ICICI Direct - Stock Tales - Gateway Distriparks

GDL has a diversified presence in logistics verticals like container train operators (CTO), cold chain logistics, container freight stations. Expected commissioning of Dedicated Freight Corridor (DFC) will position its CTO business in a sweet spot with multiple improvement in operational parameters enabling sustained revenue growth coupled with improved margins owing to enhanced operational efficiencies. Also, a gradual recovery of CFS segment and enhanced profitable growth in cold chain logistics (enhanced utilisation & better profitability owing to increased focus on pharma, other value added user industries) would lead to improved financial performance in FY20-23E. We estimate a revenue, EBITDA, PAT CAGR of 5%, 9%, 15% to Rs. 1493 crore, Rs. 406 crore, Rs. 159 crore, respectively, with accentuated margin profile of 27% in FY23E (vs. 24% in FY20).

CTO segment to augment profitability

DFC is expected to be connected to Pipavav port and Mundra port in Gujarat by Q1FY22 and end of Q3FY22, respectively. This should benefit CTOs like GDL in terms of higher volume growth. DFC is likely to enhance the operational metrics of CTOs with enhanced visibility on delivery time due to time tabled freight trains and higher share of double stacked trains enabling better operational efficiencies, among other triggers. GDL's CTO segment is seeing stronger profitability owing to better turnaround time (EBITDA per TeU expected at ~Rs. 8300 in FY21). We expect GDL's rail volumes to grow at a CAGR of 8% in FY20-23E and EBITDA per TeU to be in the range of ~Rs. 9000-9200 in FY20-23E, enabling a rail EBITDA CAGR of 17%.

Deleveraging to improve return ratios

GDL has been actively lowering its gross debt position, which reached a high of ~ Rs. 740 crore in FY19 (due to buyback of Blackstone's entire stake in the rail segment for Rs. 850 crore) and is expected at ~Rs. 500 crore in FY21. A strong balance sheet combined with strategically located infrastructure will help GDL to capitalise on future growth opportunities and improve its return ratios. We expect the RoE and RoCE profile to improve from 7.2%, 11.8% in FY20 to 10.4%, 17.8% in FY23E, respectively.

Valuation & Outlook

Post a rebound in port container volumes from October 2020 onwards, the container rail segment has witnessed normalisation in YoY performance (seeing double digit growth in Exim segment since November). GDL's capex is expected to remain in a rangebound territory (Rs. 50-150 crore) and will be mainly spent in developing secondary feeder terminals, as DFC continues to build efficiency into rail transportation (same volume of cargo can be carried in lesser number of trains with higher turnaround times, increased speed and double stacking). Stable revenue growth and enhanced margins would translate into strong FCF generation (>11% yield in FY23E) and debt reduction (D/E: 0.2x in FY23E). We expect RoCE augmentation of 600 bps over FY20-23E to 17.8%. Gateway Distriparks stays a structural long term growth story in the logistics landscape. We ascribe a BUY rating to the stock with a target price of Rs. 240 (19x FY23E EPS).

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_GatewayDistriparks_StockTales_Mar21.pdf

Shares of GATEWAY DISTRIPARKS LTD. was last trading in BSE at Rs.177.5 as compared to the previous close of Rs. 171.95. The total number of shares traded during the day was 4880 in over 224 trades.

The stock hit an intraday high of Rs. 177.75 and intraday low of 173.05. The net turnover during the day was Rs. 858779.