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GATEWAY DISTRIPARKS LTD
PRICE: RS.131 RECOMMENDATION: BUY
TARGET PRICE: RS.160 FY12E P/E: 13.6X
We recently met the management of Gateway Distriparks Limited (GDL) to get an
understanding of the latest developments in the Industry and the company.
Key Takeaways are;
Current Facilities
GDL currently has CFS operations in four locations and ICD operations at Garhi and
Ludhiana. The below mentioned table explains the current facilities of GDL group.
JNPT continues to be the key CFS for the company
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 a 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.
Rail Haulage business - 8 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
Rail Business has turned profitable
After reporting losses since inception, GRFL has reported PAT of Rs 41 mn in H2FY11
(Rs 46 mn in Q1FY12 alone) in the rail business. Rail freight business model profitability
is highly linked to load factors. Load factor has gradually improved for GRFL
from 70% in FY08 to 80% in FY11 and 82% in Q1FY12. Management is confident
of improving this load factor to 85% going forward and we model the same of 85%
over FY11 to FY13E. This would lead to EBITDA margin expansion for GRFL from
13.64 % in FY11 to 16% in FY13E. The overall margin would also expand for the
company from 26.8% in FY11 to 29.2% in FY13E with increasing share of rail business
in total revenue and profitability.
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 24 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 134 mn in Q1FY12. 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.
Segmental Share of revenues
The CFS business was contributing a majority of the company's revenues (53% of
FY09). In FY11 CFS contributed ~40 % of the topline. With ramping up of the high
growth rail business, the share of rail business to the topline has increased from
~40% in FY09 to ~53% in FY11.The CFS volumes grew marginally over FY09 to
FY11. The company is currently making investments to add CFS capacity at
Vallarpadam, ICD at Faridabad and to add 8 rakes. With such proportionate investments,
we expect the rail volumes to grow from 131,328 TEUs in FY11 to 172,584
in FY13E (14% CAGR) and CFS volumes to grow from 333,426 TEUs in FY11 to
389,110 TEUs in FY13E (8% CAGR). As a result, the revenue mix would change
marginally in favour of rail business in FY12 over FY11
Effective tax rate of the company to go up to ~25% from current
~15%
The growth in top line and margins does not percolate to the bottom line due to the
CFS business attracting full tax from FY12 (benefit under section 80IA until FY11).
The effective tax rate would increase to 25% from average of 15% over FY07 to
FY11.This translates into a ~22% PBT CAGR over FY11 - FY13E and ~12% CAGR at
the PAT level.
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 131 the stock has an upside of 22 %.
