Gateway Distriparks outperforms Sensex with 86% gain in 6 months

The Gateway Distriparks’ stock has declined nearly 6% in the past two trading days to close at Rs 125.5 on Tuesday. This was despite a recent announcement of fund-raising of Rs 300 crore through compulsorily convertible preference shares to Blackstone, in a bid to meet the growth plans of its subsidiary Gateway Rail Freight.

This transaction would result in the private equity player gaining between 37.3% and 49.9% stake in Gateway Rail Freight, depending upon certain parameters. The range of the stake dilution was, however, higher than analysts’ expectations. Gateway Distriparks held 89.2% in Gateway Rail Freight at the end of FY09.

However, in the past six months, Gateway Distriparks had outperformed the broader Sensex, by gaining nearly 85.5% during this period, as a pick-up in the industrial sector and broader economy is expected to improve the demand conditions for logistic players.

Gateway Rail Freight operates from its terminals at Gurgaon near Delhi, Ludhiana, Punjab and near Jawaharlal Nehru Port, Navi Mumbai. Its fleet includes container trains and rail-inland container depots, which provide end-to-end logistic solutions for export-import trade in the northern region, coupled with domestic trade in other parts of the country.

Gateway Distriparks, on a consolidated basis, had already invested nearly Rs 587 crore during FY07 and FY09 for expanding its logistics network, but its cash flow during this period was just Rs 320 crore. This had resulted in its debt levels on a consolidated basis jumping nearly 25 times to Rs 204.5 crore on March 31, 2009. Analysts also point out that the funds raised by Gateway Rail Freight would help the company compete more effectively with the dominant player in the logistics sector, government-owned Container Corporation of India.

Gateway Rail Freight’s segment revenues were Rs 75.4 crore in the September 2009 quarter, a rise of 72.9% Y-o-Y, and they accounted for nearly 56.2% of consolidated quarterly sales. This growth in the rail freight segment was powered by a 36.1% Y-o-Y growth in volumes transported to 27,762 TEUs in the second quarter, and it helped segment loss after tax of this division decline 61.7% Y-o-Y to Rs 2.28 crore.

Going forward, analysts expect the company to maintain the momentum in its rail freight business, given the current upturn in the domestic and EXIM trade. Gateway Distriparks trades at nearly 16.4 times trailing earnings, while Allcargo, another player in the sector, trades at almost 21.3 times.