14E. Since it is a transshipment
hub (unlike JNPT and Chennai), we need to wait and see how volumes develop for
all the CFS's at the port once transshipment activity starts.
Upcoming ICD at Faridabad
This ICD would have a total capacity of 100,000 TEUs per annum and would be
partly operational by Q3FY12. We expect the volumes to be low for this ICD in
FY12E as container train service would begin from the terminal only in FY13E.This
terminal is close to congested Tughlakabad ICD of Concor ( key ICD with 20% of
total volumes for Concor) and which handles close to 450,000 Exim TEUs per annum.
GDL expects some of these volumes to shift from Tughlakabad to their ICD at
Faridabad from FY13E onwards. Post the rail connectivity in place from FY13E, we
anticipate volumes of Faridabad to grow at healthy pace.
Container rail business
As expected, Gateway's container train business continues to be in black (3rd consecutive
quarter). The volumes reported by the train business were at 43,057 ~ TEUs
growing from 31,565 TEUs YoY. Realizations have fallen to ~ Rs 22,200/TEU from
~Rs 23,300/ TEU YoY. However the fill factor for the company has improved significantly
to 87% in the current quarter from 78% in Q2FY11. This has led to margin
expansion for the company in the rail segment from 12% in Q2FY11 to 17% in the
current quarter. Management expects to improve this fill factor further to 88% going
ahead that would lead to further margin expansion in the rail business.
Rail Haulage business - 5 to 6 rakes to be added till FY13, more
focus on Exim segment
GDL currently owns 21 rakes. Almost 2/3 of these rakes run on Exim routes which
are more profitable because of low empty running and assured cargo. Going forward
the company intends to add 8 more rakes and most of them would be primarily
placed on Exim routes. Company currently runs Exim operations primarily out of
JNPT and Mundra and would start Pipavav service in the current financial year. Start
of Faridabad ICD operations should help improving the Exim business and overall
Ebidta margins of the company.
Cold Chain Business
GDL operates the cold chain business through Snowman Frozen Foods (GDL
owns 50.12% stake) which has 16 cold stores spread across the country with a total
capacity of 19,000 pallets, It also operates around 120 refrigerated trucks and has
the capability to handle variety of products. GDL would be investing around Rs 200
million in increasing the capacity to more than 30,000 pallets in the next 30 months.
In our view, this business will take time to scale up for GDL given that the industry
is still nascent. This segment reported topline of Rs 137 mn in Q2FY12. Management
has guided that this segment would contribute Rs 1000 mn in revenues by FY13E
(we estimate Rs 798 mn) with an EBIDTA margin of 20%.
Capex to drive topline
GDL would be spending around Rs 2240 mn on network development (ICD/CFS),
purchasing rakes for its haulage business (rakes) and expanding cold chain business
over the next 24 months.
The capex would be primarily done through internal accruals. The company currently
has a cash balance of Rs 1.5 bn and gross debt of Rs 1.2 bn (excluding PE investment
by Blackrock of ~ Rs 3 bn) on the balance sheet with operating cash flow
generation of Rs 1.4 bn in FY13E ( FY12E = 1.2bn). The above capex would expand
its capacity from current two ICD at Garhi and Ludhiana and 21 rakes to three ICDs
(adding Faridabad by Q3FY11) and up to 29 rakes by FY13E. With this capex we
expect GDL's sales to grow at 14% CAGR over FY11 to FY13E.
Key risk- fall in Global Trade
The most important risk to GDLs business is the fall in global trade. Sharp deterioration
in overall economy/ trade would have a substantial negative impact. Exim trade
typically grows at ~2x growth in GDP, and any significant drop in India's GDP
could lead to a sharp deceleration in Exim trade growth, impeding GDL's growth
prospects.
