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Gateway Distriparks – 2QFY2011 Result Update
Angel Broking maintains an Accumulate on Gateway Distriparks with a Target Price of Rs123
Gateway Distriparks’ (GDL) 2QFY2011 results were ahead of our expectations on
account of better performance at its JNPT CFS. Revenue growth was driven by
healthy volumes across segments and the Punjab Conware CFS returning to
~70% capacity utilisation levels post the complete closure due to the fire accident
in February 2010. Further higher share of Exim revenue (62%) in rail segment
improved its operating margins by 159bp yoy and 117bp qoq. GDL received the
much awaited funds infusion of `300cr from the Blackstone group in August
2010 and has begun deploying the same towards retirement of high-cost debt
and execution of capex. We maintain an Accumulate on GDL.
Better performance at JNPT CFS drives profitability: GDL reported revenue growth
of 3.8% yoy to `138cr for 2QFY2011 vis-à-vis our estimates of `126cr on
account of better performance at its JNPT CFS as Punjab Conware CFS return to
its normal capacity utilisation. The overall CFS revenue reported 10.1% yoy and
13.0% qoq growth to ` 54cr. The rail segment reported 1.7% yoy decline in
revenue on account of higher share of Exim segment which resulted in lower
realization. Overall, EBITDA margins improved by 140bp yoy and 171bp qoq to
25.6% owing to higher ground rent as dwell time increased with volumes and
congestion during the JNPT port closure in August 2010 and higher contribution
from high margin Exim segment in rail segment. Interest cost increased 30.2% yoy
to `6.2cr on account of benchmark rate of loans taken from GE Finance going up
by100bp. GDL continued to claim MAT entitlement resulting in tax write-back of
`1.3cr. Thus, PAT grew 19.7% yoy and 46.0% qoq to `20.5cr against our
estimate of `13.3cr.
Outlook and Valuation: The break even of rail business at PAT level and ability to
combat intense completion at JNPT CFS on sustainable basis will act as a positive
catalyst for stock performance. At the CMP, the stock is trading at a PE of 11.9x
and P/BV of 1.8x on FY2012 estimates. We maintain an Accumulate on the stock,
with a Target Price of `123.
Investment Arguments
Pan-India presence to aid GDL capture growing container traffic
Containerisation is popular as it helps to ease congestion at the harbours
(facilitates efficient handling cargo) resulting in quicker turnaround of time for the
container vessels. This in turn has seen an increase in container traffic at the major
ports at 4.4% CAGR vis-à-vis 8.0% CAGR for total cargo over 2001-10. The CFSs
at Mumbai, Vishakhapatnam, Kochi and Chennai and the ICD at Garhi and
Ludhiana could act as GDL’s six hubs to cater to the traffic demand in the western,
eastern, southern and northern regions of India. In FY2011, one more ICD will get
operational at Faridabad, which will strengthen GDL’s pan-India presence and
allow it to cater to the fast-growing Indian Exim trade. We expect the container
traffic to increase from 6.9mn TEUs in FY2010 to 13.9mn in FY2015E, registering
a CAGR of 15.0% during the period. Consequently, we expect GDL to register
12.2% CAGR in CFS volumes over FY2010-12E.
Rail business gaining momentum
GDL’s rail business is likely to breakeven in FY2012E (management expect to
break even in FY11E) on the back of improving capacity utilisation and availability
of rakes. GRFL currently operates 21 rakes, which is likely to increase by 8-10
rakes in two years mainly through cash infusion by Blackstone. The rail business is
likely to receive a boost once its Faridabad ICD becomes fully operational in
FY2011E. Increased volumes from the high-margin Exim segment and better
utilisation levels are likely to improve operating margins. We expect GDL to
breakeven at the net profit level in FY2012E after having booked a loss of `12.7cr
in FY2010 and 7.6cr in 1HFY2011. We expect rail volumes to record a CAGR of
25% over FY2010-12E driven by the addition of new rakes and better capacity
utilisation.
