Gateway Distriparks (GATDIS) 175

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1 Result Update Rating matrix Rating : BUY Target : 195 Target Period : 12 months Potential Upside : 11% What s changed? Target Changed from 139 to 195 EPS FY15E Changed from 12.7 to 13.5 EPS FY16E Changed from 13.9 to 16.2 Rating Changed from HOLD to BUY Quarterly performance Q4FY14 Q4FY13 YoY (%) Q3FY14 QoQ (%) Revenue EBITDA EBITDA (%) bps 25.7 (114 bps) PAT Key financials Crore FY13 FY14P FY15E FY16E Net Sales 954 1,013 1,131 1,303 EBITDA Net Profit EPS ( ) Valuation summary FY13 FY14P FY15E FY16E P/E (x) Target P/E (x) EV/EBITDA (x) P / BV (x) RONW (%) ROCE (%) Stock data Particular Amount Market Capitalisation ( Crore) 1,900.5 Totak Debt (Dec-13) ( Crore) Cash and Investment (Dec-13) ( Crore) EV ( Crore) 2, week H/L 184 / 98 Equity Capital ( Crore) Face Value ( ) 10.0 MF Holding (%) 19.1 FII Holding (%) 24.3 Analyst Bharat Chhoda bharat.chhodal@icicisecurities.com Soumojeet Banerjee soumojeet.banerjee@icicisecurities.com May 6, 2014 Gateway Distriparks (GATDIS) 175 Strong rail segment hauls Gateway s wagon Gateway Distriparks Q4FY14 revenue remained flattish YoY (-0.1%) and grew ~7.5% QoQ to 267 crore. Rail remains the largest segment contributing ~ 149 crore (56%) followed by CFS at 72.5 crore and cold chain at 44 crore EBITDA for the quarter stood at 65.6 crore, posting muted growth of 3% and 5% QoQ and YoY, respectively. On the margin front, the EBITDA margin expanded ~126 bps YoY whereas it shrunk 114 bps QoQ largely due to contraction in CFS margins (due to prior period labour expenses to the extent of 3.8 crore booked in Q4FY14) PAT for the quarter stood at 40.2 crore, posting growth of 26%QoQ and 20% YoY basis mainly due to tax reversal of 6.8 crore CFS margin drags as major port face slowdown GDL with ~600,000 TEUs annual capacity is one of the largest container freight station (CFS) operators in the country. The throughput of GDL s CFS business grew at a modest CAGR of ~1% over FY11-13 to TEUs and is further expected to grow at a CAGR of ~5% over FY14E-16E. However, container volume at JNPT port de-grew ~1% over FY Further, total CFS capacity at JNPT stands at ~3 million TEUs for 30 container freight stations. To add to that ~16 CFS are expected to open up in the near future. CFS margins declined from 55% in FY12 to 42% in FY14 as realisations declined from 9284 in FY12 to 8625 in FY14 amidst increasing competition. Thus, CFS segment is expected to continue to face margin pressure thereby impacting overall profitability of GDL. Recovery in rail/icd segment to augment growth GDL with nearly 710,000 TEUs capacity in the ICD segment and 21 rakes in Gateway Rail Freight (GRFL) is the second largest container train operator (CTO) in the country. Rail/ICD throughput for GDL grew at a CAGR of ~8.5% over FY12-14 to TEUs. Going ahead, it is expected to grow at ~10% CAGR over FY14-16E. The rakes ply mainly on the Exim route, thereby reducing empty running and garnering higher margins. Going ahead, GDL plans to add three or four rakes and employ them on the Exim route. Operating margins initially declined (100 bps YoY to 15% in FY13) in the rail segment due to a hike in freight by Indian Railways. However, in FY14, GDL has been able to pass on those hikes (partially) and also enhance its operational efficiency with double stacking and closure of unprofitable routes. This has enabled it to report a 500 bps YoY improvement in EBITDA margin to 20%. Consequently, we expect margins to stabilize at current levels for the Rail segment. Cold chain segment to be new high growth engine The cold chain warehousing industry in India is expected to grow at a rate of 20-25% from crore to 40,000 crore in FY15. GDL s cold chain segment also grew at a stupendous rate of ~71% over FY12-13 with number of pellets at 53,000 in August, Going ahead, we expect the number of pellets to go up to 80,000 FY15 and 90,000 in FY16. Valuation driven by recovery in rail segment and cold chain growth With a recovery in the rail segment and a pick-up in the cold chain business, we expect GDL to lessen the impact of slowdown in the CFS segment. As FY14 average P/E at 10x is at a significant discount to three year (FY11, FY12 & FY13) average P/E of 12x, we expect a restoration of P/E multiple for GDL. Consequently, we value GDL at 12x FY16E EPS of 16.2 to arrive at a target price of 195 and have a BUY rating on the stock. ICICI Securities Ltd Retail Equity Research

