Gateway Distriparks - Well thought business mix; set to ride the infra wave - GEPL Capital

Investment Rationale

FDI in retail to push container traffic and increase need for cold storage

The recent announcement made by the government on allowing 51% Foreign Direct Investment (FDI) in multi-brand retail is expected to augur well for the logistics sector. This would spur demand for transportation of goods, increase containerization of goods being imported directly from the native countries and encourage cold storage. Gateway Distriparks Limited (GDL) is the 2nd largest player in the container rail business, largest private player in cold storage business and has well connected Container Freight Stations (CFSs). Hence, it would be a direct beneficiary of FDI in retail.

CFS remains the key revenue driver; expansions to power it ahead

We expect CFS volumes for GDL to grow at 8% CAGR over FY12-FY14E led by expansions at Chennai, commissioning of new CFS at Kochi with initial capacity of 50,000 Twenty-Foot Equivalent Units (TEUs) & normalization of volumes at Punjab Conware. CFS would continue to contribute more than 75% to consolidated PAT. CFS operates at a higher PAT margin of 35% vs consolidated PAT margin of 16% (FY12). Though container volumes have been affected due to European contagion and slowing of EXIM trade, we expect GDL to be the key beneficiary once volumes pick up. We expect CFS revenues to register an 11% CAGR growth in revenues over FY12-FY14E.

Niche Cold chain business heating up

GDL has a 52.19% stake in Snowman Logistics Limited (SLL) and is currently in the process of expanding pallet capacity from 18,280 pallets (FY12) to 46,340 pallets by FY13E-FY14E. SLL has shown robust 21% CAGR sales growth over FY08-FY12. On the back of huge capacity expansion, we expect SLL's sales to grow at 54% CAGR over FY12-FY14E.

Rail business beginning to add value post break-even

GDL's rail operations are handled by a subsidiary, Gateway Rail Freight Limited (GRFL) which owns and operates a fleet of 21 trains and 235 road trailers at its rail linked terminals. It plans to add 6-9 rakes in FY13E. GRFL has Inland Container Depots (ICDs) at Garhi, Ludhiana, Kalamboli and an upcoming ICD at Assauti (Faridabad). GRFL reached break-even in Q3FY11 and has showed an 87% growth in PAT during Q1FY13. With initiatives such as operating double stack trains on certain routes and operating on shorter routes to minimize empty running, we expect GDL to record a 19% CAGR revenue growth over FY12-FY14E.

Valuation

At the Current Market Price (CMP) of Rs.137, GDL is trading at 5x its FY14E EBITDA which is at a 34% discount to its long term EV/EBITDA multiple and at 8x its FY14E EPS which is at a 26% discount to its long term P/E multiple. Hence, we believe that GDL is attractively valued. Introduction of FDI in retail is expected to give impetus to the logistics sector in general and GDL in particular due to its well diversified business segments. We initiate coverage on GDL with a BUY rating and a target price of Rs.184, indicating an upside of 35% to the CMP.

Source : Equity Bulls

Keywords