| Summary of Contents
| STOCK IDEA Gateway Distriparks
Cluster: Emerging Star
Recommendation: Buy
Price target: Rs173
Current market price: Rs131 Ahead of the pack Key points -
Evolving as an integrated player: With its dominant presence in the container freight station (CFS) segment and forays into the rail freight and cold chain businesses Gateway Distriparks Ltd (GDL) has evolved as an integrated logistic player. The proposed capex planned in all three segments will strengthen its presence in each of the segment and increase its pan-India presence. -
CFS-a steady cash cow business: GDL is one of the largest CFS players in India with a capacity of about 450,000 TEUs operating at four locations. The CFS business is the company's dominant business and contributed about 68% to its EBITDA in FY2011. Growing steadily the business has reached a stage where it continues to generate cash that can be utilized to not only grow the same business but also for investment in other businesses of cold storage and rail container freight. The CFS business is likely to remain the cash cow for GDL as it has high margins and very low debt on its books. Besides, the working capital requirement is not high in this business. Capacity expansion will further strengthen GDL's position in the CFS space. -
Foray into rail freight adds to the value chain, time to reap fruits: GDL ventured into the rail freight business in 2007 after the government opened the sector to the private players. Despite its capital intensive nature the business managed to break even in Q3FY2011 even though GDL's competitors in this field are still struggling. Today, GDL has emerged as the country's second largest container rail freight operator after Concor and largest private player. It owns and operates a fleet of 21 trains from its three inland container depots (ICDs) and plans to increase its capacity further in terms of both rakes and ICDs. With its Faridabad ICD ready to become operational in a month and more rakes coming in, the business is going to fuel its growth over the coming years. We expect GDL's revenue and net profit to grow at 17% and 11% CAGR respectively over FY2012-14. -
Buy with price target of Rs173: We like GDL since it has evolved as an integrated logistic player. Its CFS business is a cash cow while its investments in the rail and cold storage businesses have started bearing fruits. The expansion in all the business segments would boost the earnings and support the valuations. The stock currently trades at 10.5x and 9.7x its FY2012E and FY2013E earnings. Using the DCF method we have valued all the three divisions, assigning values of Rs139 to the core CFS business Rs22 to the rail freight business and Rs12 to the cold storage venture. We thus arrive at a total value of Rs173. At our price target, GDL shall trade at 12.8x its FY2013E earnings, which is lower compared to its five-year average PER of 13.5x. We, therefore, recommend a Buy on GDL.
| | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a postition in the companies mentioned in the article. | |
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