Falling market share at JNPT CFS remains a concern
GDL reported 13.0% yoy and 8.8% yoy decline at JNPT CFS volumes in FY2010
and 1HFY2011 in spite of the 2.7% yoy and 4.0% yoy growth registered in
container volumes at the JNPT port. This is partly due to closure of Punjab
Conware CFS due to the fire accident in February 2010 and intense competition
and oversupply of CFS at the port. Consequently GDL witnessed 100bp erosion in
market share to 5.3% at the JNPT CFS in FY2010. We believe that GDL will
continue to face near-term pressures at the JNPT CFS, as no additional capacity is
coming up in FY2011E. We expect additional capacity of 0.8mn TEU to come up
at JNPT’s third container terminal only by 2HFY2012E, which will improve capacity
utilisation of the CFS players.
Outlook and Valuation
With Exim volumes showing signs of improvement, we expect GDL’s revenue mix
to change in favour of Exim in its rail business, which will in turn improve its
margins going forward. We remain bullish on the long-term prospects of the
container sector, which is the core driver of growth for GDL’s business. We believe
that GDL's presence at strategic locations and its ongoing expansion plans will
make it a key beneficiary of the growing container traffic in India. Overall, we
expect GDL to register 14.1% CAGR in earnings over FY2010-12. At the CMP, the
stock is trading a PE of 11.9x and P/BV of 1.8x on FY2012 basis. We maintain an
Accumulate on the stock, with a Target Price of `123.
Investment Arguments
Pan-India presence to aid GDL capture growing container traffic
Containerisation is popular as it helps to ease congestion at the harbours
(facilitates efficient handling cargo) resulting in quicker turnaround of time for the
container vessels. This in turn has seen an increase in container traffic at the major
ports at 4.4% CAGR vis-à-vis 8.0% CAGR for total cargo over 2001-10. The CFSs
at Mumbai, Vishakhapatnam, Kochi and Chennai and the ICD at Garhi and
Ludhiana could act as GDL’s six hubs to cater to the traffic demand in the western,
eastern, southern and northern regions of India. In FY2011, one more ICD will get
operational at Faridabad, which will strengthen GDL’s pan-India presence and
allow it to cater to the fast-growing Indian Exim trade. We expect the container
traffic to increase from 6.9mn TEUs in FY2010 to 13.9mn in FY2015E, registering
a CAGR of 15.0% during the period. Consequently, we expect GDL to register
12.2% CAGR in CFS volumes over FY2010-12E.
Rail business gaining momentum
GDL’s rail business is likely to breakeven in FY2012E (management expect to
break even in FY11E) on the back of improving capacity utilisation and availability
of rakes. GRFL currently operates 21 rakes, which is likely to increase by 8-10
rakes in two years mainly through cash infusion by Blackstone. The rail business is
likely to receive a boost once its Faridabad ICD becomes fully operational in
FY2011E. Increased volumes from the high-margin Exim segment and better
utilisation levels are likely to improve operating margins. We expect GDL to
breakeven at the net profit level in FY2012E after having booked a loss of `12.7cr
in FY2010 and 7.6cr in 1HFY2011. We expect rail volumes to record a CAGR of
25% over FY2010-12E driven by the addition of new rakes and better capacity
utilisation.
Falling market share at JNPT CFS remains a concern
GDL reported 13.0% yoy and 8.8% yoy decline at JNPT CFS volumes in FY2010
and 1HFY2011 in spite of the 2.7% yoy and 4.0% yoy growth registered in
container volumes at the JNPT port. This is partly due to closure of Punjab
Conware CFS due to the fire accident in February 2010 and intense competition
and oversupply of CFS at the port. Consequently GDL witnessed 100bp erosion in
market share to 5.3% at the JNPT CFS in FY2010. We believe that GDL will
continue to face near-term pressures at the JNPT CFS, as no additional capacity is
coming up in FY2011E. We expect additional capacity of 0.8mn TEU to come up
at JNPT’s third container terminal only by 2HFY2012E, which will improve capacity
utilisation of the CFS players.
Outlook and Valuation
With Exim volumes showing signs of improvement, we expect GDL’s revenue mix
to change in favour of Exim in its rail business, which will in turn improve its
margins going forward. We remain bullish on the long-term prospects of the
container sector, which is the core driver of growth for GDL’s business. We believe
that GDL's presence at strategic locations and its ongoing expansion plans will
make it a key beneficiary of the growing container traffic in India. Overall, we
expect GDL to register 14.1% CAGR in earnings over FY2010-12. At the CMP, the
stock is trading a PE of 11.9x and P/BV of 1.8x on FY2012 basis. We maintain an
Accumulate on the stock, with a Target Price of `123.
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