2012-02-16 gate.ns (jpmorgan) gateway distriparks ltd _ company visit note_ right side of the...

7/27/2019 2012-02-16 GATE.ns (JPMorgan) Gateway Distriparks Ltd _ Company Visit Note_ Right Side of the Tracks.58804991

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Asia Pacific Equity Research16 February 2012

Gateway Distriparks LtdNot CoveredGATE.NS, GDPL IN

Company Visit Note: Right Side of the TracksPrice: Rs143.85

India

Indian Autos

Aditya MakhariaAC

(91-22) 6157-3596

[email protected]

Ritesh Gupta

(91-22) 6157 3585

[email protected]

J.P. Morgan India Private Limited

YTD 1m 3m 12mAbs 11.7% 9.7% 7.2% 26.6%

See page 13 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware ththe firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a singfactor in making their investment decision.

100

110

120

130

140

150

Rs

Feb-11 May-11 Aug-11 Nov-11 Feb-12

Price Performance

GDPL is an operator focused on the high margin EXIM container railwaysegment, which has been investing in building an ICD network across

northern India. The railway segment turnover almost doubled over FY09-11

as EXIM revenues now account for over 85% of turnover. Management hashighlighted that they are expanding capacity by c.33% as their new terminals

come onstream.

Focused operator in the EXIM segment: GDPL has focused on the highmargin EXIM segment, which accounts for c.85% of its rail segmentturnover. The company has invested in setting up ICD terminals in northernIndia including Garhi, Ludhiana and the soon to be commissioned terminalat Faridabad. Besides, the company has tied up ICD facilities in Rajasthan

and Gujarat recently, which will deepen their service network. Healthy growth in turnover: The railway segment turnover almost

doubled over FY09-11, despite slowing industry growth - driven by a lowbase and market share gains. Management highlighted that they areexpanding capacity by 33% to 28 rakes over the next 15 months asutilization levels are currently at c.90%. In Ludhiana, Gateways marketshare has risen to c.45% in the EXIM business. However, in the NCRmarket, their market share is at 8% - as the new terminal commencesoperations in 2QFY13, the management is expecting to gain share.

EXIM trade likely to benefit from improving global sentiment: J.P.Morgans global PMI has recorded strong gains recorded in January. Oureconomics team is forecasting a broader underlying shift in growth

momentum and the risks to 1H global growth forecast have shiftedsignificantly to the upside. (Please refer to Global Data watch, Kasman etal, 3 February 2012). In India, we believe that the industrial cycle willrevive from hereon given expectations of monetary easing, which should

benefit container TEU volumes.

CFS segment could benefit from terminal expansions: The managementhighlighted that they will be expanding facilities in Chennai and Kochi aswell as de-bottlenecking facilities at Mumbai CFS II, which could partiallyoffset slowing growth at the JNPT facility.

Currently, consolidated debt:equity ratio of 0.6x as the companygenerates significant cash from its CFS facilities. The company offers adividend yield of 4%

NOTE: THIS DOCUMENT IS INTENDED AS INFORMATIONONLY AND NOT AS A RECOMMENDATION FOR ANY STOCK.

IT CONTAINS FACTUAL INFORMATION, OBTAINED BY THE

ANALYST DURING MEETINGS WITH MANAGEMENT. J.P.

MORGAN DOES NOT COVER THIS COMPANY AND HAS NO

RATING ON THE STOCK.

Figure 1: Gateway Distriparks Rail TE

Source: Company

36,700

66,500

112,444

131,337124,9

-

40,000

80,000

120,000

160,000


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Asia Pacific Equity Research

16 February 2012Aditya Makharia(91-22) [email protected]

Table 1: Gateway Distriparks Consolidated Financial Snapshot (Rs. In M)

FY08 FY09 FY10 FY11

Net sales 2,714 4,520 5,166 5,991 52-week range (Rs) 106.3-153.5Net profit 736 796 791 968 Market cap (Rs B) 15,538EPS (Rs) 6.4 7.4 7.3 9.0 Market cap (US$ B) 317DPS (Rs) 2.0 2.0 3.5 6.0 Shrs outsting (MM) 107.9Net sales growth (%) 68.6 66.6 14.3 16.0 Free float (%) 50EPS growth (%) -24.5 16.1 -0.7 22.2 Avg daily value (Rs MM) 23.8ROE (%) 11.4 12.8 11.9 14.1 Avg daily value (US$ MM) 0.5BVPS (Rs) 55.9 57.9 61.6 63.7 Avg dly volume (MM shs) 0.7P/E (x) 22.6 19.5 19.6 16.1 BSE sensex 18,109Div. Yield (%) 1.4 1.4 2.4 4.2 Exchange rate (Rs/US$) 49.0

