Gateway Distriparks ‘rated’ buy; Disappointing performance in the quarter

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New Delhi | November 12, 2018 3:04 AM

Estimates see a sharp fall; medium term is strong; ‘Buy’ retained with TP cut to Rs 310.

Gateway Distriparks, Gateway Distriparks ratingsStock has underperformed 51% in the last 12 months.

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.

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