Gateway Distriparks Ltd 1 st July, 2011 BUY

Company Report BROKING DEPOSITORY DISTRIBUTION FINANCIAL ADVISORY Gateway Distriparks Ltd 1 st July, 2011 BUY CMP Rs 126.75 Target Price Rs 170.00 BSE Code 532622 NSE Code GDL Market Cap (Rs Mn) 13699.51 52 Week High/Low 129.60/97.00 Industry Logistics Face Value Rs10.00 Shares O/S 108082932 EPS 8.96 Book Value 63.70 P/E 14.14 P/B 1.99 Shareholding Pattern Gateway Distriparks Ltd is a Container logistics company with Pan-India presence. Gateway Distriparks s CFS at Mumbai, ICD at Garhi, CFS at Vizag and the CFS at Chennai operate as the four hubs for company that caters to the demand of traffic in western, northern, eastern and southern regions of India respectively. The company has incurred capex of Rs.156 crores during the financial year ended March 11. In CFS business it is Rs.41 crores, in rail business it is Rs.92 crores and in the snowman business it is Rs.23 crores. The company has registered strong numbers for the quarter ending March 2011. A decent increase of about 39.87% in the sales to Rs. 553.82 millions was observed for the quarter ended March 2011. The sales figure stood at Rs. 395.95 million during the yearago period. The Company has registered profit of Rs. 267.03 million for the quarter ended March 2011, a growth of 23.10% over Rs. 216.92 million achieved in the corresponding quarter of last year. Operating profit surged to 319.95 million from the corresponding quarter previous year of 207.27 million. Better capacity utilization and higher volumes has helped GDL to post such growth. On a consolidated basis, GDL s CFS business has posted a growth of about 40% at Rs.717.19 million, Rail business at 9% on Rs.849.29 million revenues and Cold chain business grew sharply by 23% to Rs.143.95 million revenues translating in profits of Rs.306.59 million, Rs.38.06 million and Rs.5.36 million respectively. Valuation Presently, the stock is trading at Rs 126.75 which is at a consolidated PE of 13.6x and 12.2x to its FY12E and FY13E EPS of Rs 9.32 and Rs.10.39 respectively. Since the stock offers good investment opportunity, we initiate a BUY signal on the stock with a target price of Rs 170 expecting an appreciation of about 34% from the current level with the medium to long term investment horizon. For Private Circulation Only 1 Hem Research

Business Details Gateway Distriparks Ltd. is a world-class state-of-the-art logistics facilitator in one of the world s fastest growing markets-india. It is incorporated in 1994 is engaged in the business of warehousing, container freight stations, providing handling and clearance of sea borne export-import trade in containerized form. The company is a joint venture between NTSC, Parameshwara Holdings, Windmill International and Thakral Corporation. The company operates container freight stations (CFS) located at Dronagiri, Navi Mumbai, New Manali, Chennai, Vishakapatnam and Inland Container Depot at Garhi Harsaru (near Delhi) and Haryana. The container freight station (CFS)/inland container depot (ICD) of the company s CFS located at Navi Mumbai is spread over in area of 14 hectares and has a capacity to handle 216,000 TEU s per annum. The CFS at Chennai spread over 7.5 hectares, having a capacity to handle 40000 TEU s, is situated at a distance of 16km from Chennai Port. The CFS at Vishakapatnam, commissioned in August 2005, has a capacity to handle 30000 TEU s per annum and would cater to the traffic movement at the new container terminal at Vishakapatnam. GDL s ICD at Garhi Harsaru, is spread over 31 hectares. The ICD is road-linked and caters to the rich hinterlands of Northern India, including Delhi, Haryana, Punjab and Rajasthan. The facility has attained a milestone in terms of rail connectivity with its own rail siding connecting the ICD to the main Delhi-Jaipur Broad Guage lines. In February 2006, GDL received an in-principle approval from the Indian Railways, to move container trains in category. The first full rake train carrying export containers railed out of ICD Garhi, followed by Import movement into Garhi in May-2006. GDL provides logistics solutions that fulfill the needs of the international trading community as well as the shipping industry. It owns subsidiaries namely Gateway East India, Visakhapatnam, Gateway Distriparks (South), New Manali, Chennai, Gateway Rail Freight, New Delhi, Gateway Distriparks (Kerala) and Snowman Frozen Foods. Gateway Distriparks s CFS at Mumbai, ICD at Garhi, CFS at Vizag and the CFS at Chennai operate as the four hubs for company that caters to the demand of traffic in western, northern, eastern and southern regions of India respectively. These hubs have led the company to emerge as only private sector CFS operator that has a Pan-India presence. For Private Circulation Only 2 Hem Research

