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Buy Gateway Distriparks Ltd For Target Rs.330

Positive surprise on rail volumes

Gateway Distriparks’ (GDL: CFS + Rail) 2QFY22 EBITDA grew 39% YoY (+15% 2-year CAGR) with a) 32% YoY growth (+2% 2-year CAGR) in volumes on strong EXIM trade and market share gains in its rail business (especially in Gurgaon/NCR pocket) and b) strong Rail EBITDA margins at INR 9,243/TEU (+21% YoY) on haulage charge discount offered by Indian Railways and improved turnaround times on partial commissioning of western DFC. The restructuring process (expected to improve fungibility of cash flows and operational synergies) is underway and is expected to complete by end CY21. With strong cash flows (INR 1.7bn OCF in 1HFY21), GDL reduced its net debt further to INR 4.4bn (vs. INR 4.7bn in Jun’21). We raise our estimates by 4-11% for FY22-24 to reflect market share gains and margin outlook (FY23). We maintain BUY on GDL with Sep’22 TP of INR 330 (INR 310 earlier). Key risks: a) lower-than-expected cargo growth/profitability and b) adverse outcome in pending litigations.

* 2QFY22 Summary (Rail + CFS): Consolidated revenue grew 28% YoY (+2% 2-year CAGR) to INR 3.3bn (5% above JMFe), led by 32% YoY (+2% 2-year CAGR) growth in volumes, while blended realisations fell 3% YoY/2% QoQ. EBITDA grew 39% YoY (+15% 2-year CAGR) to INR 968mn (6% above JMFe) while PAT grew 849% YoY (+94% 2-year CAGR) to INR 485mn (29% above JMFe).

- A) Rail: Volumes grew 46% YoY (11% 2-year CAGR) vs. 14.8% YoY growth reported by Indian Railways (IR) on market share gains. Despite INR 1,000/TEU price hikes taken in Ludhiana and NCR markets, realisations fell 2% YoY/4% QoQ (3% below JMFe) on export-import imbalance. EBITDA margins grew 21% YoY to INR 9,243/TEU (3% below JMFe) with a) 5%/25% haulage discount offered by Indian railways on laden and empty cargo and b) improved turnaround times on partial commissioning of western DFC.

- B) CFS: Volumes grew 22% YoY (-5% 2-year CAGR) while realisations fell 20% YoY/3% QoQ. EBITDA margins fell 35% YoY/3% QoQ to INR 2,192/TEU on rising fuel costs as it also intends to retain customers at its Punjab Conware facility where contract ends in Jan’22.

* Market share gains on assured transit time: In 2QFY22, GRFL volumes grew 46% YoY (vs. 14.5%/6% for IR/Concor respectively) on market share gains in the NCR market on new products, assured transit scheme by IR and dedicated services. With reliable logistics GRFL’s existing customers didn’t find a need to de-risk their logistics helping GDL gain volumes from existing customers. According to management, GRFL’s market share improved from 14% now.

* Partial DFC commissioning augurs well: With the partial commissioning of DFC, Gateway Rail Freight Ltd (GRFL) saw a reduction in Transit time between its Garhi Harasaru terminal-Mundra port from 72hrs to 27hrs in export direction and 22 hrs in import direction which can reduce further to <24hrs in both directions leading to 7.5 round trips

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CIN Number : L67120MH1986PLC038784

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