Stock Review: GATEWAY Distriparks (GDL)

GATEWAY Distriparks (GDL), a mid-sized logistics player, is present across different segments including warehousing, cold chain facilities and rail and road transportation. It has benefited from a strong revival in the domestic sector and the country's external trade. Gateway Rail Freight (GRF), a subsidiary of GDL, had received 300 crore from private equity player Blackstone Group in August 2010 as per the shareholder agreement entered earlier. The funds received are used to expand its existing rail terminals at Garhi Harsaru (near Gurgaon) and Sanehwal (Punjab), and for developing new rail terminal at Asaoti, Faridabad. GDL will also set up a greenfield container freight service (CFS) facility at Kochi.

   This expansion by Gateway Distriparks appears timely given the rapid expansion in key user industries, like the country's industrial and capital goods sector, planned over the next few years

LOGISTICS NETWORK:

The company is present across different segments of the logistics sector. In its CFS business, its network includes those at JNPT, near Navi Mumbai, and at Chennai and Vishakhapatnam. The company handled 3.03 lakh TEUs (twenty foot equivalent) at the end of March 2010, a CAGR growth of 10.7% from three years earlier. GDL receives import and export cargo from its clients at its CFS located close to ports and they are suitably transported to their final destination.

   Its subsidiary, GRF had commenced container rail operations during the year ended March 2008, with the deployment of eight container trains. And by the end of March 2010, GRF owned and operated 18 container trains and 235 road trailers for meeting the needs of customers in the domestic and the export-import segment. It also provides rail and transport services from Navi Mumbai. GRF is developing a terminal at Faridabad to cater to the needs of its clients in New Delhi and adjoining areas. This facility is expected to be operational over the next few months. The company's rail operations, namely Gateway Rail Freight, had posted a net loss of 12.7 crore on consolidation after minority basis for year ended March 2010. However, the largest player in the domestic container rail traffic segment is the government-controlled Container Corporation of India. In addition, GDL through its subsidiary Snowman Frozen Foods (SFF) is one of the few pan-India cold chain logistics players. Gateway Distriparks has a 48.9% stake in Snowman Frozen Foods at the end of March 2010.

FINANCIALS:

The pick-up in the country's external trade helped its CFS volumes grow 5.6% year-on-year to 83, 500 TEUs in the second quarter, while realisations also improved 6.5% per TEU. And it helped the company's standalone operating profit margin improve 80 basis points year-on-year to 49.8% in the September 2010 quarter. Its net sales also rose 6.1% in the quarter.

   The company had invested 481.2 crore on a standalone basis during the three years ended March 2010, while its operational cash flow during this period was 385.9 crore.

   However, as the company was able to quickly deploy its expanded logistics network, it was able to keep its debt at very low levels during this period.

VALUATIONS :

Gateway Distriparks, at CMP, gets a P/E of 15.6 times on a standalone basis, on a trailing four quarter basis. The largest domestic logistics player Container Corp trades at a P/E of 21.3 times, while Allcargo Global Logistics trades on a consolidated basis at 13.1 times. Given its expansion plans and robust economic prospects in the country, investors can consider buying Gateway Distriparks for the long term.