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Gateway Distriparks - Advantage India!

Jan 9, 2006

Background to the company...
Incorporated in 1994, Gateway Distriparks Ltd. (GDL) is a leading provider of port-related logistics services in India. The company has been promoted jointly by Singapore based Windmill Group, Parameswara Holdings and Thakral Corporation along with the Indian partner - Prism International Pvt. Ltd. GDL commenced its operations by setting up a container freight station (CFS) at Dronagiri near JNPT (Navi Mumbai). The company currently operates CFS facilities at JNPT, Vizag and Chennai and an inland container depot (ICD) facility at Gurgaon.

Business Overview: For several years, the company operated from its solitary CFS facility at JNPT (India's largest container port). Over the past three years, it acquired facilities at Chennai and Gurgaon and set up a green-field facility at Vizag. While the CFS facility at Navi Mumbai caters to the containerized export-import trade handled at the JNPT, the northern industrial belt is served by the ICD at Gurgaon. On the other hand, the CFSs at Chennai and Vizag serve the south and east markets of India. The total capacity of these facilities is currently in excess of 300,000 TEUs (twenty equivalent foot units).

Location FacilityCapacity (TEUs)*
Dronagiri, Navi MumbaiCFS216,000
Garhi Hassaru, GurgaonICD 36,000
VizagCFS 12,000
ChennaiCFS 60,000
Total 324,000
* Includes capacity additions envisaged for FY06.

The company principally caters to the shipping lines and consolidators. In a short span of time, it has established itself as an efficient provider of CFS services. GDL's client-list includes most of the major global shipping lines like APL, CMA, P&O, and Mitsui. The service offerings of the company include container transportation to/from port, stuffing/de-stuffing of cargo, general and bonded warehousing, customs clearance, and container maintenance. In addition to this, it also provides other value added services like general and bonded warehousing and so on.

Financial Performance
(Rs m)FY03FY04FY05
Net Sales457 592 937
% change-29.5 58.3
Expenditure236 318 420
Operating profit (EBITDA)221 274 516
EBITDA margin (%)48.4 46.3 55.1
Other income4 6 13
Interest28 17 46
Depreciation32 40 65
Profit before tax165 223 419
Tax28 32 71
Profit after tax137 191 348
% change-39.4 82.2
Net margin (%)30.0 32.3 37.1

The company has been growing steadily over the years. During the three year period (FY03-05), sales grew at a CAGR of 35% to Rs 937 m with net profit outpacing the topline growth (CAGR of 42% to Rs 348 m). The company has also maintained a healthy average EBITDA of over 45%, which is far better than the margins of its peers like Container Corporation of India (Concor) and Balmer Lawrie & Co.

International Container Traffic in India - An overview
The trend towards containerisation gained momentum in India only in the last decade. Improvement in port infrastructure and increased private participation in ports resulted in the development of modern container handling terminals at ports like JNPT, Chennai, Vizag, Mundar and Piplav. The movement of cargo through containers has been increasing and growing at a faster pace when compared to the overall growth in export-import trade. During the last decade, the containerised traffic has grown at a CAGR of 12.3% as compared to the 5.3% CAGR growth in the export-import trade. The total container traffic handled in and out of India is currently estimated at around 5 million TEUs. JNPT and Chennai Port accounted for more than 70% of the total container traffic handled in the country.

What to expect?
At the current price of Rs 292, the stock is trading at a price to earnings multiple of 29 times annualised 1HFY06 earnings (since listing, the stock has gained almost 300%). The boom in international container traffic is expected to continue going forward. GDL, which has presence in almost all the major container handling ports in India, is likely to benefit from the ongoing construction of new terminal facilities. Also, the recent government announcement to do away with the Concor's monopoly in container traffic movement on the railway network is a big positive. We believe that this is a very significant development for private players. With the acquisition of its own transport and handling equipments and revitalisation of its ICD facility at Gurgaon, the company is expected to perform better.

Investors should however, note that increase in transportation and handling costs due to rise in fuel prices and congestion at ports on account of development of new terminal facilities could have a negative impact on the profitability of the company. To that extent, there could be margin pressure. In our view, logistics-related companies are a play on the Indian economy. Increased international trade (India's international trade accounts for 25% of GDP, with exports accounting for 12% of GDP. Exports to GDP has increased from around 10% three years back) will directly benefit such companies.

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