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Gateway Distriparks: All fall down! - Views on News from Equitymaster
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Gateway Distriparks: All fall down!
Nov 12, 2009

Performance summary
  • Net sales decline by 30% YoY during 2QFY10.
  • Economic slowdown affects EXIM trade. Slowdown in economic growth impacts volumes and hence overall performance of the company.
  • Operating profit declines by 42% YoY, while net profits decline by 31% YoY.
  • The board approves fund raising of Rs 3 bn by issuing compulsorily convertible preference shares to Blackstone to support growth and expansion plans of its subsidiary Gateway Rail Freight (GFRL).
  • Upon conversion, which will take place over the next five years, Blackstone would hold stake in GFRL between 37.27% and 49.9%.


Financial performance snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 551 386 -30.0% 1,021 774 -24.3%
Expenditure 233 202 -13.4% 444 395 -11.2%
Operating profit (EBITDA) 318 184 -42.1% 577 379 -34.3%
EBITDA margin 57.7% 47.7%   56.5% 49.0%  
Other income 19 17 -7.2% 31 27 -11.8%
Interest 2 2 15.3% 2 5 142.2%
Depreciation 36 38 4.0% 72 75 4.0%
Profit before tax/(loss) 298 162 -45.9% 534 327 -38.8%
Tax 36 (18)   66 (26)  
Profit after tax/(loss) 262 180 -31.4% 468 353 -24.5%
Net margin 47.6% 46.6%   45.8% 45.6%  
No of shares (m)       113.6 107.7  
Diluted EPS (Rs)*         7.6  
P/E (times)         17.0  
*trailing twelve month earnings

What has driven performance in 2QFY10?
  • Gateway Distriparks’ (GDL) revenues declined during the quarter as the global economy had not yet recovered. The company has not declared its volume numbers. However, we believe that the global economic slowdown that impacted EXIM trade post 1HFY09 continued to hamper volume growth. While there were signs of restoration of trade and improvement in domestic economic activity, normalcy will take some time. The impact of global economic meltdown was felt 2HFY09 onwards and recovery has been gradual, as a result of which performance for the full year will not be too enthusing.

  • Though the 13% YoY fall in operating costs was lower than the fall in the topline, it was still not enough to arrest the drop in EBITDA margins. The latter declined by 10% during this quarter leading to the 42% YoY drop in operating profits. The same was the result of dismal show put up on the topline front.

  • The company reported a 46% YoY fall in profit before tax on account of poor show at the operating level, lower other income and higher depreciation and interest costs. However, at the net level, drop in profits was relatively lower at 31.4% YoY on account of lower tax expenses. The same was the result of tax holiday enjoyed by the company under the Income Tax Act in respect of the Container Freight Station activities. The company has fulfilled provisions of Section 80-IA (4) (i) of the Income Tax Act, 1961, and hence is eligible for tax holiday.

What to expect?
At the current price of Rs 130, the stock is trading at a price to earnings multiple of 17 times its trailing twelve month earnings. Policy makers have lined up huge of investment plans on the infrastructural front to support domestic economic growth. Revival in the global economy would support the country’s exports. Restoration of trade and improvement in domestic economic activity would result in increase in demand for Container Fright Stations (CFS). With that the company plans to revive its CFS business plans. The company is also planning to gradually move to a hub and spoke model for its logistics requirement with six-laning of highways being planned. This will entail the need for more Container Freight Stations at strategic locations.

The company has unveiled its plan to unlock value in its subsidiary GRFL by listing it on the bourses in the next five years. GDL would concentrate on CFS business, setting up more warehouses and third party logistics. On the other hand GFRL would scale up its fleet size from 17 to nearly 23 trains, develop existing land at Faridabad, set up a third inland container depot (ICD) and expand its network in Gujarat and Mumbai. While the inflow of funds would enable the logistics solution provider to scale up its assets and explore the opportunities in the logistics sector, at the same time it would also lead to equity dilution, which would impact earnings per share.

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