FY21-23e EPS up 99/65/28%; ‘Buy’ retained with TP of Rs 220 given the valuations
While Pipavav port is expected to be connected by Sep’21, Mundra is expected to be connected later in FY22, as per the mgmt.
Gateway Distriparks (GDL: CFS + Rail) surprised positively in Q3FY21 led by sustained improvement in trade and improved profitability (rail business). Mgmt anticipates strong revival in industry volumes as it witnessed peak output in Rail and near peak volume in CFS segment. GDL is one of the first operators to run trains on the newly inaugurated section (from Garhi ICD on Rewari-Madar). While Pipavav port is expected to be connected by Sep’21, Mundra is expected to be connected later in FY22, as per the mgmt.
GDL’s deleveraging process remains intact while the restructuring process to improve fungibility of cash flows and operational synergies is expected to be complete over the next 8-10 months. We maintain Buy with a Mar’22 TP of Rs 220.
Q3FY21 Summary (Rail + CFS): Consolidated revenue grew 5% y-o-y (+20% q-o-q) as blended realisations grew 6% q-o-q while volumes fell only 3% y-o-y. PAT tripled y-o-y to Rs 347 mn (Rail PAT at Rs 361 mn, +143% y-o-y/+109% q-o-q). (i) Rail: Volume grew 9% y-o-y (vs. 5%/11% y-o-y growth in Concor/IR EXIM volumes; partly due to spill over from Q2) with recovery in trade while realisations improved 8% q-o-q (flat y-o-y). Ebitda/TEU improved 25% y-o-y/18% q-o-q to highest ever Rs 9,009/TEU. (ii) CFS: Volumes fell 11% y-o-y but improved 7% q-o-q with recovery in trade though realisations normalised vs. Q2FY21 levels (-7% q-o-q/+9% y-o-y) when realisations were higher due to high dwell time. Ebitda/TEU at Rs 2,880/TEU fell 15% q-o-q but increased 37% y-o-y on account of higher dwell time.
Set to benefit from demand revival and DFC: Given the context of improved domestic and global scenario, it believes industry volume growth has bottomed out and has seen strong indication from the lines. DFC is expected to have multiple impact on CTOs like GDL such as a) operational efficiency (double stacking of all containers); b) better visibility on timelines (and hence customer shift); and c) significant operating leverage, though part is expected to be shared with customers.
Raise estimates/TP: We raise our FY21E-FY23e EPS by 99%/65%/28%, respectively (partly on account of low base) to reflect Q3FY21 performance (higher rail and CFS margins) and mgmt outlook on improved margin guidance (Rs 8,000/TEU) for rail. We continue to value GDL’s rail business (9x Mar’23 Ebitda) and CFS (5x) separately. We maintain Buy on account of inexpensive valuations. Key risks: a) lower-than-expected cargo growth and b) adverse outcome on litigation.