Gateway Distriparks: Maintain ‘buy’, TP at Rs 127

Gateway Distriparks (GDPL) has entered into a share purchase agreement (SPA) with Adani Logistics to sell its entire stake of 40.25% in Snowman Logistics (Snowman) for a consideration of Rs 2.9 bn at its board meeting on 27 Dec’19.

The acquisition has been made for more than 25% of the voting rights; therefore, an open offer for purchase of up to 43.4 m equity shares, representing 26% share capital of Snowman at Rs 44/share has also been made. GDPL intends to focus on the container logistics business; net proceeds from this sale will be used to reduce debt.

GDPL has entered into the SPA to sell its entire 40.25% shareholding in Snowman Logistics to Adani Logistics for Rs 2.95 bn. The expected date of the completion of sale is on or before 31 Mar’20. Snowman’s net loss for H1FY20 was Rs 102.5 m (v/s net profit of Rs 20 m in H1FY19). GDPL accounted for its investment and share of profits in Snowman under the equity method and as an associate company. Adani Logistics is a pan-India end-to-end logistics services provider with operations spread across Container, Bulk, Break-bulk, Chemical, Auto and Liquid industries.

GDPL has indicated that it will focus on the container logistics business and will use net proceeds from this sale toward debt reduction. In Q2FY20, GDPL’s net debt in CFS/Rail stood at Rs 6.3 bn/Rs 1 bn. Further, GDPL also approved the sale of Chandra CFS in Chennai for a consideration of Rs 470 m in Q2FY20. The entire proceeds of this sale were to be used to pay off debt. Besides, GDPL has NCDs worth Rs 2.7 bn, which will mature over the next two years. The company has indicated its intention to repay these before time by using internal cash flows and by selling non-core assets.

GDPL is a direct play on India’s EXIM growth and is a beneficiary of increasing containerization, which will be boosted on completion of the DFCs. Key monitorables are EXIM growth, margin improvement from the Viramgam terminal, and completion timelines of the DFCs. The stock trades at 5.2x FY21E EV/Ebitda. We value the stock at 6x FY21E EV/Ebitda to arrive at a TP of Rs 127. Maintain ‘Buy’.