Sectoral Outlook The Logistics spend in India represents about 6.2 per cent of the country s total GDP. However, it represents around 11.6 per cent of services GDP (contribution of the services sector in the total GDP), according to an industry body. The Indian logistics sector reported revenues of about $82.10 billion in 2010, witnessing a growth of about 9.2 percent over the previous year, driven by strong growth of key manufacturing industry sectors. As per the CMIE CapEx survey, the total outstanding investment in the in the transport logistics services sector stood at over Rs.65,723 crore as of March 2011. The projects under implementation accounted for 38.9 per cent of the total outstanding investment. CMIE s CapEx database reveals that 53 projects in the transport logistics services sector are scheduled to get commissioned during the two years ending 31 March 2013. These projects entail an investment outlay of more than Rs.9,357 crore. Further, projects entailing an investment outlay of more than Rs.6,748 crore are expected to get completed during the year 2012-13. Investment statistics Project under implementation New Projects Total Investment Projects Completed Projects Shelved (Nos..) (Rs. Crores) (Nos..) (Rs. Crores) (Nos..) (Rs. Crores) (Nos..) (Rs. Crores) (Nos..) Mar 10 76 23,103 15 299 159 48,607 0 0 1 20 Jun 10 89 22,639 12 17,399 168 65,004 3 38 0 0 Sep 10 92 23,760 8 931 175 63,655 0 0 0 0 Dec 10 92 25,559 30 20 203 65,433 2 74 0 0 (Rs. Crores) Mar 11 91 25,544 1 350 202 65,723 2 60 0 0 Source: CMIE The transport logistics services sector posted a healthy sales growth of 15.8 per cent in the March 2011 quarter. This growth is attributed to higher cargo volumes and the passing on of higher fuel costs to customers. The sector s operating margin expanded by 90 basis points y-o-y to 18.5 per cent. Consequently, the industry s net profits grew by a healthy 16.3 per cent. The sector is expected to report a rise in volumes. In the year 2011-12 as a whole, the sector s sales are expected to grow by a healthy 10.8 per cent. However, with total expenses expected to rise at a slower pace than total income, the sector s net profits during the year are likely to grow by 19.1 per cent. The net margin during the year is expected to expand by 80 basis points to 12 per cent. A recovery in foreign trade and an expected rise in the industrial and agricultural output is expected to result in higher cargo volumes. Higher demand for freight services and the passing on of higher fuel costs to customers are expected to spur higher realizations. As per Frost and Sullivan, the growth trend will continue in 2011 also as in 2010 and the total revenue is expected to reach $90 billion. For the period 2010-2020, the Indian logistics market is likely to witness consistent annual growth of around 8-9 per cent and reach to the revenue level of about $190-200 billion by 2020. This will be fuelled by the consistent growth of the economy and key industries such as automotive, engineering, pharmaceuticals, and food processing, among others. For Private Circulation Only 3 Hem Research

