Stock Update

Gateway Distriparks Limited

Rail vertical continues to outshine; Outlook positive
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3R MATRIX + = - Summary
Right Sector (RS) ü Š We maintain a Buy on Gateway Distriparks Limited (GDL) with arevised SOTP-based PT of Rs.
150 due to its attractive valuations and an improved growth and profitability outlook for its key
Right Quality (RQ) ü verticals.
Š For Q3FY2021, GDL reported better-than-expected operational performance led by its Rail
Right Valuation (RV) ü division. Strong operational performance along with lower interest expense leads to beat on
net earnings.
+ Positive = Neutral - Negative Š Strong volume growth outlook during FY2023 and FY2024 led by improving EXIM trade
environment, commissioning of western DFC line and phase II JNPT expansion.
What has changed in 3R MATRIX Š Capex of Rs. 120 crore over the next two years for setting up two satellite rail terminals.
Consolidated net debt reduced to Rs. 494 crore from Rs. 681 crore in FY2020.
Old New
Gateway Distriparks Limited (GDL) reported better-than-expected operational performance
RS  leading to strong beat on net profitability.Consolidated revenues grew5.0% y-o-y to Rs. 313.8
crore driven by strong volumes in Rail (up 8.8% y-o-y) and improved realization for CFS (up 8.7%
RQ  y-o-y). The company saw strong sequential improvement in both CFS and Rail volumes since the
beginning of October 2020 with the revival in EXIM trade. The EBITDA/TEU for Rail stood robust
RV  at Rs. 9009/TEU (up 25.3% y-o-y, up 17.8% q-o-q) led by volume improvement, faster turnaround
time and a 5% discount on Rail charges. CFS EBITDA/TEU too improved by 36.7% y-o-y to Rs. 2880
(down 14.7% q-o-q on account of ground rent income in Q2FY2021). Hence, overall OPM was much
higher than estimated at 26.3% (up 606 bps y-o-y, up 146 bps q-o-q) leading to a 36.4% y-o-y
Reco/View Change (up 26.6% q-o-q) jump in operating profit to Rs. 82.6 crore. Strong operational performance along
with lower interest expense (down 32.7% y-o-y, down 17.7% q-o-q) led to consolidated net profit
Reco: Buy  of Rs. 32.7 crore (versus adjusted net profit of Rs. 8.4 crore in Q3FY2020). The company expects
early two-digit volume growth (combined CFS and Rail) for FY2023 while FY2024 is expected to
CMP: Rs. 118 be blockbuster year with strong volume offtake expected from commissioning of DFC corridor and
fourth terminal at JNPT. The profitability in CFS in terms of EBITDA/TEU is expected to be Rs. 2900-
Price Target: Rs. 150 á 3000/TEU as industry volume picks up and company’s increasing value added services like last
mile transportation. The Rail EBITDA/TEU may correct to Rs. 8000/TEU as it may have to pass on
á Upgrade  Maintain â Downgrade some part of improved margins to customers with commissioning of DFC. GDL has also deleveraged
its balance sheet bringing down its consolidated net debt from Rs. 681 crore in FY2020 to Rs. 494
Company details crore as of Q3FY2021. Its net debt/equity has come down from 0.51x to 0.34x over the same period.
The company would be incurring capex of Rs. 120 crores over the next two years for setting up
Market cap: Rs. 1,467 cr two satellite terminals in Rail division. We have fine-tuned our estimates for FY2021E-FY2023E
factoring improved profitability in both CFS and Rail verticals. GDL’s current valuation of 5.7x EV/
52-week high/low: Rs. 138/71 EBITDA and 1.0x P/B over FY2023E earnings provides comfort, while the company’s improving
operational profitability, focus on deleveraging and revival of capex plans is expected to revive net
NSE volume: earnings growth. Hence, we retain a Buy rating on the stock with arevised price target of Rs. 150.
1.3 lakh
(No of shares)
Key positives
BSE code: 532622 Š Better than expected EBITDA/TEU for both CFS and Rail
Š Expect strong volume growth in FY2023 and FY2024 with DFC commissioning and JNPT ph-II.
NSE code: GDL
Š Export Import imbalance has been coming down
Free float:
8.5 cr Key negatives
(No of shares)
Š Part of improved Rail margins may get passed to customers with DFC commissioning.
Our Call
Shareholding (%)
Valuation –Maintain Buy with a revised PT of Rs. 150: GDL has been able to maintain strong
Promoters 32.1 operational profitability in CFS and have been improving rail profitability over the trailing three
quarters. The company has also been benefitting from improved EXIM trade environment and reducing
FII 25.5 trade imbalance. The outlook for the company stays positive with commissioning of DFC and fourth
terminal at JNPT which should aid in strong volume offtake and sustained healthy margins. Further,
DII 28.6 its deleveraged balance sheet followed by a revival in capex plans is likely to aid in reviving net
earnings going ahead. We have fine-tuned our estimates for FY2021E-FY2023E factoring improved
Others 13.8 profitability in both CFS and Rail verticals. GDL’s current valuation of 5.7x EV/EBITDA and 1.0x P/B over
FY2023E earnings provides comfort, while the company’s improving operational profitability, focus on
Price chart deleveraging and revival of capex plans is expected to revive net earnings growth. Hence, we retain a
Buy rating on the stock with a revised price target of Rs. 150.
160
Key risk
140
Erosion in rail and CFS segments’ profitability owing to elongated weakness in trade environment.
120
100
Valuation (Consolidated) Rs cr
80
Particulars FY20 FY21E FY22E FY23E
60
Revenue 1,237.2 1,138.8 1,187.1 1,301.1
Sep-20
Jan-20

