Gateway Distriparks BUY

Transcription

1 28 May 2018 India Ports and Logistics Company Update Gateway Distriparks BUY Event update - Buyout of Blackstone stake in Rail entity Gateway Distriparks (GDL) recently announced the acquisition of Blackstone s c.49.9% stake in its associate entity Gateway Rail Freight Limited (GRFL) for INR 8.1bn, thus valuing GRFL at Enterprise Value of INR 16.8bn (Equity Valuation of GRFL at INR 16.2bn). GDL has been negotiating with Blackstone for the past 2-3 years, and hence, this deal closure removes a significant overhang on the stock. While GRFL has reported weaker growth than Concor/the industry in past few quarters, we believe volume growth is likely to pick up in FY19 on the back of improving port volume growth, especially at the Pipavav Port on the addition of new lines (40% of GDPL s volume comes from Pipavav). We maintain our BUY rating on the stock and our SOTP-based Mar 19 TP is INR 265. GRFL s performance subdued in FY18: GFRL GDL s associate entity reported subdued volume growth in FY18 (5% vs. 14%/12% in Concor/Indian Railways) as EBITDA remained flat at INR 1.33bn (excluding SEIS income booked in 4QFY18) on account of a) competitive intensity (higher incentives/rebates), b) higher EXIM imbalance and c) a slowdown of train movement in the Palanpur-Rewari sector, resulting in higher turnaround times (the company indicated this would continue until Mar 19). GRFL reported a 9% decline in PBT (excluding SEIS income of INR 295mn) as compared to 18% rise in Container Corporation. Deal to be EPS dilutive in near term (compared with FY18 reported methodology): GDL consolidated GRFL on an Associate basis in FY17 and FY18 and reported an INR 0.2bn/0.4bn as share of profit respectively. Assuming a 10% interest rate on borrowing (we estimate INR 5.5bn to fund this buyout), the acquisition would be EPS dilutive for GDL at consolidated basis. As of Mar 18, GDL s CFS business had gross debt of INR 1.48bn, liquid investment of INR 1.72bn and net worth of INR 10.1bn (INR 0.9bn/1.71bn/7.15bn at the standalone level). Positive from valuation perspective: GDL acquired Blackstone s 49.9% stake for a cash consderation of INR 8.10bn, valuing GRFL at EV of INR 16.8bn (12.6x FY18 EV/EBITDA; 27.3x FY18 EPS). This is significantly lower than our earlier EV of INR 27.0bn-28.0bn for GRFL (15x FY19 EV/EBITDA). More importantly, the closure of this deal removes a significant overhang about uncertainty with respect to rail business ownership. Achal Lohade CFA achal.lohade@jmfl.com Tel: (91 22) Manish Agrawal Manish.Agrawal@jmfl.com Tel: (91 22) Recommendation and Price Target Current Reco. BUY Previous Reco. BUY Current Price Target (12M) 265 Upside/(Downside) 29.4% Previous Price Target 255 Change 3.9% Key Data GDPL IN Current Market Price Market cap (bn) INR205 INR22.3/US$0.3 Free Float 46% Shares in issue (mn) Diluted share (mn) mon avg daily val (mn) INR34.6/US$ week range 292/160 Sensex/Nifty 35,165/10,689 INR/US$ 67.4 Price Performance % 1M 6M 12M Absolute Relative* * To the BSE Sensex Revise estimates and TP; maintain BUY: We revise our estimates to reflect FY18 performance, management s outlook for the CFS and Rail businesses and this acquisition (consolidation of Rail business and interest cost to fund this buyout). We value GDL using SOTP basis by assigning a) 8x FY20 EV/EBITDA for its CFS business, b) 13x FY20 EV/EBITDA for GRFL and c) a 20% holding company discount to GDL s stake value in Snowman Logistics (CMP: INR 49). We arrive at a Mar 19 TP of INR 265. We Maintain BUY. Key risks to our call are delayed recovery in volume growth and weaker-thanexpected margins in GRFL. Financial Summary (INR mn) Net Sales 11,182 11,589 11,540 12,515 14,122 Sales Growth (%) EBITDA 2,513 2,246 2,178 2,495 2,906 EBITDA Margin (%) Adjusted Net Profit Diluted EPS (INR) Diluted EPS Growth (%) ROIC (%) ROE (%) P/E (x) P/B (x) EV/EBITDA (x) Dividend Yield (%) Source: Company data, JM Financial. Note: Valuations as of 28/May/2018 JM Financial Research is also available on: Bloomberg - JMFR <GO>, Thomson Publisher & Reuters S&P Capital IQ and FactSet Thomson Publisher & Reuters Please S&P Capital see Appendix IQ and FactSet I at the end of this Please see Appendix I at the end of this report for Important Disclosures and JM Financial Institutional Securities Limited

