Gateway Distriparks

8/14/2019 Gateway Distriparks

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Gateway Distriparks (GATDIS)

Banking on EXIM growth

Gateway Distriparks Ltd (GDL) is the second largest container operator in

India. It has the highest market share of 22% at JNPT, India's largest

container port. The company is expanding its CFS (container freight

station) capacities and setting up new ICDs (inland container depots) at

key locations to benefit from the high growth in the container traffic in

India. It has also forayed into the lucrative rail container business. We

initiate coverage with a HOLD rating, and a target price of Rs 159.

Integrated container logistics providerGDL operates in three business segments: container handling and

storage; container rail business; and cold chain logistics. The CFS and ICD

is the key business segment with 73% contribution to revenue in FY09E.

The other new businesses are expected to contribute significantly post

FY09.

Robust growth in containerisationThe Indian Port Association estimates the container traffic to grow at 18%

CAGR from 5.4 million TEUs (twenty-foot equivalent unit, standard size of

a container) in FY07 to 12.5 million TEUs in FY12. We expect GDL to

benefit from this growth.

Margin drop at JNPT, new CFS/ICDs take time to mature operationsThe huge margins (60% EBIDTA) earned by CFS operators attracted a

large number of players at the JNPT port, resulting in a supply glut. This

impacted GDLs overall EBIDTA margins, which declined from 60% in

FY06 to around 50% in FY07. Going forward, we expect the companys

margins to decline further and stabilise at around 45%.

ValuationsGDL is likely to benefit from the growth in container traffic in India. However,

the high overhead costs of setting up new ICD facilities and rail operations

are likely to exert pressure on operating margins. At current price of Rs 145,

the stock trades at 20.9x its FY08E EPS of Rs 6.93 and 16.4x FY09E EPS of Rs

8.85. On an EV/EBIDTA basis, the stock is available at 14.4x FY08E earnings

and 9.7x FY09E earnings. We value the stock at 18x its FY09E EPS with atarget price of Rs 159.

Exhibit 1: Key Financials

Year to March 31 FY06 FY07 FY08E FY09E

Revenue (Rs cr) 138.58 160.96 241.85 380.46

Net Profit (Rs cr) 72.17 76.21 80.08 102.29

EPS (Rs) 7.83 8.25 6.93 8.85

% Growth 74.9% 5.4% -16.0% 27.7%

P/E (x) 18.53 17.57 20.93 16.38

Price/Book (x) 2.60 2.51 2.59 2.08

EV/EBIDTA (x) 12.15 14.04 14.40 9.72

NPM (%) 52.08 47.35 33.11 26.89

RoNW (%) 12.55 12.32 12.06 13.98

RoCE (%) 13.84 14.60 12.95 15.19Source: ICICIdirect Research

Initiating Coverage

ICICIdirect | Equity Research

November 28, 2007|Logistics

Sales & EPS trend

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400

FY05 FY06 FY07 FY08E FY09E

Rscrore

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Net Sales EPS (RHS)

Stock metricsPromoters holding 39.6%

Market Cap Rs 1,340 crore

52 Week H/L 214 / 114

Sensex 19,127

Average volume 3,56,496

Comparative return metrics

Stock return 3 M 6M 12M

Gateway Distriparks 21.6 0.4 -2.5

Allcargo Global 7.1 -3.4 -7.1

Balmer Lawrie 52.1 45.4 55.1

Concor -12.3 -12.5 -16.9

Price trend

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SharePrice(Rs)

Potential upside 13%Time frame 12 monthsTime frame 12 months

HOLD

Current priceRs 145

Target priceRs 159

Potential upside10%

Time Frame12 months

Analyst Name

Ember [email protected]

Siddhartha [email protected]

Absolute Sell

Target Price

Absolute Buy


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INVESTMENT RATIONALE

Integrated container logistics providerGDL operates in three business segments: container handling and storage;

container rail business; and cold chain logistics. The CFS/ICD business is thekey contributor to the companys revenue and earnings. New businesses are

expected to contribute significantly post FY09.

