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Summary

* We maintain a Buy on Gateway Distriparks Limited (GDL) with an unchanged SOTP-based PT of Rs. 347 as we factor in strong earnings growth led by its rail vertical.

* For Q2FY2022, GDL reported better-than-expected operational performance led by strong volume growth in both CFS and rail business along with maintaining operational profitability in rail.

* Management expects EXIM growth to remain robust while it would continue to strive to improve rail’s operational profitability further. The CFS business to focus more on margin accretive business rather than chasing volumes.

* Snowman is to expand capacities over next three years and focus on high margin warehousing business

* Gateway Distriparks Limited (GDL) reported better-than-expected operational performance for Q2FY2022 led by strong volume growth in both CFS and rail verticals along with maintaining operational profitability for rail. The consolidated revenues grew by 27.9% y-o-y to Rs. 335.7 crore with rail revenues rising by 43.5% y-o-y while CFS revenues dipping by 3% y-o-y.

* Rail reported EBITDA/TEU growth of 20.7% y-o-y while CFS witnessed a 37.4% y-o-y dip. Consolidated net profit of Rs. 46.9 crore was also aided by lower tax outgo. The management expects healthy EXIM volume growth to sustain along with improving operational profitability for Rail while CFS is expected to see gradual improvement operationally.

Key positives

* Rail and CFS registered strong volume growth of 46% and 22% y-o-y.

* Rail EBITDA/TEU was up 21% y-o-y while almost flat q-o-q at Rs. 9235.

Key negatives

* CFS EBITDA/TEU affected by higher diesel prices and increased manpower costs.

Management Commentary

* October month continue to see strong volume. EXIM business growth is expected to be robust going forward.

* Increase in market share in NCR region. Rail is expected to fetch 15% more business before reaching saturation.

* Snowman logistics is expected to expand capacity to 2 lakh pellets from 1.13 lakh pellets over 3 years. Addition of 2 to 3 additional warehouses for e-commerce per annum has been planned.

Revision in estimates – We have fine-tuned our estimates factoring increased volumes in the rail and CFS business while marginally lowering CFS EBITDA/TEU.

Our Call View –

Maintain Buy with an unchanged PT of Rs. 347: GDL is slated to benefit from sustained EXIM growth and benefits accruing from commissioning of DFC going ahead. It has not only been able to maintain operational profitability of rail but has only been able to increase its market share in key region of operations.

It will also be embarking on next round of capacity expansion once the National Logistics Policy is laid out. GDL’s has deleveraged its balance sheet followed by a revival in capex plans is likely to aid in strong net earnings going ahead. We retain a Buy rating on the stock with an unchanged price target of Rs. 347.

Key Risks

Erosion in rail and CFS segments’ profitability owing to weakness in trade environment.

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