Gateway Distriparks' Q1FY20 results (Outperformer) - Export incentive and rail consolidation boost profitability

Q1FY20 result highlights

• Cons. Adj. PAT increased 92% yoy to Rs590m: on higher than estimated SEIS income of Rs548mn and lower tax rate. Revenues +205% yoy to Rs3.14bn on 100% consolidation of rail. OPM down by -30bps yoy to 21% (est 17.9%) driven by decline in CFS, albeit margins stable over the past 3-4 quarters. EBITDA grew by 200% yoy to Rs660mn (est Rs544mn)
• Rail performance improves marginally: as volumes +2% yoy on higher imports and realisations +5% yoy (price hikes) resulting in Rs2.14bn revenues (+7% yoy). Margins expanded +163bp yoy to 19.2% (adj. for IndAS 116 +42bps yoy to 18%) led by higher efficiencies (higher capacity) driving EBITDA at Rs410mn (+17% yoy; IndAS 116 adj. +10% yoy to Rs384m). PAT fell 55% yoy to Rs172mn (high base; Rs320m SEIS income in 1Q19).
• CFS core performance stable: with IndAS 116 adj EBITDA at Rs197mn (stable over the past 3-4 quarters). On a yoy basis, revenues fell 3% to Rs1bn (-2.6%  volumes, -0.4% realisations) and margins declined 160bps to 19.7% on poor mix towards higher Krishnapatnam and DPD volumes. However, Rs520mn of SEIS income boosted PAT (+301% yoy to Rs453mn).

Conf call highlights: (1) GDPL added 3 more rakes during the quarter resulting in total 31 rakes and will add 4 rakes in 2HFY20. This would increase capacity and thereby volumes by ~35,000 TEUs/year (2) Market share in NCR steady at 13%; Ludhiana +300bps yoy to 39% (3) DFC phase I (Ateli to Marwar; 400kms) expected by Mar-20 and likely to drive strong volume growth (shift from road) and cost efficiencies; weak macro factors are expected to keep pressure on FY20 industry volumes (4) Evaluating 4-5 ICDs over the next 4-5 years and also commissioning of Viramgaon ICD in FY20 to aid volume growth and market share gains (5) Rs650mn interests cost estimated for FY20 taking total finance cost to Rs850mn; (6) SEIS income of Rs350-400mn in Rail and Rs200-220mn in CFS expected for FY20 to be recognized in FY21.

Impact on financials: FY20 EPS unchanged at Rs9.5; FY21 EPS cut by 2.4% to Rs10

Valuation and view

With the completion of the rail deal, the mgmt. focus is now entirely on improving profitability and de-leveraging the balance sheet. Overall, core operating performance has stabilised over the past few quarters in both CFS (stable DPD volumes) and rail (congestion issues easing; additional capacty). We believe rail would see scale up on back of increased rake capacity, lower congestion and market share gains from road once DFC is operational in FY21. Concurrently, debt is likely to scale down gradually led by free cash flow, SIES income (CFS income is a positive surprise) and likely liquidation of non-core assets. Outperformer based on our SoTP of Rs183.