Gateway Dis Trip Arks Limited_Initiating Coverage

GATEWAY DISTRIPARKS LTD. (GDL)Initiating Coverage - ACCUMULATE

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AnalystAnalystAnalystAnalystRajiv Rajiv Rajiv Rajiv BharatiBharatiBharatiBharati

[email protected]

Gateway Distriparks– ACCUMULATE with an upside target of 10%

ACCUMULATETARGET : `136

CMP : `124

Key Data

Ticker (Bloomberg) GDPL

NSE Code GDL

BSE Code 532622

Sector Logistics

Industry

Face Value (`) 10

Book Value per share (`) 64

Dividend Yield (%) 4.8%

52 Week Range (`) 101-153

Market Cap. (` mn.) 13,436

Logistics

( In ` mn)( In ` mn)( In ` mn)( In ` mn) FY10 FY11 FY12E FY13E

Net Sales 5,166 5,991 7,819 8,479

EBITDA 1260 1609 2431 2520

EBITDA Margin 24% 27% 31% 30%

EPS (`) 7.3 8.9 12.4 13.3

EV/Sales 2.5 2.2 1.7 1.5

EV/EBITDA 10.4 8.1 5.4 5.2

P/E (x) (` 124.05) 17.0 13.9 10.0 9.3

Price Performance CY08 CY09 CY10 CY11

Absolute -45% 65% -14% 15%

Relative 6% -11% -32% 38%

Source: Company, Bloomberg, Destimoney Research

2

Shareholding Pattern as on 30 Sep 2011 Relative Stock Performance (Dec'10=100)

Market Cap. (` mn.) 13,436 Relative 6% -11% -32% 38%

Promoters40%

MF/UTI/FIs/Insurance

Co.14%

FIIs28%

Individuals8%

Bodies Corporate

8%

Others2%

70

100

130

160

Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11

GDL NIFTY

� Gateway Distriparks Limited (GDL) is the largest private sector player in India providing port related logistics

support services. The company provides services for handling and clearance of sea borne export-import

trade in containerized form through transit facilities located near ports or in the interiors of the country.

� CFS (Container Freight Stations) business is the main cash generating segment for GDL. It contributed 40%

of revenue in FY11 and has operating margin of ~50%. We expect this segment to remain under pressure

as the recent growth has primarily been price led. Lower throughput in port volumes due to prevailing

macroeconomic situation might have negative impact in the medium term.

� Volume growth in the Rail Segment is expected to surge with incremental diversion of rakes on domestic

circuit to EXIM circuit, coupled with operationalization of Asaoti ICD (Inland Container Depots). The

Volume growth to be driven by new capacities, pricing to come under pressure

circuit to EXIM circuit, coupled with operationalization of Asaoti ICD (Inland Container Depots). The

segment has turned in black recently which got further bolstered by reduction in interest burden after the

inflow of capital from Blackstone group.

� GDL with its Snowman vertical caters to the burgeoning demand in the Cold Storage Logistics space. The

company is planning to expand its capacity by 2.6x from the present 18,000 pallets. Currently, contributing

8% to topline, we expect this segment to generate stable cash flows in future.

� Logistics sector being closely linked to GDP growth; government’s and RBI’s focus on curbing inflation at the

cost of industrial growth coupled with deteriorating global economic condition could start reflecting in

international trade with India in the medium term. We remain cautious on sudden fall in demand for

finished product which could impact the containerized cargo volumes in India. Therefore, we initiate

coverage on GATEWAY DISTRIPARKS with a ACCUMULATE rating and a target price of `̀̀̀136 per share.

3

GDL operates in three fast growing segments…

Cold Chain Logistics

� Temperature controlled logistics solution connecting over 100 cities and distributing to more than 4400 outlets.

� Current capacity of 18,000

Rail & ICD

� Currently the company has 21 operational rakes.

� 3 ICD (Inland Container Depots) currently operational

� Garhi (Gurgaon) -100,000 TEUs

CFS1

� Extended arm to ports helping decongestion of ports, faster paper work and other value added services (kitting, stuffing, de-stuffing etc).

GDL’s business verticals

4

� Current capacity of 18,000 pallets, to be expanded to 47,000 by the end of FY13.

