Friday, 10 November 2017

Gateway Distriparks Ltd: Enter the Gate; Other stocks covered-Texmaco rail and Titagarh wagons



Gateway Distriparks (GDPL): This is one of the best plays on the growth of CFS and railway freight. 2nd largest player in railway freight after Concor (Although 2nd place with wide margin as Concor has some 70% share), one of the biggest player in Container fright stations with annual capacity to handle 624,000 TEU. 

It is also one of the biggest in ICD (Inland container depot), most importantly its ICD’s are located in North-west corridors covering Delhi/Haryana/Gujarat which is the busiest route in India. ITS ICD’s are located near Gurgaon, Faridabad, Ludhiana, Mumbai, and Ahmedabad. It owned the lands of all ICD except Mumbai which is a JV although it is a smaller one. Owned land in these 4 ICD’s is 250 acres!! ICD will help it to capture the growth of containerized cargo post completion of Dedicated freight corridor (DFC).

DFC will be the game changer for Indian railway as it’ll enable Railway to capture the high share in freight business wherein road sector accounts for some 65-70% which is not economical and a big loss to the economy. Network congestion has resulted in the decline of the share of Railway in freight along with the fact that Freight rates are highest in India in order to provide cheap passenger services (which is plain foolish). 

DFC tracks will have average speed of 70-75 km per hour from the current 20-25 km and one rack on the DFC will be able to carry 13,000 tonnes of load compared with 5,000 tonnes by current racks entailing huge cost and time savings.So a major restructuring will happen post DFC. First DFC route is going to be ready in mar-18 from Ateli ( Haryana) to Phulera (Raj) and some major routes by Dec-2018.

So Gateway is best placed to capture this via its railway freight and ICD business which are having high entry barriers due to high setup costs (Land etc.) and long time. Gateway has invested significantly in the past few years in expanding its capacities in CFS/Railway and ICD business the impact of the same will accrue from now on.

Gateway holds 49.25% in railway freight business (GRFL) so its numbers are not getting consolidated with GDPL. Its railway freight business has turnover of around 800 cr and this qtr its NP has grown 140% to 19 cr. So this business will be a huge growth factor. Concor is the biggest player but still I feel GRFL will command premium valuations due to its much higher ROE as GDPL’s rail business is mainly in more profitable North-west corridor which allows for the double stacked cargo trains (GDPL has 67% double stacked cargo) which are more cost effective. 

Double stack trains are being used for nearly 70% of United States’ containerized cargo. But share is very low in India. Although there are weight consideration for tracks but double stack trains are beneficial when cargo is of larger but comparatively lighter weight like cars, automobile and electrical components, consumer goods and pharma products as compared to heavy items like cement/steel etc.
I am having Concor from 400 levels (CMP 1340) but still it is a buy although Gateway is way cheaper at present.

GDPL also holds 40.25% in snowman, earlier it was its subsidiary but GDPL share dropped after the IPO of Snowman. As Snowman is incurring losses for some time so GDPL is not getting much valuation from Snowman but this slowdown in Snowman is just transitory and it’ll see high growth this year. High growth in Pharma, Frozen food, dairy will benefit cold chains along with the govt focus on improving the agro supply chain for farmers.

I picked GDPL around 100 in 2014 but added good qty (as per my Investment target) around 220 last month or so. Its sep-17 qtr results are good. Group (CFS, Rail, Cold chain) turnover is up 10% 347 cr and NP is up 60% at 25 cr although snowman incurred loss of 4 cr. It is available at PE of around 25-30 which is cheap considering high growth future prospectus. Group turnover is around 1300 cr. It is a high dividend player and current yield is around 3% so we can expect high growth in dividend also when it’ll enter into high growth and profitability phase in the future. So today morning picked more at 240 and 260. At 260, it is still one of the great pick in logistic space.

Also going to buy Texmaco rail (CMP 112) and Titagarh wagons (CMP 140) as these two will garner high share in railway and metro sector as the demand prospectus of railway infra will be high. Earlier, these two were just manufacturing wagon which are low technology and commodity type of product but off late these two have augmented their capacities significantly and now they cover almost all the aspects of railway sector from wagon, Locomotive, Installation of tracks, security and electrical system.Apart from Railway, Texmaco is into steel foundry, hydro mechanical, bridges, Rail EPC (Laying of Track/electrical systems after the acquisition of Kalindee) while  Titagarh is also into defense, ship building, construction equipments, tractor segments.

(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing. I am not a certified Sebi Analyst and holding the shares discussed in this Post).

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