2 Variance analysis Crore Q4FY14 Q4FY14E Q4FY13 YoY (%) Q3FY14 QoQ (%) Comments Revenue Strong performance by rail segment leads to offset of decline in CFS business in Q4FY14 Employee Expenses Road Transport Rail Transport Container Storage,Handling &Repairs Labour Contract charges & Fees Other Expenditure Total Expense EBITDA EBITDA Margin (%) bps bps Margin continues to suffer due to drag in CFS business Depreciation Interest Other Income PBT Total Tax Lower tax during Q4FY14 on account of reversal of taxes paid for earlier period Adj PAT (Incld Minority Int) Key Metrics Q4FY14 Q4FY13 YoY (%) Q3FY14 QoQ (%) CFS Volume (TEUs) 88,070 89, , Container volumes at JNPT and Chennai port decline ~4% and 6%, respectively, YoY Rail Volume (TEUs) 58,176 61, , Change in estimates FY15E FY16E ( Crore) Old New % Change Old New % Change Revenue 1, , , , EBITDA EBITDA Margin (%) bps bps PAT EPS ( ) Assumptions Current Earlier Comments Unit FY14 FY15E FY16E FY15E FY16E CFS Throughput TEUs 340, , , , ,781 CFS volume expected to grow at ~5% CAGR over FY14-16 ICD/Rail Throughput TEUs 212, , , , ,701 Rail/ICD volume expected to grow at 10% CAGR in FY14-16 CFS Realization /TEUs 8,625 8,755 8,973 9,034 9,259 Realisation to remain flattish owing to increased competition ICD/Rail Realization /TEUs 26,710 26,977 27,652 26,538 26,936 Realisation to marginally improve in FY15E & FY16E ICICI Securities Ltd Retail Equity Research Page 2

3 Company Analysis CFS segment faces downturn amid oversupply and declining cargo Volume growth for the CFS segment in GDL remained flattish posting meagre growth of ~1% CAGR over FY Further, as Mumbai forms nearly 60-65% of GDL s throughput and ~60% of total CFS capacity, a decline in JNPT port volume led to a decline in revenue contribution of the CFS segment from 33% in FY12 to 28% in FY14. Also, the EBITDA margin for the segment contracted from 55% in FY12 to 42% in FY14. Consequently, RoCE of the CFS segment declined from 12% in FY12 to 8% in FY14. Going ahead, as the number of players is set to increase in JNPT CFS; we expect the segment margin as well as returns to remain under pressure in a subdued volume scenario. Exhibit 1: JNPT port volume trend JNPT port volume declined in FY14 to 4161,000 TEUs ~4% YoY, thereby putting pressure on CFS volume of GDL. Going ahead, with increasing CFS capacity and declining volume at JNPT, we expect the CFS segment of GDL to remain under pressure 000 TEUs Q1 Q2 Q3 Q FY12 FY13 FY14 Exhibit 2: Segmental revenue trend Exhibit 3: Segmental margin trend Crore % FY12 FY13 FY14 0 FY12 FY13 FY14 CFS Rail Cold chain CFS Rail Cold Chain Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research ICICI Securities Ltd Retail Equity Research Page 3

