• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

S. Vaidya Nathan

Rising trend in containerisation should spur growth.

AN INVESTMENT can be made at the upper end of the price band of Rs 60-72 in the initial public offering of Gateway Distriparks. Though the pricing appears stiff, based on historical earnings, there appears room for a sizeable scaling up of revenues and profits over the next two/three years. Gateway would be well-placed to service containerised cargo through key ports, once its expansion and modernisation plans are completed.

A robust growth in the share of containerised cargo is also a macro-level factor that would be a positive for Gateway's prospects. The effect of a February tariff hike is also likely to drive revenue and earnings growth from FY-06.

The possibility of a sizeable decline in the operating profit margin and a situation where the company is required to absorb contract labour into regular payroll, perhaps even by legal processes, are the principal risks to earnings growth and, hence, our recommendation.

Gateway Distriparks provides a range of services to exporters and importers of containerised cargo. The track record has been fairly impressive with a five-fold rise in revenues over the past five years and a scaling up of earnings as operations expand. Its business model of relying on contract labour and enhancing the level of mechanisation in the handling and transportation of cargo has aided rapid growth.

Much of the growth till now has been driven by cargo routed through the Mumbai port, which handles about 60 per cent of the containerised cargo that pass through Indian ports.

As the Maersk-Container Corp joint venture completes the project to expand capacity to handle containerised cargo over the next couple of years, the Mumbai port would be able to handle 50 per cent more of the goods traffic. This would augur well for the prospects of Gateway as it is also expanding its warehousing facilities at its Container Freight Station (CFS) in Mumbai.

As Gateway has upgraded the infrastructure at its Inland Container Depot near Delhi, it should be able to garner a higher share of the export/import cargo in the northern region. With two contemporary ports with container-handling facilities having started operations at Pipavav and Mundra in Gujarat, containerisation is likely to get a fillip. All this may help alleviate the congestion in Mumbai and absorb traffic from the northern region. In this backdrop, Gateway's strategic location in the high industrial growth region in the North gives it an edge.

The acquisition of a CFS in Chennai and a 60-per cent stake in a joint venture that would operate a CFS in Vishakapatnam would expand the geographic footprint of Gateway and create new revenue streams.

Adding these two ports to its coverage ensures that Gateway has facilities to capitalise on growth through all the key ports that could handle containerised cargo. Its capacity would rise by about 25 per cent. Capacity utilisation has been stepped at an impressive pace over the years. But it still operates at less than 75 per cent of its existing capacity; we do not anticipate any constraint on this score for a few years.

The revenue profile has also shown an encouraging trend. If the share of revenues from export cargo rises and/or labour cost spurts, margins could slide by a few percentage points. Even if one factors in these aspects, the profitability levels would be healthy, and the rise in volumes is also likely to prop up earnings.

If the company pursues acquisition opportunities, as indicated in the offer document, the equity expansion may be limited as it is comfortably placed to bankroll them through debt and internal accruals; it would also have Rs 20-35 crore from this offer to be deployed to finance them. Acquisitions are likely to be on the fast-track to scale up operations and would be earnings-accretive over the long term.

Background: The offer comprises an offer of 11 million shares by the company and an offer for sale of 10 million shares by Infrastructure Development Company Ltd (IDFC) and closely-held companies owned by the promoters.The book-built offer closes on March 14. .

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Madras Aluminium: Bid at Rs 260

Copyright © 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line