Jan-21
May-20

OPM (%) 21.1 26.0 25.1 25.1

Adjusted PAT 50.7 70.7 85.0 111.5
Price performance % YoY growth (40.2) 39.5 20.3 31.1
Adjusted EPS (Rs.) 4.1 5.7 6.8 8.9
(%) 1m 3m 6m 12m
P/E (x) 29.0 20.8 17.3 13.2
Absolute 3.2 26.4 30.2 -12.0 P/B (x) 1.1 1.0 1.0 1.0
Relative to EV/EBITDA (x) 8.7 7.0 6.6 5.7
-5.3 4.6 -1.8 -30.9
Sensex RoNW (%) 3.8 5.1 5.8 7.5
RoCE (%) 6.8 7.9 8.4 9.9
Sharekhan Research, Bloomberg
Source: Company; Sharekhan estimates

January 19, 2021 7

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Strong operational profitability leads to beat on net earnings

Gateway Distriparks Limited (GDL) reported better-than-expected operational performance leading to strong
beat on net profitability. Consolidated revenues grew 5.0% y-o-y to Rs. 313.8 crore driven by strong volumes
in Rail (up 8.8% y-o-y) and improved realization for CFS (up 8.7% y-o-y). The company saw strong sequential
improvement in both CFS and Rail volumes since the beginning of October 2020 with the revival in EXIM
trade. The EBITDA/TEU for Rail stood robust at Rs. 9009/TEU (up 25.3% y-o-y, up 17.8% q-o-q) led by volume
improvement, faster turnaround time and 5% discount on Rail charges. CFS EBITDA/TEU too improved by
36.7% y-o-y to Rs. 2880 (down 14.7% q-o-q on account of ground rent income in Q2FY2021). Hence, overall
OPM was much higher than estimated at 26.3% (up 606 bps y-o-y, up 146 bps q-o-q) leading to a 36.4% y-o-y
(up 26.6% q-o-q) jump in operating profit to Rs. 82.6 crore. Strong operational performance along with lower
interest expense (down 32.7% y-o-y, down 17.7% q-o-q) led to consolidated net profit of Rs. 32.7 crore (versus
adjusted net profit of Rs. 8.4 crore in Q3FY2020).