CFS and ICDsGDLs business model is focused on handling and storage of containers,

offering port-related logistics, and ICD management. It has CFS operations at

strategic locations near key ports like JNPT (Navi Mumbai), Chennai,

Vishakhapatnam, Kochi and a rail-linked ICD at Garhi, near Delhi.

The company is the largest player with an 18% market share at India's biggest

container port terminal at JNPT (capacity: 216,000 TEU at Dronagiri). It

increased its market share to 22% after it acquired a 51% operational stake inthe Punjab State Container Warehousing Corporation-owned Punjab Conware

CFS (150,000 TEUs). GDL paid a one-time upfront fee of Rs 35 crore and

agreed to pay an annual fee of Rs 1 crore for 15 years with 5% escalation

(linked to WPI).

Besides the existing locations, GDL entered the Cochin market in November

2007. It began operations at a CFS owned by PACE CFS under an O&M

(operations and management) agreement.

Exhibit 3: GDLs existing CFS

Location OwnershipArea

(acres)

Distance from

port (km)

Capacity pa

(TEU)Dronagiri (Navi Mumbai) Leasehold 35 9 216,000Punjab Conware (Navi Mumbai) 15 years O&M 28 7 150,000

Chennai Owned 19 16 60,000

Garhi ICD, Gurgaon Owned 90 30,000

Vishakhapatnam Leasehold 20 9 12,000

Kochi (PACE CFS) O&M 3 12,000

Total 480,000Source: Company, ICICIdirect Research

The revenue generated comprises of three components: transportation,

container handling charges and rent for the period the container is grounded

at the CFS. The realisation per container is a blended tariff of all these servicesoffered. These tariffs are governed by competition, fuel cost and client relation.

Container rail businessGDL integrated backwards from container handling and storage into rail

container business. It obtained a private license to operate container trains

across India in January 2006, and subsequently commenced container rail

operations in May 2006. It formed a subsidiary, GRFL (Gateway Rail Freight

Ltd), to manage this business. It operates container trains on Export-Import

(EXIM) cargo routes from Garhi to JNPT container terminal and Garhi to

Mundra port. It also operates container trains on domestic cargo routes

between Orissa and the NCR (National Capital Region). It began operations

using CONCORs trains (rakes and wagons), and procured its own four trainsby November 2007. GRFL also entered a 51:49 joint venture agreement with

CONCOR to operate the rail -inked ICD at Garhi Harsaru.

The company has the largest

market share of 22% at JNPT,

with a capacity of 366,000 TEUs

pa

GDL was among the first private

player to operate container

trains on EXIM and domestic

cargo routes


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Cold chain logisticsGDL forayed into the cold chain distribution business by acquiring a 50.1%

stake in Snowman Frozen Foods Ltd for Rs 48.12 crore in 2007. Snowman hasstrong presence in southern India, with 16 cold stores and 8,600 pallets. It has

cold storages at Bangalore, Mumbai, Chennai, Hyderabad, Delhi and

Chandigarh. Post acquisition, Snowmans net sales increased by 66% from Rs

8.2 crore in FY07 to Rs 13.6 crore during the first half of FY08. The company

believes it would breakeven at net profit level by FY08 on a top line of

approximately Rs 30 crore.

Robust growth in containerisationIndia's increasing international trade has lead to a 10% growth in EXIM

volumes over FY02-07. Simultaneously container traffic has increased at a faster pace (14.5% CAGR over the same period). However, the level of

containerisation in India is still low. According to Indian National Ship Owners

Association, in developed countries about 70% to 80% general cargo has been

containerised, where as in India the figure still hovers around 50%. Going

ahead, there is a huge potential for growth in container traffic in India on the

basis of key factors like increase in EXIM volumes, time and cost efficiency of

handling containers and increasing domestic trade. The Indian Port

Association (IPA) estimates an 18% CAGR in container cargo from 5.4 million

TEUs in FY07 to 12.5 million TEUs in FY12. We expect GDL to benefit from this

growth.

