Gateway Distriparks - Multiple triggers at play - ICICI Securities

Given the encouraging performance of rail freight and CFS businesses in Q2FY21, Gateway Distripark (GDL) management has upped its volume guidance for FY21 - from 70% of FY20 volumes to 90%. Rail and CFS businesses continue to chart better margin trajectory than expected. GDL has been able to display meaningful deleveraging over H1CY20, helped by rights issuance; capital structure no longer poses a concern in our view. Also, CY20 brings in meaningful opportunity for Snowman Logistics given the evolving scope for Covid vaccine distribution in India. Snowman's efforts to increase revenue contribution from the pharma sector over the past three years, have coincided with the current opportunity. GDL with a 40% controlling stake in Snowman remains a direct play on the opportunity. Maintain BUY.

- Margins continue to impress. While CFS volumes were down ~26% YoY, EBITDA was down only 12% YoY. This is due to EBITDA/teu being 38% higher YoY. Similarly, rail freight volumes were down 16% YoY while rail EBITDA was down only 10% YoY. Rail margins appear extremely healthy at Rs 7649/teu.

- Next phase of expansion will see GDL consolidate market share in NCR. GDL's strategy has always involved setting up of satellite terminals around Garhi (which contributes ~65% to GDL's rail volumes) to capture additional market share. Blackstone's exit was ideally suited to ramp up investments, delayed by two constraints (capital structure and weak external market). Even without DFC commissioning, the management expects to capture 15-20% of EXIM container traffic traversing via road and entering the extended NCR market. However, the announced rail capex of Rs1,400mn planned over the next three years would not strain the balance sheet in any manner.

- GDL has repaid Rs2.5bn out of Rs2.7bn of NCDs due to mature on 7th Apr'21; net debt reduced to Rs5bn. GDL had an obligation to redeem NCDs amounting to Rs2.7bn on 7th Apr'21. It prematurely redeemed debentures of Rs500mn on 20th Jan'20 from the proceeds of sale of shares of subsidiary company 'Chandra CFS'. Furthermore, GDL redeemed debentures of Rs600mn on 21st May'20 and Rs250mn on 25th Jun'20 out of income arising from dividend received from subsidiary company 'Gateway Rail Freight limited' and Rs1150mn on 25th Sep'20 from issue of equity shares on rights basis. The balance NCDs amounting to Rs200mn will be redeemed from internal accruals of the company and dividends received from its subsidiaries.

- Maintain BUY. GDL remains a direct play on: i) cold chain logistics in India in the wake of Covid vaccine distribution opportunity, given its 40% controlling stake in Snowman Logistics; and ii) theme of rail freight progressively gaining share over road. Also, we see meaningful deleveraging in GDL and, with 'net debt to market cap' at 50%, a meaningful value unlocking cannot be ruled out.

Shares of GATEWAY DISTRIPARKS LTD. was last trading in BSE at Rs.92.35 as compared to the previous close of Rs. 90.3. The total number of shares traded during the day was 3716 in over 332 trades.

The stock hit an intraday high of Rs. 92.35 and intraday low of 88.9. The net turnover during the day was Rs. 337652.

Source : Equity Bulls

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