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Rail margins continue to remain at 9000/TeU levels

About the stock: GDL has a diversified presence in logistics verticals like container train operators (CTO), cold chain logistics and container freight stations.

* Rail segment comprises ~70% of consolidated revenues, with the rest being contributed by CFS

* Has five intermodal terminals, built on owned land at key areas along WDFC

Q1FY22 Results: Resilient performance led by rail segment

* Revenues grew 30% YoY to | 330 crore (59% rail volume growth)

* EBITDA grew 28% QoQ to | 89 crore with margins at 27.1% (vs. 27.7% in Q1FY21)

* Subsequently, PAT grew 3X to |44 crore

What should investors do?

With Western DFC expected to be commercialised in September, 2021, GDL stands to gain in the medium to long term from enhanced delivery times, greater modal shift from road to rail and faster turnaround times

* We remain positive on the stock and maintain our BUY recommendation

Target Price and Valuation: We value the stock at | 340 i.e. 26x P/E on FY23E EPS

Key triggers for future price performance: GDL has been actively lowering its net debt position, which reached a high of ~ | 740 crore in FY19 (due to buyback of Blackstone’s entire stake in the rail segment for | 850 crore), at ~| 470 crore in Q1FY22 (also paid | 5 dividend in Q1).

* Double digit revenue growth expected from next year onwards (on a normalised base), due to commercialisation of DFC

* Stable revenue growth and enhanced margins (over | 9000/TeU) would translate into strong FCF generation (>11% yield in FY23E)

Alternate Stock Idea: Apart from GDL, we remain positive on Container Corp

* Concor is the dominant player in the CTO business (66-67% market share) with 45+ terminals. With the expected commissioning of the WDFC, Concor has infrastructure/facilities close to the DFC route and would be well placed to garner higher volume growth post commissioning of DFC (shift of cargo from road to rail)

* We have a BUY rating on the stock, with a target price of | 750

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