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SECTOR REPORT

PRIVATE CLIENT RESEARCH JULY 29, 2011

Amit Agarwal agarwal.amit@kotak.com +91 22 6621 6222

Logistics Industry
Privatization of container rail operations in 2006 enticed 15 players to enter the space. These players are eyeing 3 to 5 % (~ 100 mn tonnes) of the overall freight market by trying to shift volumes from road to rail. Operators can 'create the market' by offering integrated, value-added logistics solutions with last mile connectivity. Integrated services include CFS operations, ICD operations, freight forwarding services, freight congregation and trucking. However, to attain these capabilities and garner higher volumes, operators need to invest heavily in hard infrastructure. As the business entails a longer gestation period, scale and efficiency (utilization and turnaround times) are extremely critical to generate returns of 15%+ on capital employed. We believe that the new entrants in the segment will provide integrated service and will grow at a faster pace over a sustained period of time. Our prime pick in the sector is Gateway Distriparks (BUY, 18% upside) followed by Allcargo (BUY, 20% upside).We would await for key steps and the right valuation to turn positive on Concor. We initiate coverage on the Logistics sector with a positive bias with investments in ports and railways on a rise. q Growing investment and privatization favour the logistics sector: Five recent developments make us optimistic about logistics players: (a) the National Maritime Development Project has projected investments of ~ Rs 600 bn and 12% CAGR in container traffic in India's maritime sector through FY16E , (b) container transportation has been opened up to private competition (c) investments have picked up in rail infrastructure especially by private players.(d) opening of the port sector to private players and (e) development of Dedicated Freight Corridor (DFC). q Growing containerisation in the country: Container cargo represents only about 30% (by value) of India's external trade-much lower when compared with the global containerized cargo average of 70-75%. At a growth rate of 12%, India's container cargo traffic is estimated to reach 15 million TEUs by FY16E from about 7.5 million TEUs now (at 12 major ports). In comparison, China has created capacity at its ports to handle more than 100 million TEUs a year. Out of the 15 mn TEUs of total container traffic, we estimate Exim rail container traffic to be ~5 mn TEUs by FY16E. This would be a huge opportunity and will significantly benefit container rail operators. q Integrated service offering to attract volumes to rail: While the number of operators appears high at 16, we believe there are enough volumes. With 350 rakes expected to be operational by FY13E, players are eyeing around 2 to 4% (~ 100 mn tonnes) of the overall freight market. However, volumes are required to be shifted from road to rail, for which operators have to offer timely, reliable and value-added services with last mile connectivity and customized solutions. We believe players offering integrated service would be at an advantage.

Companies covered

n Allcargo Global Logistics n Container Corporation of India n Gateway Distriparks
x

Valuation
CMP (Rs) Gateway Distriparks Allcargo CONCOR 136 159 1098 Mkt Cap (Rs mn) 14,750 20,990 142,850 FY12E 13.0 12.0 16.5 P/E (x) FY13E 11.1 10.4 15.6 FY12E 7.1 6.4 9.5 EV/EBIDTA (x) FY13E 6.2 5.7 8.9 FY12E 1.7 1.6 2.5 P/B (x) FY13E 1.6 1.4 2.3 FY12E 9.8 14.7 15.4 ROE (%) FY13E 10.7 15.3 14.9 One year Target (Rs) 160 195 1,000 BUY BUY REDUCE Reco

Source: Kotak Securities - Private Client Research

Registered Office: Kotak Securities Limited, Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400021 India.

SECTOR REPORT

July 29, 2011

q Returns linked to turnaround times and utilization levels: Container rail is a highly capital-intensive and long gestation business with hefty investments required in rakes (capacity) and rail sidings (cargo consolidation and value added services, etc) to attract volumes. Hence, asset turnaround time and utilization levels assume greater relevance for an operator to derive economies of scale and be profitable. Once an operator achieves critical mass, we believe it can earn RoCE of 15%+, which can be further augmented by offering integrated services. q Gateway Distriparks fast growing company, Recommend BUY (TP: Rs.160). We prefer the largest private container rail company - GDL, its operating 21 rakes and 2 functional Inland Container Depots (ICD). Blackstone recently invested Rs 3 bn in the rail business which the company would be investing to add rakes and ICDs. We estimate that the hitherto bleeding rail business would make material contribution to earnings for GDL in FY12E and FY13E and would be the key segment for the company. Rail haulage volumes are expected to grow at 14% CAGR over FY11 to FY13E for GDL vs. 5.6% for Concor. The company also recently won a contract of Vallarpadam terminal and that would boost the CFS volumes of the company from FY13E. q Allcargo looks strongly placed, Recommend BUY (TP: Rs.195). Allcargo which has a strong presence in Non Vessel Owning Common Carrier (NVOCC) space through wide network of ECU Line and also has a strong hold on domestic Multimodel Transport Operations (MTO) business should benefit from the growing container traffic and improving containersation globally. The company is also adding significant capacities in CFS/ ICD business. We expect volume growth to gather steam on expanded capacities and improving global container volumes. The consequent revenue growth, estimated at ~8% CAGR over CY10CY12E, is likely to be broad-based with contribution from all the businesses. q Concor is fully valued, Recommend Reduce (TP: Rs 1000). Concor despite its pan India infrastructure (220 rakes and 60 terminals),has conceded 20% Exim business and 10% domestic business to private players since 2007.With private players aggressively creating terminal infrastructure and buying rakes to grow their business, we estimate that over FY11-FY14E, Concor would concede another 5% Exim business share to private players. The company also has been negatively impacted by the rail policies of the Indian Railways which may hurt the growth in domestic segment. The stock is currently trading at a premium valuation of its high growth period of the past. q Related business would also benefit. Rising investment in the rail and port spaces also fuels growth in allied industries like wagon manufacturing, porthandling equipment, railway electrification systems and construction companies.

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SECTOR REPORT

July 29, 2011

CONTAINER RAIL BUSINESS
Container rail business opened up to private operators
Indian Railways (IR) opened up the container rail business to private operators in 2006. Since then, 15 new players, besides the incumbent Concor, have joined the fray. Of these players, 12 hold a pan-India license while four have opted for a routespecific license, which entitles them to operate only on NCR-JNPT route. Private players have already made huge investments in the business and have further plans to scale it up. The entry of private players in the segment has intensified the competition in the segment and improved efficiency.
Players in Rs 500 mn license fee category (all India)
Company Concor CRRS (DPW) Arshiya international Sical Logistics No of rakes 220 7 10 5 Current infrastructure 60 terminals Tie ups with CFS/ ICD operators Vizag; Tie ups with various pvt sidings 3 CFs (Chennai, Tuticorin & Vizag); Tie up with CFS/ICD operators & private sidings Has several ICDs and CFSs of its own NA NA Patli in Gurgaon (NCR) and Kishengargh, Rajasthan Tie ups with CFS/ ICD operators Tie ups with CFS/ ICD operators Strategic alliance with Allcargo & CWC at JNPT, Mundra & NCR 2 ICDs - Garhi (Delhi), Sanewal (Ludhiana) Planned 3-4 ICDs/Logistics parks NA Khurja (NCR); 5 others More sidings planned

Central Warehousing Corp (CWC) Reliance Infrastructure Leasing Kribco Adani Logistics Emirates Trading Agency (ETA) India Infrastructure Logistics Pvt Ltd (APL) Hind Terminals (MSC Group) Gateway Distriparks (GRFL) Source: Industry; Indian Railway

0 0 0 5 8 10 12 21

NA NA NA Land acquired for more sidings 2 owned sidings Panipat New locations in strategic alliance with Allcargo Faridabad (NCR)

Players in Rs 100 mn license fee category (sector-specific routes)
Company Pipavav Rail Corporation (PRCL) Delhi Assam Roadways Corp. Boxtrans (JM Baxi and Co) Inlogistics (B2B) Source: Industry; Indian Railway No of rakes 0 2 12 12 Current infrastructure NA NA Vizag & Rajasthan; Tie ups with CFS/ ICD operators Kalamboli (JNPT); Tie ups with CFS/ ICD operators Planned NA NA 5-6 sidings planned 3 sidings planned

Enough freight volumes in the system…
India has a large freight market estimated at 3.7 bn tonnes in volumes, which have been expanding (8% CAGR over the past three years, source:IR/Industry) in line with the rapid economic growth. Interestingly, only 30% of this cargo is estimated to be handled by the railways despite rail being a cheaper, faster and more efficient mode of freight movement against roads due to lack of focus by IR on aggregation of cargo. Indian railways are trying to address the loss of market share through containerized operations.

