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In?line performance; renewed thrust on expansions 

Gateway  Distriparks’  (GDL) Q2FY23  PAT  at  Rs591m  was  above  estimate  of  Rs468m (consensus: Rs476m) aided by higher than expected margins and lower tax provision. Total volumes declined by 3% YoY to 183k TEUs. EBITDA margins at 26.7% (down 40bps YoY) was above estimate of 26% led by higher margins in both ICD and CFS segments. GDL has showed renewed sense of urgency for expansion and has acquired two ICDs in  Jaipur  (greenfield) and Kashipur. In  the medium  term, it  targets  to add  2?3 more  ICDs. GDL maintained its  volume  guidance  of  6?7%  YoY  (ex  of  new acquisitions)  on blended basis driven by 10%+ growth in ICD volumes. Maintain BUY with PT of Rs108.

Earnings beat expectations led by higher margins and lower tax provision 

Revenue grew by 7% YoY to Rs3.6bn  (in?line) aided by improved realizations. Blended realization grew 11% YoY to Rs19779/TEU (ICD: up 1% YoY to Rs30876/TEU; CFS: up 13%  YoY to Rs8988/TEU). Total volumes declined by 3% YoY to 183k TEUs. EXIM volumes grew by 10% YoY to 90k TEUs while CFS volumes declined by 13% YoY to 93k TEUs due to end of concession for Punjab Conware and sharp erosion in volumes at Krishnapatnam CFS.  GDL indicated ICD/CFS segment margins of Rs9500 per TEU/Rs2200 per TEU in Q2FY23.

Showed renewed urgency for expansion; acquires 2 ICDs and targets more acquisitions

GDL acquired  30 acre  land  parcel  in  Jaipur  for  Rs270m  to  set?up  new ICD  with  initial  capacity of 1.25lakh TEUs p.a (Capex: Rs600m). GDL expects to commence operations in end FY24 and targets volume of 4k?5k TEUs/month in 2?3 years of operations. GDL also  acquired Kashipur Infra freight terminal at an EV of Rs1.56bn and deal is likely to close  by Dec?22. Currently, the ICD handles volume of 3k TEUs/month with potential to scale? up to 6k TEUs/month in 3?4 years (market size being 10k TEUs/month). Key industries in hinterland  include  paper,  chemicals,  home  furnishing etc. Immediate  competition  for  Kashipur  ICD  is  from  Concor’s  terminal  in Moradabad  (~50km  away).  These  ICDs  will boost incremental growth in FY24/25. GDL targets to add 2?3 more terminals in future.

Guides for strong growth for rail business; CFS volumes to remain subdued 

GDL’s outlook for the rail business remains buoyant. It has guided for 10%+ growth in  ICD volumes for FY23 (up 11% YoY in H1FY23). GDL expects CFS volumes to decline in FY23  (down  13%  YoY)  and  remain  flattish  in  FY24E.  Overall,  GDL  maintains  its  6?7%  volume growth guidance for FY23 on a blended basis (down 3% YoY in H1FY23). 

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.  New  terminal  additions  will  further accelerate  the  growth  ahead.  Business  restructuring  initiatives  have  helped  improve profitability and strengthen balance sheet with Net D/E of 0.18x and Net Debt/EBITDA of 1.2x as on Mar?22. We expect 13% CAGR in revenue/EBITDA for GDL, leading to 17%  CAGR in PBT due to lower interest costs. We have upgraded PBT estimates by 6.6%/8% in FY23/24, but PAT upgrade is higher at 19%/27% due to lower than earlier anticipated tax rate for the forecast period. We maintain our Buy recommendation with a revised PT  of Rs108 (11x average FY24?25E EBITDA).

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