100,000 TEUs

� Sanewal (Ludhiana) –180,000 TEUs

� Kalamboli (Mumbai)

� Another one coming up in Asaoti (Faridabad) with 120,000 TEUs

etc).

� 4 CFSs with total Capacity of 600,000 TEUs.

� Two at JNPT (366,000 TEUs)

� CFS Chennai (85,000 TEUs)

� CFS Vizag (149,000 TEUs)

� Another one coming up in Cochin with 50,000 TEU capacity

Source: Company

1refer Annexure I

…which they have acquired over the years…

1994• Incorporated in 1994, the company is a JV between India based Newsprint Trading & Sales Corp (NTSC-

30%), Singapore based Thackeral Grp, Windmill Corp, Parameshwara Holdings

1998-2003

• Phase 1 (1998), began operation with 48,000 TEUs annual capacity

• Phase 2 (2001), expanded capacity to 120,000 TEUs

• Phase 3 (2003), expanded it further to 180,000 TEUs

2004

• Acquired ICD at Garhi Harsaru in Gurgaon for `177.5 mn

• Acquired 60% stake in Gateway East India Ltd.

• Acquired 100% stake in Indev Warehouse and Container Services Pvt Ltd, A CFS at Chennai, for `270 mn

5

• Acquired 100% stake in Indev Warehouse and Container Services Pvt Ltd, A CFS at Chennai, for `270 mn

2005-2006

• Signed an agreement with Concor to jointly work on development of EXIM trade

• Acquired 100% stake in Gateway Rail Freight Pvt Ltd (GRFL).

• Acquired 60% stake in Gateway Distriparks (Kerala) Pvt Ltd. Chakiat Agencies holds the balance 40% .

• Entered cold chain logistics business by acquiring 50.1% in Snowman Frozen Foods Ltd.

2007• GRFL signed a 20 yrs agreement with Indian Railways to operate train on Indian Railway Network.• Entered into 15 yrs operate and management agreement with Punjab Conware for its CFS as Nhava Sheva.

2009 • Blackstone Group acquired 37.5% stake in GRFL for `3bn.

Source: Company

…partnering with incumbent players to expand the umbrella of offering

CFS Dronagiri

(Navi Mumbai)

Punjab Conware CFS

(Navi Mumbai)

Gateway Distriparks Ltd.

Gateway East India Gateway Distripark Gateway Distriparks Gateway Rail Snowman

6

Source: Company

Gateway East India Pvt Ltd

CFS Vizag, 100% Subsidiary

Gateway Distripark(South) Pvt Ltd

CFS Chennai, 100% Subsidiary

Gateway Distriparks (Kerala) Limited

CFS Cochi, 60% Subsidiary

Gateway Rail Freight Ltd

97% Subsidiary

Container Gateway Limited

51% Subsidiary

Snowman Logistics Limited

52% Subsidiary

GDL’s growth is closely linked to…

CFS40%

Rail52%

Snowman8%

Revenue Breakup – FY11 = `̀̀̀5,991 mn

CFS36%

Rail53%

Snowman11%

Revenue Breakup – FY13 = `̀̀̀8,479 mn

7

0%

25%

50%

75%

100%

Jun

-08

Sep

-08

Dec-

08

Mar-

09

Jun

-09

Sep

-09

Dec-

09

Mar-

10

Jun

-10

Sep

-10

Dec-

10

Mar-

11

Jun

-11

Sep

-11

CFS Rail Snowmann

Source: Company, Destimoney Research

8%

Quarterly revenue breakup

…EXIM trade in India...

-150

0

150

300

450

EXIM trade in India in $bn

8

� Cumulative trade (exports + imports) in H1FY12 is already at 62.3% of cumulative trade in FY11

� Trade data reflects exports breaching $300 bn mark in FY12.

-150

FY9

9

FY0

0

FY0

1

FY0

2

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

H1

FY1

2

EXIM Balance($bn) Imports($bn) Exports ($bn)

Source: Bloomberg

…which in turn is coupled to economic growth

Transportation62%

Freight Forwarding

8%

Value Added Logistics ServicesWarehousing

75

120

Indian logistics market 2009 - Activity wise breakupIndian Logistics Industry Revenue($ mn)

9

Logistics Services4%

Warehousing26%

Source: Frost & Sullivan

2009 2014

� Indian Logistics Industry revenue is expected to grow at 9.9% CAGR between 2009-2014.