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Note: We have estimated the freight volumes to grow at a CAGR of 8% over FY11 to FY14E. To attract volumes to the container rail segment.726 530 1. we believe there are enough volumes for all the players in the system.55 FY08 794 1. container rail operators to have 2.7 FY10 910 1.Private Client Research Please see the disclaimer on the last page For Private Circulation 4 . being transported by rail.478 464 1. the total number of rakes is likely to increase by 100 to 400 over the next three years.0 103.3% capacity of overall freight market FY14E Total no. regular and integrated services to develop and create a market – especially in segments with cluster of clients. With 400 rakes. or ~2m TEUs. End-to-end integrated services to drive volumes and shift to rail While target volumes of container rail operators appear to be low in comparison to the total freight market.Private Client Research.3 2. Penetration of container rail is relatively higher in port volumes (Exim cargo) with 30%.9 FY11 1025 2. of which Concor accounts for 220 rakes with the remaining being with private players.046 570 2. which is estimated to be 1% (~6m tonnes) currently.71 FY09 850 1.0 Overall freight market estimated at ~ 4600 mn tonnes in FY14E Per rake capacity for a trip @ 100% utilization (TEUs) Average no.184. we estimate that container rail operators would have a capacity of ~104 mn tonnes (FY14E). the targeted volumes are ~2% of the overall freight market in India (including all modes of transportation) and only ~ 4% of the volumes moved by road.612 519 1. for which aggregation of cargo can be done for an entire rake movement.353 424 1.000 20. the container rail industry has a capacity of ~300 rakes.SECTOR REPORT July 29. Notably.68 4. 2011 Indicative break-up of freight handled in the country (mn tonnes) Rail freight Road freight Sea freight Air freight Source: Industry FY06 667 1.1 But penetration of container rail is quite low The domestic segment is extremely fragmented with limited penetration of containerized rail movement. players face the imperative to ‘create the market’ – a time consuming process in our view.0 432. of rakes (Concor and private operators) 400 180 6.577 4.589 2. of trips / month / rake Total capacity in a month (TEUs) Annual capacity (TEUs) Average loading per container (tonnes) Total capacity of rail operators (m tonnes) Estimated freight in India for FY14 (m tonnes) Containerized freight volumes currently estimated at 1% or 6 mn tonnes of the overall freight market % of volumes for container rail operators Total road freight in India in FY14 (m tonnes) % of volumes of container train operator of road traffic Source: Kotak Securities . Kotak Securities . operators need to provide reliable.000 5.875 561 1. As per our discussions with various container rail operators. Currently.4 FY07 728 1. Accordingly. With 400 rakes operational and at 100% utilization.

i. return loads .e. by integrating the cost-effectiveness of rail and the point-to-point delivery of road. etc. utilization levels (in turn highly dependent on return loads). Also. Container rail is a Capital Intensive business – Infrastructure required Rail license Container rail business entails huge investments Sufficient Rakes Sufficient ICDs (real estate) Containers Rail Sidings Trucks Terminal Infrastructure Source: Industry Higher utilization and turnaround times – critical for profitability There is no set break-even level of utilization for a container rail operator as the break-even point depends on the distance moved by a rake. break-even levels can vary from 65-85% based on the above factors. For last mile connectivity. 2011 Last mile connectivity is the key differentiating factor between rail and road movement. and thereby attract. operators should possess the ability to provide reliable and cost-effective solutions. higher is its ability to handle. operators tend to balance turnaround times and utilization levels for improving profitability levels. it also makes the business extremely capital-intensive. is also dependent on the capital structure and asset base of a company. container operators need to provide integrated service offerings that include last mile connectivity by road for ensuring a seamless transportation service to clients. To provide this service effectively. realizations. a huband-spoke model. cargo. While these facilities impart the ability to offer seamless and integrated solutions. operators can either tie-up with truck operators or own trucks for road haulage. will prompt customers to outsource their logistics requirement to a container rail operator and drive the shift of volumes from road to rail. Higher the number of rakes and terminals with an operator. players have to invest into creation of an asset base comprising rakes. and turnaround times are extremely critical in determining the profitability of these operations.6 trips or 5 to 6 days (to and fro).go a long way in improving utilization levels and profitability of the business. value-added services. The hub-and-spoke integrated model. The average turnaround time in the domestic business typically stands at 3-4 trips or 7 to 8 days (to and fro) in a month per rake. containers. Hence. Break-even level. cargo to be moved from the destination to the start point . In this light. while turnaround times for Exim segment can go up to 5 . tonnage.Private Client Research Please see the disclaimer on the last page For Private Circulation 5 . is the apt solution.SECTOR REPORT July 29. to some extent. with a long gestation period. Kotak Securities . Container rail operators have to pay the Indian Railways (IR) a fixed charge for using the rail network to move a rake to the destination. UTILIZATION LEVELS. Considering the above. wherein movement from hub-to-hub is via rail and the end destination is serviced by roads. TURNAROUND TIMES & ICDS CRITICAL FOR PROFITS A capital-intensive business To grow the container rail market and drive a shift in volumes from road to rail. forklifts etc) as also truck-related and software investments. terminals (ICDs/ rail sidings). container handling equipment (reach stackers. In order to attract volumes. faster turnaround time of a rake increases the capacity and ability of the operator to handle higher volumes. Towards this end. Thus.

lower turnaround time impact capacity adversely and thereby revenues and profits as the business is extremely capital-intensive and entails a long gestation period. while nearby locations can be serviced by roads.6 14.Private Client Research Please see the disclaimer on the last page For Private Circulation 6 . n There is no third-party independent arbitrator in case of any dispute between a container rail operator and the IR. Such rail sidings/ ICDs can act as a hub from where rail connectivity can be provided. an operator has the ability to generate returns in excess of 15% (provided utilization levels and turnaround times are high). n Non-availability of land. However. Moreover. thereby enhancing utilization levels.600 750 2. etc. returns are typically quite high.000 5.SECTOR REPORT July 29.117 Average no of days one side trip No of trips per rake per year Utilisation (%) Volumes handled Realisation per TEU Revenues (Rs mn) EBIDTA (25% avg) PAT (Rs mn) ROCE (%) ROE (%) (Rs mn) 5 72 90. 2011 ICD/Sidings – required to operate on hub-and-spoke mechanism ICDs/ Rail sidings play a critical role in attracting cargo volumes and achieving a faster turnaround of rakes as also improved utilization levels for an operator. the cargo can be consolidated from various clients for an entire rake movement. Therefore. Moreover. However while charging the customer for the one way journey.Private Client Research # .5 4. once a company achieves a level to attain economies of scale in terms of rail sidings. faster turnaround of rakes. Kotak Securities . for a round trip. the hubs can be utilized to provide value added services to clients such as warehousing. Consequently. higher utilization levels. Financial details of a mid size container rail operator (Rs mn) No of rakes Cost/ rake 30 120 3. Rail sidings enable an operator to expedite the process of loading/ unloading containers on to the rake. As happened in December 2010 when IR unexpectedly increased haulage charges by an average of 100% for commodities like cement. returns can be improved beyond this level by optimizing the mix between Exim and domestic cargo.233 11 5 2. but high returns over the longer term The container rail business is capital-intensive and requires a long gestation period to build volumes. n Turnaround times have a bearing on players’ capacity. n Operators have limited control over the largest cost component (rail haulage). In return journey the operator usually comes empty. Long gestation business. Further. packaging. alumina etc for container rail companies.9 In longer term container rail companies can generate ROCE of ~15% Cost of 30 rakes Cost of setting 1 ICD including infra Cost of setting 3 ICDS Pan India rail license Capital Employed Gearing Debt Cost of debt (%) Depreciation rate (%) Equity #Capacity (trips *no of rakes *90) 194. as IR typically increases rates on an ad-hoc basis.In Exim business.0 174. the operator factors the return empty journey and finalise the tariff Risks for an operator n Operators’ financial performance is highly dependent on utilization levels – a function of return loads.350 1. Our analysis reveals that on a base of 30 rakes and 3 ICDs at critical locations.400 Source: Kotak Securities . steel products. etc.250 500 6. and at an economical cost.960 30. rakes as also volumes. the container rail operator receives payment only for one way journey.312 315 13. to build ICDs at strategic locations can hamper the ability to garner volumes.249 1. lower utilization levels can have material negative impact on profitability.

Kotak Securities . GDL aspires to be leading rail container operator – Herculean effort Replacement value of Concor estimated at ~ Rs 73 bn Concor is the market leader in the container rail business with ~ 80 % market share operating 220 rakes. either from internal accruals or fund raising.Private Client Research Please see the disclaimer on the last page For Private Circulation 7 . but there are opportunities for a number of sub-segments as well.000 wagonsreplacement value could be ~Rs 73 bn.Private Client Research. Comparative study of Concor and GDL Assumptions Avg size of Rail Linked ICD (Acres) Cost per acre Cost per rake Infra per ICD Brief Comparison CONCOR Rakes (no) Rail linked ICDs (no) Current Load factor (%) EBIDTA margins (%) Exim Market Share (%) Replacement Value (Rs Bn) 220 60 85 25 80 72. suppliers of equipment and rakes (Texmaco). long term contracts with clients. CFS owners and ancillary services (Allcargo) and coastal logistics companies (Shreyas Shipping). 2011 Concor and Gateway Distriparks (GDL) are the key players in the Industry Based on our interaction with various industry players and analysis of the industry. Concor with 80 % market share has built formidable infrastructure with 60 PAN India owned ICDs/CFSs and 10. Industry Indirect beneficiaries of growing container rail segment : Equipment suppliers.SECTOR REPORT July 29. we believe the listed entities – Concor and GDL – are well positioned to capitalize on the expected growth in industry volumes. construction companies Railway operators like Concor and GDL are obvious beneficiaries of rising rail and port traffic.9 Comment GRFL would have 29 rakes by end FY13 GRFL third ICD at Faridabad would be functional by September 11 Load factor to improve with formation of network of ICDs 10 4 12. sidings. Further. Today GDL operates 21 rakes through 2 ICDs (third ICD to come up by Q3FY12). These two players are also ahead of the curve in terms of infrastructure (rakes.5 35 Rs crore Rs Crore Rs Crore Source: Kotak Securities .5 GRFL 21 3 85 15 4 4. which imparts a strong competitive edge to them against smaller peers. both the players have cash on books. For instance. construction and dredging companies (Dredging Corporation). etc). We estimate it to add 8 more rakes by FY13E.

