Event update: Gateway Distripark (Outperformer) - Blackstone deal closure; focus on growth now
Event
Gateway Distriparks (GDL) has completed the acquisition of Blackstone’s stake (49%) in GRFL at a valuation of Rs8.1bn, making it a 99.93% subsidiary.
Details
- Blackstone had invested Rs3bn in GRFL via a CCPS in 2010. Subsequently, in May-18, GDL signed an agreement to buyout Blackstone’s 49% stake at Rs8.1bn.
- GDL had acquired ~11% stake in GRFL in Sept-18 led by a payout of Rs3bn. However, the delay in closure of deal to 31st Mar-19, attracted an interest penalty of 15% or Rs400m, taking the total payout to Rs8.5bn.
- GDL has paid Rs8.5bn via mix of Rs3bn internal accruals and Rs5.5bn debt.
- GDL has raised Rs5.5bn NCD with a coupon rate of 11.25-11.5% and a 7 year tenor.
- With the NCD issue, GDL’s net debt has risen to Rs8bn (earlier marginal debt).
- With the deal completion, Blackstone and GDL have mutually terminated the arbitration process.
Valuations & view
The completion of the deal would resolve the Blackstone hangover on the stock, which has been due for completion over the past 3 years. While net debt has risen sharply to Rs8bn on account of the transaction, we believe the operating cashflows (~Rs1.5bn post interest) are strong to service the debt. Moreover, the company would look to reduce debt by sale of non-core assets. We believe the deal completion would drive back management focus on the business and drive growth as port volumes see an improvement. Overall, we believe earnings have bottomed and as trade is improving and should bode well for GDL. Considering our SOTP of Rs190 (12x rail EV/EBITDA), we maintain our Outperformer rating on the stock. Key risk would be further scale up of DPD and any slowdown in exim trade.
Gateway Distriparks Limited is an integrated logistics facilitator. The Company's principal business activities include storage and warehousing, which includes general merchandise warehouses and warehousing of furniture, automobiles, gas and oil, chemicals and textiles. It also includes storage of goods in foreign trade zones. Its segments include Container Freight Station, which includes common user facilities located at various sea ports in India, offering services for handling (including related transport), temporary storage of import/export laden and empty containers, and cargo carried under customs control, and Rail Logistics, which includes transportation by rail, storage, handling of the containers and related transportation by road. It is also engaged in business of container-related logistics. Its primary business is to operate Container Freight Stations, which are facilities set up for the purpose of in-transit container handling, examination and assessment of cargo.
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