Exhibit 4: Growth in containerised cargo in India

0

2

4

6

8

10

12

14

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY12E

TEUsinmillion

Source: Company, ICICIdirect Research

IPA estimates Indias container

cargo to grow at 18% CAGR

and reach 12.5 million TEUs in

FY012E.

16% CAGR


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JNPT: Indias largest container portJNPT handles approximately 61% of Indias total container traffic. It operates

three container terminals: JN Port Container Terminal (JNPCT), Nhava Sheva

International Container Terminal (NSICT), and Gateway Terminals IndiaContainer Terminals (GTICT). It has a total container- handling capacity of 3.6

million TEUs pa. During FY07, the port handled 3.3 million TEUs against 2.67

million TEUs in FY06. IPA estimates JNPT would handle about 4 million TEUs

in FY08. We believe this 21% growth in container volumes is a sign of

improved port-handling efficiency and increased EXIM volumes.

Exhibit 5: Contribution of major ports to container volumes

J.N.P.T.

61%Chennai

15%

Tuticorin

7%

Cochin

4%

Calcutta

4%

Others

9%

Source: IPA, ICICIdirect Research

Considering that only 33% of container traffic at JNPT is routed thought CFSs,

there will be a demand of around 1.36 million TEUs against an existing

combined capacity of 1.15 million TEUs. To further facilitate the growing

volumes in container traffic, JNPT port plans to construct a fourth container

terminal with a 4.4 million TEU capacity. To meet this growing demand various

players are entering into this space, while existing players are expanding

capacities. We expect total capacity at JNPT to increase to 1.8 million TEUs by

the end of FY09E.

JNPT handles almost 61% of

Indias total container volumes

Demand for CFS operations to

increase to 1.36 million TEUs

against a capacity of 1.15

million TEUs by the end of

FY08E


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Capacity expansion to drive volume growth

CFS / ICD businessGDL has lined up huge expansion plans. It has already acquired land to set uprail linked ICDs at Ludhiana and Faridabad. These ICDs will have an initial

capacity of 36,000 TEUs pa and are expected to begin operations in the third

quarter of FY09E. The total capex planned for the CFS/ICD business is around

Rs 200 crore over the next two years. This will increase its total capacity by

10.7% to 582,000 TEUs by FY09E. The total containers handled by the

company are likely increase to 461,320 TEUs up from 240,494 TEUs in FY07.

We expect the revenue from this business to increase from Rs 153.2 crore to

Rs 278.3 crore with a 35% CAGR over FY07-09E.

Exhibit 6: Container handling capacities set to increase

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100

200

300

400

500

600

FY05

FY06

FY07

FY08E

FY09E

TEUs

('000)

Dronagiri Chennai Garhi ICD Punjab Conware

Vishakhapatnam Kochi Ludhiana Faridabad


Container rail businessGDL has obtained a license to operate container trains across India. It currently

owns four trains, while it uses another two trains from CONCOR. The company

has placed an order for 10 rakes to be delivered by April 2008. It plans to have

30 rakes by 2010. The capex here is estimated at Rs 550 crore.

Exhibit 7: Capex for container rail business by FY10E

Particulars Amount(Rs Cr)

30 Container cargo trains 350

License fee 50

Other cost 150

Total Cost 550Source: Company, ICICIdirect Research

Capacity to expand by 11% over

FY07-09E to 582,000 TEUs from

450,000 TEUs in FY07

Capex of Rs 550 crore to boost

rail operations by FY10E


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Exhibit 8: Rail business revenue model

Particulars (Assumptions)

No of trains 1

Route (JNPT NCR)

No of wagons per train 45

Throughput / train (2-ways) TEU 90

No of trips per train per month 10

Annual Throughput (TEUs) 10,800

Utilisation rate (%) 75

Total containers carried (TEUs) 8,100

Haulage charges per container (Rs) 20,000

Indian Railway charges per container (Rs) 14,000

Realisation per TEU (Rs) 6,000

Net Revenue per train p.a. (Rs cr) 4.86Source: Company, ICICIdirect Research

Ports located on the western coast contribute around 77% of the total

container volumes in India. JNPT handled the largest volumes of around 3.3

million TEUs in FY07. It is estimated that around 30% of these containers move

to hinterland ICDs of which a third is being moved by rail. Factoring in an 18%

growth in volumes at JNPT over the next five years, it would translate into a

750,000 TEUs opportunity. Being one of the first private rail operators, we

believe GDL is best positioned to capture this huge potential.