minerals. Consequently. which cumulatively handle ~70% of the total container traffic at Indian ports.SECTOR REPORT July 29. we see increasing need for a regulator. loss of cargo in transit. turnaround time by the IR. In the absence of guaranteed timelines at their end. there is no third party to resolve the issue. At times. However. 2011 CHALLENGES AND RISKS FOR CONTAINER RAIL OPERATORS Exim segment – congestion on key routes (JNPT-NCR) Exim container traffic is largely serviced through the western ports of JNPT. Kotak Securities . Dealing with the Indian Railways (IR) n Erratic increase in haulage charges: The concession agreement between the IR and container rail operators does not specify any schedule for hike in haulage rates. container rail operators may also have to absorb the increase in haulage rates for some time till it is passed on to the clients n No turnaround time guarantees: Once an operator loads its rake with containers. Moreover. with no caps. For example. there is no guarantee extended by the IR on timely movement of these rakes. double stacking is not possible on the routes connecting the ports to NCR as they are largely electrified. the route has become saturated as no new railway tracks have been added. which is currently under implementation. creation of market and shift from road to rail will happen over a period of time. IR had hiked its haulage rates on domestic routes by an average of 100% effective 1st Dec 2010. Exim container rakes are operated primarily on the JNPTNCR route. The rate increase by IR can be any time and as many times during a year. In the interim. in case of a dispute between the IR and a container rail operator. Thus. Moreover. container rail operator cannot provide the same to clients. private players may fail to secure a full rake load and therefore operators are targeting to shift heavy bulk traffic (from which they are not categorically banned) from road to rail. With the everincreasing number of rakes (by container rail operators and for bulk cargo) to service the growing cargo at these ports and locations. ores and coke.Private Client Research Please see the disclaimer on the last page For Private Circulation 8 . The erratic increase in rail haulage charges hampers container rail operators’ ability to price their services to clients on a fixed rate basis. n Initial movement of bulk cargo by container rail operators: As per the model concession agreement. etc. n Absence of a regulator: Currently. However. haulage rate hikes. Kandla and Pipavav. We believe turnaround time of rakes can improve substantially once the dedicated freight corridor is operational. the IR attaches a locomotive to the rake and hauls the rake to the destination. on an ad-hoc basis. container rail operators are banned from handling coal. The IR is addressing this by setting up a Dedicated Freight Corridor (DFC). we believe the congestion for connectivity to the western ports will impact turnaround time of rakes on the Exim route. it will significantly improve the turnaround time of rakes. Apart from container traffic. Mundra. and resolves. the IR may view the movement of such bulk traffic as its own business. issues pertaining to the type of cargo handled. Nevertheless. the JNPT-NCR route tackles substantial passenger traffic as also bulk of the traffic undertaken by IR. which at times creates a problem for container rail operators. As capacity and the scope of services offered by container rail operators expand. Given this. stabling. The sector has been privatized to increase IR’s market share in freight movement by aggregating break-bulk cargo. IR dons the hat of both the vendor and regulator. We believe once the DFC is operational. efficiency of a container rail operator is also hampered as any delay in movement of rakes impacts the planning for loading and unloading of wagons.

These goods are containerized and transported to the shipping lines after completion of the requisite customs and other formalities. However. The massive growth in containerization which introduced the modern concept of multimodal transport has shifted the cargo delivery system from “port-to-port” to “door-to-door”. Cargo for each destination is consolidated into containers (a full container) at the CFS to be shipped to either the final destination or to hub ports from where they are transshipped to the final destination Kotak Securities . Benefits of multimodal transport n Single document for all modes of transport n Reduction in transport cost n Reduction in time required for transport n Smoother and quicker movement of cargo n Improvement in quality of services Key factors for the success of multimodal transport operation n Presence across the globe n Good network of collection and distribution points n Efficient collection and delivery system n Safety and storage of transit cargo n Good relations with shipping lines Consolidation of cargo Cargo to be shipped by an exporter may either be enough to fill an entire container or less than a full container load.SECTOR REPORT July 29. thereby reducing the overall cost to the exporter and making his products more competitive in the international market. Full Container Load (FCL) – FCL services are offered to exporters who transport sufficient amount of cargo to fill an entire container. and land into one complete process that ensures an efficient and cost-effective door-to-door movement of goods under the responsibility of a single transport operator. the benefit of containerization can be availed by both these types of exporters through the following services offered by MTOs: 1. 2. known as a Multimodal Transport Operator (MTO). The constant endeavor of logistic providers to improve customer service resulted in the integration of all activities in the transport chain. Reduction of logistics costs is one of the important benefits of multimodal transportation. Multimodal transport gained increased importance as the facilitator of a global supply chain due to the development of logistics and supply chain management as a competitive strategic management tool. Less than Container Load (LCL) – There are innumerable small shipments made by companies and by traders who do not trade in large quantities and using an entire container for such shipments is not a cost effective option. 2011 MULTIMODAL TRANSPORT OPERATION (MTO) It is the chain that interconnects different modes of transport -air.Private Client Research Please see the disclaimer on the last page For Private Circulation 9 . on one transport document. sea.

While globally the major container flows are between Asia. Kotak Securities . the ocean carriers started extending their services to inland locations. Europe and North America. introduced to facilitate the exporters and give them a sense of security in transporting their goods. In India there was no uniformity followed in respect of multimodal transport of goods.Custom House Agent Current Scenario The development of containerized traffic provides significant indications of increase in multimodal transport as containers are designed for door-to-door transportation by different modes. Note: Allcargo primarily does LCL Kotak Securities . With the advent of containers.000 267 Global LCL + FCL estimated at ~ $267 bn Global Indian share in container volumes (%) Global container volumes (mn TEUS) Global share of LCL in container volumes (%) Global LCL volumes ( in mn TEUs) Allcargo share in global LCL (%) Allcargo share in global LCL (mn TEUs) Allcargo estimated MTO (LCL) revenues in CY11 (Rs bn) Global MTO opportunity (Rs bn) Global MTO opportunity ($ bn) Source: Industry.SECTOR REPORT July 29. 2011 Below is a flowchart depicting the process flow of export MTO activity. Most of this containerized cargo is expected to be transported by more than one mode before reaching its final destination. CHA . The Multimodal Transportation of Goods Act. there are significant flows within all regions. are smoothly and easily handled from one mode of transport to another. 1993 was. as containers.8 24 12. therefore.Private Client Research Please see the disclaimer on the last page For Private Circulation 10 . Workflow Exporter Stage 1: Sourcing l 17 Branches l 9 Franchisees l Relation with CHA/Freight Forwarders/Exporters CHA or freight forwarders ICD/CFS Stage 2: l Present in over 25 Consolidation ICD /CFS Shipping Lines Stage 3: Shipment l Relation with top shipping liners l Competitive rates Overseas importer or agent Stage 4: Destination l Coverage of over 4000 destinations Competitive rates Source: Allcargo. Very difficult to ascertain the market size – We estimate global LCL + FCL business at $267 bn Estimation of MTO business opportunity Particulars Volumes at Indian Ports (FY11 in mn TEUS) FY11 10 2. The government felt that absence of uniformity in such practices led to ambiguity and imbalance of interests between the operators and the cargo owners.5 400 2 8 10 0.Private Client Research. In case of import MTO activity the work flow is in reverse order.

cargo up to 50kgs is sent by courier services and other cargo is shipped through freight forwarders. Pvt. Atlantic Shipping N G Bhanushali & Company Allcargo is one of the largest players in the global Non Vessel Owning Common Carrier (NVOCC) space . with CFS’s in key locations to enhance the efficacy of its logistics solutions. the overall business is likely to grow at 5-6% in line with the global trade growth. While the MTO segment is likely to see an improvement on a yoy basis from current levels.AGL is a leading Multimodal Transport Operator (MTO) in India and internationally (ECU Line). The total CFS capacity in the country is estimated at ~ 10 mn TEUs and growing at 13% CAGR – faster than the port traffic. Kotak Securities . Ltd. Alpha Cargo Express Air & Sea Cargo Systems Container Carriers International Countrywide Express. Moller Maersk Compañía Sudamericana de Vapores Wan Hai Lines Ltd. Ltd. A. LCL business is just 2% and Allcargo currently has a 10% market share in the LCL segment. Ltd.P. as AGL is the 2nd largest NVOCC operator in the world. MTO players Shipping Lines APL Ltd. But estimates suggest that the industry churns a volume of more than ~400 mn containers in a year which translates into opportunity worth ~Rs. Other important Logistics segment Container freight station n CFS are facilities set-up near the port for handling of in-transit containers. Hanjin Shipping Co. consolidators.12. K Line (America) Ltd.000 bn ($267 bn). 2011 The total market size of the LCL and FCL business is difficult to ascertain as the industry is highly fragmented.Private Client Research Please see the disclaimer on the last page For Private Circulation 11 . medium and high). In India. etc. n Emergence of CFS in and around the ports has helped in a manifold increase in the handling capacity of ports n All the ports (major and minor) across the country have CFS facility. Velji Dosabhai & Sons. Express Forwarders Custom House Agents Tulsidas Khimji Pvt. They are a critical part of the logistics chain in relation to the movement of containerized cargo. examination and assessment of cargo by regulatory agencies like Customs for the Exim trade of the country. International Freight Forwarders Geologistics Kuehne + Nagel Exel Bax Global Panalpina World Transport Source: Industry Domestic Freight Forwarders AFL Ltd. offering end-to-end logistics solutions across the world. agents. Key Players in MTO market The cargo is usually segregated on the basis of size (LCL or FCL) and value (Low. Of the total global MTO business.SECTOR REPORT July 29.

with realizations and margins under pressure. the CFS capacity at the 2nd biggest container port of Chennai is estimated at 1. These 2 ports put together handle about 80% of the container volumes of the country and most of the logistics players including GDL and Allcargo have their key CFS based out of these 2 ports.4 mn TEUs with more than 20 operators while the demand is around 0. 2011 Volumes at port Volumes at the port 100 Moves to CFS 33 Moves out of the port 67 Moves by road 33 Moves by rail 34 Source: Industry Total CFS capacity at JNPT and Chennai There are more than 25 CFS serving the port of JNPT with a total CFS capacity of 2.Private Client Research Please see the disclaimer on the last page For Private Circulation 12 . Similarly.5 1. The CFS capacity at the port has grown at a CAGR of 15% in the last 6 years while container volumes at the port have grown at a CAGR of 7% during the same time.Private Client Research Key CFS at 2 major container ports in India JNPT Maersk India Private Ltd Gateway Distriparks Ltd Balmer Lawrie & Co.52 33 0.4 Supply of CFS capacity exceeds demand at key ports Port volumes (FY11) CFS volumes (%) CFS volumes CFS capacity Source: Industry.4 2.5 mn TEUs with few more to begin operations in next couple of years. This has led to competition at the port amongst the CFS players.6 mn TEUs.5 Chennai 1. Kotak Securities . Punjab State Warehousing Container Corporation of India Central Warehousing Corporation Distripark Hind terminal Allcargo Source: Industry Chennai Allcargo Gateway Distriparks Ltd Container Corporation of India Central Warehousing Corporation Maersk India Sical Distriparks Sun Global Balmer Lawrie Kotak Securities .27 33 1. CFS capacity at key container handling ports (mn TEUs) JNPT 4.SECTOR REPORT July 29. There are no official figures available for the total CFS capacities at other major and minor ports of the country.

