Gateway Distriparks' Q4FY18 results (Upgrade to Outperformer) - Bottomed out

Q4FY18 result highlights

• PAT +77% yoy to Rs189m: on lower tax rate and recognition of Rs295mn of SEIS income (export incentive) in rail business.
• Continued evacuation issues impacts rail volumes: +2% yoy despite pick up in trade on continued impact of slower evacuation by railways due to line upgradation. Revenues fell 11% yoy to Rs1.9bn as realisations fell 13% yoy on high base. EBITDA +10% yoy to Rs349mn due to haulage savings on Viramgam terminal (double stack benefits). PAT +3.8x yoy at Rs392m on lower tax & SEIS income of Rs295mn (cash receipt for FY16; see pg 4)
• CFS PAT stabilises (+1% yoy to Rs122m): Revenues +10% yoy to Rs1.02bn on higher volumes (+15% yoy; pick up in JNPT, K’patnam; stability in DPD volumes) while realizations (-5% yoy; pass through of lower costs). OPM +68bps yoy to 21.5% (-180bps qoq). Hence, EBITDA +13% yoy to Rs220m. Higher capital charges (depn, interest) on Krishnapatnam impacted PAT.
• FY18 PAT impacted by DPD: PAT +14% yoy in FY18 due to Rs295mn SEIS income. CFS EBITDA fell 5% yoy due to DPD impact while rail EBITDA +1% yoy on discounts & higher empty running charges offset savings from Viramgam.

Conf call highlights: (1) Rail evacuation issue to sustain over the next year; which is impacting ability to handle higher volumes, adding 2 trains in 1Q19 and more to be added on lease; (2) Rs50mn haulage cost savings on Viramgam double stacking in 7mth (3) Discount of Rs630m (+19% yoy; +Rs300/TEU) in FY18. (4) Increased mkt share in NCR to 13% from 11% in FY18; Ludhiana declined to 36% vs 39% (5) CFS is handling higher DPD volumes, which has marginally lower margins (6) SIES income to be recognised in 1QFY19 (cash recd). (7) Evaluating price hikes in rail, currently road freights have not risen in line with diesel price hikes.

Impact on financials: Raise FY19/20 EPS by 14%/11% to Rs8.5/9.3 (SIES inc)

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. Considering the sharp correction in the stock over the past 6 months (~30%) and likely uptick in earnings (10% CAGR over FY18-20E), we find valuations attractive (based on SoTP) and upgrade to Outperformer with target price of Rs195. Key risk would be further scale up of DPD & slowdown in exim trade.