2 Exhibit 1. SOTP Valuation Segments FY20 EBITDA EV/EBITDA (x) EV CFS ,987 Rail 1, ,797 Total EV 2, ,783 Less: Consolidated Net Debt (Mar'19) 6,696 Equity Value for Rail and CFS business 26,087 Add: Holding in Snowman Logistics 2,636 Total Equity Value 28,723 Target Price 265 Exhibit 2. Consolidation Basis INR mn Pre Event Post Event Impact Consolidated EBITDA 844 2,178 1,334 CFS Rail (Excl SEIS Income) 1334 Consolidated Depreciation CFS Rail 559 Consolidated Net Int Exp/(inc) (Int Exp- OI) CFS Rail 95 Consolidated PBT CFS Rail 681 Share of Profit in Associate Consolidated Adj PAT (post minority interest) CFS Rail JM Financial Institutional Securities Limited Page 2

3 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Apr-18 Exhibit 3. Summary Table INR Mn FY15A FY16A FY17A FY18A FY19E FY20E FY16-18A FY18-20E Volume (TEUs) 6,37,485 5,64,394 6,01,250 6,29,932 6,85,519 7,47,243 6% 9% CFS 3,87,138 3,61,207 3,82,186 4,00,099 4,28,106 4,53,792 5% 6% Rail 2,50,347 2,03,187 2,19,064 2,29,833 2,57,413 2,93,451 6% 13% Revenue 10,298 11,182 11,589 11,540 12,515 14,122 2% 11% CFS 3,384 3,879 3,934 3,955 4,190 4,441 1% 6% Rail 6,913 7,302 7,655 7,585 8,325 9,681 2% 13% EBITDA 3,084 2,513 2,246 2,178 2,495 2,906-7% 16% CFS 1,369 1, % 9% Rail 1,715 1,494 1,335 1,334 1,596 1,907-5% 20% EBITDA (INR/TEU) 4,837 4,452 3,736 3,458 3,640 3,889-12% 6% CFS 3,535 2,821 2,383 2,109 2,100 2,200-14% 2% Rail 6,851 7,353 6,095 5,806 6,200 6,500-11% 6% Consolidated EBIT 2,378 1,708 1,476 1,315 1,563 1,909-12% 20% Depreciation % 7% Other Income % -5% Interest , % 94% Consolidated PBT 2,264 1,651 1,367 1, ,120-13% -5% CFS 1, % NM Rail 1, ,244-14% 35% Taxes % 42% Consolidated PAT 1, % -3% Consolidated PAT (Adjusted) 1, % -4% Note: Assuming GDL consolidated GRFL in the interim period (FY16-18) Exhibit 4. 1-year EV/EBITDA valuation band x year forward EV/EBITDA Source: Bloomberg, JM Financial JM Financial Institutional Securities Limited Page 3

4 Exhibit 5. CFS Volumes Exhibit 6. Rail Volumes 000 TEUs CFS Volume YoY Growth (RHS) QoQ Growth (RHS) 000 TEUs Rail/ICD Volume YoY Growth (RHS) QoQ Growth (RHS) % 25.0% 80 33% 40.0% % 2% 7% 15% -2% 16% 4% -3% -7% -10% -7% -1% 5% % 7% 4% 1% -1% 15% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% % -2% -14% 15% -5% 24% 2% -8% -31% -15% -5% -20% % 7% 14% -2% 12% 8% 2% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% -40.0% 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 Exhibit 7. CFS EBITDA margins Exhibit 8. Rail EBITDA margins INR mn CFS EBITDA Margins (RHS) INR/TEU INR mn Rail/ICD EBITDA Margins (RHS) INR/TEU ,598 4,054 3,413 2,714 3,251 3,452 3,855 3,592 3,281 3,028 2,843 2,565 2,509 2,393 2,509 2,110 2,057 2,083 2,267 2,035 4,500 4,000 3,500 3,000 2, ,281 4,437 4,977 5,490 5,581 6,121 7,970 7,748 7,249 7,840 7,464 6,901 6,209 6,203 6,256 5,736 4,947 6,119 5,940 6,086 9,000 8,000 7,000 6,000 5, Q Q Q14 4Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q18 2,000 1, Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q18 4,000 3,000 JM Financial Institutional Securities Limited Page 4