� Industry with widespread consumer base but limited production base like oil & gas, pharma, minerals, food

processing and FMCG are driving up the demand for multimodal transportation services.

� Integrated logistics park demand from Pharma, FMCG, food processing and agricultural sector have made

warehousing a significant part of the logistics industry in India.

Though clearance to the plan of debottlenecking of JNPT port bodes well for the EXIM trade in long run…

7,000

14,000

21,000

28,000

…10 year plan for ports by Shipping Ministry (Container Volume in ‘000 TEUs)

…Incremental container traffic movement towards neighboring ports owing to capacity constraint at

JNPT (in ‘000 TEUs)

307

110

209 118

304

145 159

10

� Lower absorption of incremental container traffic at JNPT has resulted in shipping lines shifting to other

neighboring ports

� In light of the changing dynamics, JNPT has given final approval to PSA-ABG Shipyard JV’s bid to build 4th

terminal at JNPT. This will expand the current capacity of JNPT to 11 mn TEUs by 2016 thereby catapulting

the volumes at the busiest Indian port and paving way for future expansion.

0

20

04

-05

20

05

-06

20

06

-07

20

07

-08

20

08

-09

20

09

-10

20

10

-11

20

15

-16

20

19

-20

Source: Media Sources, Indian Ports Association

73 307

2009-2010 2010-2011

Chennai JNPT Mundra Pipavav

…we expect lower GDP growth to impact EXIM volumes and container traffic…coupled with looming pricing pressure in CFS segment

…revenue growth is attributed to improvement in realization…

0%

16%

32%

48%

64%

-12%

-6%

0%

6%

12%

…muted volume growth is attributed to congestion on JNPT and Chennai facilities…

0

3000

6000

9000

12000

0

1000

2000

3000

4000

11

� In H1FY12, CFS business has seen sharp jump in revenues attributed primarily to improvement in realization

post the tariff revision in Q1FY12 by GDL.

� Though volume growth is expected to remain muted in H2FY12 as well, we expect commencement of

operation at Cochin port to provide the much needed respite.

� Lower GDP growth is expected to cast its shadow on EXIM volumes in coming quarters, we expect the

utilization to deteriorate a little resulting to a dip in operating margins.

Source: company, Destimoney Research

FY09 FY10 FY11 FY12E FY13E

Throughput growth rate (LHS) Operating Margin (RHS)

00


CFS Revenue-in Rs. mn (LHS) Average Rev/TEU-in Rs. (RHS)

In the Rail Segment, growth in the recent past is mainly volume led and is now hinged to success of Asaoti terminal which might take 12-15 months to stabilize

0

7500

15000

22500

30000

0

1200

2400

3600

4800

…better utilization on EXIM route will compensate for drop in per average revenue per

TEU on rail vertical for GDL…

60% 50% 51%67% 57% 64% 70% 75% 76%

40% 50% 49%33% 43% 36% 30% 25% 24%

09

09

10

10

10

10

11

11

11

…Volume led growth based on shifting traffic from Domestic to EXIM route…

12

� Rail segment has become profitable recently also helped by the lowering of interest cost burden after theinduction of Blackstone Group as equity partner with 37.5% stake.

� Higher TEUs per rake and more trips per month will lead to better utilization of rake on EXIM route therebycompensating for per TEU drop in revenue as compared to domestic circuit.

� Though the new ICD terminal at Asaoti with 120,000 TEU capacity will help improve the volumes, stabilizationof the same will take time resulting in pressure on volume growth in the medium term.

� Empty running while travelling towards port on account of massive export-import gap in India remains a causeof concern.


