Result Update February 2, 2015 Rating matrix Rating : Buy Gateway Distriparks (GATDIS) | 383 Target : | 485 Target Period 12 months Potential Upside : 26% Strong volumes continue to drive growth… What’s changed? • Gateway Distriparks reported spirited Q3FY15 revenue growth of Target Changed from |330 to |485 10% YoY to | 273.7 crore vs. | 248.2 crore in Q3FY14. Rail segment EPS FY16E Changed from |19.9 to |20.7 revenues recorded healthy growth of 19.5% YoY to | 163 crore while EPS FY17E Changed from |24.3 to |24.6 Rating Unchanged CFS posted strong growth ~26% YoY to | 88.6 crore • EBITDA in the quarter was at | 86.4 crore growing strongly by 35% YoY whereas QoQ it remained mostly flattish. On the margin front, Quarterly performance EBITDA margin expanded ~582 bps YoY, 227 bps QoQ to 31.6% Q3FY15 Q3FY14 YoY (%) Q2FY15 QoQ (%) • PAT for the quarter stood at | 54.3 crore posting growth of ~61% Revenue 273.7 248.2 10.3 292.7 -6.5 YoY. On the volume front, CFS throughput for Q3FY15 stood at EBITDA 86.4 63.9 35.2 85.7 0.7 96,612 TEUs with rail/ICD at 63,952 TEUs, posting growth of 16% and EBITDA (%) 31.6 25.7 495 bps 29.3 581 bps 24%, respectively, YoY PAT 54.3 31.9 70.4 47.7 13.8 CFS volume grows strong at Vizag, Kochi; Mumbai volumes return Key financials GDL with ~5,50,000 TEUs annual capacity is one of the largest container | Crore FY14 FY15E FY16E FY17E freight station (CFS) operators in India. Throughput of GDL’s CFS Revenue 1012.8 1067.4 1157.6 1338.8 business grew at a modest CAGR of ~1% in FY11-13 to 342662 TEUs. EBITDA 257 334 365 425 However, with an improvement in the economy and maturity of new CFS Net Profit 136 201 225 268 such as Kochi and Vizag, we expect CFS volumes to post a CAGR of 16% EPS (|) 12.5 18.5 20.7 24.6 over FY14-17E. For Q3FY15, CFS volume at Mumbai grew ~11% YoY to Valuation summary 56,016 TEUs whereas other CFS at Chennai and Kochi posted strong FY14 FY15E FY16E FY17E growth of 29% and 364% YoY to 23,114 and 3907 TEUs, respectively. P/E 30.8 20.6 18.3 15.4 Going ahead, we expect volume growth to sustain as major port’s Target P/E (x) 38.8 26.3 23.4 19.7 container volume growth shows significant traction. EV/EBITDA (x) 15.4 12.0 10.8 9.2 P / BV (x) 5.0 4.4 3.9 3.4 Rail/ICD segment continue to grow strong catalysing growth for GDL RONW (%) 16.2 20.8 20.2 20.6 GDL with nearly 785,000 TEUs capacity in ICD segment and 21 rakes in ROCE (%) 18.2 22.9 22.2 22.6 Gateway Rail Freight (GRFL) is the second largest container train operator (CTO) in the country. Rail/ICD throughput for GDL grew at a CAGR of Stock data ~7% over FY12-14 to 205538 TEUs. Going ahead, it is expected to grow Particular Amount at ~13% CAGR over FY14-17E. The rakes ply mainly on the Exim route, Market Capitalization (| Crore) 4127 thereby reducing empty running and garnering higher margins. Operating Totak Debt (FY14) (| Crore) 276.1 Cash and Investment (FY14) (| Crore) 117.0 margins initially declined (100 bps YoY to 15% in FY13) in the rail EV (| Crore) 4,285.9 segment due to a hike in freight by Indian Railways. However, in FY14, 52 week H/L 458 / 122 GDL has been able to pass on those hikes (partially) and also enhanced its Equity Capital (| Crore) 108.6 operational efficiency with double stacking and closure of unprofitable Face Value (|) 10.0 routes, enabling the rail/ICD segment to report a 500 bps YoY improvement in the EBITDA margin. For the quarter, the margin for the rail segment improved 18.8% to 31.1% YoY. Further, with the Faridabad Peer Comparison ICD becoming operational and expected to gain critical mass in the next 1M 3M 6M 12M Gati -1.6 21.3 120.9 319.5 two quarters, throughput of the rail/ICD segment is expected to improve Blue Dart Express 10.2 30.7 76.4 97.3 further. Going ahead, GDL is planning a capex of nearly | 75 crore in FY15 Concor 4.4 5.7 7.0 93.0 to develop another ICD near Ahmedabad, which is expected to be Gateway Distripark 9.6 42.1 61.6 205.9 operational in 18-24 months. CFS volumes, higher rail segment margins continue to perk-up valuation As container volumes at major