4 Rail/ICD segments provide respite Throughput for the rail/icd segment witnessed a CAGR of ~8.5% over FY12-14 to TEUs. The rail/icd segments continue to form the largest contributor to revenue with ~55% coming from it, down from 57% in FY12. On the EBITDA margin front, margins improved from 16% in FY12 to 20% in FY14. The decline in margin was largely on account of a freight hike by Indian Railways, which was mitigated by pruning of loss making routes and carrying mostly export cargo. Going ahead, we expect the segment to perk up with operational enhancement by introducing the hub and spoke model and double stacking from its ICDs. RoCE for the segment also improved to~9% for FY14 against 6% in FY13. Exhibit 4: Segmental throughput trend TEUs FY11 FY12 FY13 FY14 CFS Rail Cold chain segment to act as revenue booster GDL ventured into the cold chain business with the acquisition of 50.1% stake in Snowman Frozen Foods for 481 million in Currently, the ownership is distributed as GDL (54%) followed by Mitsubishi, IFC and NVP at 18%, 14% and 14% respectively. The cold chain segment, being a new venture, increased its contribution to revenue significantly from 8% in FY12 to 16% in FY14. Also, the EBITDA margin for the segment also improved significantly from 16% to 18.5% over the same period. As the cold chain segment is in the expansion phase, the return ratio (RoCE) has remained muted in the range of 3-4% over FY Going ahead, as there is significant growth in the segment with pallet capacity expanding to 90,000 in FY16 from in FY14, we expect revenue contribution to improve further. ICICI Securities Ltd Retail Equity Research Page 4

5 Outlook and valuation In FY09, CFS segment profit ( 106 crore) compensated for the loss in the rail and cold chain segment. However, over the period, higher CFS capacity at JNPT and Chennai ports together with declining port volume led to a contraction in margins as well as profit for the CFS segment. Consequently, at 73 crore in FY14, CFS forms ~54% of net profit for GDL. Also, segmental EBITDA margin shrunk from 57% in FY09 to 42% in FY14. Going ahead, we expect the CFS segment to continue to stagger under pressure. Further, the rail segment turned EPS accretive from FY12 with PAT posting CAGR of 32% over FY12-14 to 51.3 crore and EBITDA margin improving from 16% to 20% over the same period. Also, the cold chain segment posted strong growth with PAT posting CAGR of 52% over FY12-14 with a stable margin of 25% over the period. Consequently, overall revenue and PAT for GDL posted CAGR of ~7% and ~3%, respectively, over FY Going ahead, we expect revenue and PAT to grow at a CAGR of ~13% and 14%, respectively, over FY14-16E largely driven by growth in the rail and cold chain segments. With GDL s CFS segment realisations and margins declining, the average P/E multiple also declined from the highs of 15x in FY10 to 10x in FY14. Further, in the transition period, whereby CFS financials were deteriorating and rail/cold chain segment was gaining momentum, the average three year (FY11, FY12 & FY13) P/E multiple stood at 12x (20% above FY14 average multiple of 10x). With the rail segment posting significantly enhanced numbers in FY14 and the cold chain segment also attaining critical mass, we expect a P/E multiple restoration. Consequently, we value GDL at 12x FY16E EPS of 16.2 to arrive at a target price of 195. We have a BUY recommendation on the stock. Exhibit 5: PE chart Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Close -Unit Curr 8.0 X 10.0 X 12.0 X 15.0 X 18.0 X ICICI Securities Ltd Retail Equity Research Page 5

6 Company snapshot Target Price Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Source: Bloomberg, Company, ICICIdirect.com Research Key events Date Event Jul-08 GDL announces buyback of shares at a price 110 for an aggregate amount of 64 crore Dec-08 GDL annouces 50 acre Rail linked logistics terminal at Sahnewal Ludhiana Mar-09 Allcargo picks up 6% stake in GDL; pushes stock up by 2.56% Dec-09 GDL gains 4.72% post announcement by International Finanace Corporation to invest 24.9 crore in Snowman Frozen Food Feb-10 GDL stock gains 2.4% post foreign fund buys 0.59% stake in the firm; GDL mulls setting up rail terminals at Gujarat and Tamil Nadu Aug-10 GDL rises 2.5% as it raises 300 crore via issue of compulsory convertible preference shares to Blackstone GPV Capital Apr-11 Higher container volume boosts Q4FY11 result for GDL as profit rises 38% YoY Jul-11 GDL net profit rises 46.6% YoY in June 2011; stock hits 52-week high Aug-12 Profit declines 19.6% YoY in June 2012 quarter to 17.9 crore Feb-13 GDL acquired 100% stake in Chandra CFS and terminal operators at Chennai for a consideration of 26.5 crore Feb-13 GDL begins full scale operations at its container CFS in Kochi Jun-13 Norwest Venture to invest 60 crore in Snowman Logistics Ltd, cold chain subsidiary of GDL Oct-13 GDL net profit declines 19.3% in September 2013 quarter Top 10 Shareholders Rank Name Latest Filing Date % O/S Position (m) Change (m) 1 Prism International Pte. Ltd. 31-Mar FIL Investment Management (Hong Kong) Limited 31-Mar Life Insurance Corporation of India 31-Mar Windmill International Pte. Ltd. 31-Mar Gupta (Prem Kishan) 31-Mar KSP Logistics, Ltd. 31-Mar Norges Bank Investment Management (NBIM) 31-Mar Khattar (Sat Pal) 31-Mar ICICI Prudential Asset Management Co. Ltd. 31-Mar FIL Investment Management (Singapore) Ltd. 31-Jan Source: Reuters, ICICIdirect.com Research Shareholding Pattern (in %) Mar-14 Dec-13 Sep-13 Jun-13 Mar-13 Promoter FII DII Others Recent Activity Buys Sells Investor name Value Shares Investor name Value Shares FIL Investment Management (Hong Kong) Limited 6.88m 2.49m Parameswara Holdings, Ltd m -2.98m ICICI Prudential Asset Management Co. Ltd. 4.07m 1.47m Fidelity Management & Research Company -1.49m -0.58m L&T Investment Management Limited 1.51m 0.62m IDFC Asset Management Company Private Limited -0.98m -0.54m Axis Asset Management Company Limited 1.40m 0.55m DSP BlackRock Investment Managers Pvt. Ltd m -0.39m Franklin Templeton Asset Management (India) Pvt. Ltd. 1.17m 0.42m DNB Asset Management (Asia) Limited -0.87m -0.38m Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 6

