Gateway Distriparks Ltd GDPL IN; GATE.BO

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1 Logistics India Gateway Distriparks Ltd GDPL IN; GATE.BO Institutional Equity Research April 29, 2 4QF result review HOLD Current price (29 Apr) Rs 36 Target price Rs 38 Upside/(downside) % 6 Earning estimate Revised Market data Mkt capitalisation Rs bn 39.1 Average daily vol ' week H/L Rs 459 / 167 Shares O/S mn 18.7 Free float mn 73. Promotor holding % 32.9 Foreign holding % 32.4 Face value Rs 1. Price performance 1m 3m 6m 1yr Nifty (abs) (1.2) (8.) Stock (abs) (12.) (7.8) Relative to Index (1.8) Performance (Rs) 1 (5) Apr-14 Jul-14 Oct-14 Jan- Apr- GDPL (LHS) Source: Bloomberg, SSLe iral Shah viral.shah@sbicapsec.com Pranjal Sanghvi pranjal.sanghvi@sbicapsec.com 5 Rel. to Nifty (RHS) Rail segment continues to shine Gateway Distriparks (GDPL) arrayed strong performance in the rail segment in 4QF; however, the company displayed a dismal bottomline owing to lower-thanexpected EBITDAM and higher effective tax rate. For the full year, GDPL s rail volumes increased by 17% YoY to 248,367TEUs (in line with SSLe). The company s volumes (CFS) grew 13.9% YoY to 387,138TEUs in F. On a consolidated basis, net sales rose to Rs2,651mn, beating SSLe by 2.2%, helped by strong performance from its rail segment. EBITDAM came in at 29.9% (lower than SSLe of 31%), primarily due to higher contribution from the low margin rail segment. Adjusted PAT came in at Rs488mn in 4QF, slightly lower than SSLe of Rs518mn, due to lower-than-expected operating performance and higher effective tax rate (25%). Since GDPL s stake in Snowman Logistics reduced to 4.41% (due to its listing in September), YoY numbers are not comparable. We continue to maintain our HOLD rating on the stock, with a revised SOTP-based TP of Rs38. Rail segment continues to shine: Revenues (rail) grew 24.5% YoY to Rs1,857mn in 4QF, beating SSLe by 5.2%, primarily driven by blended realization growing 22% YoY to Rs31,297/TEUs. For the full year, GDPL s volumes grew 17% YoY to 248,367TEUs (SSLe: 25,172TEUs). a) Improvement in double-stacking index, b) higher contribution from the Garhi Harsaru ICD and c) larger share from the high margin import led to a higher EBITDAM of 25.1% in F. According to the management, land was purchased for the upcoming ICD at Viramgam in Gujarat and is expected to be commissioned by 1QF17e. CFS volume growth misses SSLe by 6.7%: Net sales (CFS) rose 7.3% YoY to Rs778mn for the quarter, driven by muted volume growth of 3.8% YoY. Volumes at Vizag and Chennai CFS grew 2.9% YoY and 7.5% YoY, respectively; however, the volumes at Mumbai CFS declined 2.6% for 4QF. Due to soft EXIM growth (mainly of export cargo), we expect the volume growth at all three CFS to remain under pressure. Snowman Logistics arming profitability: The cold chain segment s revenues grew 22.6% to Rs538mn in 4QF, led by an increase in blended capacity utilization to 82% with EBITDAM of 25.9%. Going forward, the management expects the margins to be under pressure in the transition period which kicked-in following addition of new fleet over the quarter. The company increased its capacity to 85,5 pallets in F (~61,5 pallets in F14) and is expected to add another 28,5 pallets by F16e. Maintain HOLD; Revised TP of Rs38: We foresee good synergies in GDPL s business model, with the three verticals aligning well to provide a total logistic solution to the end consumer. We have used the SOTP method to value GDPL. At CMP, the stock trades at a P/E of 18.4x F16e and 16.2x F17e earnings and trades at EV of 11.5x F16e and 9.9x F17e EBITDA. We have valued its CFS and rail verticals at a P/E of 22x, based on F17e earnings, with Snowman Logistics valued at a 2% discount to its current market capitalization, arriving at a revised target price of Rs38 and continue to maintain HOLD rating on the stock. Financial Summary Y/E Mar (Rsmn) F13 F14* Fe* F16e* F17e Net sales 9,541 1,128 11,113 11,82 13,574 growth EBITDA margin Adjusted net profit 1,267 1,358 1,878 2,124 2,416 EPS (Rs) growth (4.1) P/E (x) EV/EBITDA (x) Dividend yield RoE RoCE , Note: * figures not comparable SBICAP Research on Bloomberg SBICAP <GO>, Please refer to our disclaimer given at the last page.

