SEPTEMBER 15, 2015 Economy News Inflation based on the wholesale price index (WPI) decelerated for the tenth consecutive month, and was -4.95 per cent in August compared with -4.05 per cent in July. At the same time, consumer price inflation for August slowed down marginally to 3.66 per cent from 3.69 per cent in July. The decelerating inflation and slower-than-expected GDP growth in the first quarter of the financial year has increased the pressure on the RBI from industry to cut interest rates. (ET) Close to half the country is experiencing deficient rains and the shortage for the figure has gone up to 16%. As of Monday, 44% of the country has received "deficient" rainfall and 50% has witnessed "normal," says the India Meteorological Department (IMD), adding that only 6% of the country has recorded "excess" rainfall. The deficiency is particularly increasing in eastern and western Uttar Pradesh where it stands at around 42 and 44%, respectively. (Mint) After the first round of deliberation and feedback, the gold bond scheme and the gold monetization scheme have been approved by the cabinet and some details have been released in the public domain. The final operational contours of both the schemes, including the most important - - interest rates, are still awaited. (DNA) Corporate News Bharat Aluminium Company Limited (Balco), a subsidiary of Vedanta, has started the closure procedure for its sheet-rolling division and foundry at Korba in Chhattisgarh. The shutdown of the rolling division is part of a restructuring exercise by Balco, which will result in loss of around 1,000 direct and indirect jobs, the company said. (BS) Poultry firm Venkys (India) Ltd has announced bonus issue of equity shares to its shareholders, in ratio of one share for every two shares held in the company. (ET) Essar Oil will this week shut its 4,05,000 barrel-per-day Vadinar refinery in Gujarat for about four weeks to carry out maintenance work. (ET) Abbott Healthcare has challenged West Bengal drug controller's finding that its cough syrup Phensedyl contained codeine beyond the permissible level, becoming the latest multinational to dispute the conclusions of a state regulator's testing framework. (BS) The Mahindra group (Mahindra & Mahindra) has announced its debut into the e-commerce space with the launch of M2ALL.com, an e- marketplace for Mahindra products and services. The online marketplace has begun taking bookings for the new compact SUV -Mahindra TUV300. (BS) Sun Pharma is planning to acquire US Based InSite Vision Inc. Sources close to the transaction have indicated that Sun Pharma has already bid for US OTC Market listed Insite Vision for equity valuation of close to Rs.3 bn. (ET) Bayer Crop Science Ltd has informed BSE that the date of opening of the buyback Offer will start from September 29, 2015, to October 13, 2015. (ET) Corporation Bank has said LIC will infuse Rs.1.4 Bn into the bank by way of preferential equity. The capital infusion into the bank by LIC will be by way of issue of equity shares on preferential basis to the country's largest insurer, the bank said in a BSE filing on Monday. (ET) In a relief to Essar Steel India (ESIL), the Supreme Court has directed the Ruia-controlled company and New India Assurance Co to appoint an arbitrator to settle the dispute in a case involving about Rs.9.0 bn insurance claims against a 'terrorist' attack on the company's pipeline in