while unorganized or semi-organized players account for ~25% of the total market. packaging and freight forwarding.4 7500 255 Total CFS business opportunity in India estimated at Rs 255 bn Converison to CFS volumes (%) CFS opportunity (mnTEUs) Realisation per TEU (avg Rs) Total opportunity ( Rs bn) Source: Kotak Securities . unorganized players offer a price advantage over organized players. documents and non documents. As a result. Documents accountfor~60% of the total organized sector revenues while non-documents constitute only 40% of the market. Given their extensive networks and high service standards.5 bn in FY11 (1% of logistics cost). i. In our view. Inventory management. and in our opinion the company with the best placed land will get a chunk of the container traffic. The growth in the 3PL market is expected to be in the range of 25-30% CAGR over FY11-13E.Private Client Research Please see the disclaimer on the last page For Private Circulation 13 . The remaining 10% is serviced by EMS Speed Post. organized sector has only 45% share of the market with unorganized player shaving comparable41% share. the CFS/ICD business.SECTOR REPORT July 29. n The size of the 3PL industry is estimated to be~US$1. organized players have captured 65% of the express business. within the domestic sector.e.4 mn TEUS or Rs 255 bn. The remaining 14% market share lies with EMS Speed Post Kotak Securities . although highly profitable. n End to end Logistics outsourcing is likely to be a significant growth opportunity. cross docking. 2011 CFS business has become commoditized There is no difference between the quality of service of two CFS operators' to container shipping lines. The service provider generates margins over the entire logistics chain which generally ranges between 10-12% (EBIDTA) as compared to~5% in pure trucking. The biggest entry barrier to the CFS/ ICD sector is land. Other important factors that can attract volumes at the CFS are n Relationship between the shipping line and the CFS operator n Integrated service including rail and road (last mile connectivity) n Captive volumes of shipping lines who also own a CFS n Interdependence between the CFS operator and Shipping lines CFS opportunity estimated at Rs 255 bn (FY11) The total CFS business opportunity in India (based on FY11 numbers) is estimated at 3. CFS business opportunity in India FY11 Volume at all the ports (mn TEUs) 10 34 3. n However.Private Client Research Third Party Logistics: n It includes bundling together of logistics services like transportation. Express Logistics: n The express industry handles two types of consignments. warehousing. This is expected to grow at a CAGR of 12% per annum in line with the estimated growth in container volumes at all the ports ( major + minor) of the country. is now evolving into a real estate play.

2011 Key players in 3PL & Express cargo 3PL players TVS logistics DIESL (TATA) Panalpina TCI Gati Allcargo V Trans Total VRL Express cargo DHL FedEx TNT UPS AFL DTDC First Flight Couriers TCI Express Gati VRL Source: Industry Government initiatives for the Logistics sector With the government emphasizing a lot on transport infrastructure with private sector participation/ investment in port sector. which include investment by Ministry of Railway. NHAI.Private Client Research Please see the disclaimer on the last page For Private Circulation 14 . 35 bn is from other sources. etc. Captive facilities for port based industries National Maritime Development Programme (NMDP) One key initiative towards Public Private Partnership in transport infrastructure is the NMDP. Container Freight Stations etc) 3. 2010 Projects completed Work in progress Approved but work yet to be awarded Work firmed up and under process for approval Works under preliminary/planning stage TOTAL Source: Ministry of shipping 50 74 16 29 82 251 Estimated Outlay (Rs bn) 57 165 31 116 199 568 Capacity Addition (MMT) 56 94 61 110 108 429 Budgetary 0 10 2 10 23 45 Funding (Rs bn) Internal Private Sources Sources 16 36 7 19 45 123 36 99 22 84 124 366 Others 5 20 1 3 7 35 Kotak Securities . the port sector was thrown open to private sector participation in 1998 by GOI. Key areas for participation/investment: 1. National Maritime Development Programme (NMDP). development of dedicated freight corridors etc we expect GDL to be one of the major beneficiaries of the ongoing government initiatives for the transportation sector. out of this Rs. productivity and quality of service as well as to bring in competitiveness in port services. It would be implemented through public/private partnership.SECTOR REPORT July 29. Rs 123 bn through Port’s own Internal Resources. Leasing out existing assets of the port 2. NMDP No of projects As on March 31. The Investment envisaged for above projects is estimated at Rs. It includes all projects which are under implementation as on 1-4-2005 or are likely to start till 31-3-2012. Construction/creation of additional assets (Terminals.45 bn is through Budgetary Support. Rs. 366 bn are aimed at from the Private sector and Rs. liberalization of container rail business. NMDP would be addressing the challenges of the growing international traffic demand of the country along with developing the port facilities at par with world standards. Warehousing. 568 bn. Government emphasis on transport infrastructure Private sector participation/Investment To improve efficiency.

Details of Dedicated Freight Corridor Particulars Location Name Opening date Route(s) Length (total) Speed Rolling stock Contractors Estimated investment Financing Details India Dedicated Freight Corridor Project 2017 Eastern DFC: Ludhiana to Dankuni Western DFC: Dadri to JNPT 2. DFC would also be capable of running double stack trains. Canada. rationalize freight rates. By connecting power plants and coal mines in the east to ports along the western coast. upgrade rail infrastructure.Private Client Research Please see the disclaimer on the last page For Private Circulation 15 . Despite railways being cheaper than roadways especially over long distance railways share has remained low. the Indian Railway has proposed the creation of a dedicated freight corridor. Reports suggest that with the construction of the DFC.800km 100km/h Single and double stack containers RITES. congested rail network. India would enter the league of heavy haul routes. at a cost of about Rs 670 bn. However. 2011 Double stack train Liberalization of rail services and opening of container train business to private sector participation In Rail budget 2005 ministry of railways ended the monopoly of Concor by allowing private players to operate container rail movement. Equity from Source: Industry Source: Industry Other Initiatives n Phased introduction of value-added-tax (VAT) n Development of organized retail and agri-processing industries n Strong foreign direct investment inflows (FDI) Kotak Securities . currently dominated by the US. the rail corridor will help ease port congestion. Australia and China. improper timetable etc exporters and importers face lot of hindrance. C&C Constructions and Soma Enterprises $14bn (2011 estimate) Loan from World Bank. Ministry of Railways (33%) Japan International Cooperation Agency (67%). solely for the purpose of carrying freight trains including containers. passenger traffic getting preference over cargo traffic. and aid energy efficiency through reduced diesel consumption.SECTOR REPORT July 29. Asian Development Bank and. The dedicated freight corridor is proposed to come up by FY17E. Dedicated freight corridor (DFC) would link the four major metros covering 2800 route km. A total of 14 players have applied and received licenses with 9 players including GDL seeking registration for Pan India presence with a fees of Rs 500 million Development of dedicated freight corridors – on slow track but still coming Due to lack of infrastructure.

2011 Profile Of Indian Logistic Listed Companies Company Concor Gateway Distriparks Allcargo Global TCI GATI Shreyas Logistics Blue Dart Source: Companies YES Container Rail YES YES CFS YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES Trucking Warehousing MTO Express Third party Kotak Securities .Private Client Research Please see the disclaimer on the last page For Private Circulation 16 .SECTOR REPORT July 29.

SECTOR REPORT

July 29, 2011

COMPANIES

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SECTOR REPORT Amit Agarwal agarwal.amit@kotak.com +91 22 6621 6222

July 29, 2011

ALLCARGO GLOBAL LOGISTICS (AGLL)
PRICE : RS.159 TARGET PRICE : RS.195 RECOMMENDATION : BUY CY12E PE: 10.4X

Stock details
BSE code NSE code Market cap (Rs mn) Free float (%) 52 wk Hi/Lo (Rs) Avg daily volume Shares (o/s) (mn) Source: ACE Equity : : : : : : : 532749 ALLCARGO 20,990 30 192/125 66,000 137

Summary table
(Rs mn) CY10 CY11E 30,278 5.8 3,095 10.2 2,410 1,818 13 9.9 19.0 100.4 3.0 14.7 13.3 -2,673 21.2 6.4 12.0 8.4 1.6 CY12E 33,298 10.0 3,531 10.6 2,789 2,106 15 15.8 21.7 112.5 4.0 15.3 14.0 -1,299 23.4 5.7 10.4 7.4 1.4

Sales 28,612 Growth (%) 38.8 EBITDA 2,696 EBITDA margin (%) 9.4 PBT 2,238 Net profit 1,654 EPS (Rs) 12 Growth (%) 24.1 CEPS (Rs) 17.7 Book value (Rs/share) 89.4 Dividend /share (Rs) 2.9 ROE (%) 14.8 ROCE (%) 13.2 Net cash (debt) -2,330 NW Capital (Days) 19.8 EV/EBITDA (x) 7.2 P/E (x) 13.2 P/Cash Earnings 9.0 P/BV (x) 1.8

