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06 October 2008

GATEWAY DISTRIPARKS LIMITED

BUSINESS
Gateway Distriparks Limited (GDL)'s principal activity is to provide logistics support services in India.The services offered by it include transportation of containers, to and from the port, stuffing / destuffing of cargo, customs clearance and storage in warehouse or as a full container load in the container yard. In addition, it also provides services such as general and bonded warehousing service, palletising, shrink wrapping and other administrative services.

GSL operates three lines of businesses:-
Container Freight Stations (CFS)
Container Rail
Cold Chain Logistics

Container Freight Stations (CFS)
In this business it recieves and stacks shipping containers before transporting them to various parts of the country by rail/road. Its CFSs handled 3.3 Lakh TEUs (Twenty feet equivalent units) which was up 48% year-on-year and contributes 73 % of the revenues.

It owns/operates four CFS in the country:-
Vizag - where it holds a 74 % share and is currently a loss making CFS. Likely to turn profitable in FY 09.
Chennai - which is a 100% owned subsidiary and in profit (Rs 8.7 Cr in the current year).
Mumbai - at JawaharLal Nehru Port Trust (JNPT) it has two CFS. The second CFS opened in Jul 07 and where GDL has a 15 year operations and management agreement.
Kochi - where GDL owns a 60% stake and is still in the process of setting up.

Container Rail
GDL runs it through a subsidiary where it has a 83 % stake. In this business it transports the containers by rail either directly to the destination or to the Inland Container Depot(ICD) for furthur transhipment to the destination. For this purpose it has :-

12 trains, each capable of carrying 90 TEUs. These include 6 domestic trains, 3 for Export- Import traffic and 3 reefer trains.(Reefer trains are used to transport refrigerated containers for the temperature sensitive cargo). It also has 10 trains on order.

ICDs. One rail linked ICD at Garhi Harsaru, near Gurgaon and one each at Faridabad and Ludhiana are expected to become operational in the next couple of years.

For last mile connectivity it has 300 trailors.

Cold Chain Logistics
This business is run through a subsidiary called Snowman Frozen Foods, a joint venture with Mitsubishi Corp. It has a cold stores network and refrigerated transport.

FINANCIALS
Financial year 2008 proved to be a mixed year for GDL as the company’s top line saw a strong growth in this period on the back of an excellent volume growth. However, a change in the revenue mix in favour of the new businesses and the lower-margin container freight station (CFS) of Punjab Conware at JNPT led to a decline in the profitability of the company during the year.

Growth in the container traffic is expected to continue in FY2009 (up by 15%) and GDL is in the process of expanding the capacity at its CFS at Visakhapatnam and setting up a new CFS at Kochi. 

The net cash flow from operations after working capital adjustments remained healthy for the company at Rs80.75 crore. Due to heavy capital expenditure on its businesses of CFS at Kochi , container rail and Snowman Foods and a decline in its profitability, the return ratios dipped during the year. The return on capital employed (RoCE) dropped to 12.5% from 14.4% while the return on net worth (RoNW) dipped to 11.1% from 12.4% during FY2008. The current debt/equity ratio is very manageable at 0.3x . Increased volumes in the core business, profitability from Vizag CFs, combined with the deployment of more rails on the export-import (EXIM) route, are expected to add to the bottom line of GDL . 

VALUATION
At the current levels(Current market price: Rs81), GDL is trading at 8.7x FY2010E earnings. We recommend a Buy on the stock with a price target of Rs240.

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