Capacity expansion ahead GDL s all three verticals are doing well and so it has plans to start expanding capacities in all of them. Mumbai two CFSs has done throughput of about 2,30,000 TEUs which is 60-70% of capacity. The company plans to increase it by about 30% to over 3,50,000 TEUs. At Vizag also, it intends to increase capacity by about 20% during the current financial year to 40,000 TEUs. Chennai CFS is also expected to contribute substantial numbers as it will operate at full capacity for full year and can go up to 90,000 TEUs. In Snowman business and cold storage business, GDL is already doing above 16-17,000 pallets. The company plans to drive up its capacity to almost 60,000-65,000 pallets in two to three years. Capex for the current year is estimated to be around Rs.100 crores in all the three segments put-together. Further, on a broader basis, GDL expects to fall in tax bracket of 25-30% as a consolidated entity. Strong segmental growth GLD has witnessed a steady progress in profitability in all of its three verticals. CFS business is been a very good performer and has done extremely well this time too. CFS business revenues grew about 20% at Rs.2,422.53 million. It is a dependable part of GDL s business as it has contributed a major chunk it company s profits and grew by 9.5% in FY11. Another driving factor for the revenues was rail business which turned around in third quarter and made significant profit of Rs.38 million in Q4FY11. GRFL s revenues shoot up around 7% at Rs.3118.54 million and it seemed a fundamental and sustainable growth. The third vertical Snowman has shown signs of improving performance. Revenues of the cold chain business witnessed a sharp growth of around 29% at Rs.474.83 million from Rs.369 million a year ago translating profits of Rs.28.35 million, zoomed by 31%. Rationalization of tariff by the company also helped. Throughput has also gone up slightly. Full year throughput was 9.7% higher. For Private Circulation Only 4 Hem Research

Robust financials GDL has registered strong numbers for the financial year ending March 2011. Revenues shoot up about 16% from Rs.5206.67 million to Rs.6033.76 million translating in operating profit of Rs.1639.81 million, up about 27%. This growth is on the back of improved realization as the volumes have increased. Increased volumes led to higher utilization levels. The company has witnessed a bottom line growth of 22%. GDL s margins have expanded widely in FY11. Operating profit margin increased 241bps at 27.18% from 24.77% a year ago while net profit margins widened 84bps at 16.04%. EPS for FY11 stood higher at Rs.8.96. New facilities to drive growth GDL has started the construction of its facility in Cochin, Vallarpadam and expects it to be ready in the second half of the year, early part of next financial year. By that time, it will start contributing to the volumes and will be net positive in six months period and will be added to the CFS business. Further, for the Kochi CFS, the company is looking at a capacity of about 50,000 TEU per annum which it expects to clock in 2012-13. Faridabad ICD with the capacity of about 10,000 per month containers is expected to start operating trains in October or November. GRFL s turnaround, a real growth trigger GDL has a presence in the container rail segment through its subsidiary Gateway Rail Freight Ltd. (GRFL) which has posted profit for the first time since inception in Q3FY11. In Q4FY11 it registered profit of Rs.38 million against a loss of Rs.23.9 million in the like quarter last year. This is a kind of real growth which has largely been on the back of bigger volumes in the EXIM business which is high margin business than domestic one. Domestic business took a hit in FY11 as Indian Railways hiked haulage charges. Therefore, the company is planning to change mix of EXIM business and domestic business from 70:30 to 90:10 going forward. For Private Circulation Only 5 Hem Research

