We underestimated the weak container volume growth impact between FY16 and FY19e on Gateway Distriparks (Gateway) financials. Given the small scale, Gateway saw some market share loss and 20% profit decline between FY16 and FY18. Stock has underperformed 51% in the last 12 months. DFC delay, higher interest cost on debt for Blackstone deal has led to a sharp cut in our estimates. We still believe the medium-term is strong and maintain Buy.
10% rail volume change is 20% FY20e profit impact: We have reduced our FY19e-20e volume assumptions for Gateway by 25% plus factoring a 1-year delay in DFC commissioning and the market share loss. Q2FY19 volumes were flat y-o-y v/s expectations of 37% impacted by work along Rewari-Palanpur route. We have factored in 7% y-o-y rail volume growth in FY19e. FY20e we have assumed only some DFC benefit and have 11.5% y-o-y volume rise.
Volume growth the driver: Our positive stance is driven by confidence that management will grab the opportunity in the expanding market. It should be a key beneficiary of DFC-linked volume growth, which should lead to profit CAGR of 43% during FY19e-21e. We maintain our Buy with a SOTP-based TP of `310 (v/s `400), implying consolidated PE of 23x FY21e. Downside risk: (i) indefinite delay in DFC; (ii) further market share loss from current levels.