Gateway Distriparks' Q3FY19 results (Outperformer) - Profitability bottomed, Blackstone deal key

Q3FY19 result highlights

• PAT fell 14.8% yoy to Rs162m: on weak CFS performance.
• Steady rail performance: Volumes fell 3% yoy on sustained rail congestion connecting the NCR-Mundra/Pipavav ports. However, this was offset by higher realisations (+2% yoy) resulting in Rs1.92bn revenues. Margins +40bps yoy to 18.4% on back of Viramgaon benefits (Rs100mn YTD) and contained empty running resulting in 1% yoy in EBITDA to Rs352mn. However, lower other income (dividend payment for stake buyout) resulted in PAT decline of 8% yoy to Rs162mn.
• CFS pain sustains (PAT -39% yoy to Rs61m): While volume uptick was strong at 14% yoy, realisations (-7% yoy) and margins (-386bps yoy) were impacted on poor volume mix towards low margin Krishnapatnam, DPD volumes and cost pressures (higher fuel & labour charges). Hence, EBITDA fell 12% yoy to Rs194mn, while PAT fell 39% yoy to Rs61mn on higher capital charges of Krishnapatnam.

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 4 rakes on lease by May-19 and further 6 rakes in 2HFY20. This would increase capacity and thereby volumes by ~35,000 TEUs/year (2) Market share in NCR steady at 13%; Ludhiana at 40% (3) DFC expected by FY21 resulting in huge push to volumes and efficiencies; (4) Evaluating 4-5 ICDs over the next 4-5 years as also expansion at Viramgaon to aid volume growth and market share gains, which is likely to be funded via internal accruals (5) Taken price hikes in Dec-18 to pass on higher haulage by IR, with overall hike of Rs2500/TEU in YTD-19 (6) Blackstone stake buyout: GDL paid Rs3bn (now 61% stake) and balance Rs5.5bn (incl interest) to be paid by 31-Mar-19, for which its raising debt (NCDs).

Impact on financials: No change to FY19/20 EPS of Rs7.6/7.1

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 and would drive long term earnings growth. Considering our SOTP of Rs186 (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.