Valuation and Outlook
GDL is into multiple businesses 1) CFS - steady and predictable 2) rail business -
capital intensive, fast growing venture and becoming more profitable like Concor
and 3) cold storage business - small and nascent but a big opportunity. Combining
GDL's various businesses of different capital intensity and different growth trajectory,
we value the company on 3 financial parameters - EV/EBITDA, P/B and P/E. Using
EV/EBITDA, P/B and P/E as valuation tools we assign a target price of Rs 160 for the
stock and reiterate BUY. From the CMP of Rs 146 the stock has an upside of 10 %.
We are not changing the target price despite the healthy performance in the last
two quarters. We would wait and see the performance of one more quarter to increase
our estimates and upgrade the target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
GATEWAY DISTRIPARKS LTD
PRICE: RS.145 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.160 FY13E P/E: 11.1
GDL reported its consolidated net profit at Rs 335 mn (+63% YoY, but +1%
QoQ). It was a tad above our expectations of Rs 332 million. Revenues have
grown by ~35% YoY to Rs 1,841 mn. CFS revenues have increased to Rs 794
mn (+14% QoQ and +50% YoY). This is due to volumes increasing 4% YoY
in the CFS business. Revenue per TEU has significantly improved to Rs 9,138
from Rs 6,323 per TEU (YoY). As a result the margins from CFS business have
improved to 50% in the quarter from 46% YoY. This is 3rd consecutive
quarter that the rail business has reported positive PAT. The fill factor has
improved in the rail business from 78% in Q2FY11 to 87% in the current
quarter which has improved the margins of the business from 12% in
Q2FY11 to 17% in the current quarter. Cold chain business continues to be a
small part of the consolidated entity.
Financial highlights are:
n Consolidated revenues grew by 35% YoY and 1% QoQ in Q2FY12 to
Rs.1,841mn.
n Consolidated operating margins has improved by ~800 bps to 35.1% YoY led by
margins improving in the CFS business to 50% from 46% YoY. Margins have
also improved in the rail business to 17% in the current quarter from 12% in
Q2FY11.
n The effective tax rate has increased for the company to 30% in the current quarter
from average of 15% over FY07 to FY11.This was due to the CFS business
attracting full tax from FY12 (benefit under section 80IA until FY11).
n Net profit after minority interest has increased by ~ 63% YoY to Rs 1841 mn in
Q2FY12.
n The company has announced an interim dividend of Rs 3 per share for the financial
year FY12
Vallarpadam Container Freight Station (CFS)
Company in Q3FY11 had won a contract to operate a CFS at Vallarpadam (Kochi)
close to International Container Transshipment Terminal (ICTT), which would boost
the CFS business of the company from FY13E. This is 60:40 joint-venture of the company
and the Chakiat group. Vallarpadam is a transshipment port and would primarily
replace the transshipment requirement of India shifted from Colombo and
Singapore. Currently dredging work is being undertaken at the port to increase the
draft to enable large size container vessels to enter the port which would be over by
end of FY12E.
Volume at Vallarpadam- At Vallarpadam the company has one plot of land which is
of 6.5 acres and on which the company is currently constructing a CFS which would
have a capacity of 50,000 TEUs from FY13E. GDL has another plot of 20 acres
which is at some distance from the port and which the company would utilise in
future to expand the CFS capacity. We estimate GDL's Vallarpadam CFS to handle
about 25,000 TEUs in FY13E and 27,000 TEUs in FY14E. Since it is a transshipment
hub (unlike JNPT and Chennai), we need to wait and see how volumes develop for
all the CFS's at the port once transshipment activity starts.
Upcoming ICD at Faridabad
This ICD would have a total capacity of 100,000 TEUs per annum and would be
partly operational by Q3FY12. We expect the volumes to be low for this ICD in
FY12E as container train service would begin from the terminal only in FY13E.This
terminal is close to congested Tughlakabad ICD of Concor ( key ICD with 20% of
total volumes for Concor) and which handles close to 450,000 Exim TEUs per annum.