Exhibit 9: Rail opportunity on JNPT NCR regionRailway - Opportunity Size FY07 FY12E

Total traffic at India's major ports (million TEUs) 5.4 12.5

Total traffic at JNPT (million TEUs) 3.3 7.5

Share of railways in hauling traffic (milion TEU) 0.33 0.75

(30% of total traffic moves to ICDs form JNPT,

1/3rd of this traffic is being moved by rail)

Annual traffic hauled by 1 train (TEUs) 10,800 10,800

No of trains required 31 70Source: Industry, ICICIdirect Research

We expect GDLs rail business to contribute 16% to the total revenue, growingfrom Rs 5.2 crore in FY08E to Rs 61.6 crore in FY09E. However, we believe that

this business will contribute significantly post 2010, when the company has a

total fleet of 30 trains. Further, due to high capex and infrastructural

constraints, this business might have a long gestation period.


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RISK AND CONCERNS

Margin drop at JNPT, new CFS/ICDs take time to mature operationsThe huge margins (60% EBIDTA) earned by CFS operators attracted a large

number of players at the JNPT port, resulting in a supply glut. This impacted

GDLs overall EBIDTA margins that declined from 60% in FY06 to around 50%

in FY07. The EBITDA per TEU at JNPT declined to Rs 6,144 in FY07 as against

Rs 6,386 in FY06. Going forward, we expect the companys margins to decline

further and stabilise at around 45%.

Exhibit 10: Operating, net profit margins declining

0

10

20

30

40

50

60

70

FY05 FY06 FY07 FY08E FY09E

(%)

OPM NPM


The CFSs at Chennai, Vishakhapatnam and Kochi are operating at full capacity.But they are fairly smaller in terms of scale of operations and realisations per

TEU. The new ICDs at Ludhinia and Faridabad are expected to be operational

only by the third quarter of FY09E. These ICDs will take some time to stabilise

operations and attain critical mass.

The cold chain business, which contributed only 4.8% to top line in FY07, is

still in the growth phases. Its EBITDA margins were 6.7%, which are

comparatively lower than the CFS business. Going ahead, contribution from

this business is likely to increase to 12%, which will further lead to overall

decline in GDLs margins.

Rail business operations yet to deliver profitabilityThough the container rail business holds a huge opportunity, there a few

challenges that may hamper smooth operations.

After the government allowed private players to participate in the railbusiness, 15 operators have taken the license, and 6 have already begun

operations. Stiff competition among these players may lead to lower

realisations as well as decline in margins.

There are huge orders for container trains and wagons placed by theseprivate players together with Indian Railways and CONCOR. However, the

current manufacturing capacity in India may not support the total

demand, which may cause delays in procurement of wagons.

EBIDTA margins to decline

form 60% in FY06 to 45% by

FY08E

Infrastructure constraints

likely to impact container

rail business profitability


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Indian tracks are currently shared between passenger and cargo trains. Assuch they are overcrowded and may lead to difficulty in finding slots to all

players.

The first phase of the DFC (dedicated freight corridor) planned by thegovernment to provide separate tracks for container trains is expected to

be operational only by 2015. We expect this to get delayed by 2-3 years,

on account of hurdles in acquiring land and getting various clearances.

In the initial phase there are huge capex and infrastructural constraints and we

believe this business would require time to generate profit. However, with the

expected growth in container traffic and attractive EDITDA margins of 28%,

the container rail business is likely to contribute significantly in a couple of

years.


