Event update: Gateway Distripark (Outperformer) - Snowman stake sale to drive debt reduction
Event
- Gateway Distriparks Ltd. (GDPL) has entered into a share purchase agreement to sell its 40.25% stake in Snowman Logistics Ltd. (SLL) to Adani Logistics Ltd. The sale is expected to be completed by 31st March, 2020
Details
- Adani Logistics has valued SLL at ~12x FY21E EV/EBITDA or Rs44/share (12% premium to last 60day volume weighted avg price).
- Adani Logistics plans on acquiring 66% stake for a total consideration of Rs5bn –Rs2.96bn towards 40.25% GDPL’s stake and Rs2.04bn towards 26% mandatory open offer.
- While GDPL will receive Rs2.96bn (gross), the tax amount is yet to be ascertained depending upon the process of the sale. However, the tax implication is expected to be within 15-20% range.
- Snowman Logistics (SLL) is a non-core asset for GDPL with limited contribution to revenues. Moreover, SLL has been incurring losses over the years and thereby have been a drag in GDPL’s profitability (1H20 revenues, EBITDA and loss at Rs1.2bn, Rs313mn and Rs104mn respectively). Accordingly, GDPL’s decision to sell the stake is in line with management's strategy to deleverage the balance sheet by selling of non-core assets.
- GDPL’s net debt at the end of FY19 and 1HFY20 was at Rs7.7bn and Rs7bn respectively. The net debt is expected to come down to ~Rs4bn levels by FY20end led by Rs2.96bn from Snowman stake sale, Rs500mn from Chandra CFS sale and internal accruals.
Valuations & view
The stake sale in Snowman Logistics is a positive development for GDPL as it will drive debt reduction and help in meeting all debt covenants. Moreover, this will drive down finance costs, driving a ~13% upgrade to FY21E earnings. On the operations front, while CFS business is seeing stability, rail is expected to scale up on the back of increased rake capacity, lower congestion and market share gains from road once DFC is operational in 2HFY21-22. Reiterate Outperformer on attractive valuations (11x FY21E earnings, 4.9x FY21 EV/EBITDA) and SOTP based value of Rs183.
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.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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