Source: Company Reports

Operator in the EXIM segment: GDPL is among the few private railway operators

that has focused on the high margin EXIM segment, which accounts for c.85% of its

turnover. The company has invested in setting up ICD terminals in northern India,

including Garhi, Ludhiana and a soon-to be-commissioned terminal at Faridabad.Besides, the company has tied up ICD facilities in Rajasthan and Gujarat recently,

which will deepen their service network.

Figure 2: Gateway Rail Freight Segment Mix (%) FY12YTD

Source: Company

Healthy growth in turnover: The railway segment turnover almost doubled in

FY09-11, despite slowing industry growth - driven by a low base and market share

gains. As the contribution of the railway business has grown, it now accounts for

50% of Gateways consolidated turnover.

Table 2: Gateway Rail Freight P&L Statement (in Rs. M)

FY09 FY10 FY11 FY12 YTD

TEU's 66,500 112,444 131,337 124,913

Sales 1,838 2,906 3,226 2,869

EBITDA 145 302 438 494Margin (%) 7.9 10.4 13.6 17.2

PAT (262) (127) (39) 147

Source: Company

EXIM, 87%

Domestic,13%

GDPL is focusing on the high

margin EXIM segment


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Figure 3: Revenue Breakup

Source: Company

Figure 4: EBITDA Breakup

Source: Company

The company is expanding capacity by 33% to 28 rakes over the next 15 months as

utilization levels are currently at c.90%. In Ludhiana, Gateways market share has

risen to c.45% in the EXIM business. However, in the NCR market, their market

share is at 8% - as the new terminal commences operations in 2QFY13, the

management is expecting to gain share.

Figure 5: Rail Business Segment Annual TEUs

Source: Company.

53%38% 40% 43%

40%55% 53% 51%

8% 7% 8% 6%

FY09 FY10 FY11 FY12YTD

CFS Business Rail Business Snowman

88%72% 68% 70%

9%

22% 25% 26%

3% 6% 6% 4%


CFS Business Rail Business Snowman

36,700

66,500

112,444

131,337 124,913

0%

20%

40%

60%

80%

100%

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50,000

100,000

150,000

FY08 FY09 FY10 FY11 FY12YTD

TEUs Growth (%)


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Figure 6: Rail Business Segment PAT (Rs Mn)

Source: Company.

EXIM trade likely to benefit from improving global sentiment: J.P. Morgans

global PMI has recorded strong gains recorded in January. Our economics team is

forecasting a broader underlying shift in growth momentum and the risks to 1H

global growth forecast have shifted significantly to the upside. (For more

information please refer to Global Data watch, Kasman et al, 3 February 2012). In

India, we believe that growth rates will revive from hereon, given expectations of

monetary easing ahead.

Sou

Source: J.P. Morgan Economic Research (forecast for the rest for FY12)

(43) (34)

338 46

51 5111.6%12.8% 13.0%

17.6% 17.8% 17.1% 16.8%

0%

5%

10%

15%

20%

(60)

(40)

(20)

-

20

40

60

1QFY11 2QFY11 3QFY11 4QFY11 1QFY12 2QFY12 3QFY12

PAT (LHS) EBITDA Margin (%, RHS)


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Figure 7: Container Traffic at Major Ports (in 000 TEUs)

Source: GoI.

Figure 8: Mundra Port Container Traffic (in 000 TEUs)

Source: Company.

CFS segment could benefit from terminal expansions: The managementhighlighted that they will be expanding facilities in Chennai and Kochi as well as de-

bottlenecking facilities at Mumbai CFS II, which could partially offset slowinggrowth at its Mumbai CFS facility.