As one of the largest players in the global Non Vessel Owning Common Carrier (NVOCC) space, Allcargo Global Logistics (AGLL) is well-placed to derive maximum benefits from any potential recovery in global trade. The company's well-entrenched international presence is likely to strengthen further through the proposed acquisition of a China-based NVOCC player this could also act as a near-term trigger for the stock. The company is also focussing on expanding capacities in high margin CFS business which will help the company improve overall margins. According to World Bank's estimate, European economy is expected to grow at 2.0% and 2.2% in CY11E and CY12E respectively. However, concerns are there of the current impact of the European crises on AGLL's financial profile - at present, the company derives more than 40% of its revenues from European operations. We therefore initiate coverage on the stock with BUY rating, valuing it at 13x CY12 earnings; our target price of Rs 195 provides an upside of 20% from current levels

Investment Arguments
q Aggressive capacity expansion to boost top-line. Allcargo has planned to spend Rs 2 bn in CY11 out of which it has allocated ~ Rs 1150 mn for doubling its capacity at JNPT CFS to ~288,000 TEUs (Twenty-Foot Equivalent Unit) and expansion of other CFS. We expect the company would add JNPT capacity by Q3CY11 end. The company has allocated Rs 400mn for setting up ICDs at Dadri and Hyderabad with capacities of 52,000 TEUs and 36,000 TEUs respectively. The company is also planning to spend Rs 200mn for expanding its fleet size for project and engineering solution segment. We believe capacity expansion at JNPT CFS (current utilisation rate above 95%) & new capacity at ICDs as well as order book position (Rs 2.2 bn) of project and engineering solution segment would drive top-line growth. We expect revenues of the company to increase at a CAGR of ~8% to Rs.33.3 bn over CY10-CY12E. q Strong NVOCC player - fortunes linked to global container volumes. AGGL is the second biggest Less than Container Load (LCL) consolidator globally with around ~10% market share in the LCL market. It handled a total of 2.4 lakh TEUs (CY10) in the MTO business with more than 40% of the volumes coming from Europe. Since Europe is currently going through a rough phase, we are little cautious on the business and estimate the overall volumes in the segment to grow at a CAGR of 5.5% over CY10 to CY12E (versus 14% in CY10).

Source: Company, Kotak Securities - Private Client Research

Shareholding pattern

Public 18% FIIs 10% Domestic Institutions 2%
Source: ACE Equity

Promoter 70%

1 year performance (Rel to Nifty)

q Gradual shift towards higher margin services. The company is focusing on expanding its ICDs/CFS network to improve overall margins as its CFS division enjoys higher margins (EBIDTA margin ~52% in CY10). We believe the contribution in total revenue from CFS business would increase to 9.3% in CY12E compared to existing 7.0%. Going ahead, we expect change in revenue mix toward high margin CFS business to expand consolidated EBIDTA margin by 120 bps over CY10 to 10.6% in CY12E. q Interdependent business model with shipping lines - helps in bad times. Allcargo depends on shipping lines for its CFS business and in return AGGL give these shipping lines container volumes of its MTO business. Both the parties are interdependent on each other for some part of their business. So it's a self sustaining interdependent business model for both the entities which we believe works more favourably during bad times. This is one of the reasons of strong performance of AGGL at JNPT CFS despite intense competition. However, CFS currently consitute only about ~8 % of the business of AGGL.. Hence we don't estimate AGGL to significantly outperform peers.
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SECTOR REPORT

July 29, 2011

q Valuation and recommendation. Allcargo has a strong presence in NVOCC business through wide network of ECU Line and also has a strong hold on domestic MTO business. Considering aggressive capex plans for growing ICDs/ CFS and Project & Engineering Solution segments, we believe margins will expand going forward. At CMP, the stock is trading at 10.4x CY12 earning estimates and available at ~20% discount to its global peer group average of 13 x. We value the stock at par with peers. We arrive at a target price of Rs 195 per share. The target price implies a potential upside of 20% for the stock with an investment horizon of 12-18 months. We initiate coverage on Allcargo Global Logistics Ltd with BUY rating. Key risks q Economic slowdown may have an adverse impact on company. The Logistics industry has witnessed strong traffic growth due to robust economic growth in India. However, India may face the risk of economic slowdown in future. Since the country's growth has positive correlation with the Logistics industry, Allcargo's performance would be affected if India's growth will slow down going forward. Similarly, as the company generates its majority revenues from other countries through ECU Line, its growth is subject to overall performance of world economy. q Changes in regulatory environment may impact negatively. The domestic market in which the company operates is highly regulated. Any changes in port tarriffs or on tax structure declared by regulatory authorities would impact company's margins. q Volatility in currency risk. The company generates more than 40% of its revenues from ECU Line and as it operates in more than 59 countries, Allcargo's revenues are subject to foreign exchange volatility risk. Major volatility in foreign exchange may affect the company top-line. q Delay in capacity addition at JNPT port. Currently, JNPT is operating almost at full capacity (more than 95% utilization rate) level. In view of expected growth in container traffic going ahead, Allcargo is doubling its capacity at JNPT from 144,000 TEUs to 288,000 TEUs. We expect Allcargo would complete capacity expansion by Q3CY11. However, any delay in expansion of existing capacity will impact our earning estimates.

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Kotak Securities . a leading global player in the NVOCC space. Allcargo is the 2nd largest global player in LCL (less than container load) consolidation business. AGLL had acquired the Belgium-based ECU Hold NV. Going ahead. accounting for ~81% of its CY10 revenues. 2011 INTRODUCTION The company operates primarily in three segments. the holding company of ECU Line NV. Equipment hiring: Under this business. Post this acquisition. the company offers end-to-end freight services to exporter and importer of cargo and this is done through more than one form of transportation modes. road. This category includes ocean and land transportation of oil field equipment. Dadri* Hyderabad* Geographical concentration (~55 countries) Tractor & Trailers Air-freight forwarding business (acquired from Thomas Cook in 2007) Project Cargo Source: Company. the company operates 115 cranes and is operating at ~95% utilisation. in India. power plants. Organization structure Allcargo Consolidated Allcargo (Standalone) Subsidiaries (100%) MTO CFS Equipment Hiring ECU Line Hindustan Cargo NVOCC CFS JNPT. At present. MTO segment continues to be the major revenue driver for the company.SECTOR REPORT July 29. MTO. rail and air.Through its MTO operations. AGLL has transformed into one of the leading global consolidators of LCL cargo (NVOCC) with a presence across 55 countries. viz. with the balance being contributed by CFS operations (~8%) and Project & Engineering Solution segment (~11%). Chennai. CFS/ICDs operations and Project & Engineering Solution segment.Private Client Research Please see the disclaimer on the last page For Private Circulation 20 . In 2006. primarily operating cranes. and compressor stations between locations using multiple modes of transport under turnkey or procurement contracts. the management plans to add more high tonnage cranes that typically command better margins. Besides. the company also provides point-to-point transportation contracts (both short term and long term) through its fleet of more than 400 trailers in India. Mundra ICD Pithampur (Indore). It offers freight services for exports and imports of cargo using multiple modes of transport such as sea. The company also transports high-value specialized equipment under its Project Cargo business. AGLL leases out logistics equipment. * Upcoming Multi-modal Transport (MTO): The company’s MTO business comprises the consolidation of Less Than Container Load (LCL) cargo and forwarding of ocean freight.

JNPT. going ahead.000 120. and Mundra with an aggregate handling capacity of 278. and Bangalore. the company has planned to spend further Rs 2 bn in CY11 mainly for expanding ICDs/CFS capacity and for increasing its fleet size in project and engineering solution segment. JNPT has registered a CAGR of ~15% to 4. particularly from JNPT CFS as currently its operate above 95% capacity utilization with ~9% market share at JNPT port.000 77.000 Source: Company ICD Indore-Pithampur 36. Chennai. JNPT contributes ~58% (~131.1mn TEUs between FY01 and FY11. the company has entered into a joint venture (51:49) with Hind terminal for its Indore ICD (already operational). In the ICD space.000 Remark Further addition by Q3CY11 New facility by Q3CY11 New facility by Q3CY12 AGGL adding significant capacities in CFS/ICD business JNPT Dadri (Greater Noida) Hyderabad Source: Company We believe expansion of ICDs/CFS facility would increase the revenues from CFS segment.000 TEUs. INVESTMENT POSITIVES Significant capacity expansion in CFS and ICD business to drive the topline After spending Rs 4bn for expanding CFS capacity at Chennai and Mundra as well as on fleet expansion of project & engineering segment in CY10. The company also plans to set up ICDs at Hyderabad. JNPT contributes more than 60% of CFS volume of the company which attracts higher realization compared to other CFS in India mainly because most of its volume is contributed by imports.000 TEUs and expanding other CFS.0 bn for doubling its capacity at JNPT CFS to ~288. Current capacities for Allcargo at CFS/ICDs in TEUs CFS JNPT Chennai Mundra 144. the company also operates two warehouses at Mumbai and Goa under this business. Besides. The company has allocated Rs 400 mn for setting up ICDs at Dadri (Greater Noida-Uttar Pradesh) and Hyderabad with capacities of 52. 2011 Container Freight Station (CFS): AGLL has three CFS facilities .Private Client Research Please see the disclaimer on the last page For Private Circulation 21 .000 341. The company is also planning to spend Rs 200 mn for expanding its fleet size for project and engineering solution segment.000 Addition in Capacities Location CFS/ICD CFS ICD ICD Capacity (TEUs) 144. We believe the company would start its commercial operation at Dadri ICD by Q3CY11 and at Hyderabad ICD by Q3CY12. It also intends to add another ICD at Dadri under a joint venture with Concor (51:49).000 TEUs respectively. We expect the company would add this capacity by Q3CY11 end. Currently. We believe this growth would continue in future considering overall growth in the economy and Allcargo is well positioned to get the benefit of increasing traffic on India’s largest port (accounts for ~60% of container traffic).870 TEUs) of total CFS volume of the company.000 52. Currently.SECTOR REPORT July 29.000 36. Kotak Securities . The company has planned to spend ~ Rs 1. Nagpur.000 TEUs and 36.