Odisha. (ET) Source: ET = Economic Times, BS = Business Standard, FE = Financial Express, BL = Business Line, LM = Live Mint, ToI: Times of India, BSE = Bombay Stock Exchange Equity % Chg 14 Sep 15 1 Day 1 Mth 3 Mths Indian Indices SENSEX Index 25,857 1.0 (7.9) (2.7) NIFTY Index 7,872 1.1 (7.6) (1.8) BANKEX Index 19,352 1.9 (9.9) (3.2) SPBSITIP Index 11,098 0.6 (4.5) 5.6 BSETCG INDEX 16,007 0.3 (10.9) (4.0) BSEOIL INDEX 8,723 1.2 (8.3) (7.9) CNXMcap Index 12,885 1.4 (7.4) 3.6 SPBSSIP Index 10,793 0.9 (8.3) 1.6 World Indices Dow Jones 16,371 (0.4) (6.3) (8.0) Nasdaq 4,806 (0.3) (4.8) (4.5) FTSE 6,085 (0.5) (7.1) (9.3) NIKKEI 17,966 (1.6) (11.3) (10.7) HANGSENG 21,562 0.3 (10.2) (19.8) Value traded (Rs cr) 14 Sep 15 % Chg - Day Cash BSE 1,936 (25.0) Cash NSE 12,444 (13.3) Derivatives 157,528 (11.4) Net inflows (Rs cr) 11 Sep 15 % Chg MTD YTD FII (498) 1,227 (6,050) 20,360 Mutual Fund (55) (105) 4,127 50,974 FII open interest (Rs cr) 11 Sep 15 % Chg FII Index Futures 22,666 0.2 FII Index Options 96,524 2.8 FII Stock Futures 46,823 2.3 FII Stock Options 2,615 5.0 Advances / Declines (BSE) 14 Sep 15 A B T Total % total Advances 230 1253 176 1,659 62 Declines 66 686 153 905 34 Unchanged 3 74 18 95 4 Commodity % Chg 14 Sep 15 1 Day 1 Mth 3 Mths Crude (US$/BBL) 44.3 0.7 4.3 (25.5) Gold (US$/OZ) 1,110.0 0.5 (0.6) (6.8) Silver (US$/OZ) 14.4 (0.5) (5.6) (10.9) Debt / forex market 14 Sep 15 1 Day 1 Mth 3 Mths 10 yr G-Sec yield % 7.8 7.8 7.7 7.9 Re/US$ 66.3 66.5 65.0 64.2 Sensex 30,500 29,500 28,500 27,500 26,500 25,500 24,500 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15
COMPANY UPDATE Amit Agarwal agarwal.amit@kotak.com +91 22 6621 6222 GATEWAY DISTRIPARKS LTD PRICE: RS.325 RECOMMENDATION: BUY TARGET PRICE: RS.400 FY17E P/E: 16.0X We believe the worst in terms of rail haulage hikes and weak trade is over for GDL and expect things to only improve from here. We estimate the key segments of CFS and container rail to report volume CAGR of 6% and 8.6% respectively over FY15 to FY17E leading to earnings CAGR of 10% to Rs2.34 bn over FY15 to FY17E. We value the company at 18 times FY17E PE at 10% discount to the multiple commanded by GDL during its high growth phase of 2007 to 2010. Recommend BUY with an unchanged TP of Rs 400. Summary table (Rs mn) FY15 FY16E FY17E Sales 11,200 12,244 13,620 Growth (%) 4.0 9.3 11.2 EBITDA 3,358 3,450 3,947 EBITDA margin (%) 30.0 28.2 29.0 PBT 2,337 2,574 2,977 Net profit 1,961 2,059 2,382 EPS (Rs) 18.2 19.1 22.1 Growth (%) 18.0 5.0 15.7 CEPS (Rs) 26.5 26.5 29.9 BV (Rs/share) 94.5 101.9 109.8 Dividend / share (Rs) 5.0 6.0 6.0 ROE (%) 19.2 17.6 17.6 ROCE (%) 15.7 14.6 14.7 Net cash (debt) (3,085) (3,626) (4,114) NW Capital (Days) 19.0 19.5 20.5 EV/EBITDA (x) 12.3 12.1 10.7 P/E (x) 19.4 18.5 16.0 P/Cash Earnings 13.3 13.3 11.8 P/BV (x) 3.7 3.5 3.2 Source: Company, Kotak Securities - Private Client Research CFS segment continues to be stable CFS segment reported decent volume of 94,000 TEUs (+5% QoQ) in Q1FY16 despite weak demand and intense competition in the segment. All the key ports of JNPT, Chennai, Vizag and Kochi have been showing marginal growth QoQ. Management has guided small growth in volumes for the CFS segment with improvement in margins going forward. Quarterly Performance of CFS business CFS business Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Mumbai 56,500 56,989 56,016 53,813 54,262 Chennai 21,570 24,973 23,114 18,191 20,572 