Gateway Distriparks
Cluster: Cannonball
Recommendation: Buy
Price target: Rs250
Current market price: Rs171
A decent bounce back
Result highlight
- The Q2FY2007 consolidated net profit of Gateway Distriparks Ltd (GDL) at Rs21.7 crore is in line with our expectations.
- The consolidated revenues for the quarter stood at Rs38.16 crore, marking a growth of 6.5%. The realisation per twenty-feet equivalent unit (TEU) dropped by 11.8% year on year (yoy) due to stiff competition faced by the company at its Mumbai container freight station (CFS) and higher volume from the non-Jawaharlal Nehru Port Trust (JNPT) CFSs. However the throughput handled rose impressively by 20.7% to 60,497TEUs.
- The operating profit margin (OPM) for the quarter declined by 750 basis points to 57.4%, as the realisation dropped and transportation cost increased substantially on account of the ban on the overloading of trucks. Also Q2FY2006 was an exceptional quarter when the company had earned substantial income on account of higher ground rent due to floods and water logging at JNPT. The fall in the OPM caused the operating profit for the quarter to decline by 5.9%.
- However a three-fold increase in the other income (on account of the cash garnered through global depository receipt [GDR] deployed in bank deposits) help the earnings before interest, depreciation, tax and amortisation (EBIDTA) to jump up by 12.1% yoy to Rs27.9 crore.
- The interest expense declined by 51.6% as the company repaid a substantial part of its debt. The consolidated net profit for the quarter jumped 22.2% to Rs21.7 crore.
Tata Tea
Cluster: Apple Green
Recommendation: Buy
Price target: Rs970
Current market price: Rs750
Profits hit by high raw material costs
Result highlight
- Tata Tea Ltd (TTL) reported a 32% year-on-year (y-o-y) jump in its consolidated net profit (adjusted for extraordinary items) for Q2FY2007. The growth was driven by a higher other income and a lower tax rate.
- The consolidated net sales grew by 25.1% year on year (yoy) to Rs974 crore backed by a healthy growth in the domestic operations and the consolidation of the accounts of the companies acquired by TTL over last year. Tetley’s sales were stagnant during the quarter under review.
- The consolidated operating profit grew by a mere 11.5% yoy to Rs71.4 crore as the operating profit margin (OPM) dipped by 220 basis points driven by higher row tea prices and stagnant operations of Tetley.
- With the outgo on interest almost doubling during the quarter, the profit before tax and extraordinary items grew by a mere 4.4%. Eight O’clock Coffee (EOC), a company recently-acquired by Tata Coffee and 51% subsidiary of TTL, was profit accretive.
- Compared with a 30% stake in Energy Brands Inc (EBI), as announced earlier, Tata Tea (GB) Ltd (TTGBL; a 98.7% subsidiary) will hold only a 25% stake in EBI. The balance 5% will be directly held by Tata Sons Ltd (TSL). After the equity infusion by TSL, TTL’s stake in TTGBL will reduce to 75%.
- The ambiguity prevailing over the recent acquisitions made by the company and the funding structure of the same will act as a drag on the stock in the short term. However, over a longer period of time a lot of value unlocking is likely to happen, as the synergies amongst the various companies recently acquired materialise and as EBI goes for its initial public offering (IPO). We maintain our Buy recommendation on the stock with a price target of Rs970.
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