Table 3: CFS Business P&L Statement (Rs Mn)


TEUs (in units) 324,400 303,963 333,422 257,096

Sales 2,443 2,015 2,418 2,463

EBITDA 1,384 994 1174 1,348

EBITDA Margin (%) 56.70% 49.30% 48.60% 54.70%

PAT 1,063 897 973 827

Source: Company reports

The growth in the CFS segment has been impacted by lower volumes in the Mumbai

CFS due to sedate growth in port volume at JNPT, lower utilization rates at Punjab

Conware (due to a fire) as well as market share losses.

16%

7%9%

7%

4%5%

5%

0%

4%

8%

12%

16%

1,680

1,800

1,920

2,040

Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12

TEU (in '000 nos) - LHS Growth (%) - R HS

278

314325

312

343365

391

28%

38%

44%

23% 23%

16%20%

0%

10%

20%

30%

40%

50%

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450


TEU (in '000 nos) - LHS % Growth - RHS

Given the high growth in Mundra

Port, the railway mix is tilting -

with exports growing from JNPT

and imports growing from

Mundra.


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Figure 9: CFS Business Segment Annual TEUs

Source: Company.

Figure 10: Contribution of Mumbai in Overall TEUs

Source: Company Data.

However, realizations have benefited given longer dwell times as well as price hikes.

This has driven revenues and profitability.

Figure 11: CFS Business Segment Realisations (Rs/TEU)

Source: Company

Figure 12: Gateways CFS Business Segment Revenues (Rs Mn) and EBITDA margin trend

Source: Company.

The Snowman Cold Chain operations have benefitted from market share gains

from the unorganized segment the organized segment accounts for just 20% of the

330,800 324,400 303,963 333,422

257,096

0%-2%

-6%

10%

5%

-10%

10%

30%

-

100,000

200,000

300,000

400,000


CFS TEUs Growth (%)

76% 76%

71%69%

65%

50%

70%

90%


6,291 6,6537,770 8,193

9,146 9,45210,221

-

4,000

8,000

12,000


477 556673 717

831 821 811

44.3% 46.2%48.7%

52.3% 55.8% 54.3% 54.1%

0.0%

20.0%

40.0%

60.0%

0

250

500

750

1000


CFS Revenues (Rs Mn) EBITDA Margin


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overall volumes. Thus, management expects to gain share from the unorganized

market, given its superior product offering.

Table 4: Snowman Logistic Limited P&L Summary


Sales 348 369 475 447

EBITDA 51 78 114 118

Margin (%) 14.7 21.1 24.1 26.3

PAT (6) 22 34 26

Source: Company

Gearing Ratios under check: Currently, the consolidated debt:equity ratio is at 0.6x

as the company generates significant cash from its CFS facilities. While Gateway

Rail has debt on its books, it includes the Rs.3B infusion from Blackstone privateequity, which is issued in the form of compulsory convertible bonds, with a

conversion that will take place in five years. The infusion will give Blackstone a

stake of between 37.3% - 49.9% in the rail subsidiary, based on certain milestones.

The company offers a dividend yield of 4%.

Table 5: Gateway Distriparks Consolidated Balance Sheet as of Dec11 (Rs Mn)

BALANCE SHEET CFS Rail Snowman Consolidated

Equity Capital 1,082 1,082

Reserves 2,909 2,861 670 6,440

Net Worth 3,990 2,861 670 7,521

CCPS in GRFL 2,958 - 2,958

Debt 104 1,049 1,153

Minority Interest 43 40 521 604

Deferred Tax 116 35 151

Liabilities 4,253 6,908 1,226 12,388

Fixed Assets (Net) 2,500 6,616 899 10,014

Liquid Funds 1,292 102 204 1,598

Current Assets (Net) 461 191 124 776

Capital Employed 4,253 6,909 1,226 12,388

Source: Company


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Company Profile

Gateway Distriparks has three verticals Container Freight Stations (CFS), InlandContainer Depots (ICD) with rail movement of containers to major maritime ports,and Cold Chain Storage and Logistics.

GDL operates two Container Freight Stations at Navi Mumbai, one at Chennai andone at Visakhapatanam.. A new CFS at Kochi will be operational by FY12.

GDLs rail operations are handled by a subsidiary, Gateway Rail Freight Limited(GatewayRail) in which The Blackstone Group of USA has made a private equityinvestment.