Vizag 14,727 16,585 13,575 14,925 15,268 Kochi 3,755 4,040 3,907 4,458 3,560 Throughput (TEUs) 96,552 1,02,587 96,612 91,387 93,662 QOQ % 9.6 6.2-5.8-5.4 2.5 YOY % 7.5 21.8 14.7 8.5-3.0 Revenue (Rs Mn) 796 919 893 820 871 QOQ % 7.9 15.5-2.83-8.17 6.22 YOY % 0.6 18.3 23.00 11.11 9.42 Revenue per TEU 8,244 8,958 9,243 8,973 9,299 EBIDTA 314 414 349 328 307 EBIDTA (%) 39.4 45.0 39.1 40.0 35.2 PAT 164 207 194 181 171 Source: Company 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 has started its Faridabad facility from June 2014 which has become fully operational now and is expected to contribute 30,000 TEUs to ICD volumes by end of March FY16. Current terminal Facilities of GDL Location CFS/ICD Area (acres) Capacity (TEUs) Status JNPT CFS 62 366,000 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 90 125,000 Fully operational Ludhiana ICD 33 250,000 Fully operational Navi Mumbai ICD 25 125,000 Fully operational Faridabad ICD 66 125,000 Fully operational Source; Company 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 2
With the above infrastructure in place, we estimate CFS volumes of GDL to grow at a CAGR of 6% over FY15 to FY17E. We expect the company to maintain its market share at all the key ports. CFS volumes estimated for GDL Location FY12 FY13 FY14 FY15 FY16E FY17E JNPT 218,687 222,846 208,820 223,318 235,042 247,382 Chennai 78,385 76,050 73,916 87,848 92,460 97,314 Vizag 37,016 43,645 50,527 59,812 63,999 68,479 Kochi 0 2,028 6,172 16,160 18,500 22,000 Total 334,088 344,569 339,435 387,138 410,001 435,175 CAGR 0.2 3.1-1.5 14.1 5.9 6.1 Source; Kotak Securities - Private Client Research, Company Container rail business The rail haulage hike in December 2014 has impacted the performance of the container rail segment for the last 2 quarters. We estimate the worst to be over for this segment in terms of rail haulage hike by Indian Railways (IR) and weak trade and estimate the volumes to improve from here. Even, Management is again confident of strong growth in the rail segment. Performance of rail segment Rail Business Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Throughput (TEUs) 57,380 67,706 63,952 59,329 54,741 QOQ % -1.4 18.0-5.5-7.2-7.7 YOY % -6.0 32.9 24.0 2.0 6.1 Revenue (Rs Mn) 1,701 1,962 1,855 1,832 1,771 Revenue per TEU 29,644 28,978 29,006 30,879 32,352 EBIDTA 323 403 506 460 397 EBIDTA (%) 19.0 20.5 27.3 25.1 22.4 PAT 193 267 331 250 163 Source: Company GRFL currently owns 21 rakes. It operated a total of 24 rakes in Q1FY16 with the help of 3 leased rakes. Almost 90% of these rakes run on Exim routes which are more profitable because of low empty running and assured cargo. Going forward, we estimate GRFL to add 3 to 4 more rakes over FY15 to FY17E and most of them would be primarily placed on Exim routes. Container volumes estimated for GRFL Segment FY12 FY13 FY14 FY15 FY16E FY17E Rail and ICDs 180,473 233,552 212,000 248,367 269,230 292,787 CAGR 37.4 29.4-9.2 17.2 8.4 8.7 Source; Kotak Securities - Private Client Research, Company We also expect share of reefer services and double stack containers (which currently constitute 40%) to gradually improve for GRFL which should aid the margins of the company. Overall we estimate GRFL to report volume CAGR of 8.6% over FY15 to FY17E with improvement in margins from 17% to 23% (close to current margins of CONCOR of 25%) Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 3
