Buy Gateway Distriparks, target Rs 298: Citi

Citi has a buy call on Gateway Distriparks with a target price of Rs 298.

The current market price of Gateway Distriparks is Rs 177.95.

Time period given by the brokerage is one year when Gateway Distriparks price can reach the defined target.


Investment rationale by Citi:
Citi's Take — Gateway Distriparks Ltd (GDL) reported healthy rail volume growth in 1QFY19. Rail freight volume at 60,088 TEUs grew 18 per cent YoY/2 per cent QoQ. Rail business EBITDA at Rs651mn (including Rs320mn SEIS income) grew 158 per cent YoY/flat QoQ (4QFY18 also had similar SEIS income). CFS volume at 111,999 TEUs grew 16 per cent YoY/nearly 6 per cent QoQ; CFS business EBITDA at Rs220mn grew 12 per cent YoY/3 per cent QoQ.

1QFY19 consolidated PAT grew 131 per cent YoY — 1QFY19 consolidated PAT at Rs307mn grew 131 per cent YoY boosted by share of profits from associates. Consolidated EBITDA margin (which primarily reflects CFS business) at 21.3 per cent increased 145bps YoY.

Due to headwind of DPD, CFS business’s profitability is under pressure but volumes are stabilizing — GDL’s CFS business has achieved healthy volume growth in 1QFY19 and is adapting well to Direct Port Delivery (DPD) challenge in CFS business. DPD numbers are increasing and revenue/TEU on DPD containers is lower than normal TEUs but GDL has managed to stabilize the business. CFS volume recovery was fairly broad based across ports except at Vizag terminal. DPD is increasing at other ports as well beyond Mumbai.

Improving outlook in rail business — Improving outlook in rail business is underscored by the fact that GDL has leased new rakes for rest of FY19. Rail business has maintained profitability in terms of EBITDA/unit despite competition. GDL undertook a price increase for rail business in May 2018 (nearly Rs1000/TEU in import direction, out of this nearly Rs230/TEU has flown to 1QFY19 numbers and rest will flow through in subsequent quarters).

Implications — GDL remains well positioned to benefit from any rebound in demand with its very efficient operations, healthy balance sheet and competitive position in rail business. Acquisition of remaining stake in rail business from private equity investors at reasonable valuations is positive. Maintain Buy.