Value unlocking key trigger for Gateway

Improving prospects on back of demand revival also play in its favour

Gateway Distriparks scrip has underperformed the broader markets over the past year with its share price falling 22% as against the positive returns of the Sensex at 12%. The company which gets its largest chunk of revenues from its container freight station (CFS) business (the others being cold chain and rail) has been hit by the global slowdown in trade and container volumes. The stock saw some action recently after it announced plans to list its cold chain subsidiary Snowman and raise money to fund the subsidiary’s expansion plans.

While the company has gained market share in some cities where it operates its container freight stations, the overall CFS business has not been as robust. However, going ahead, analysts at SMC believe that the company will continue its strategy of expanding its CFS network and with the general improvement of its business climate, it is expected to do well in the CFS segment. While trade data for August shows that container volumes were down 3% year-on-year, they are up 2.3% on a sequential basis, the upward monthly trend visible since May. Religare analysts, however, say that any major volume growth in the rest of FY14 would be driven by an improvement in the macroeconomic situation and stability of the Indian rupee.

Most analysts, however, have a 'buy' due to upsides from value unlocking through listing of subsidiaries and improving prospects on the back of demand revival.

Says Jignesh Makwana of Quantum Securities, “The upsides in the stock will largely accrue from value unlocking with the listing of the cold chain subsidiary Snowman in the near future as well as that of the rail business in the medium term. The revival of the economy will also boost the fortunes of the CFS and rail businesses.”

Analysts peg the valuations of the two unlisted subsidiaries at Rs 1,100-1,200 crore, which is the current market cap of the consolidated entity.

Valuations too are at attractive levels. The company is trading at a price to earnings (P/E) multiple of 8.6 times its FY14 estimates which is at a discount to the average P/E of 11.8 times over the last five years. Analysts have a one year target price in the Rs 140-Rs 160 range.               

Cold chain promise

The company is betting big on its cold chain business which currently accounts for 15% of its revenues.

“With almost 45% of the capex during the last 6 quarters directed at Snowman, total pallets rose to 53,000 pallets in June quarter of FY14,” says a Karvy Stock Broking report. The year ago number was 18,000 pallets. The company plans to increase its capacity to 90,000 pallets by FY15. Of the Rs 210 crore capex in FY14, Rs 150 crore is being used to fund Snowman’s operations.

Going ahead the prospects of the cold chain seems bright if the recent deals which value the company at Rs 435 crore are anything to go by. While the division contributes 15% of revenues, it accounts for nearly 38% of the company’s current market cap.  The company, which has filed the draft prospectus to list this subsidiary, intends to raise about Rs 150 crore, about 90% of which will be used to create temperature controlled warehouses.

Container freight station: Muted show

Volumes for the June quarter were 6-9% both on a sequential as well on year on year basis with realisations too falling 2.3% on a sequential basis. While the trade slowdown and growing competition has been a dampener for the company, there could be some improvement in the CFS business with the launch of the Kochi terminal and second CFS terminal at Chennai. Though the CFS business generates about 31% of the company’s revenues, the rebound of the business is critical for the company as the segment contributes nearly half of its operating profits. Ebidta margins at 42% too are the highest of the three businesses.