GDL offers to buy GRFL stake from Blackstone Gateway Distriparks Ltd (GDL) has offered to buy back compulsory convertible preference shares (CCPS) from Blackstone in its rail subsidiary Gateway Rail Freight Ltd (GRFL) for Rs 6 bn. In October 2009, Blackstone had invested Rs 3 bn in CCPS of GRFL which would have given around 45% stake to Blackstone in GRFL on conversion of these CCPS in October 2015. Post this conversion, Blackstone would have considered exiting GRFL by offering shares in the IPO of GRFL planned by GDL in Q3FY16. We value GRFL at Rs 20 bn which is 20 times FY17 PE and at a discount of 25% to the valuation commanded by Container Corporation of India. So we see the offer made by GDL to Blackstone to buy back the CCPS (around 45% stake) for Rs 6 bn at a discount to current valuation of GRFL. So if the deal goes through, it would be a big positive for GDL which might delay the IPO of GRFL scheduled for Q3FY16 as it was meant to give exit to Blackstone from GRFL. GDL currently has a cash balance of around Rs 2 bn and would have to borrow an additional Rs 4 bn to conclude the deal. Post the deal GDL would have a net debt of Rs 6 bn on its BS and debt to equity of 0.7x. As per the terms of the offer, Blackstone now has the option to either accept or reject the offer within a period of 30 days ending 26th September 2015. Acceptance of offer unlikely by blackstone We do not expect Blackstone to accept the offer and expect the IPO to go as scheduled for H2FY16. We expect Blackstone to exit GRFL through the IPO. So primarily we do not expect things to change for GDL from the above announcement. Cold Chain Business (Snowman Logistics) continues to be stable Snowman Logistics (41% shareholding) which ceased to be a subsidiary post the IPO has reported improved numbers for Q1FY16 with sales at Rs 592 mn (+10% QoQ) and operating margin of 20.9%). We estimate this segment to report revenue and earnings CAGR of 20% over FY15 to FY17E. Currently Snowman has a total capacity of 79,000 Pallets (tonnes) which the company intends to increase to 90,000 by March 2016 with new facilities in Mumbai and Chennai. Quarterly Performance of the cold chain business Cold Chain Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Revenue (Rs Mn) 496 483 513 538 592 EBIDTA 117 100 114 139 124 EBIDTA (%) 23.6 20.7 22.2 25.8 20.9 PBT 13 11 43 68 46 Source: Company Current infrastructure of Snowman Logistics Infra Numbers Other details Pallets 79000 Expected to go upto 90,000 by March 2016 Temperature controlled vehicles 150 Can handle over 20,000 Tonnes Source: Company Capex over FY15 to FY17E - primarily in the container rail cold chain segment We expect GDL to spend around Rs 2 bn over FY15 to FY17E primarily in the container rail segment and the cold chain segment. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 4
We recommend BUY on Gateway Distriparks Ltd with a price target of Rs.400 Valuation and Outlook Except for Q1FY16, GDL reported strong set of numbers for FY15 in the last 5 quarters. Improvement in macro outlook along with GST implementation should facilitate the growth. IPO of the rail subsidiary (GRFL) should unlock further value for the stock. We estimate the key segments of CFS and container rail to report volume CAGR of 6% and 8.6% respectively over FY15 to FY17E leading to earnings CAGR of 10% to Rs2.34 bn over FY15 to FY17E. We value the company at 18 times FY17E PE at 10% discount to the multiple commanded by GDL during its high growth phase of 2007 to 2010. Recommend BUY with an unchanged TP of Rs 400. Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 5
