Gateway Distriparks' Q2FY19 results (Outperformer) - Volume uptick; Rail steady performance
Q2FY19 result highlights
- PAT fell 5% yoy to Rs174m: on weak CFS performance.
- Steady rail performance: with flattish volumes, realisations and margins on high base (Rs2bn revenues, Rs372mn EBITDA). On qoq basis, performance improved due to price hikes to offset empty running charges and haulage savings on Viramgaon terminal (double stack benefits). PAT +6% yoy at Rs197mn on lower interest cost (lower debt).
- CFS pain sustains (-32% yoy to Rs70m): While volume uptick was strong at 14% yoy, realisations (-6% yoy) and margins (-350bps yoy) were impacted on poor volume mix towards low margin Krishnapatnam and DPD volumes and cost pressures (higher fuel & labour charges). Hence, EBITDA fell 10% yoy to Rs191mn, while PAT fell 32% yoy to Rs71mn on higher capital charges of K’patnam.
Conf call highlights: (1) Rail evacuation on Rewari-Palanpur line moderating and expects improvement by Mar-19. In the meanwhile, GDPL has 27 rakes and will add another 4rakes on lease that will increase capacity and thereby volumes. (2) Market share in NCR steady to 13%; Ludhiana at 40% (3) In NCR market, GDL has a price premium to its peers; (4) no impact of loss in volumes to competition (Concor) offering 45 days free storage as GDL is giving 7-14 days free period in line with shipping lines. (5) Blackstone buyout – paid Rs2.5bn in Oct-18 and balance Rs5.6bn (total Rs8.1bn) to be paid before 28-Dec to increase stake in rail. We believe net debt will increase to ~Rs8bn for the same.
Key positives: steady rail performance
Key negatives: sustained pressure in CFS segment
Impact on financials: Cut FY19/20 EPS by 6/16.5% on re-consolidation of rail and impact of higher interest costs on acquisition related debt.
Valuation and view
GDL’s profitability has been impacted over the past two years on headwinds on macro trade (higher imbalance, discounts, etc) and DPD impact on its CFS business. However, we believe the earnings have bottomed and as trade is improving as reflected in rising port volumes should bode well for GDL. Concurrently, the acquisition of the 49% stake in rail from Blackstone is value accretive (Rs8.1bn payout) and does not put a strain on balance sheet. Considering our SOTP of Rs211 (15x rail EV/EBITDA), we maintain our Outperformer rating on the stock. Key risk would be further scale up of DPD and 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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