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Financial Analysis

Exhibit 11: Revenue assumptions

Particulars Location / Year

Business FY08E FY09E

Throughput (TEUs) JNPT 189,557 193,000

Punjab Conware 51,002 82,500

Chennai 64,996 66,750

Vizag 13,239 14,370

Garhi 34,743 82,800

Kochi 6,600 6,600

Ludhiana - 7,650

Faridhabad - 7,650

Total 360,137 461,320

Revenue (Rs cr) CFS & ICDs 207.69 278.27

Rail 5.17 61.59

Cold chain 29.00 40.59

Total Revenue (Rs cr) 241.85 380.46

EBITDA 108.94 172.81

EBITDA Margins (%) 45.04 45.42Source: ICICIdirect Research

Additional capacity and new business ventures to drive revenue growthGDLs container-handling capacity is set to increase by 30% to 582,000 TEUs

in FY09 from 4,50,000 TEUs in FY07. The additional capacities of Punjab

Conware and Kochi CFS are expected to collectively handle 57,000 TEUs. We

expect volumes to increase 38% to 461,320 TEUs by FY09E. The container rail

business is also witnessing a rapid growth. GDL is expected to operate 10

container trains by FY08. Overall, we expect a 54% CAGR in revenues from Rs

161 crore in FY07 to Rs 380.5 crore in FY09E. However, net profit is expected

to grow at a lower rate (16% CAGR) on account of declining margins.

Exhibit 12: Revenues, net profit set to grow (Rs crore)

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100

150

200

250

300

350

400

FY06 FY07 FY08E FY09E

0

20

40

60

80

100

120

Revenue (LHS) Net Profit (RHS)


Revenues to grow at 54%

CAGR while net profits to

row at 16% CAGR over

FY07-FY09E


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Muted growth in EPSGDL plans to fund its capex partly through debt borrowing of Rs 180 crore,

and partly through internal accruals. Interest cost is expected to increase to Rs

18.7 crore in FY09, up from Rs 1.4 crore in FY07. It also issued bonus shares inthe ratio of 1:4 during Q2FY08. We expect the EPS to dip from Rs 8.25 in FY07

to Rs 6.93 in FY08E.

Exhibit 13: Trend in EPS over FY06 FY09E

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

FY06 FY07 FY08E FY09E

Rs



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FINANCIAL SUMMARY

Profit and Loss Account (Rs Crore)


Revenue 138.58 160.96 241.85 380.46

% growth 45.0% 16.2% 50.3% 57.3%

Total Expenditure 54.92 79.74 132.91 207.65

Operating Profit 83.65 81.22 108.94 172.81

% growth 59.6% -2.9% 34.1% 58.6%

Other Income 11.00 24.10 12.00 4.00

EBIDTA 94.65 105.31 120.94 176.81

EBIDTA margin (%) 63.28% 56.91% 47.64% 45.99%

Depreciation 10.60 13.86 22.34 37.15

EBIT 84.05 91.45 98.60 139.67

Interest 2.54 1.37 3.94 18.75

PBT 81.50 90.09 94.66 120.92

% growth 100.7% 10.5% 5.1% 27.7%Taxation 9.34 13.88 14.58 18.63

PAT 72.17 76.21 80.08 102.29

% growth 115.0% 5.6% 5.1% 27.7%

Shares O/S (crore) 9.22 9.24 11.56 11.56

EPS (Rs) 7.83 8.25 6.93 8.85

% growth 74.9% 5.4% -16.0% 27.7%

Balance Sheet (Rs Crore)


Sources of Funds

Equity Share Capital 92.20 92.37 115.57 115.57Reserves & Surplus 482.97 526.41 548.61 616.24

Secured Loans 31.88 7.49 97.49 187.49

Deferred Tax Liability 12.20 15.01 15.01 15.01

Current Liabilities & Provisions 27.19 22.67 33.69 52.64

Minority interest 0.83 48.29 48.29 48.29

Total Liability 647.27 712.24 858.66 1035.23

Application of Funds

Net Block 202.26 365.99 559.25 712.11

Capital WIP 13.41 110.27 5.56 0.00

Investments 14.45 0.00 0.00 0.00

Cash 352.62 206.81 204.85 183.11

Trade Receivables 7.00 18.21 72.56 114.14

Loans & Advances 57.55 10.95 16.45 25.88

Total Asset 647.27 712.24 858.66 1035.23

16% CAGR in net profit over

FY07-09E

54% CAGR in revenue over

FY07-09E

Issue of bonus shares in theratio 1:4

Decrease in interest income as

cash balance used for capex


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Cash Flow Statement (Rs Crore)


