Sunday, February 5, 2012


Healthy margins to lead to better valuations

Gateway Distriparks’ (GDL) Q3FY12 results were in-line with our expectations with consolidated net profit at Rs331mn vs. our estimate of Rs323mn. The overall operating margin at 32.9% was led by the CFS segment, which continued its stellar performance. Though CFS volumes declined 8.4% YoY, realisations were up 31.6% YoY which led to a 532bp margin expansion in the division to 54.1%. The rail segment’s volumes grew 23.8% YoY, while margins expanded 374bp YoY to16.8% with higher contribution from Exim. We are marginally tweaking the volume and realisation assumptions, while mostly maintaining our estimates. We continue to remain positive on GDL on the back of improving margins across segments and higher growth expected in the rail and cold chain businesses. We maintain Buy with a target price of Rs190.

Q3 results in-line with estimates: Consolidated income grew 23.9% YoY to Rs1,983mn (4.3% above our estimate). PAT jumped 63.6% YoY to Rs335mn, 8.1% higher that estimated. CFS volumes grew 4.1% YoY to 86,890 containers and rail volumes grew 36.4% YoY to 43,057 containers.

 Healthy margins across segments: EBITDA grew 39.8% YoY to Rs653mn, 4.6% above our estimate. EBITDA margin improved 374bp YoY to 32.9% in-line with 32.8% anticipated mainly on the back of continued margin improvement across segments. CFS margins continued to remain healthy at 54.1%, up 532bp YoY. Rail margins increased 374bp YoY to 16.8% while cold chain margins remained flat at 27.5% (down 65bp YoY but up 195bp QoQ).

 Higher realisation in CFS continues to led to healthy margins: While CFS volumes declined 8.4% YoY, realisation improved 31.6% YoY to Rs10,221 per container. This was also a jump of 8.1% QoQ which was mainly due to increase in dwell time (12day vs. 10.5-11days earlier) and improvement in realisations at Chennai CFS. This helped CFS revenue grow 20.5% YoY to Rs811mn and EBITDA to increase 33.6% YoY to Rs438mn.

 Planned capex of over next 15 months: GDL has planned an additional capex of Rs2.5bn over the next 15months. The rail business will have the largest share with Rs1.3bn for capacity expansion at its ICDs and terminals apart from fleet expansion. GRFL plans to add at-least 6-7 rakes over the next one year. The company will spend Rs800mn in the CFS business to expand its capacities at Kochin and Chennai. Its cold chain business is looking to expand its current capacity of 18,250 pallets to ~46,000 pallets by the end of FY13.

 Buy with a target price of Rs190: High earnings growth and improvement in margins warrant a re-rating of the stock. We maintain Buy rating and target price of Rs190, valuing the stock at 14x FY13 earnings. At the CMP, the stock is trading at 10.0x and 5.6x FY13E P/E and EV/EBITDA respectively.