Strong volume growth expectations with DFC and JNPT phase II commissioning
The company expects early two-digit volume growth (combined CFS and Rail) for FY2023 while FY2024 is
expected to be blockbuster year with strong volume offtake expected from commissioning of DFC corridor
and fourth terminal at JNPT. The profitability in CFS in terms of EBITDA/TEU is expected to be Rs. 2900-3000/
TEU as industry volume picks up and company’s increasing value added services like last mile transportation.
The Rail EBITDA/TEU may correct to Rs. 8000/TEU as it may have to pass on some part of improved margins
to customers with commissioning of DFC. GDL has also deleveraged its balance sheet bringing down its
consolidated net debt from Rs. 681 crore in FY2020 to Rs. 494 crore as of Q3FY2021. Its net debt/equity has
come down from 0.51x to 0.34x over the same period. The company would be incurring capex of Rs. 120 crores
over the next two years for setting up two satellite terminals in Rail division.

Key Conference call takeaways

Š The rail division saw improved profitability led by volume improvement, increased turnaround time due to
non-operational of passenger trains and 5% discount on railway charges which is valid till 30th april 2021.
From 1st May 2021, expect Rail EBITDA/TEU to stabilize around Rs. 8000 to Rs. 8200.
Š The Palanpur to Pipavav DFC line is expected to be ready by September end. It would take another 12 to
15 months thereafter for connection with JNPT.
Š The company expects early double digit volume growth (CFS and Rail combined) in FY2023. It expects
FY2024 to be much stronger with DFC line getting commissioned along with fourth terminal at JNPT.
Š The company would focus on maintaining CFS EBITDA/TEU at Rs. 2900-3000 led by improved industry
volumes and company’s increasing value added services like last mile transportation. In Rail, the company
might have to share part of the improved margins with customers with commissioning of DFC. Rail EBITDA/
TEU may come down around Rs. 8000.
Š In Snowman, the company is investing Rs. 70 crores over 3-4 months which will increase capacity by
12-15%. The revenue mix at Snowman is Pharma 10%, QSR 10%, Sea food 18%, Agri 15%, Ice cream 10%,
confectionary 10% and balance others. Snowman owns 264 trucks and 100 third party trucks. About
one-third revenue is contributed from transportation. The ratio is expected to remain same between
warehousing and transportation.
Š Snowman operated at 85% capacity utilization in Q3.
Š The company expects shortage of containers to get resolved by Q4FY2021 end. CFS volumes have gone
up and operators are running at full capacity. The CFS pricing pressure is bottoming out.
Š GDL’s consolidated net debt reduced to Rs. 494 crore from Rs. 681 crore in FY2020 end.
Š The company would be setting up two to three ICDs over two to three years with 35 acre facilities each. It
would be investing about Rs. 60-75 crores per location. Overall, it expects Rs. 200 crores to be invested.

January 19, 2021 8

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Results (Consolidated) Rs cr
Particulars Q3FY21 Q3FY20 YoY% Q2FY21 QoQ%
Net sales 313.8 298.9 5.0 262.5 19.5
Operating expenses 231.2 238.4 -3.0 197.3 17.2
EBITDA 82.6 60.5 36.4 65.2 26.6
Depreciation 32.8 33.5 -2.3 33.0 -0.8
Other income 2.5 5.5 -55.1 4.4 -43.9
Interest 17.7 26.3 -32.7 21.5 -17.7
PBT 34.6 6.3 451.5 15.2 128.4
Taxes 2.0 -3.4 - 10.9 -81.7
Extraordinary items 0.0 8.1 0.0
PAT before MI 32.6 17.8 83.8 4.3 665.0
Minority interest -0.1 1.2 - 0.0 -
APAT 32.7 8.4 288.5 4.2 674.3
Margin (%)
EBITDA 26.3% 20.2% 606 bps 24.9% 146 bps
NPM 10.4% 2.8% 762 bps 1.6% 882 bps
Effective tax rate 5.8% -54.0% - 71.9% -
Source: Company; Sharekhan Research

Outlook and Valuation

n Sector View – Green shoots visible; Await to gather pace

The logistics industry was severely hit by COVID-19 pandemic, which affected the overall trade environment both
domestically as well as globally. However, the sector is seeing improving trade environment with volumes at ports
and railways picking up m-o-m. Other domestic indicators such as e-way bill generations, FASTag collections too
highlight improvement on m-o-m basis; the international EXIM environment although has started recovering but
is yet to gather pace. Competitive intensity is expected to ease going ahead with improvement in trade volumes.
However, the third-party logistics (3PL) industry has seen faster improvement in operations led by segments such
as e-Commerce, pharma, and FMCG. Hence, within the logistics industry, 3PL companies are better placed. We
wait for recovery to gather pace before turning our sector view to positive for the logistics industry.