7 Financial summary Profit and loss statement Crore (Year-end March) FY13 FY14P FY15E FY16E Revenue , , ,303.2 Growth (%) Transportation Cost Manpower Cost Fees for Punjab conware's Subcontract/Auction charges Other Expenditure Op. Expenditure EBITDA Growth (%) Depreciation EBIT Interest Other Income PBT Growth (%) Tax Minority Interest Reported PAT Growth (%) Cash flow statement Crore (Year-end March) FY13 FY14P FY15E FY16E Profit after Tax Add: Depreciation Cash Profit Increase/(Decrease) in CL (Increase)/Decrease in CA CF from Operating Activities Purchase of Fixed Assets (Inc)/Dec in Investments Others CF from Investing Activities Inc/(Dec) in Loan Funds Inc/(Dec) in Sh. Cap. & Res CF from financing activities Net cash/cashflow Cl. Cash and cash Eq Balance sheet Crore (Year-end March) FY13 FY14P FY15E FY16E Source of Funds Equity Capital CCPS in GRFL Reserves & Surplus Shareholder's Fund Loan Funds Minority Interest Source of Funds Application of Funds Gross Block 1, , , ,925.7 Less: Acc. Depreciation Net Block 1, , , ,308.0 Capital WIP Total Fixed Assets 1, , , ,308.0 Non-current investments Goodwill consolidation Investments Inventories Debtor Cash Loan & Advance, Other CA Total Current assets Current Liabilities Provisions Total CL and Provisions Net Working Capital Application of Funds 1, , , ,631.6 Key ratios (Year-end March) FY13 FY14P FY15E FY16E Per share data ( ) Book Value Cash per share EPS Cash EPS DPS Profitability & Operating Ratios EBITDA Margin (%) PAT Margin (%) Fixed Asset Turnover (x) Inventory Turnover (Days) Debtor (Days) Current Liabilities (Days) Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) PE Price to Book Value EV/EBITDA EV/Sales Leverage & Solvency Ratios Debt to equity (x) Interest Coverage (x) Debt to EBITDA (x) Current Ratio Quick ratio ICICI Securities Ltd Retail Equity Research Page 7

8 ICICIdirect.com coverage universe (Logistics) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E Container Corporation (CONCOR)* HOLD 11, Gateway Distriparks (GATDIS) BUY 1, Transport Corp (TRACOR) SELL BlueDart (BLUDAR) 3,132 3,094 HOLD 9, Essar Ports (ESSSHI) HOLD 2, Gujarat Pipavav Port (GUJPPL)# HOLD 4, # Follow calendar year * Post bonus issue ICICI Securities Ltd Retail Equity Research Page 8