Consolidated Profit & Loss Account Rs. Million Particulars FY09 FY10 FY11 FY12E FY13E Net sales 4519.97 5206.67 6033.76 7029.33 8083.70 Growth 15.19% 15.89% 16.50% 15.00% Expenditure 3048.66 3916.73 4393.95 5061.12 5884.93 EBITDA 1471.31 1289.94 1639.81 1968.21 2198.77 Growth -12.33% 27.12% 20.03% 11.71% EBITDA margin 32.55% 24.77% 27.18% 28.00% 27.20% Other income 108.61 84.00 85.85 77.32 80.84 Depreciation 444.74 454.87 502.44 543.78 607.80 EBIT 1135.18 919.07 1223.22 1501.75 1671.81 EBIT margin 25.11% 17.65% 20.27% 21.36% 20.68% Interest 201.57 195.30 182.00 117.16 129.34 PBT 933.61 723.77 1041.22 1384.59 1542.47 Tax 158.96 (79.32) 44.07 346.15 385.62 PAT 774.65 803.09 997.15 1038.44 1156.85 Minority Interest (21.10) 11.65 29.63 32 35 Exceptional item 0.00 0.00 0.00 0.00 0.00 Adjusted PAT 795.75 791.44 967.52 1006.44 1121.85 Growth -0.54 22.25 4.02 11.47 Net Profit margins 17.61% 15.20% 16.04% 14.32% 13.88% Equity Capital 1077.13 1079.05 1080.00 1,080.00 1,080.00 Res. & Surplus 5159.7 5562.80 5799.40 6,427.84 7,171.69 Equity Shares 107.71 107.90 108.00 108.00 108.00 EPS 7.39 7.33 8.96 9.32 10.39 Ratios Particulars FY09 FY10 FY11 FY12E FY13E Return on Equity 12.76% 11.92% 14.06% 13.41% 13.60% Return on Capital employed 13.71% 10.51% 15.23% 16.90% 16.94% Debt/Equity 0.33 0.32 0.17 0.18 0.20 Asset turnover 0.46 0.48 0.47 0.50 0.53 Current Ratio 2.02 1.53 2.61 2.54 2.20 Cash per share 5.51 7.36 13.94 15.62 15.79 Book value per share 57.90 61.55 63.70 69.52 76.40 For Private Circulation Only 6 Hem Research

Balance Sheet Rs. Million Particulars FY09 FY10 FY11 FY12E FY13E Share Capital 1077.13 1079.05 1080.00 1,080.00 1,080.00 Reserves & Surplus 5159.7 5562.80 5799.40 6,427.84 7,171.69 Shareholders funds 6236.83 6641.85 6879.39 7507.84 8251.69 CCPS in GRFL 0.00 0.00 2958.00 2,958.00 2,958.00 Borrowings 2044.70 2099.29 1153.79 1378.30 1616.75 Deferred tax Liability 184.89 187.42 139.82 139.82 139.82 Minority interest 605.62 624.99 609.78 701.25 771.37 Sources of funds 9072.04 9553.54 11740.78 12685.21 13737.63 Gross block 9,333.17 10,036.26 11,603.38 13262.88 15194.98 Accumulated Depreciation 1,407.04 1,850.70 2,353.14 2,912.76 3,546.78 Net block 7926.12 8185.56 9250.24 10350.12 11648.20 Capital work in progress 205.79 516.89 575.17 294.35 182.34 Investments 230.02 150.00 130.00 106.10 75.97 Pre-operative expenses 0.02 0.12 6.51 7.14 9.87 Inventories 0.00 0.00 0.00 0.00 0.00 Sundry debtors 529.35 681.74 624.05 700.28 768.87 Cash and bank balance 593.05 794.66 1,505.86 1,687.04 1,704.88 Other current assets 25.63 23.43 45.47 47.75 50.14 Loans and advances 247.29 503.10 705.84 748.03 819.01 Total current assets 1,395.32 2,002.92 2,881.22 3,183.09 3,342.89 Deferred tax asset 0.00 0.00 0.00 0.00 0.00 Current liabilities & provisions 692.28 1,306.77 1,105.01 1,255.60 1,521.65 Net current assets 703.04 696.15 1,776.21 1,927.49 1,821.24 Miscellaneous Exp 7.05 4.82 2.65 0.00 0.00 Uses of funds 9,072.04 9,553.54 11,740.78 12,685.21 13,737.63 For Private Circulation Only 7 Hem Research

Quarterly Financial Highlights Rs. Million Particulars Q4FY11 Q4FY10 Q3FY10 YoY% QoQ% Sales 553.82 395.94 519.87 39.87 6.53 Expenditures 233.87 188.68 248.68 23.95 (5.96) Operating Profit 319.95 207.26 271.19 54.37 17.98 Net Profit 267.03 216.92 230.15 23.10 16.02 OPM% 57.77 52.35 52.16 542bps 561bps NPM % 48.22 54.79 44.27 (657bps) 395bps EPS 2.47 2.01 2.13 22.86 15.96 Past Price movement of the stock For Private Circulation Only 8 Hem Research

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