SECTOR REPORT July 29.800 48. Kotak Securities . NVOCC services are classified under two sub-categories: LCL (less than container load) and FCL (full container load) consolidation. the company has started setting up new ICDs at Dadri and Hyderabad with capacities of 52.000 TEUs respectively.870 73. In addition. As the company is increasing its capacities at Hyderabad ICD. Kotak Securities . The company is focusing on expanding its ICDs/CFS network to improve overall margins as its CFS division enjoys higher margins (EBIDTA margin ~52% in CY10) compared to the domestic MTO business (EBIDTA margin ~6% in CY10) and Project & Engineering segment (EBIDTA margin ~16% in CY10).427 21. by utilizing multiple modes of transport such as sea. road and rail under a single Multimodal Transport document. Allcargo undertakes LCL consolidation of multiple types of cargo from various consignees in a single container.500 226.560 300. since they often have insufficient cargo to fill an entire container.Private Client Research Please see the disclaimer on the last page For Private Circulation 22 . 2011 Volumes in CFS business for Allcargo in TEUs CY08 Mumbai 125.400 317.188 CY09 107.960 19. by acquiring ECU Line.379 12. This service is beneficial for small exporters/importers.840 11. Dadri ICDs and JNPT CFS. has expanded the geographical reach of its LCL services. Allcargo.3% in CY12E compared to existing 7.797 30.428 178.5 CY12E 187.600 86.6% in CY12E.000 TEUs and 36.000 TEUs per annum by 3QCY11 end.0 CY13E 201.751 173. Going ahead. we expect change in revenue mix toward high margin CFS business and that would expand consolidated EBIDTA margin by 120 bps over CY10 to 10.400 5.400 29. ECU Line is the main subsidiary of the company which has overseas network for LCL activities.200 85.5 CY11E 141.381 40.000 27.120 84.4 CY10 131.Private Client Research Gradual shift towards higher margin segment would expand overall margin Allcargo has planned to double its JNPT CFS facility to 288. MTO BUSINESS MTO includes consolidation and transport of cargo as less than container load (LCL) cargo and full container load (FCL) cargo.0% in CY10. NVOCC involves LCL consolidation activities in India and overseas.300 17. we believe the contribution in total revenue from CFS business would increase to 9.720 252.851 -2.5 Volumes at CFS/ICD to grow for AGGL at 14% CAGR over CY10 to CY12E Chennai Mundra Total CAGR Source: Company.200 28.

000 MTO Revenues (Rs mn . Kotak Securities . Workflow Exporter Stage 1: Sourcing l 17 Branches l 9 Franchisees l Relation with CHA/Freight Forwarders/Exporters CHA or freight forwarders ICD/CFS Stage 2: l Present in over 25 Consolidation ICD /CFS Shipping Lines Stage 3: Shipment l Relation with top shipping liners l Competitive rates Overseas importer or agent Stage 4: Destination l Coverage of over 4000 destinations Competitive rates Source: Company.Private Client Research Please see the disclaimer on the last page For Private Circulation 23 . MTO business EBIT margin 30. Vietnam and Russia.000 24.LHS) EBIT Margins (% . We believe these acquisitions would not only boost revenue for the company but also improve margins of ECU Line albeit marginally.0 Source: Company. CHA .000 6.0 18.Custom House Agent ECU LINE - THE MAIN MTO CONTRIBUTOR FOR ALLCARGO ECU Line generated ~67% of total revenues of Allcargo and accounted for ~90% of total volume of MTO business in CY10.SECTOR REPORT July 29. In case of import MTO activity the work flow is in reverse order. Recently in Oct-2010. ECU Line has its presence in over 59 countries which includes emerging markets like Brazil. The company has 8 offices in China. 2011 Below is a flowchart depicting the process flow of export MTO activity.5 4. Allcargo has initiated various cost reduction measures to improve margins of ECU Line and currently working on setting up a global procurement system with which we believe the company would start saving some part of cost from Q2CY11. ECU Line has acquired two Hong Kong based companies in NVOCC space and strengthened its position in Chinese market.0 EBIT margin in MTO business to improve 5.000 12.000 0 CY08 CY09 CY10 CY11E CY12E CY13E 4. These two companies generated EBITDA of Rs 26 mn in CY10.Private Client Research Kotak Securities .RHS) 6.5 5.

875 29.Private Client Research Please see the disclaimer on the last page For Private Circulation 24 . Consolidated volumes in MTO business for Allcargo in TEUs ECU CAGR -4.3 463.8 5. We believe standalone volume to increase at a CAGR of 13% (1.3 16.5 % CAGR over CY10 to CY13E CY08 CY09 CY10 CY11E CY12E CY13E 190.894 TEUs in CY12E as the Indian economy is expected to grow above 8% for the next two years.4 5.5 YoY (%) growth 12.total MTO volume to grow at 5.868 25. 2011 CURRENT SCENARIO Improvement in domestic & international market to drive MTO volume .2 5.8 519.5 % CAGR. However.CY12E to 231.5 4. So it's a self sustaining interdependent business model for both the entities which we believe works more favourably during bad times.5 4.0 2. European economy is expected to grow at rate of 2% and 2.5 India 29.159 TEUs in CY12E (CY10 it was ~17% and in Q1CY11 it was 14.8 1. We estimate the ECU volumes of AGGL to grow at a small CAGR of 4. We believe container traffic would continue to show uptrend in the coming years with increase in industrial production and improved trend of India's import and exports.8 21.8 Source: Indian Ports Association Interdependent business model with shipping lines .4 9.554 250.3 12.7 6.5% in CY11E and CY12E respectively. CFS currently consitute only about ~8 % of the business of AGGL.6 Container Volume (million TEUs) 4.649 -6. With the ongoing crisis in Europe.6 6.561 Source: Company.1 -1.helps in bad times Allcargo depends on shipping lines for its CFS business and in return AGGL give these shipping lines container volumes of its MTO business.7 4.555 24.064 206.2% in CY11E and CY12E respectively and the world economy is expected to grow at a rate of 3.088 -15.8 12. The growth of Standalone MTO business largely depends upon overall growth in Indian economy.5 CAGR ECU Line volumes to grow at 4.8 CAGR Total 220.3 15.9 YoY (%) growth 10.379 264.5 x of India's estimated GDP growth) to 32.6 530.0 560.174 32.2 9. ECU Line generates its major revenues (more than 40%) from European region.679 221.3% and 3.7 4. As per the World Bank's estimate.0 5.Private Client Research Container Traffic (at 12 major port) Total Volume (million tons) FY06 FY07 FY08 FY09 FY10 FY11 424. Container traffic has positive co-relation with overall growth in the economy.5% over CY10 .8 12.181 237.5%).880 TEUs in CY10) from Indian market and remaining 90% MTO volume (~211. Kotak Securities .205 231.159 241.8 % CAGR and overall MTO volumes at 5.0 12. domestic MTO at 12. Kotak Securities . Typically container volumes grow 2 x times the GDP. This is one of the reason of strong performance of AGGL at JNPT CFS despite intense competition.8 16.9 4.SECTOR REPORT July 29.5 6. Both the parties are interdependent on each other for some part of their business. Hence we don't estimate AGGL to significantly outperform peers. we are little cautious with the volume growth of ECU.700 TEUs in CY10) through ECU Line which has its presence in over 59 countries.053 278.7 569.5 % CAGR over CY10 to CY12E Allcargo generates of its ~10% MTO volume (25.894 37.509 181.5 5.9 7.313 211.

In Engineering Solution business. size and value of items to be transported.SECTOR REPORT July 29. We expect Project & Engineering Solution revenues would increase at a CAGR of 14% to ~Rs. the company is currently operating at above 90% capacity utilization level.2bn. 2011 Interdependence of business MTO Volumes ALLCARGO SHIPPING LINES CFS Volumes Source: Kotak Securities . Project cargo & Engineering solution segment showing high potential for revenue growth Considering the robust demand from windmills. refineries. the company has earmarked Rs 200mn for expanding fleet size of Project and Engineering solution in CY11.Private Client Research Please see the disclaimer on the last page For Private Circulation 25 . metro & airport projects and building construction projects. Detailed and intricate planning and technical expertise is required to successfully execute the transportation of such equipments. The current order book of the segment is ~Rs 2. Current Fleet size of Project & Engineering Solution Infrastructure/Equipments owned Cranes Trailers Reach stackers Forklifts Total Source: Company CY09 75 363 20 70 528 CY10 115 425 29 66 635 Kotak Securities . Multiple modes of transport are utilized for handling project cargo depending on the origin and destination of the cargo. power projects.Private Client Research PROJECT CARGO AND ENGINEERING Handling of project cargo involves transportation of equipment and products on a turnkey basis. We believe the company would execute all the orders in CY11E with the existing fleet size and additional expansion of fleet size would set the platform for executing additional orders in this high growth area. It includes transportation of oil field equipment. power plants. Each contract is unique and the logistic requirements are tailor made to suit the specific needs of the contract depending on the nature.4 bn over CY10 to CY12E. compressor stations and other over dimensional and over weight cargo.