Gateway Rail provides inter-modal logistics and operates its own Inland ContainerDepots/Dry Ports. GatewayRail operates rail linked facilities at Garhi-Harsaru

(Gurgaon, Haryana), Ludhiana (Punjab) and Kalamboli (Navi Mumbai). Itsupcoming terminal at Asaoti (Faridabad, Haryana) will be operational by FY12E aswell. Gateway Rail owns and operates a fleet of 21 trains at its rail linked terminals.

Gateway Rail operates regular container train service from these ICDs / Dry Ports toNhavaSheva, Mundra and Pipavav, transporting import and export as well asdomestic containers.

The third vertical consists of cold chain logistics solutions out of 19 locations inIndia through the subsidiary, Snowman Logistics Limited in which Mitsubishi,

Nicherei and IFC (World Bank) are investors. Snowman is a leading LogisticsServices Provider and Indias first cold supply chain company with a nationwidenetwork connecting more than 100 cities and more than 4,400 outlets. Snowman has

a pan-India presence that offers comprehensive warehousing, transportation anddistribution services.

Figure 13: Gateway Distriparks Shareholding Pattern

Source: BSE India

Total Promoters,40.5

DIIs, 15.5

FIIs, 27.7

Non-Ins titutions, 16.4


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Figure 14: Gateway Distriparks Limited Holding Structure

Source: Company reports

Gateway Distriparks

Limited

Gateway Distriparks (Kerala)

Limited

60%

Gateway Distriparks (South)

Private Limited100%

Gateway East India Private

Limited

100%Snowman Logistics Limited

52.2%

Gateway Rail Freight Limited

97.3%


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Figure 15: Segmental Quarterly Earnings Summary (Rs Mn)

Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

GDLSales 477 556 673 717 831 821 811

% Growth 0% 12% 27% 40% 74% 48% 20%

EBITDA 211 257 328 375 464 446 438

Margin (%) 44.3 46.2 48.7 52.3 55.8 54.3 54.1

PBT 166 221 283 330 416 399 390

PAT after MI 175 233 267 307 281 276 270

Grail

Sales 720 742 808 849 903 960 1,006

% Growth 3% -2% 21% 8% 26% 29% 24%

EBITDA 83 95 105 150 161 165 169

Margin (%) 11.6 12.8 13.0 17.6 17.8 17.1 16.8 PBT (45) (35) 3 42 47 53 52

PAT after MI (43) (33) 3 38 46 51 51

Snowman

Sales 105 106 120 144 139 142 167

% Growth 34% 14% 32% 23% 32% 33% 39%

EBITDA 23 23 34 31 36 36 46

Margin (%) 22.2 21.4 28.2 21.8 25.8 25.6 27.5

PBT 15 13 23 22 23 31

PAT after MI 8 5 10 5 8 8 11

Consolidated

Sales 1,301 1,404 1,601 1,710 1,873 1,923 1,983

% Growth 4% 5% 24% 21% 44% 37% 24%

EBITDA 318 374 467 556 661 647 653

Margin (%) 24.4 26.7 29.2 32.5 35.3 33.6 32.9

PBT 135 199 309 372 485 474 473

PAT after MI 140 205 280 350 334 335 331

Source: Company


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Gateway Distriparks Ltd: Summary of Financials (Consolidated)

Profit and Loss statement Cash flow statement

Rs in millions, year-end Mar FY08A FY09A FY10A FY11A Rs in millions, year-end Mar FY08A FY09A FY10A FY11A

Revenues 2,714 4,520 5,166 5,991 EBIT 732 1,027 794 1,094% change Y/Y 69% 67% 14 16% Depreciation & amortisation 292 445 455 502

Dec/(Inc) in Working Capital 202 (223) 55 (681)EBITDA 1,024 1,471 1,249 1,597 Taxes (118) (143) 82 (92)

% change Y/Y 26% 44% -15 28% Cash flow from operations 1,108 1,105 1,386 824EBITDA Margin (%) 37.7% 32.6% 24.2 26.7% Extra ordinary Items - - - -

Other Income 144 109 125 129 Net Capex (2,180) (1,926) (1,025) (1,632)Depreciation 292 445 455 502EBIT 876 1,135 919 1,223 Net Interest (Paid)/ Recd (20) (202) (195) (182)Interest Charges 20 202 195 182 Free cash flow (1,092) (1,022) 165 (989)Earnings before tax 856 934 724 1,041

