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Outperformance in rail

Top takeaways from 2QFY22

* Marginally better than expectations. Strong volume recovery in Rail.

* Benefit of volume growth and lower unit cost with improved utilization, haulage discount in rail.

* Calibrated expansion in cold chain through Snowman.

Key highlights

Consolidated revenue increased by 27.9%yoy to Rs 3.35bn (in line with estimates of Rs 3.36bn). EBITDA increased by 39.5% yoy (up 2.1% qoq) to Rs 910mn, 2% higher than estimates of Rs 892mn. EBITDA margins improved 225bps from 24.9% in 2QFY21 to 27.1% in 2QFY22.

Interest cost declined by 23.6%yoy to Rs 164mn with debt repayment. PBT increased from Rs 152mn in 2QFY21 to Rs 474mn in 2QFY22, 6% higher than estimates. GDL reported profit of Rs 469mn in 2QFY22 vs estimates of Rs 336mn mainly due to lower tax provision. Standalone revenue down marginally by 2.6%yoy to Rs 733mn and EBITDA declined by 21.5%yoy to Rs 156mn in 2QFY22. Standalone reported loss of Rs 31mn due to lower other income of Rs 19mn in 2QFY22 compared to other income of Rs 245mn in 2QFY21.

Conference call takeaways

* CFS business: Throughput was up 21.8%yoy (qoq up -0.4%) to 95,306 TEU. EBITDA declined by 24%yoy to Rs 201mn. CFS business reported marginal loss of Rs 24mn in 2QFY22 compared to loss of Rs 114mn in 2QFY21.

* Rail business: Throughput increased by 46.2% yoy (qoq up +8.3%) to 82,083 TEUs with increase in port volume and rail share in Exim trade. EBITDA increased by 76.5%yoy to Rs 758mn. Rail business reported profit of Rs 507mn in 2QFY22 vs Rs 173mn in 2QFY21.

EBITDA per TEU in rail business increased from Rs 7,649 in 2QFY21 from Rs 9,235 in 2QFY22. Rail business has benefit of 5% haulage discount by Indian railway (till March 2022) and improved turnaround time. Capex is expected c. Rs 1.2bn over next two years for development of satellite terminals to expand rail operations and handling equipment.

* Snowman: Revenue up 21.5% yoy (6.1% qoq) to Rs 701mn; Warehousing revenue up 14.3% while Transportation revenue up 31.2% to Rs 237mn. EBITDA grew by 20.5% yoy (6.8% qoq) to Rs 180mn. EBITDA margins impacted marginally by 20bps to 25.7% due to revenue mix. EBIT margins in warehousing improved from 16.3% in 2QFY21 to 21.8% in 2QFY22. It has capex plan of Rs 4bn to double the pallet capacity.

* Rail business has increased market share in Ludhiana and NCR region. It has taken price hike in Ludhiana and NCR region and expect EBITDA per TEU to maintain above Rs 9000.

* Turnaround time for export train has come down significantly and expect further improvement with completion of DFCC and electrification of existing routes.

Outlook and valuation: We value rail business at 13xEV/EBITDA FY23 (12x earlier) and maintain CFS business at 10xEV/EBITDA on FY23 at Rs 307 (Rs 265 earlier) and Rs 50 (Rs 65 earlier) per share respectively. We have valued 41% stake in snowman at Rs 23 per share (10% discount to Mcap). We have revised SOTP-based valuation with target price of Rs 380 (earlier Rs 356).

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