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An all-round results beat, encouraging outlook

In 3QFY21, Gateway Distriparks’ (GDL) EBITDA margin expanded 150bps QoQ to 26.3% and interest costs reduced to Rs 177mn (-18% QoQ) as the company deleveraged its balance sheet. This led to a significant PAT beat (Rs 327mn vs 40mn QoQ). The management has provided an upbeat outlook. In Sep-20, we upgraded Gateway Distriparks to BUY, given the company’s improving fundamentals. We raise our FY22/23 estimates by ~6%. Maintain BUY with an SOTP-based target price of Rs 165, at 9x FY23E EV/EBITDA for the rail business.

* 3QFY20 financials:

GDL’s revenue at Rs 3.1bn grew 5/20% YoY/QoQ, owing to 9/19% growth in rail volumes. CFS volumes were up 7% QoQ (-11% YoY). EBITDA margin at 26.3% surprised positively (+150bps QoQ, 600 bps YoY) as the company benefitted from higher volumes and 5% rebate on container volumes offered by IR (till Apr-21). The company has been repaying its debt post the fundraise and, hence, the interest cost is down 33% YoY. APAT grew 3x YoY to Rs 327mn (due to lower tax rate of 6% in 3Q, aided by the availing of MAT credit).

* Call and other takeaways: (2) Balance sheet deleveraging:

The company’s net debt stands reduced at Rs 4.94bn (vs Rs 5.09bn QoQ, 6.81bn in FY20). In the previous quarter, GDL used Rs 1.15bn raised via rights issue towards debt repayment. (2) DFC to benefit: (Link to our report: Indian Railways - getting aggressive) with the 306km long stretch from Rewari to Madar being inaugurated in Jan-21, the company expects a boost in volumes.

The management expects rail throughput of 25k TEU/month vs ~21k currently. It also expects the 342-km stretch of Madar-Palanpur to commence by Sep-21. It will facilitate market share shift towards the rail as the journey time will be reduced from ~70 hours to below 40 hours. Further, shipping fleets will drive the shift to rail, and manufacturers will move the business towards the hinterland based ICDs. (3) Port connectivity: The Pipavav Port feeder line is expected to connect with the DFC by Sep-21 while Mundra Port feeder lines will perhaps be connected by Mar-22 (Palanpur - Gandhidham -Mundra).

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