n Company Outlook – Healthy volume and profitability outlook for both CFS and Rail
The company expects early two-digit volume growth (combined CFS and Rail) for FY2023 while FY2024 is expected
to be blockbuster year with strong volume offtake expected from commissioning of DFC corridor and fourth terminal
at JNPT. The profitability in CFS in terms of EBITDA/TEU is expected to be Rs. 2900-3000/TEU as industry volume
picks up and company’s increasing value added services like last mile transportation. The Rail EBITDA/TEU may
correct to Rs. 8000/TEU as it may have to pass on some part of improved margins to customers with commissioning
of DFC. GDL has also deleveraged its balance sheet bringing down its consolidated net debt from Rs. 681 crore in
FY2020 to Rs. 494 crore as of Q3FY2021. Its net debt/equity has come down from 0.51x to 0.34x over the same period.
The company would be incurring capex of Rs. 120 crores over the next two years for setting up two satellite terminals
in Rail division.

n Valuation – Retain Buy with a revised price target of Rs. 150

GDL has been able to maintain strong operational profitability in CFS and have been improving rail profitability
over the trailing three quarters. The company has also been benefitting from improved EXIM trade environment and
reducing trade imbalance. The outlook for the company stays positive with commissioning of DFC and fourth terminal
at JNPT which should aid in strong volume offtake and sustained healthy margins. Further, its deleveraged balance
sheet followed by a revival in capex plans is likely to aid in reviving net earnings going ahead. We have fine-tuned
our estimates for FY2021E-FY2023E factoring improved profitability in both CFS and Rail verticals. GDL’s current
valuation of 5.7x EV/EBITDA and 1.0x P/B over FY2023E earnings provides comfort, while the company’s improving
operational profitability, focus on deleveraging and revival of capex plans is expected to revive net earnings growth.
Hence, we retain a Buy rating on the stock with a revised price target of Rs. 150.

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About company
Gateway Distriparks Limited (GDL) is an integrated inter-modal logistics service provider. It operates 6
Container Freight Stations in Nhava Sheva, Chennai, Vishakhapatnam, Kochi and Krishnapatnam. Gateway
Rail Freight Ltd. (GRFL) is India’s largest private intermodal operator providing rail transport service through
its 4 Inland Container Depots (ICD) at Gurgaon, Faridabad, Ludhiana, Ahmedabad and a Domestic Container
Terminal (DCT) at Navi Mumbai. GDL and GRFL together have a capacity to handle over 2 million TEUs per
annum with 31 train sets and, 500+ trailers across its 11 Container Terminals.

Investment theme
With its dominant presence in CFS, rail freight and cold chain businesses, GDL has evolved as an integrated
logistics player. The company’sCFS and cold chain are facing a tough business environment owing to intensive
competition amidst a weak macro environment. However, the rail division has started showing resilience with
improvement in volume and profitability. Capacity expansion in rail will prove to be beneficial for the company
as the trade environment revives. Further, key positive triggers such as the dedicated freight corridor (DFC)
remains intact. Due to comfort on valuation, we have a Buy rating on the stock.

Key Risks
Š Deterioration in trade environment leading to higher trade imbalance.
Š Competitive pressure weighing on operational profitability.

Additional Data
Key management personnel
Mr. Prem Kishan Dass Gupta Chairman and Managing Director
Mr. Sachin Surendra Bhanushali Chief Executive Officer
Mr. Sandeep Kumar Shaw Chief Financial Officer
Mrs. Veena Nair Company Secretary & Compliance Officer
Source: Company Website

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 PRISM INTL PTE LTD 24.1
2 ICICI Prudential Asset Management 8.71
3 Mirae Asset Global Investments Co 8.42
4 Amansa Holdings Pvt Ltd 7.83
5 Life Insurance Corp of India 6.17
6 Gupta Prem Kishan Dass 4.49
7 State of Kuwait 2.98
8 Schroders PLC 2.39
9 Perfect Communications 2.34
10 Vanguard Group Inc 1.52
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

January 19, 2021 10