% change Y/Y -6% 9% -22 44% Income from Investments 144 109 125 129Tax 136 159 (79) 44 (Inc) / Dec in LT Investment - (230) 80 20

as % of EBT 15.9% 17.0% -11.0 4.2% Equity raised/ (repaid) (156) (740) 55 25Net Income (After MI) 736 796 791 968 Debt raised/ (repaid) 141 1,829 55 (945)

% change Y/Y -5% 8% -1 22% Other 168 (9) 8 2,913Shares Outstanding 116 108 108 108 Dividends paid (316) (300) (286) (442)

EPS (pre exceptional) 6.4 7.4 7.3 9.0Cash generated during theyear (1,111) (364) 202 710

% change Y/Y -24% 16% -1 22% Beginning cash 2,068 957 593 795DPS (Rs) 2 2 3 6 Ending cash 957 593 795 1,505

Balance sheet Ratio Analysis

Rs in millions, year-end Mar FY08A FY09A FY10A FY11A %, year-end Mar FY08A FY09A FY10A FY11A

Cash 957 593 795 1,506Accounts receivable 317 529 682 624 EBITDA margin 37.7 32.6 24.2 26.7Others 207 280 531 754 Net profit margin 26.5 17.1 15.5 16.6Current assets 1,481 1,402 2,008 2,884LT investments 0 230 150 130 Sales growth 69 67 14 16Net fixed assets 6,651 8,132 8,703 9,832 Net profit growth -5 8 -1 22Total assets 8,132 9,764 10,860 12,846 EPS growth -24 16 -1 22

Dividend Payout Ratio 42 37 55 76Dividend Yield 1.4 1.4 2.4 4.2

Liabilities EBITDA margin 37.7 32.6 24.2 26.7Payables 363 377 1,019 672 Net profit margin 26.5 17.1 15.5 16.6Others 282 315 287 433Total current liabilities 645 692 1,307 1,105 Price to Book Value (x) 2.6 2.5 2.3 2.3Total debt 215 2,045 2,099 1,154Deferred Tax 169 185 187 140 Net debt to total capital 0.0 0.2 0.2 0.1Total liabilities 1,030 2,922 3,593 2,399 Sales/assets 0.4 0.5 0.5 0.5Shareholders' equity 6,467 6,237 6,642 6,878 Assets/equity 1.2 1.5 1.4 1.7Minority Interest 636 606 625 3,568Networth 7,103 6,842 7,267 10,446 ROE 11.4 12.8 11.9 14.1BVPS (Rs. per share) 56 58 62 64 ROCE 11.7 12.5 9.6 10.4


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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document

individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Gateway Distriparks Ltd.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company , calling 1-800-477-0406, or [email protected] with your request.

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings: OW = Overweight, N= Neutral, UW = Underweight

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral [Over the next six to twelve months,we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverageuniverse.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocksin the analyst's (or the analyst's team's) coverage universe.] In our Asia (ex-Australia) and UK small- and mid-cap equity research, each

stocks expected total return is compared to the expected total return of a benchmark country market index, not to those analystscoverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analysts coverage universe can

be found on J.P. Morgans research website, www.morganmarkets.com.

Coverage Universe: Makharia, Aditya: Ashok Leyland (ASOK.BO), Bajaj Auto (BAJA.BO), Bosch Limited (BOSH.BO), ContainerCorporation of India Ltd (CCRI.BO), Hero Motocorp Ltd. (HROM.BO), Mahindra & Mahindra (MAHM.BO), Maruti Suzuki India Ltd(MRTI.BO), Tata Motors (TAMO.BO)

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Gateway Distriparks Ltd (GATE.NS, GDPL IN) Price Chart

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
https://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/companymailto:[email protected]://mm.jpmorgan.com/disclosures/companymailto:[email protected]


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J.P. Morgan Equity Research Ratings Distribution, as of January 6, 2012

Overweight(buy)

Neutral(hold)

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"Other Disclosures" last revised January 6, 2012.

Copyright 2012 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold orredistributed without the written consent of J.P. Morgan. #$J&098$#*P

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