Monday, April 11, 2016

GATEWAY DISTRIPARKS: Riding on the logistics bandwagon

Logistics service providers were seen as beneficiaries of an uptick in infrastructure development, economic growth and e-commerce and this piqued investor interest. Among the listed players in this segment, shares of Gateway Distriparks zoomed since January 2014, boosted by value unlocking from the listing of its subsidiary Snowman Logistics (September 2014), where it holds a 40 per cent stake.

Also, expectations that another subsidiary, Gateway Rail Freight, might be listed, aided the steep stock price rise. Its share price tripled between March 2014 and March 2015, to a high of over Rs.440. The share price has corrected since.

The current price of Rs.270 discounts Gateway’s trailing 12-month earnings per share by nearly 23 times. This is much higher than the average earnings multiple of 10-13 times it had traded in the past, before the run-up in 2015. But the valuation multiple has been re-rated, thanks to the company’s revenue and profits growth, which averaged 17 per cent between 2010-11 and 2014-15.  Operating margin and net profit margin have been stable at about 26 and 16 per cent, respectively, in the same period. Gateway’s balance sheet continues to be strong, with net debt at 0.15 times equity, better than the 0.57 times in 2010-11.

The company operates container freight stations near ports offering transportation, storage, warehousing and added services, with a total capacity of over six lakh twenty-foot equivalent (TEU). However, drop in international trade has hurt revenue growth in this segment — revenue dipped 6 per cent in the nine months of 2015-16 compared to the same period a year ago. However, long-term growth in this segment will be helped by a few factors. One, the 4.8 million TEU capacity additions in the Jawaharlal Nehru Port Terminal, expected to be completed in 2020, will increase freight activity. Two, the dedicated freight corridor (DFC) that is expected to be operational by 2019 will aid volume growth.

Gateway’s subsidiary Gateway Rail Freight operates a fleet of 21 trains and over 270 road trailers. It also owns three rail-linked inland container depots and has direct connectivity to ports such as Mundra and Pipavav. It plans to add a new container depot facility, and run double stack operations (instead of single-stacking cargo). These would aid revenue and margin.

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