Bulk deals Trade details of bulk deals Date Scrip name Name of client Buy/ Quantity Avg. Sell of shares price (Rs) 14-Sep ASIANOI N.G.Builders & Developers S 116,500 45.4 14-Sep CJGEL Subhash Navrang Kanojiya S 47,917 9.5 14-Sep HKT Shatrunjaya Estates Pvt Ltd B 16,000 18.0 14-Sep ONWARDTEC Rishi Kajaria & Sons HUF B 139,014 67.2 14-Sep ONWARDTEC Ramadevi Tantia Beneficiary Trust S 153,439 67.5 14-Sep PECOS Ashish N Shah B 51,000 50.8 14-Sep POLYMAC Anil Sarraf S 48,000 23.0 14-Sep POLYMAC Evernew Dealcom Llp B 48,000 23.0 14-Sep RNBDENIMS Clubside Dealcom Pvt Ltd S 200,000 8.8 14-Sep RNBDENIMS Ankur Mangilal Borana B 180,000 8.8 Source: BSE Gainers & Losers Nifty Gainers & Losers Price (Rs) chg (%) Index points Volume (mn) Gainers NTPC Ltd 126 5.2 NA 4.8 Vedanta Ltd 101 4.4 NA 7.9 Tata Steel 242 3.8 NA 7.2 Losers Cairn India 144 (1.4) NA 1.7 Idea Cellular 147 (1.0) NA 2.2 Bajaj Auto 2,314 (0.5) NA 0.2 Source: Bloomberg Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 6
RATING SCALE Definitions of ratings BUY We expect the stock to deliver more than 12% returns over the next 9 months ACCUMULATE We expect the stock to deliver 5% - 12% returns over the next 9 months REDUCE We expect the stock to deliver 0% - 5% returns over the next 9 months SELL We expect the stock to deliver negative returns over the next 9 months NR Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only. RS Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon. NA Not Available or Not Applicable. The information is not available for display or is not applicable NM Not Meaningful. The information is not meaningful and is therefore excluded. NOTE Our target prices are with a 9-month perspective. Returns stated in the rating scale are our internal benchmark. Fundamental Research Team Dipen Shah IT dipen.shah@kotak.com +91 22 6621 6301 Sanjeev Zarbade Capital Goods, Engineering sanjeev.zarbade@kotak.com +91 22 6621 6305 Teena Virmani Construction, Cement teena.virmani@kotak.com +91 22 6621 6302 Saday Sinha Banking, NBFC, Economy saday.sinha@kotak.com +91 22 6621 6312 Arun Agarwal Auto & Auto Ancillary arun.agarwal@kotak.com +91 22 6621 6143 Ruchir Khare Capital Goods, Engineering ruchir.khare@kotak.com +91 22 6621 6448 Ritwik Rai FMCG, Media ritwik.rai@kotak.com +91 22 6621 6310 Sumit Pokharna Oil and Gas sumit.pokharna@kotak.com +91 22 6621 6313 Amit Agarwal Logistics, Transportation agarwal.amit@kotak.com +91 22 6621 6222 Meeta Shetty, CFA Pharmaceuticals meeta.shetty@kotak.com +91 22 6621 6309 Jatin Damania Metals & Mining jatin.damania@kotak.com +91 22 6621 6137 Pankaj Kumar Midcap pankajr.kumar@kotak.com +91 22 6621 6321 Jayesh Kumar Economy kumar.jayesh@kotak.com +91 22 6652 9172 K. Kathirvelu Production k.kathirvelu@kotak.com +91 22 6621 6311 Technical Research Team Shrikant Chouhan shrikant.chouhan@kotak.com +91 22 6621 6360 Amol Athawale amol.athawale@kotak.com +91 20 6620 3350 Derivatives Research Team Sahaj Agrawal sahaj.agrawal@kotak.com +91 79 6607 2231 Rahul Sharma sharma.rahul@kotak.com +91 22 6621 6198 Malay Gandhi malay.gandhi@kotak.com +91 22 6621 6350 Prashanth Lalu prashanth.lalu@kotak.com +91 22 6621 6110 Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 7
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