2 Net sales came in at Rs2,651mn on back of healthy volume growth in the rail segment EBITDA margins came in at 29.9% primarily due to higher contribution from the low margin rail segment Adj PAT came in at Rs488mn, led by lower than expected operating performance and higher effective tax rate Quarterly financials-consolidated Y/E March 4QF * YoY 3QF QoQ 4QFe* Var. Net sales 2,651 2,669 (.7) 2,737 (3.1) 2, Rail transportation 1, ,32 1,37 Road transportation Employee cost Other expenditure Total cost EBITDA (8.2) 84 (1.4) EBITDAM Depreciation and amort EBIT (1.7) 697 (14.9) EBITM Other income Interest expenses Extraordinary/Exceptiona Profit before tax Tax expense 148 (8) Effective tax rate 25.3 (1.8) PAT (16.7) 529 (17.1) Minority Interest/share of (49) 32 (17) 11 Reported net profit (1.3) 518 (5.9) Non-recurring items Adj. net profit (1.3) 518 (5.9) NPM EPS (Rs) (2.5) Note: * figures not comparable Conference call highlights The management board has declared an interim dividend of Rs3/share. As per the management, the rail segment has been an outperformer with a strong volume growth of 17% YoY to 2,48,367TEUs in F, supported by a ramp-up in import cargo volumes and increased benefits of double-stacking at the Garhi Hasaru terminal leading to an EBITDAM at 25.1% for F. For the CFS segment, the company s volumes grew 13.9% YoY in F, primarily led by healthy volume growth at all three CFS Mumbai CFS (6.8% YoY), Chennai CFS (19% YoY) and Vizag CFS (17.6% YoY) CFS. The company is planning to set up a CFS facility at a new location, with a capex of ~Rs5 6mn for F16e. Along with this, the company has planned a capex of Rs1.25bn for the development of ICD at Viramgam in Gujarat. The company has added 24, pallets during the year taking its capacity to 85,5 pallets. The average blended capacity utilization stood at 77% for F with capacity utilization improving, mainly in the month of March (92%). Going forward, the management expects to maintain its capex plans and reach 1, pallets by F16e. According to the management, the company has received an approval for setting up a PFT facility at its Garhi Harsaru terminal and is also awaiting final approval at its Sanewal terminal. April 29, 2 2

3 Surge in volumes at Vizag and Chennai CFSs Realization to be under pressure going ahead (TEU's) 12, 9, 6, 3, (8) (12) 2 (5) (2) 17 (9) 2 8 (2) (5) (Rs /TEU's) 1, 7,5 5, 2, (1) (6) (6)(5) (8) (5)(5) (6) (3) () (2) 1QF 2QF 3QF 4QF 1QF 2QF 3QF 4QF CFS volumes (LHS) Realisation (LHS) Strong rail volume growth continues 62, (TEU's) 46,5 31,, (2) (5) () (14) Blended realization increases YoY (Rs /TEU's) 32, 24, 16, 8, 4 1 (5) (9) 1 (6) (5) (14) (2) (7) (7) (2) (2) 1QF 2QF 3QF 4QF 1QF 2QF 3QF 4QF Rail volumes (LHS) Blended realisation (LHS) Cold chain segment continues to be profitable Strong EBITDAM boost profitability QF 2QF 3QF 4QF 1QF 2QF 3QF 4QF Revenues (LHS) PAT (LHS) EBITDA margins (RHS) April 29, 2 3

4 Change in estimates We have revised our F16e and F17e EPS downwards by 6.6% and 9.7%, respectively, based on the F performance and change in accounting treatment due to the listing of Snowman Logistics in September 2. Revised Old Change F16e F17e F16e F17e F16e F17e Revenue 11,82 13,574 11,271 12, EBIDTA 3,487 4,4 3,438 3, PAT 2,124 2,416 2,273 2,677 (6.6) (9.7) EPS (Rs) (6.6) (9.7) SOTP Valuation Project Holding Multiple Valuation We foresee good synergies in GDPL s business model with the three verticals aligning well to provide a total logistic solution to the end consumer. We have used the SOTP method to value GDPL. At CMP, the stock trades at a P/E of 18.4x F16e and 16.2x F17e earnings and trades at EV of 11.5x F16e and 9.9x F17e EBITDA. We have valued its CFS and rail verticals at a P/E of 22x based on F17e earnings, with Snowman Logistics valued at a 2% discount to its current market capitalization, arriving at a revised target price of Rs38. We continue to maintain our HOLD rating on the stock. PAT F17e Holding Company disc Value Adj value Value/ Share % of Total TP CFS ,4 22,886 22, Rail , ,44 12, Snowman ,468 4, Total 2,475 62,757 4, year forward P/E band 24 1-year forward P/B band (x) 14 (x) Feb-8 Jul-8 Nov-8 Mar-9 Jul-9 Dec-9 Apr-1 Aug-1 Dec-1 May-11 Sep-11 Jan-12 May-12 Oct-12 Feb-13 Jun-13 Nov-13 Mar-14 Jul-14 Nov-14 Apr-. Feb-8 Jul-8 Nov-8 Apr-9 Aug-9 Jan-1 May-1 Oct-1 Mar-11 Jul-11 Dec-11 Apr-12 Sep-12 Jan-13 Jun-13 Oct-13 Mar-14 Jul-14 Dec-14 Apr- Source: Bloomberg, Company, SSLe April 29, 2 4

