Q3FY18 was a weak quarter for the rail and CFS businesses, reflecting inability to service rail demand (slow-moving rakes), high exim imbalance, weak growth in key NCR volumes, increase in instances of direct port delivery at JNPT. A peep of light came from the cold-chain business which returned to the black. We build some recovery into FY2019 and limit the cut in estimates to 1-4%. We shave our EV/EBITDA multiple for the rail/CFS segments (14X from 14.5X/7X from 7.5X) on deteriorating industry dynamics. Gateway Distriparks reported weak Q3FY18 consolidated revenue of `970 million, down 5% y-o-y and 7.5% below estimate. CFS volumes were flat y-o-y and 4% down q-o-q. While rail volumes grew 8% y-o-y, similar growth reported by Concor in originating volumes, a dip in realisation back to Q1FY18 levels led to a modest 3% revenue growth in rail logistics (GRFL) in the quarter.
Reported EBITDA stood at Rs 220 m, up 14% y-o-y and 5% miss on estimates. EBITDA margin of 22.7% was up 90 bps q-o-q. A lower tax rate in the rail business (possibly booking 80 IA benefits in P&L) and recovery in the cold chain business led to PAT of Rs 195 million — a lower miss of 4%.
GDPL has recently taken an increase of Rs 500 per TEU in its pricing in Q2FY18 and acceptance of the same by all clients is taking time (some have price annual contracts). It has seen some success with the Faridabad terminal now operating at 3,000 TEUs/month throughput and Krishnapatnam terminal reaching 1,500 TEUs/month.
Viramgam terminal is also achieving increased double stacking and GDPL expects to get the ICD license soon.We cut our EV/EBITDA multiple to 14X for the rail business, considering relative underperformance of GDPL versus Concor in 9MFY18. We also cut the EV/EBITDA multiple for the CFS business to 7X on the threat from direct port delivery. Roll forward to March 2020E leads to an unchanged SOTP-based target price of `270. Retain ‘Buy’.