ASK - Gateway Distripaks

ASK Securities report on Gateway Distriparks:

Investment highlights:

Leader in traditional CFS business: Gateway Distriparks (GDL) is the largest private sector logistic service provider in the container freight station (CFS/ICD) business with market share of 18%. With India's containerized traffic set to double to 10 mn TEU over the next five years, GDL is well positioned to capitalize on the same.

Emerging leader in contemporary business - rail services: GDL is yet again the only private sector player to provide rail services, currently in partnership with the incumbent CONCOR and plans to eventually provide its owned services. This business venture, both complements as well as supplements GDL's traditional CFS/ICD business as rail connectivity provides compelling economics - 2.5 times cheaper than road in hauling containers to and from port gateways.

Envisions becoming an end-to-end logistic company: GDL envisions of becoming a full service container logistic outfit over the next five years with expertise spanning across the entire value chain, CFS/ICD, W&D, MTO, and cold chain. Its recent foray into cold chain logistics along with its rail services marks the beginning of this transformation.

Investment concerns

Margins to be under pressure in the near term: Unbridled competition in the traditional CFS business has led to a price war, which is most likely to play out for a few more quarters, thereby margins are likely to remain range bound at 50%. Delay in growth of support infrastructure: Landside infrastructure development particularly with regard to the upcoming dedicated freight corridor may not lock step with growth in container traffic and therefore the shift in time lines will impact the overall throughput.

Valuation

Worthwhile does take a while: GDL is in the right business at the right time. Whilst the opportunities are compelling, the near term prospect for GDL is lukewarm. Hence, GDL is an investment proposition only for the long-term. Based on our DCF analysis, the fair value is Rs251. GDL discounts its FY08 and FY09 earnings of Rs9.8 and Rs11.6 by 18.2x and 15.5x respectively. We initiate coverage with a Buy rating.