Gateway Distriparks' Q4FY19 results (Outperformer) - Stable profitability, export incentives boost profits

Q4FY19 result highlights

• Cons. Adj. PAT fell 5.4% yoy to Rs303m: on higher tax rate. Reported PAT is at Rs3bn on profit on buyout of rail stake from Blackstone.
• Imbalance impacts rail performance: Volumes fell 2% yoy on lower exports. However, higher realisations (+8% yoy; price hikes) resulted in Rs2bn revenues (+5% yoy). Margins fell 307bps yoy to 16% due to higher empty running and lower double stacking driving 12% yoy drop in EBITDA to Rs316mn. However, SEIS income (Rs350mn net) restricted PAT decline to 7% yoy to Rs365mn. FY19: Volumes +3% yoy, revenues +5% yoy to Rs8bn, OPM -20bps to 17.4%, EBITDA+4% yoy to Rs1.4bn, SEIS income of Rs650mn (net; vs Rs300mn in FY18) boosted PAT to Rs1.1bn (+33% yoy).
• CFS stable performance: While volumes saw an uptick (+6% yoy), realisations (-4% yoy) and margins (-330bps yoy) declined on poor mix towards low margin Krishnapatnam volumes, scale up of DPD volumes (lower dwell time and ground rent) and cost pressures. Hence, EBITDA fell 15% yoy to Rs183mn (stable over the past 3 quarters). However, Rs120mn SEIS income boosted PAT (+13% yoy to Rs138m). FY19: Volumes +12% yoy, but EBITDA fell 5% to 787mn, resulting in 11% fall in PAT to Rs383mn.

Conf call highlights: (1) GDPL has 28 rakes and will add 3 more on lease over next few months and further 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 at 40% (3) DFC expected by 4QFY20 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) Blackstone’s rail stake buyout complete at Rs8.5bn; acquisition related one-time expenses of Rs100mn in 4Q19 (we treat as exceptional items).  (6) Rs450mn SEIS income to be booked in CFS in FY20 (related to FY17-19).

Impact on financials: FY20/21 EPS raised by 35/15% to Rs9.5/10.2 (SEIS)

Valuation and view

With the completion of the rail deal, the mgmt. focus would now be 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). 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 Rs185.