9 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ANALYST CERTIFICATION We /I, Bharat Chhoda MBA Soumojeet Kr Banerjee MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. 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10 MORNING INSIGHT April 22, 2014 MANAGEMENT MEET UPDATE Amit Agarwal GATEWAY DISTRIPARKS LTD PRICE: RS.170 RECOMMENDATION: BUY TARGET PRICE: RS.196 FY16E P/E: 10.3X Summary table (Rs mn) FY14E FY15E FY16E Sales 10,831 12,346 14,260 Growth (%) EBITDA 2,658 3,045 3,552 EBITDA margin (%) PBT 1,703 2,005 2,462 Net profit 1,277 1,504 1,773 EPS (Rs) Growth (%) CEPS (Rs) BV (Rs/share) Dividend / share (Rs) ROE (%) ROCE (%) Net cash (debt) (2,844) (2,990) (3,123) NW Capital (Days) EV/EBITDA (x) P/E (x) P/Cash Earnings P/BV (x) Source: Company, Kotak Securities - Private Client Research Rail and Cold Chain Segment to buoy the performance - IPO of Snowman Logistics Ltd expected within the next 2 quarters We are increasing the target price for Gateway Distriparks Limited (GDL) on the back of; 1) Stable performance of the Container Freight Station (CFS) segment; 2) Improvement in performance of the container rail segment with healthy increase in volumes and 3) Strong performance of the cold chain business (Snowman Logistics Limited) with potential value unlocking from IPO of Snowman Logistics Ltd within the next 2 quarters (Management is targeting July 2014). Recommend BUY with an increased target price of Rs 196 (earlier Rs 156) at 12x FY16E EPS. Near term outlook has improved coupled with attractive valuation (FY16E 10.3x P/E, 1.6x P/BV and 5% dividend yield) and strong balance sheet. Significant improvement in macro outlook along with GST implementation should facilitate the growth. Downside risk to call includes: 1) Deterioration in Exim trade. 2) Further competition in the CFS segment and 3) Competition in rail haulage business. We estimate stable performance of the CFS segment for GDL Performance of the CFS segment depends on two things 1) Growth in Exim volumes and 2) Extent of Competition. There are more than 25 CFS serving the port of JNPT with a total CFS capacity of 2.5 mn TEUs with few more to begin operations in next couple of years. The CFS capacity at the port has grown at a CAGR of 15% in the last 6 years while container volumes at the port have grown at a CAGR of 7% during the same time. This has led to competition at the port amongst the CFS players, with realizations and margins under pressure. Similarly, the CFS capacity at the 2nd biggest container port of Chennai is estimated at 1.4 mn TEUs with more than 20 operators while the demand is around 0.6 mn TEUs. These 2 ports put together handle about 80% of the container volumes of the country and most of the logistics players including GDL and Allcargo have their key CFS based out of these 2 ports. There are no official figures available for the total CFS capacities at other major and minor ports of the country. CFS capacity at key container handling ports in 000 TEUS JNPT Chennai Port volumes (FY14) 2,546 1,468 Conversion to CFS volumes (%) CFS demand CFS supply 2,500 1,400 Source: Industry; Kotak Securities - Private Client Research Though Exim volumes have shown an improving trend, but still it is not able to keep pace with the CFS supply. Current facilities of GDL include 4 CFS and 3 Inland Container Depot (ICD) with aggregate handling capacity of 1.07 mn Twenty Feet Equivalent Units (TEUs) p.a. It is expected to start its forth terminal at Faridabad from June Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the Private Client Group. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target price of the Institutional Equities Research Group of Kotak Securities Limited. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 4

11 MORNING INSIGHT April 22, 2014 Current terminal Facilities of GDL Location CFS/ICD Area (TEUs) (acres) Capacity Status JNPT CFS ,000 Fully operational Chennai CFS 30 80,000 Fully operational Kochi CFS 20 70,000 Fully operational Vizag CFS 7 50,000 Fully operational Garhi ICD ,000 Fully operational Ludhiana ICD ,000 Fully operational Navi Mumbai ICD ,000 Fully operational Faridabad ICD ,000 From June 2014 Source: Company With the above infrastructure in place, we estimate CFS volumes of GDL to grow marginally over FY14 to FY16E. We expect the company to maintain its market share at all the key ports. CFS volumes estimated for GDL Location FY11 FY12 FY13 FY14E FY15E FY16E JNPT 230, , , , , ,462 Chennai 73,756 78,385 76,050 73,916 75,764 78,037 Kochi 29,302 37,016 43,645 50,527 51,790 53,344 Vizag 0 2,028 6,172 10,000 12,000 Total 333, , , , , ,842 CAGR Source: Kotak Securities - Private Client Research; Company Container rail business to grow at a healthy pace GDL's rail business is managed by Gateway Rail Freight Limited (GRFL) a 100% a subsidiary company of GDL. GRFL signed the concession agreement with Indian Railways in 2007 for a period of 20 years, to operate container trains on the Indian railways network. Rail based container business is the smallest and the fastest growing business in the entire logistics chain. We believe this segment has the potential to grow 10%+ CAGR for the next 5 years for GDL. Investment by Private Equity Player Blackstone in Gateway Rail Freight Ltd (GRFL) Blackstone in November 2010 had invested Rs3 bn in the rail subsidiary - GRFL through compulsory convertible preference shares. These funds were used by GDL for expansion of GRFL. These preference shares are coming up for redemption in October 2015, post which Blackstone is expected to get around 47% of the equity in GRFL as per certain pre decided parameters between Blackstone and GDL. This values GRFL at ~Rs 6 bn retrospectively. GRFL currently operates 21 rakes GRFL currently owns 21 rakes. Almost 90% of these rakes run on Exim routes which are more profitable because of low empty running and assured cargo. Going forward the company intends to add 3 to 4 more rakes over FY14 to FY16E and most of them would be primarily placed on Exim routes. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 5

