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Miss on margins; expansion plans put on fast track

Gateway Distriparks’ (GDL) Q1FY23 PAT at Rs576m was above estimate of Rs445m (consensus: Rs425m) due to net tax credit while PBT at Rs536m was in-line with estimate. Total volumes grew by 4.4%YoY to 179k TEUs, not comparable with estimate of 173k TEUs due to inclusion of empty CFS container volumes in the reported volume. Revenue grew by 4.3% YoY to Rs3.4bn (estimate: Rs3.6bn) but EBITDA declined by 2% YoY to Rs874m (estimate: Rs952m) due to lag in pass through of impact of discount withdrawal on haulage charges and also due to merger costs. EBITDA margins declined by 170 bps YoY to 25.4% (estimate: 26.6%). GDL expects margin to revert to normalcy in coming quarters and has guided for 6-7% total volume growth (ICD + CFS) with EBITDA of Rs5500/TEU for FY23E (Rs5600/TEU in FY22). Maintain BUY with PT of Rs94. Rail volumes strong while CFS volumes impacted by end of Punjab Conware concession

Given the merger with GRFL, GDL has now discontinued reporting ICD and CFS volumes and performance metrics separately. Qualitatively, Rail volumes saw strong growth while CFS volumes were impacted due to end of concession for Punjab Conware terminal and sharp erosion in volumes at Krishnapatnam CFS as large shipping lines have stopped calling port after change of ownership. EBITDA margins declined 170 bps YoY to 25.4% (estimate: 26.6%) due to lag of 30-45 days in passing on withdrawal of 5% discount in haulage charges, one-time merger related costs of Rs25-30m and discounts given to big customers. Net debt increased by Rs470m QoQ to Rs3.45bn in June-22.

Guides for strong growth of 12-13% for rail business; CFS volumes to remain subdued

GDL’s outlook for rail business remains buoyant and has guided for 12-13% volume growth while CFS volumes are likely to remain muted leading to blended volume growth of 6-7% YoY in FY23. GDL has shown renewed urgency to expand its ICD network and has revised its capex guidance upwards from Rs2bn to Rs2.5bn over the next 2 years. It would be largely spent in the Rail business to set-up two terminals (one greenfield and one acquisition) in the North market and for additional equipments for existing terminals.

EXIM containers transported by rail grew 2.7% YoY in Q1FY23

We estimate all India container volumes at Ports to have grown by ~3% YoY in Q1FY23. West coast container volumes are likely to have grown relatively faster at 4-5% YoY driven by strong growth at JNPT (up 8% YoY to 1.5m TEUs). EXIM container volumes transported by Indian Rail have grown at lower pace of 2.7% YoY.

Strong scalability advantage amid growth tail winds in the ICD business; Maintain BUY

GDL, while being a mid-size logistics player, enjoys a strong early mover advantage in its Rail business catering to northern markets. Its ICDs operate at ~50% capacity utilization, and with the potential to double their capacities, offer strong scalability. Business restructuring initiatives have helped improve profitability and strengthen balance sheet with Net D/E of 0.18x and Net Debt/EBITDA of 0.8x as on Mar-22. We expect 9.6% CAGR in revenue/EBITDA for GDL, leading to 12.8% CAGR in PBT due to lower interest costs. Improved reliability and reduced transit times of rail freight led by the DFC is a key growth catalyst (partial benefits seen already). We maintain Buy with a PT of Rs94.

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