5 Financial Tables (Consolidated) Income Statement (INR mn) Net Sales 11,182 11,589 11,540 12,515 14,122 Sales Growth 0.6% 3.6% -0.4% 8.4% 12.8% Other Operating Income Total Revenue 11,182 11,589 11,540 12,515 14,122 Cost of Goods Sold/Op. Exp Personnel Cost Other Expenses EBITDA 2,513 2,246 2,178 2,495 2,906 EBITDA Margin 22.5% 19.4% 18.9% 19.9% 20.6% EBITDA Growth -23.1% -10.6% -3.0% 14.5% 16.5% Depn. & Amort EBIT 1,708 1,476 1,315 1,563 1,909 Other Income Finance Cost , PBT before Excep. & Forex 1,651 1,367 1, ,120 Excep. & Forex Inc./Loss(-) PBT 1,651 1,367 1, ,120 Taxes Extraordinary Inc./Loss(-) Assoc. Profit/Min. Int.(-) Reported Net Profit Adjusted Net Profit Net Margin 7.3% 5.7% 6.3% 2.8% 4.7% Diluted Share Cap. (mn) Diluted EPS (INR) Diluted EPS Growth -56.4% -19.4% 10.3% -52.6% 92.9% Total Dividend + Tax Dividend Per Share (INR) Cash Flow Statement (INR mn) Profit before Tax 1,651 1,367 1, ,120 Depn. & Amort Net Interest Exp. / Inc. (-) Inc (-) / Dec in WCap. 1, Others Taxes Paid Operating Cash Flow 3,569 1,681 2,100 2,393 2,747 Capex -1,808-1, , Free Cash Flow 1, ,334-1,427 1,997 Inc (-) / Dec in Investments Others Investing Cash Flow -1,680-1, , Inc / Dec (-) in Capital Dividend + Tax thereon Inc / Dec (-) in Loans 531 1, , Others , Financing Cash Flow -1, ,047 1,888-2,376 Inc / Dec (-) in Cash Opening Cash Balance 744 1,617 2,274 1,751 2,365 Closing Cash Balance 1,617 2,274 1,751 2,365 2,158 Balance Sheet (INR mn) Shareholders Fund 12,304 12,079 12,127 9,095 9,080 Share Capital 4,045 4,045 4,045 1,087 1,087 Reserves & Surplus 8,258 8,034 8,081 8,008 7,993 Preference Share Capital Minority Interest Total Loans 2,351 3,954 3,371 9,871 9,371 Def. Tax Liab. / Assets (-) Total - Equity & Liab. 14,616 15,933 15,398 18,867 18,352 Net Fixed Assets 11,266 11,929 11,831 14,720 14,472 Gross Fixed Assets 15,675 16,922 18,058 18,858 19,608 Intangible Assets ,342 3,342 Less: Depn. & Amort. 4,915 5,685 6,548 7,481 8,478 Capital WIP Investments 2,253 2,253 2,253 2,257 2,257 Current Assets 2,935 3,656 3,211 3,948 3,944 Inventories Sundry Debtors Cash & Bank Balances 1,617 2,274 1,751 2,365 2,158 Loans & Advances ,001 1,130 Other Current Assets Current Liab. & Prov. 1,838 1,905 1,897 2,057 2,321 Current Liabilities Provisions & Others 1,072 1,111 1,107 1,200 1,354 Net Current Assets 1,097 1,751 1,314 1,890 1,623 Total Assets 14,616 15,933 15,398 18,867 18,352 Dupont Analysis Net Margin 7.3% 5.7% 6.3% 2.8% 4.7% Asset Turnover (x) Leverage Factor (x) RoE 6.7% 5.4% 6.0% 3.2% 7.3% Key Ratios BV/Share (INR) ROIC 10.5% 8.3% 9.3% 5.8% 7.9% ROE 6.7% 5.4% 6.0% 3.2% 7.3% Net Debt/Equity (x) P/E (x) P/B (x) EV/EBITDA (x) EV/Sales (x) Debtor days Inventory days Creditor days JM Financial Institutional Securities Limited Page 5

6 History of Earnings Estimate and Target Price Date Recommendation Target Price % Chg. Recommendation History 14-Mar-16 Buy Apr-16 Buy Aug-16 Buy Nov-16 Buy Feb-17 Buy May-17 Buy Nov-17 Buy JM Financial Institutional Securities Limited Page 6

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