281 3.8 6.3% in CY12E compared to 7.SECTOR REPORT July 29.6% in CY12E Improvement in consolidated Ebidta margin (Rs mn) Total CY06 CY07 CY08 CY09 CY10 CY11E CY12E 8.3 bn over CY10CY12E.176 28.610 28.9 5.141 20.298 36.455 1.612 30.Private Client Research Kotak Securities . With the ongoing problems in Europe (40% of AGGL business destination).350 4.3 7.102 4.6 9.144 Source: Company.529 CY12E CY13E 26.Private Client Research Please see the disclaimer on the last page For Private Circulation 26 .5 %( CY10 it was 14%).9 8.278 33. we believe that change in revenue mix toward high margin CFS business would expand consolidated EBIDTA margin by 120 bps over CY10 to 10. Kotak Securities .455 385 CY09 18. Over all we expect the company to post moderate revenue CAGR of ~ 8% to 33.952 16. However.278 33.3 9.973 2.500 548 CY10 23.851 1.8 9.3 6.973 2.5 bn in CY10 on account of growth in volume from CFS business and MTO business.6% in CY12E EBIDTA margins to improve with changing revenue mix As the company is increasing its capacities at Hyderabad ICD.4 10.562 1. Going ahead.788 CY11E 24.102 Share of CFS (%) 6.514 1. 2011 FINANCIAL ANALYSIS Revenue to grow at moderate CAGR of ~8% to Rs 33.298 Revenues CFS 619 934 1.0% in CY10.504 3. Kotak Securities .504 3. AGLL's revenues grew at a 3 year CAGR of 32% to Rs 28.610 28.135 23.2 10.514 23.Private Client Research Committed Capex programme (Rs mn) CFS/ICD Equipment Misc Total Source: Company CY11E 1150 650 200 2000 CY12E 500 250 250 1000 CY13E 500 150 150 800 EBIDTA margins to improve by 120 bps over CY10 to 10.245 2.3 Consolidated EBIDTA margin (%) 8.020 3.9 8. we are not very optimistic on the MTO business (90% of AGGLs business) in near term. Segmental Revenues (Rs mn) CFS/ICD Multimodal Operations Project Logistics and Engg Solutions Total CY08 21. Dadri ICDs and JNPT CFS (high EBIDTA margin business of 52% in CY10).3 bn over CY10-CY12E. Now the company is doing capex of Rs 2 bn in CY11E and Rs 1 bn in CY12E to expand its business.6 Source: Company. we expect the total MTO volumes to grow at a slow rate of 5.5 10.141 20. we believe the contribution in total revenue from CFS business would increase to 9.612 30.301 1.

63 1.08 1.214 1.93 1.8% in CY10 on the back of reduction in interest payment.6% over CY07 to CY10 to Rs 1. 2011 Expanding net profit & net profit margins to improve return ratios Net Profit grew at a 3 year CAGR of 30.713 1. estimated at ~8% CAGR over CY10-CY12E.778 12.3% in CY12E.92 0.4% in CY10 to 10.78 20.56 642 CY09 2.362 3.799 734 0.66 0. net profit margin increased by 120 bps to 5. with improving EBIDTA margins and reducing interest payments.38 1.85 14.Private Client Research. Company CY08 3. Company Debt to reduce and free cash flow to turn positive in CY12E AGLL has already spent ~ Rs 4 bn in CY10 and plans to spend Rs 2 bn in CY11E for CFS and MTO business and also for adding new equipment for the project cargo and engineering solution division.68 0.76 13. Post CY11E.08 1. Ebidta margins are also expected to go up from 9.099 CY12E 4.08 2. The consequent revenue growth.905 0.08 1.97 0.69 1.SECTOR REPORT July 29.36 1. there won’t be significant capex for the company at least till CY14E.03 0.This would lead to earning CAGR of 12% for the company.007 2.602 CY11E 4.27 0.53 CY10 0.76 1.98 Source: Kotak Securities .Private Client Research. Debt and cash flow analysis (Rs mn) Gross Debt Networth Cash Net Debt/equity (x) Gross Debt /EBITDA (x) Operating cash flow Net Capex Source: Kotak Securities .578 13.792 900 Gaining strength AGLL’s financial profile is likely to become stronger over the next two to three years.08 1.08 1. We estimate the ROE to improve from 14.27 in CY12E and ROCE to improve from 13.36 17. Kotak Securities .8 bn in CY12 we expect the debt of the company to start receding from CY12E and company to turn free cash flow positive.2 % in CY10 to 13.62 13.48 2.29 CY12E 0.08 2.448 0.180 954 0.42 0.440 6.04 0.08 1.045 9.295 0.78 14.24 1.20 CY11E 0.63 13. Going forward.40 2.13 0.61 0. we expect net profit to grow at a faster CAGR of 12% to Rs 2.93 CY09 0.30 2. is likely to be broad-based with contribution from all the businesses.97 0.40 1.19 1. With this we also expect the return ratios to marginally improve for the company.40 0.7bn in CY10 and during the same period. With healthy estimated operating cash flow generation of ~ Rs 2 bn in CY11 and ~Rs 2.Private Client Research Please see the disclaimer on the last page For Private Circulation 27 . as volume growth gathers steam on expanded capacities and global economic recovery.09 1.594 15.876 CY10 3.98% in CY12E DuPont Analysis Parameter EBIT margin Asset Turn over Financial Leverage Interest Burden Tax burden ROE (%) EBIT Margin Capital Turnover ROCE (%) Ratio EBIT/ Revenue Revenue /Capital employed Capital Employed/ Equity PBT/EBIT PAT/PBT PAT/Equity EBIT/ Revenue Revenue/ Capital Employed EBIT/Capital Employed CY08 0.60 0.80 14.62 1.85 0.80 15.08 1.6% in CY12E.85 % in CY10 to 15.69 13.19 1.1bn and we expect net profit margin to expand 50 bps to 6.09 1.

the company gets clients of CFS/ICDs business from shipping companies by providing business of containers cargo to shipping companies through NVOCC business.0 16.6 2. 2011 Outlook and Valuation AGLL has a strong presence in NVOCC business through wide network of ECU Line and also has a strong hold on domestic MTO business. ASSUMPTIONS n Port volumes normally grow at double the pace of the GDP growth in a country. the stock is trading at 11x to CY12 earning estimates and available at ~20% discount to its peer group average of 13 x. Gateway Distriparks Ltd (GDL) is the largest private player in railway logistics which also has a network of ICDs and CFS at various locations in India.5 1. At one hand.8 1.5 FY13E 4.3 14.4 FY13E 23 10.3 ROE (%) FY12E 22. At CMP. Peer Analysis Market Cap (Rs mn) TCI GDL AGLL CONCOR 6.4 9.Private Client Research.7 1.6 EV/EBIDTA (x) FY12E 5. Allcargo operates its business model with unique synergy between NVOCC and CFS/ICDs business.4 13.1 6. it gets clients of CFS/ICDs service from shipping companies.750 20. we believe margins to expand going forward.1 10.6 1. n We have taken a hike of just 2% YoY in handling and storage charges for all the CFS and ICD belonging to Allcargo. Considering aggressive capex plans for growing ICDs/ CFS and Project & Engineering Solution segments.2 5.7 8.4 15.9 P/B (x) FY12E 1. Allcargo contacts and books container space with shipping companies for its clients of NVOCC segment and on other hand. Allcargo generates its major revenue from NVOCC segment which is a very low margin business (EBIT margin of ~5%).8 14. Bloomberg Note: AGLL Year ending is calender year (CY) Kotak Securities . For Allcargo we have increased the MTO volumes (both ECU Line and domestic) at 1.990 142. We initiate coverage with a BUY rating. We arrive at a target price of Rs 195 per share.5 FY13E 1. We have valued the stock at par with peers.9 Source: Kotak Securities .0 12. The target price implies a potential upside of 20% for an investment horizon of 12-18 months.7 11.4 2.Private Client Research Please see the disclaimer on the last page For Private Circulation 28 .5 times the estimated growth in GDP of the respective economies.850 P/E (x) FY12E 9. Therefore.7 9.7 7.9 6.7 15. PEER ANALYSIS Container Corporation of India Ltd (Concor) is the largest player in Railway Logistics as well as ICDs/CFS business in India. The company also provides cold storage facility like Concor. It also provides cold storage solution to its clients.080 14.7 15.5 FY13E 7.SECTOR REPORT July 29.

7 13.0 112.696 286 550 194 484 1.462 1.6 16.Operating expenses Operating profit + Other income . Kotak Securities . 2011 FINANCIALS: ALLCARGO GLOBAL LOGISTICS Profit and Loss Statement (Rs mn) CY09 Net sales MTO/ CFS operations Employee Others .4 12. in minority interests Miscellaneous items Cash flow from finance Net change in cash 1.578 372 CY12E 273 14.6 11.057 3.905 75 4.610 13.4 1.0 Cash flow from invest (2.Private Client Research Kotak Securities .937 1.Interest .979 12.106 7.214 3.2 CY11E 5.0 0.298 Balance sheet (Rs mn) CY09 266 9.2 13.3 CY12E 10.052 3.818 775 2.048 1.544 397 12.5 CY10 38.425 (177) 2.4 2.7 13.8 0.1 17.4 30.883 557 13.SECTOR REPORT July 29.0 1.473 3.0 8.7 0.025 1. Kotak Securities .1 9.8 10.5 10.6 15.333 CY10 28.007 (2.7 2.813 87 1.345 743 15.254 13.200 3.3 19.928 (110) 1.593 586 2.799 2.886 25.9 10.7 6.354 2.4 0.8 13.754 (100) 1.2 9.0 100.Private Client Research Please see the disclaimer on the last page For Private Circulation 29 .876 (2.095 250 614 320 482 1.3 19.973 1.Private Client Research Cash Flow Statement (Rs mn) CY09 Consolidated PAT Non-cash items Cash profit Changes in working capital Cash flow from opns Capital expenditure Investments Dividends Equity raised Debt raised Inc.9) 19.4 12.663 20.679 27.045 134 11.8 24.602 (4.9 1.448 16.668 2.466 1.453 Source: Company.2 28.4 7.254 CY11E 273 12.739 1.2 0.5 1.461 75 4.200 3.172 70 3.4 13.792 (900) (900) (644) 16 125 (503) 1.278 33.0 14.440 (107) 1.Private Client Research Source: Company.3 10.8 7.401 714 CY11E 1.9 89.963 170 2.5 0.654 771 2.8 1.818 CY12E Equity Reserves Deferred tax liability Networth Debt Minority interests Capital employed Fixed Assets Investments Debtors Loans & advances Other current assets Creditors Provisions Working capital Cash Capital deployed 21.7 0.183 3.419 2.106 856 2.956) Source: Company.980) (480) (0) 800 110 430 457 CY12E 2.0 3.663 20.164 21 2.0 15.845 29.528 3.6 15.6 10.819 2.638) 349 (4.453 Source: Company.Depreciation .713 4.116) (840) (146) 2.685 4.3 21.3 14. Kotak Securities .099) 119 (1.191 286 545 231 261 1.7 4.0 14.295 30.2 1.654 CY11E 19.4 21.8 9.979 CY10 273 11.6 0.289) (459) 995 1.685 5.8 27. Kotak Securities .236 2.9 73.900 408 1.4 14.4 0.475 316 2.531 250 671 322 558 2.767 3.733 128 4 2.0 8.358 176 9.594 497 18.Private Client Research 18.362 4.612 20.Tax PAT + (Associates-Minorities) Consolidated PAT 20.901 18.6 5.319 2.231 (125) 2.778 262 16.409 (1.3 23.928 52 1.342 2.2 26.916 2.639 734 11.019 256 2.8 14.333 595 1.389 Ratio Analysis CY09 Revenue growth (%) PAT growth (%) Operating margins (%) FDEPS (Rs/share) CEPS (Rs/share) DPS (Rs/share) BV (Rs/share) PER (x) P/CEPS (x) Dividend yield (%) P/B (x) EV/Sales (x) EV/ EBITDA (x) Debt/Equity (x) Working capital turn (days) Dividend payout (%) ROE (%) ROCE (%) (10.395) 19 (27) 861 (220) CY10 1.510 1.0 11.905 13.6 2.218 3.