Opening Cash Balance 92.67 352.62 206.81 204.85Profit after Tax 72.27 76.95 80.08 102.29

Dividend Paid -31.57 -36.86 -34.67 -34.67

Depreciation 10.60 13.86 22.34 37.15

Provision for deferred tax 1.66 2.79 0.00 0.00

Cash Flow before WC Changes 52.97 56.75 67.74 104.77

Net Increase in Current Liabilities -3.02 -4.52 11.02 18.95

Net Increase in Current Assets 50.64 (35.38) 59.84 51.01

Cash Flow after WC Changes -0.69 87.61 18.92 72.71

Purchase of Fixed Assets (39.47) (274.46) (110.88) (184.44)

(Increase) / Decrease in Investment (14.45) 14.44 0.00 0.00

Increase / (Decrease) in Loan Funds -53.94 -24.40 90.00 90.00

Increase / (Decrease) in Equity Capital 368.49 51.00 0.00 0.00

Net Change in Cash 259.94 (145.81) (1.96) (21.74)

Closing Cash Balance 352.62 206.81 204.85 183.11

Ratio Analysis


EPS (Rs.) 7.83 8.25 6.93 8.85

Book Value (Rs) 55.84 57.80 55.91 69.55

Enterprise Value (Rs. Crore) 1016.21 1140.00 1568.36 1680.10

EV/Sales (x) 7.33 7.08 6.48 4.42

EV/EBIDTA (x) 12.15 14.04 14.40 9.72Market Cap to sales (x) 9.65 8.32 6.93 4.40

Price to Book Value (x) 2.60 2.51 2.59 2.08

Operating Margin (%) 63.28 56.91 47.64 45.99

Net Profit Margin (%) 52.08 47.35 33.11 26.89

RONW (%) 12.55 12.32 12.06 13.98

ROCE (%) 13.84 14.60 12.95 15.19

Debt/ Equity (x) 0.06 0.01 0.15 0.26

Current Ratio 15.87 10.41 8.72 6.14

Debtors Turnover Ratio 19.80 8.84 3.33 3.33

Fixed Assets Turnover Ratio 0.69 0.44 0.43 0.53

Increase in loan funds on

account of capex

Lower margins at JNPT and

high cost of new business to

impact profitability


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ICICIdirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to itsstocks according to their notional target price vs. current market price and then categorises them asOutperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified andthe notional target price is defined as the analysts' valuation for a stock.

RATING RATIONALE

Outperformer: 20% or more;Performer: Between 10% and20%;Hold: +10% return;Underperformer: -10% or more.

Harendra Kumar Head - Research & Advisory [email protected]

ICICIdirect Research Desk,

ICICI Securities Limited,

Gr. floor, Mafatlal House,163, H.T. Parekh Marg,Backbay Reclamation,Churchgate,Mumbai 400 020

[email protected]

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in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form,without prior written consent of ICICI Securities Ltd (I-Sec). The author of the report does not hold any investment in any of thecompanies mentioned in this report. I-Sec may be holding a small number of shares/position in the above-referred companies as ondate of release of this report. This report is based on information obtained from public sources and sources believed to be reliable, butno independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein issolely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell orsubscribe for securities or other financial instruments. Nothing in this report constitutes investment, legal, accounting and tax adviceor a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussedand opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based ontheir own investment objectives, financial positions and needs of specific recipient. This report may not be taken in substitution for theexercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. I-Sec andaffiliates accept no liabilities for any loss or damage of any kind arising out of the use of this report. Past performance is notnecessarily a guide to future performance. Actual results may differ materially from those set forth in projections. I-Sec may haveissued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This reportis not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality,state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or

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Gateway Distriparks