Gateway Distriparks : BUY

Rail Business Gains Significant Traction

Gateway Distriparks’ (GDL) Q4FY11 results were above expectations, with a 334 bps QoQ expansion in PBDIT margin to 32.5% (vs. 23.5% in Q4FY10), driven by:

a) Robust rail/ICD ops: Volume growth of 7% QoQ coupled with PBDIT margin expansion of 460 bps QoQ to 17.6%; and

b) Healthy CFS performance:  Realizations up 6% QoQ, resulting in 356 bps QoQ increase in PBDIT margin to 52.3%. The co. reported conso revenue of Rs 1.7 bn (up 7% QoQ & 21% YoY), PBDIT of Rs 556 mn (up 19% QoQ & 67% YoY) and PAT of Rs 350 mn (up 25% QoQ & 38% YoY).

Q4FY11 highlights

• Healthy CFS realizations aid profitability:  Mumbai vols fell  by 1.5% QoQ (up 22% YoY), partially impacted by labor issues  at one of the port terminals; however, Chennai throughput  grew by 4% QoQ (up 8% YoY), while Mundra saw 14% QoQ (22% YoY) vol. growth. Avg. realization rose by 6% QoQ (17% YoY) due to increased ground rent.
• The key CFS growth triggers going ahead are: a) commencement of Vallarpadam terminal (capacity of 50,000 TEUs p.a., expected to commence ops in Q4FY12); & b) Chennai CFS expansion (likely to take shape in FY13), as the facility is running at ~90% utz. levels.
• Robust Rail/ICD performance:  Healthy vol. growth of 7% QoQ & 16% YoY. With the steady decline in share of domestic segment to 16% in Q4FY11 (vs. 18% in Q3 and 20% for FY11), the PBDIT margins significantly improved to 17.6% (vs. 13% in Q3FY11).
• The mgmt indicated that the target is to increase the share of EXIM to ~85-90% (vs.  ~70% in Q4FY11), post the commencement of Faridabad ICD (in Q3FY12), which can yield healthy PBDIT margins of ~23%. We have factored in PBDIT margin of 15.8% for FY12E (vs. 14% in FY11E), which could tend upwards with rise in EXIM share.
• Cold chain biz in expansion phase:  Snowman’s revenues grew by 22% QoQ (up 48% YoY) to Rs 139 mn; while PBDIT margins stood at 22% (vs. 13% in Q4FY10, 28% in Q3FY11). The co. is currently operating ~17,000 pallets (vs. ~11,000 in FY10), and the mgmt has plans of increasing it to ~60,000 pallets in the next 2-3 years. Capex for this segment stood at Rs 230 mn in FY11.

Multiple volume and profitability drivers; Our revised TP stands at Rs 139 upside of 16% from CMP 120. Maintain BUY