GDL expects some of these volumes to shift from Tughlakabad to their ICD at
Faridabad from FY13E onwards. Post the rail connectivity in place from FY13E, we
anticipate volumes of Faridabad to grow at healthy pace.
Container rail business
As expected, Gateway's container train business continues to be in black (3rd consecutive
quarter). The volumes reported by the train business were at 43,057 ~ TEUs
growing from 31,565 TEUs YoY. Realizations have fallen to ~ Rs 22,200/TEU from
~Rs 23,300/ TEU YoY. However the fill factor for the company has improved significantly
to 87% in the current quarter from 78% in Q2FY11. This has led to margin
expansion for the company in the rail segment from 12% in Q2FY11 to 17% in the
current quarter. Management expects to improve this fill factor further to 88% going
ahead that would lead to further margin expansion in the rail business.
Rail Haulage business - 5 to 6 rakes to be added till FY13, more
focus on Exim segment
GDL currently owns 21 rakes. Almost 2/3 of these rakes run on Exim routes which
are more profitable because of low empty running and assured cargo. Going forward
the company intends to add 8 more rakes and most of them would be primarily
placed on Exim routes. Company currently runs Exim operations primarily out of
JNPT and Mundra and would start Pipavav service in the current financial year. Start
of Faridabad ICD operations should help improving the Exim business and overall
Ebidta margins of the company.
Cold Chain Business
GDL operates the cold chain business through Snowman Frozen Foods (GDL
owns 50.12% stake) which has 16 cold stores spread across the country with a total
capacity of 19,000 pallets, It also operates around 120 refrigerated trucks and has
the capability to handle variety of products. GDL would be investing around Rs 200
million in increasing the capacity to more than 30,000 pallets in the next 30 months.
In our view, this business will take time to scale up for GDL given that the industry
is still nascent. This segment reported topline of Rs 137 mn in Q2FY12. Management
has guided that this segment would contribute Rs 1000 mn in revenues by FY13E
(we estimate Rs 798 mn) with an EBIDTA margin of 20%.
Capex to drive topline
GDL would be spending around Rs 2240 mn on network development (ICD/CFS),
purchasing rakes for its haulage business (rakes) and expanding cold chain business
over the next 24 months.
The capex would be primarily done through internal accruals. The company currently
has a cash balance of Rs 1.5 bn and gross debt of Rs 1.2 bn (excluding PE investment
by Blackrock of ~ Rs 3 bn) on the balance sheet with operating cash flow
generation of Rs 1.4 bn in FY13E ( FY12E = 1.2bn). The above capex would expand
its capacity from current two ICD at Garhi and Ludhiana and 21 rakes to three ICDs
(adding Faridabad by Q3FY11) and up to 29 rakes by FY13E. With this capex we
expect GDL's sales to grow at 14% CAGR over FY11 to FY13E.
Key risk- fall in Global Trade
The most important risk to GDLs business is the fall in global trade. Sharp deterioration
in overall economy/ trade would have a substantial negative impact. Exim trade
typically grows at ~2x growth in GDP, and any significant drop in India's GDP
could lead to a sharp deceleration in Exim trade growth, impeding GDL's growth
prospects.
Valuation and Outlook
GDL is into multiple businesses 1) CFS - steady and predictable 2) rail business -
capital intensive, fast growing venture and becoming more profitable like Concor
and 3) cold storage business - small and nascent but a big opportunity. Combining
GDL's various businesses of different capital intensity and different growth trajectory,
we value the company on 3 financial parameters - EV/EBITDA, P/B and P/E. Using
EV/EBITDA, P/B and P/E as valuation tools we assign a target price of Rs 160 for the
stock and reiterate BUY. From the CMP of Rs 146 the stock has an upside of 10 %.
We are not changing the target price despite the healthy performance in the last
two quarters. We would wait and see the performance of one more quarter to increase
our estimates and upgrade the target price.
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