Rail Revenue-in Rs. mn (RHS) Average Rev/TEU-in Rs. (LHS)


Sep

-09

Dec-

09

Mar-

10

Jun

-10

Sep

-10

Dec-

10

Mar-

11

Jun

-11

Sep

-11

EXIM-Volume Share% Domestic-Volume Share%

While the Snowman segment is growing smartly

0

250

500

750

1,000


0%

8%

16%

24%

32%…steady growth…

13

� GDL is planning to increase its capacity from present 18,000 pallets to 47,000 pallets by the end of FY13.

� As per industry data, by 2014 Cold storage market in India is expected to grow to `9 bn, while the reefer

transportation is expected to grow to `16 bn.


Snowman Revenue-in Rs. mn (LHS) Operating Margins


We expect the margin profile to remain stable despite tapering in toplinegrowth…

0%

20%

40%

60%

80%

…Consolidated revenue growth is expected to taper…

14

� We expect the growth to taper in FY13 due to higher base of FY12 and delay in stabilization of new

facilities.

� We expect the margins to remain stable or a tad lower than H1FY12 depending on the delay in deployment

of new capacities and movement in port volumes.

FY07 FY08 FY09 FY10 FY11 FY12E FY13E

Revenue Growth% Operating margin%


…therefore, we initiate coverage with ACCUMULATE rating and a target price of `̀̀̀136 per share

� Logistics sector being closely linked to GDP

growth; government’s and RBI’s focus on curbing

inflation at the cost of industrial growth (refer

Annexure II) coupled with deteriorating global

economic condition could start reflecting in

international trade with India in the medium term.

� We remain cautious on sudden fall in demand for

Relative Stock Performance (Dec'10=100)

70

100

130

160

Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11

finished product which could impact the

containerized cargo volumes in India.

� The stock is trading at 10.0 and 9.3 times its

FY12E and FY13E earnings.

� We initiate coverage on GATEWAY DISTRIPARKS

with a ACCUMULATE rating and a target price of

`̀̀̀136 per share.

Source: Company, Bloomberg, Destimoney Research

15

GDL NIFTY

FY10 FY11 FY12E FY13E

EPS (`) 7.3 8.9 12.4 13.3

CEPS (`) 11.6 13.8 17.6 19.0

P/E (x) 17.0 13.9 10.0 9.3

P/B (x) 2.0 2.0 1.8 1.6

ROE 12% 14% 18% 17%

ROCE 8% 9% 15% 14%

EV/EBIDTA (x) 10.4 8.1 5.4 5.2

Financial Summary

Balance SheetIncome Statement

( In ` mn)(In ` mn)(In ` mn)(In ` mn) FY10 FY11 FY12E FY13E

Net Sales 5,166 5,991 7,819 8,479

Operating expense 3,906 4,382 5,388 5,958

EBIDTA 1,260 1,609 2,431 2,520

Depreciation 455 502 572 620

EBIT 805 1,106 1,859 1,900

Interest 206 194 173 127

EBT 599 912 1,686 1,773

( In ` mn)( In ` mn)( In ` mn)( In ` mn) FY10 FY11 FY12E FY13E

Liabilities

Equity Share Capital 1,079 1,080 1,080 1,080

Reserves & Surplus 5,563 5,799 6,540 7,301

Loans 2,099 1,154 1,154 1,154

Deferred Tax Liability 187 140 140 140

Current Liabilities (CL) 1,019 672 860 933

Provisions 659 817 1,066 1,156

Minority Interest 625 3,568 3,568 3,568


16

Other Income 125 129 149 212

PBT 724 1,041 1,834 1,985

Tax (79) 44 495 547

PAT 803 997 1,339 1,438

Margins

Sales Growth % 14% 16% 31% 8%

Operating Margin % 24% 27% 31% 30%

Net Margin % 16% 17% 17% 17%

Minority Interest 625 3,568 3,568 3,568

Total 11,232 13,230 14,408 15,331

Assets

Gross Block + CWIP 10,553 12,036 12,714 13,787

Accumulated Depreciation 1,851 2,210 2,782 3,403

Fixed Assets 8,702 9,825 9,932 10,384

Investments 150 130 130 130

Misc 5 9 9 9

Current Assets (CA) 2,374 3,266 4,337 4,808

Total 11,232 13,230 14,408 15,331

Key Risks and Challenges

� Logistics industry is closely linked to economic growth, slowdown in economic activities and drop in EXIM

trade will impact the growth of GDL.