12 MORNING INSIGHT April 22, 2014 Container volumes estimated for GRFL Segment FY11 FY12 FY13 FY14E FY15E FY16E Rail and ICDs 131, , , , , ,132 CAGR Source; Kotak, Company We also expect share of reefer services and double stack containers (which currently constitute 10%) to gradually improve for GRFL which should aid the margins of the company. Cold Chain business to outperform the other segments - IPO of Snowman expected in the next two quarters GDL entered the cold chain business through acquisition of % stake in Snowman Frozen Foods for Rs 481 million in It has partnered with Mitsubishi to enter this fast growing organized cold chain logistics business and has a client base comprising companies such as HLL, Mother Diary, Amul, and ITC. There is a growing demand for cold chain operations in India, led by the FMCG companies. Current infrastructure of Snowman Logistics Infra Numbers Other details Pallets Expected to go upto 70,000 in June 2014 Temperature controlled vehicles 150 Can handle over 20,000 Tonnes Source: Company Quarterly performance of Snowman has been healthy. Management indicated that snowman recorded overall utilization level of 80%+ in nine months of FY14. Quarterly financial performance of Snowman Cold Chain Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Revenue (Rs mn) EBIDTA EBIDTA (%) PAT Source: Company IPO of Snowman logistics expected in the next two quarters Snowman is looking to raise around Rs 1.5 bn through fresh issue of shares, funds from which will be utilized to fund expansion plans of Snowman. The IPO is expected to happen at a floor price of Rs 35/share. Shareholding in Snowman post the IPO Investor Pre IPO (%) Post IPO (%) GDL Mitsubishi & Nichirei IFC NVP Source Company, Kotak Securities - Private Client Research IPO of Snowman should unlock value for GDL Cold chain segment is fast growing and high margin business compared to slowing CFS segment and low margin container rail segment. When listed separately it is expected to command a better valuation to other segments leading to value unlocking for GDL. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 6

13 MORNING INSIGHT April 22, 2014 Capex for FY14/FY16 - primarily in the container rail cold chain segment We expect GDL to spend around Rs 2 bn over FY14 to FY16E primarily in the container rail segment and the cold chain segment. Key risk- fall in Global Trade The most important risk to GDLs business is the fall in global trade. Sharp deterioration in overall economy/ trade would have a substantial negative impact. Exim trade typically grows at ~2x growth in GDP, and any significant drop in India's GDP could lead to a sharp deceleration in Exim trade growth, impeding GDL's growth prospects. We recommend BUY on Gateway Distriparks with a price target of Rs.196 Valuation and Outlook GDL is into multiple businesses 1) CFS - slowing down but steady 2) rail business - capital intensive, fast growing venture and highly competitive 3) cold storage business - small and nascent but a big opportunity. We believe the medium term outlook has improved for the company. Recommend BUY with an increased target price of Rs 196 (earlier Rs 156) at 12x FY16E EPS. Near term outlook has improved coupled with attractive valuation (FY16E 10.3x P/E, 1.6x P/BV and 5% dividend yield) and strong balance sheet. Significant improvement in macro outlook along with GST implementation should facilitate the growth. Downside risk to call includes: 1) Deterioration in Exim trade. 2) Further competition in the CFS segment and 3) Competition in rail haulage business. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 7