5 Key assumptions Particulars F13 F14 F F16e F17e CFS Segment CFS Volume (TEUs) 342,661 34,4 387, , ,98 Growth YoY % 2.6 (.8) Revenue 3,3 2,913 3,321 3,699 4,118 Growth YoY % (2.) (3.) Realization / TEU (Rs) 8,765 8,567 8,579 8,78 8,838 Growth YoY % (4.4) (2.3) EBITDA 1,691 1,457 1,547 1,812 2,39 Growth YoY % (3.6) (13.8) EBITDA / TEU (Rs) 4,936 4,286 3,996 4,267 4,375 Growth YoY % (6.) (13.2) (6.8) EBITDA Margin PAT ,4 Growth YoY % (16.4) (17.9) Rail Segment Rail Volume (TEUs) 233, , , , ,552 Growth YoY % 29.4 (9.1) Revenue 5,357 5,634 6,913 8,52 9,38 Growth YoY % Realization / TEU (Rs) 22,935 26,536 27,835 28,948 3,16 Growth YoY % (7.9) EBITDA 826 1,119 1,7 2,53 2,392 Growth YoY % EBITDA / TEU (Rs) 3,538 5,271 6,96 7,382 7,677 Growth YoY % (1.9) EBITDA Margin PAT ,31 1,17 1,47 Growth YoY % Snowman Segment Revenue 1,137 1,534 2,29 2,841 3,693 Growth YoY % EBITDA EBITDA Margin PAT Growth YoY % April 29, 2 5

6 Financials - Consolidated Income Statement Balance Sheet Y/E Mar F13 F14 Fe* F16e F17e Y/E Mar F13 F14 Fe* F16e F17e Net sales 9,541 1,128 11,113 11,82 13,574 Cash & Bank balances 927 1, ,26 1,521 growth Other Current assets 1,924 2,332 2,334 3,9 3,64 Operating expenses 7,1 7,556 7,846 8,333 9,57 Investments 34 1,443 1,443 1,443 EBITDA 2,441 2,572 3,267 3,487 4,4 growth (6.1) Net fixed assets 11,124 12,197 9,355 1,534 11,82 Depreciation &amortisation Goodwill & intangible assets 1,147 1, EBIT 1,742 1,77 2,378 2,69 3,52 Other non-current assets Other income Total assets,122 17,162 14,783 17,1 18,593 Interest paid Extraordinary/Exceptional items Current liabilities 863 1,779 1,558 2,78 2,23 PBT 1,733 1,662 2,266 2,594 3,49 Borrowings 2,52 2,761 1,435 1,935 1,985 Tax Other non-current liabilities 3,46 2,998 3,18 3,18 3,18 Effective tax rate Total liabilities 6,429 7,538 6,11 7,12 7,295 Net profit 1,36 1,473 1,825 2,23 2,287 Minority interest (52.3) (1.4) (129.4) Share capital 1,85 1,86 1,87 1,87 1,87 Reported Net profit 1,267 1,358 1,878 2,124 2,416 Reserves & surplus 6,82 7,28 8,146 9,444 11,61 Non-recurring items Shareholders' funds 7,887 8,366 9,233 1,531 12,149 Adjusted Net profit 1,267 1,358 1,878 2,124 2,416 Minority interest 86 1, growth (4.1) Total equity & liabilities,122 17,162,593 17,911 19,73 Key Financials ratios Cash Flow Statement Y/E Mar F13 F14 Fe* F16e F17e Y/E Mar F13 F14 Fe* F16e F17e Profitability and return ratios Pre-tax profit EBITDAM Depreciation EBITM Chg in working capital (382) 58 (223) (237) (425) NPM Total tax paid (373) (19) (441) (571) (762) RoE Other operating activities (146) (162) RoCE Operating CF 1,531 2,62 2,654 2,765 2,944 RoIC Capital expenditure (261) (183) 1953 (257) () Per share data (Rs) Chg in investments (34) (113) O/s shares (mn) Other investing activities EPS Investing CF (261) (217) 85 (257) () FDEPS FCF (179) CEPS BV Equity raised/(repaid) 25 3 (629) DPS Debt raised/(repaid) 1,3 241 (1,327) 5 5 Dividend (incl. tax) (882) (882) (382) (825) (799) Valuation ratios (x) Other financing activities (51) 49 (762) PE Financing CF 46 (228) (3,99) (325) (749) P/BV EV/EBITDA Net chg in cash & bank bal. (673) EV/Sales Closing cash & bank bal 927 1,149 1,554 1,126 1,721 Other key ratios D/E (x) DSO (days) Du Pont Analysis - RoE NPM Asset turnover (x) Equity multiplier (x) RoE *Note:Nos are not comparable April 29, 2 6

7 Recommendation History Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb- Apr- (Rs) BUY HOLD SELL Stock Price Target Price Date Stock Price TP Rec. 2-May BUY 6-Aug BUY 31-Oct BUY 29-Jan HOLD 29-Apr HOLD Source: Bloomberg, SSLe SBICAP Securities Limited Corporate Office: Mafatlal Chambers, A-Wing, 2nd Floor, N. M. Joshi Marg, Lower Parel, Mumbai Tel.: /1 Fax: sbicapresearch@sbicapsec.com KEY TO INVESTMENT RATINGS (w.e.f. 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