ports like JNPT and Chennai post growth of 10% and 6% YoY, respectively, in YTD, we expect the CFS segment to Research Analysts post robust growth. Further, as diesel prices ease together with double Bharat Chhoda stacking and operationalisation of Faridabad ICD, we anticipate GDL [email protected] rail/ICD segment will also report significant growth. Finally, as the Soumojeet Banerjee associate cold chain segment continues to grow at a steady pace for GDL, [email protected] we value it with 20% holding company discount together with SOTP for CFS and rail segment to arrive at a target price of | 485 with a BUY recommendation. ICICI Securities Ltd | Retail Equity Research Variance analysis | Crore Q3FY15 Q3FY15E Q3FY14 YoY (%) Q2FY15 QoQ (%) Comments Revenue 273.7 258.7 248.2 10.3 292.7 -6.5 As JNPT and Chennai port volumes grew; CFS at these locations posted strong growth of 11% and 29%, respectively. Also, rail segment posted strong volumes Employee Expenses 9.2 11.5 11.5 -20.3 11.0 -16.3 Road Transport 30.3 37.2 37.2 -18.7 43.0 -29.6 Rail Transport 103.2 87.5 85.4 20.9 101.2 2.0 Container Storage,Handling &Repairs 4.2 3.7 3.7 13.9 4.2 -0.5 Labour Contract charges & Fees 17.8 18.4 18.4 -3.5 20.6 -13.8 Other Expenditure 22.6 29.3 28.0 -19.3 26.9 -15.9 Total Expense 187.3 187.7 184.3 1.6 206.9 -9.5 EBITDA 86.4 71.0 63.9 35.2 85.7 0.7 EBITDA Margin (%) 31.6 27.5 25.7 582 bps 29.3 227 bps As high margin CFS business grows and there is significant margin improvement in rail segment; overall operating margin improves for GDL Depreciation 20.0 24.7 20.3 -1.6 24.1 -17.0 Interest 4.3 7.0 7.5 -42.6 6.9 -37.0 Other Income 3.2 3.0 5.9 -46.3 2.9 7.5 PBT 65.2 42.3 41.9 55.6 57.8 13.0 Total Tax 12.6 6.3 8.6 9.9 Adj PAT (Incld Minority Int) 54.3 36.0 33.7 61.3 47.7 13.8 Key Metrics Q3FY15 Q3FY14 YoY (%) Q2FY15 QoQ (%) Comments CFS Volume (TEUs) 96,612 83,510 15.7 102,587 -5.8 Also, 11% and 29% volume growth in Mumbai and Chennai CFS, respectively, aids volume growth significantly for GDL. However, Vizag's volume declined nearly 4% YoY due to cyclone impact during the quarter Rail Volume (TEUs) 63,952 51,581 24.0 67,706 -5.5 Rail volume posts significant growth of 24% YoY and 23% on YTD basis, thereby improving operating leverage of the segment Source: Company, ICICIdirect.com Research Change in estimates FY16E FY17E (| Crore) Old New % Change Old New % Change Revenue 1,214.9 1,157.6 -4.7 1,403.8 1,338.8 -4.6 Revenue revised marginally downwards as growth in realisation in CFS & rail remains a challenge. EBITDA 349.5 365.4 4.6 416.1 425.4 2.2 EBITDA Margin (%) 28.8 31.6 280 bps 29.6 31.8 213 bps As volume improves in CFS & ICD Faridabad stabilises, EBITDA margins are expected to improve. Also, rail segment margin improves due to double stacking, thereby aiding margin PAT 215.9 225.2 4.3 263.8 267.5 1.4 EPS (|) 19.9 20.7 4.2 24.3 24.6 1.4 Source: Company, ICICIdirect.com Research Assumptions Current Earlier Comments Unit FY14 FY16E FY17E FY16E FY17E CFS Throughput TEUs 340,004 468,472 533,683 468,472 533,683 CFS volume expected to grow at ~16% CAGR over FY14-17 as economy revives together with CFS in Kochi & Vizag gaining stability ICD/Rail Throughput TEUs 212,317 280,258 308,284 273,252 300,577 Rail/ICD volume expected to grow at 13% CAGR in FY14-17 as ICD Faridabad volume improves due to hub & spoke model CFS Realization |/TEUs 8,625 9,371 9,840 9,371 9,840 Realisation to improve marginally as economy improves and price hikes are easier to pass on (kept largely unchanged over previous estimates) ICD/Rail Realization |/TEUs 26,710 25,448 26,212 28,199 29,045 Source: Company, ICICIdirect.com Research ICICI Securities Ltd | Retail Equity Research Page 2 Company Analysis CFS segment volume revives as major port volume revives Previously, container volumes at JNPT port de-grew ~1% in FY12-14 but port volumes have show significant traction with volume growing ~10% YoY for YTD. Similarly, Chennai port volumes also posted a recovery (9.6% YoY for YTD) leading GDL’s CFS at Chennai to post volume growth of 28.6% YoY.