� Congestion at ports can impact the utilization of storage space (CFS/ICD) and rakes thereby reducing the

return on assets of the deployed asset resulting in lower growth and profitability.

� Transportation charges amounted for 48% of the revenue in FY11. Rise in fuel prices will directly impact the

profitability of the company.

� Unfavorable revision in haulage charge can lead to deterioration of viability of transportation by rail even

further.

� Protectionist trade policy by government (e.g. ban on transport of some key commodities on private rakes)

can throw the operations of private players off-road.

17

ANNEXURESANNEXURES

18

Annexure I: Typical port logistics

The subsystems of a typical container terminalDefinitions as per Ministry of Commerce

� CFS (Container Freight Stations) / ICD (Inland

Container Depots):

� A common user facility with public

authority status equipped with fixed

installations and offering services for

handling and temporary storage of

import/export laden and empty

19

Source: Henesey (2004)

Diameter of the subsystem indicates its capacity

import/export laden and empty

containers carried under customs

control and with Customs and other

agencies competent to clear goods for

home use, warehousing, temporary

admissions, re-export, temporary

storage for onward transit and outright

export. Transshipment of cargo can also

take place from such stations.

Annexure II: Moderation in IIP

IIP trend (2004-05base)

2.4

6.3

9.5

13.313.714.9

13.1

8.57.4

9.9

4.56.1

11.3

6.48.2 7.5 6.7

9.4

5.3 5.9

8.8

3.3 4.1

-5.1

0.0

5.5

11.0

16.5

20

-5.1(5.5)

Oct

-09

No

v-0

9

Dec-

09

Jan

-10

Feb

-10

Mar-

10

Ap

r-1

0

May-

10

Jun

-10

Jul-

10

Au

g-1

0

Sep

-10

Oct

-10

No

v-1

0

Dec-

10

Jan

-11

Feb

-11

Mar-

11

Ap

r-1

1

May-

11

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Source: CSO

Disclaimer:In the preparation of the material contained in this document, Destimoney* has used information that is publicly available, as also data developed in-house. Some of thematerial used in the document may have been obtained from members/persons other than Destimoney and which may have been made available to Destimoney.

Destimoney Securities Private Limited

6th Floor, " A" Wing , Tech-Web Centre, New Link Road, Oshiwara , Near Behram Baug, Jogeshwari (West), Mumbai - 400102

material used in the document may have been obtained from members/persons other than Destimoney and which may have been made available to Destimoney.Information gathered & material used in this document is believed to be from reliable sources. Destimoney has not independently verified all the information and opinionsgiven in this material. Accordingly, no representation or warranty, express or implied, is made as to the accuracy, authenticity, completeness or fairness of the informationand opinions contained in this material. For data reference to any third party in this material no such party will assume any liability for the same.Destimoney does not in any way through this material solicit or offer for purchase or sale of any financial services, commodities, products dealt in this material. Destimoneyand any of its officers, directors, personnel and employees, shall not be liable for any loss or damage of any nature, including but not limited todirect, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shallbe fully responsible, and/or liable for any decision taken on the basis of this material. All recipients of this material before dealing and/or transacting in any of the productsadvised, opined or referred to in this material shall make their own investigation, seek appropriate professional advice and make their own independent decision. Thisinformation is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law orregulation or which would subject Destimoney or its affiliates to any registration requirement within such jurisdiction or country. This information does not constitute anoffer to sell or a solicitation of an offer to buy any financial products to any person in any jurisdiction where it is unlawful to make such an offer or solicitation. No part ofthis material may be duplicated in whole or in part in any form and / or redistributed without the prior written consent of Destimoney. This material is strictly confidential tothe recipient and should not be reproduced or disseminated to anyone else.Names such as Teji Mandi, Maal Lav, Maal Le or similar others for market calls and products are merely names coined internally and are not universally defined, and shallnot be construed to be indicative of past or potential performance. Recipients of research reports shall always independently verify reliability and suitability of the reportsand opinions before investing.*"Destimoney" means any company using the name “Destimoney” as part of its name.

21

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Gateway Dis Trip Arks Limited_Initiating Coverage