Gateway Distriparks - Sharp Hike in Rail Haulage Rates: Marginal Impact; Company Update :: Edelweiss, link

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Indian Railways (IR) has effected a sharp hike in haulage charges for container train operators after an 18-month hiatus (last hike in March 2013). Effective December 5, 2014, a new >30tonne (t) slab will be introduced along with a 25-42% hike in charges. A 10% congestion surcharge on rail traffic originating from ports (import volumes) will also come into effect. Management has indicated that it will pass on ~95% of the hike to customers. However, we expect impact on Gateway Distriparks’ (GDL) earnings to be marginal as volume loss will be limited to the sub-500km category.

IR hikes haulage charges; import surcharge introduced

IR has hiked haulage charge on most routes between 25% and 27%. It has introduced a new slab by splitting >26t into 26-30t and >30t. Increase in >30t charges, not significant for GDL, is the highest at 42%. Management expects cost increase in export containers to be 25% and 30% for import containers because of the additional congestion surcharge of 10%.

Hike to be passed on; volume dip to be marginal

The last round of revisions in Q4FY13 had impacted GDL’s Q1FY14 and Q2FY14 EBITDA margins 2%, which recovered in subsequent quarters. Volumes had dipped 15% YoY in Q1FY14, partially attributed to the economic slowdown and route rationalization. At present, management has indicated that the company has no alternative but to pass on nearly 95% of the cost hike thus protecting margins. Increase in end user charges will benefit road transport for distances up to 500km. However, for higher distances, rail transport will still be a viable option despite the increase in charges. Also, integration with existing operations of customers makes it difficult to switch. Considering this, we assume a temporary impact on GDL’s volumes and revise down FY15E and FY16E volumes by only 2% and 3%, respectively.

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