4 EV/EBITDA (x) 10.5 16.7 29. Incorporating 5. In logistics and Boxtrans becoming more aggressive in their rail business expansion plans. we expect Concor share of Exim to come down to 70% by FY16E. Today it is best placed in the country to leverage the growth of containerisation.8 Concor with its pan India infrastructure (220 rakes and 60 terminals) provides wide spectrum of services comprising of warehousing. With private players aggressively creating terminal infrastructure and buying rakes to grow their business.Private Client Research Shareholding pattern Public 4% FIIs 27% Domestic Institutions 7% Source: ACE Equity Promoter 62% 1 year performance (Rel to Nifty) Source: ACE Equity Kotak Securities .7 PBT 10.com +91 22 6621 6222 July 29.9 86. Decline in domestic volumes in 4QFY11 (down 8.1000 OF INDIA (CONCOR) RECOMMENDATION : REDUCE FY12E PE: 16.6% growth in volumes & loss of business share for Concor over FY11 to FY13E. The revenues for the company have grown at CAGR of 8% during the same period as against CAGR of 25% over FY02 to FY06.4 81. it would concede another 5% Exim business share to private players.9 15.0 ROE (%) 16.6 8. container parking.620 9.000 wagons (220 rakes) primarily catering to the Exim segment. It has a well established pan India terminal infrastructure (back bone of rail container business). rail congestion.6 10.3 EBITDA 10. Since the opening of the rail business to private operators in 2006 till date Concor has lost about 20% of the Exim business to private operators. Today the 15 private operators together own around 100 rakes (25% CAGR) as against 220 rakes (5% CAGR) owned by Concor.5% YoY) was primarily led by recent railway policy change implemented from Dec-2010. The current infrastructure is the backbone of the business especially the terminals which are considered demand creating hubs.5X Stock details BSE code NSE code Market cap (Rs mn) Free float (%) 52 wk Hi/Lo (Rs) Avg daily volume Shares (o/s) (mn) Source: ACE Equity : : : : : : : 531344 CONCOR 142.3 442 20. Kotak Securities .may impact growth in FY12E.1 11.004 8. Arshiya.8 9.1 P/E (x) 17.000 130 Summary table (Rs mn) FY11 FY12E 41.3 Sales 38. With economy picking up and private operators like GDL. We estimate the replacement value of Concor's asset base at Rs 8 billion which would be difficult to replicate by any of the private players in the near term.9 14. q Policy change has affected domestic growth . economic slowdown are the key reasons that private rail operators are going slow with their container rail operations.665 66.2 11.686 -10.9 486 25. They are also tying up with shipping lines (as Concor do) for perennial business.5 2.competition increasing. 2011 CONTAINER CORPORATION PRICE : RS. since the first eight months of FY11 were not impacted by the policy change. Concor over FY07-FY11.5 FY13E 45.646 25. repair facilities and most importantly cargo movement in container trains to multiple locations.SECTOR REPORT Amit Agarwal agarwal.491 NW Capital (Days) -0.9 Growth (%) 5. since the opening of container rail operations to private players has conceded 20% Exim business and 10% domestic business to private players.amit@kotak. Concor in the last 23 years has built a formidable infrastructure in terms of (1) Pan India network of 60 terminal (2) 10.850 37 1453/1020 58. The private operators are also adding ICDs and shifting rakes from low growth domestic segment to Exim segment .9 CEPS (Rs) 76. Source: Company.5 P/BV (x) 2.6 12.5 13. All these factors are adding to the competition of Concor and leading to Concor losing market share.7 2.299 EPS (Rs) 63.main profit contributor of Concor. q Conceded 20 % Exim business to private operators .4 ROCE (%) 16.7 4.1 Book value (Rs/share) 397 Dividend / share (Rs) 15.0 15. Higher haulage cost on the specified commodities led to a loss of almost the entire volumes almost completely wiping out the growth seen till Nov-10. we estimate that over FY11-FY14E. q Private container rail operations growing gradually .0 14.2 P/Cash Earnings 14.6 Net cash (debt) 22.Private Client Research Please see the disclaimer on the last page For Private Circulation 30 .7 10.may concede another 10% by FY16E. we initiate coverage on CONCOR with an REDUCE rating.969 8.3 27.1098 TARGET PRICE : RS.512 Net profit 8. Investment Rationale q Mammoth infrastructure -difficult to replicate.296 25. The stock is currently trading at a premium valuation of its high growth period of the past. High real estate price and poor availability of land for Container Freight Stations (CFS's) and Inland Container Depots (ICDs).180 70. Note that this is likely to impact YoY growth figures in FY12E as well.216 EBITDA margin (%) 26.4 15. This may potentially lead to sluggish growth in domestic volumes in FY12E thereby impacting revenue and profitability.061 -3.585 8.266 Growth (%) 3.6 5.

The rate increase by IR can be any time and as many times during a year. Concor is trading at 17x FY12E EPS . We are valuing Concor at 15x FY12E P/E. Average Exim lead distance for Concor has declined to ~ 1100 km in FY11 from ~1200 km (average over FY09 . particularly imports and (3) declining market share.a cushion which private rail operators don't have.Private Client Research Please see the disclaimer on the last page For Private Circulation 31 .Growth of the company may be impacted in case of a moderation in global economic growth. container rail operators may not be able to pass on the hike to customers or may lose market share to road transport. rebates . The erratic increase in rail haulage charges hampers container rail operators' ability to price their services to clients on a fixed rate basis.NCR route handles almost 70% of the Exim container movement along with substantial passenger traffic as also bulk of the traffic undertaken by Indian Railways (IR). 2011 q Structural changes in business . Inconsistent policies of the IR are also impacting the business and growth strategy of the company. q Exim segment . All these are critical success factors in uncertain times. q Weakness in global trade and economy . Our value reflects the following:1) sluggishness in domestic segment. The low debt balance sheet and a depreciated asset pool make Concor one of the low cost logistics service providers having a healthy ROE of ~ 20% q Valuation and recommendation. better margins and low competition.The concession agreement between the IR and container rail operators does not specify any schedule for hike in haulage rates.The private operators are adding rakes and ICDs gradually which is intensifying the competition for Concor and leading to Concor losing market share. q Competition increasing from private operators . the route has become saturated as no new railway tracks have been added. q Healthy balance sheet . For example.SECTOR REPORT July 29. The performance of Concor over years has culminated into a very healthy balance sheet with negligible debt and a liquid asset book to balance sheet size (more than 35%). Also with competition intensifying in the container rail segment. We build in 5. Our value for Concor is Rs 1000/-. Concor is resorting to more rebates and discounts which is impacting the margins negatively. Risk and Concerns q Erratic increase in haulage charges by Indian Railways .higher than its average 1-year forward P/E of 15 x in the past five years when it enjoyed higher market share. with no caps. Kotak Securities . This we believe is a structural change and would negatively impact the realisation per TEU.falling lead distance. At times.FY11) primarily because of lower contribution from JNPT to total volume handled which declined to about 64% of total volumes from 73% earlier. We believe volumes for Concor would grow at a slow pace to industry. The lower contribution from JNPT was attributed to higher contribution from Pipavav and Mundra port. IR had hiked its domestic haulage rates exorbitantly effective 1st December 2010.The JNPT.congestion on key routes (JNPT-NCR) . (2) potentially slower Exim growth as imports growth slow and competitors shift capacity to Exim from domestic amidst relatively slow growth.negatively impacting the business.6% growth in overall volumes) for Concor. With the ever-increasing number of rakes (by container rail operators and for bulk cargo) to service the growing cargo at these ports and locations.5% growth in Exim volumes and 6% growth in domestic volumes in FY12E (5. Private operators are gradually adding more rakes and building terminal infrastructure adding to the competition of Concor. At current market price. Also these would enable the company to add more rakes/ ICD's and invest in providing value added service without leveraging the balance sheet .one comforting factor.

operation of container trains. Concor business mix Concor core business is characterized by three distinct activities: n As a carrier n Container Freight Station (CFS) operator n Inland Container Depot (ICD) operator INVESTMENT ARGUMENT Formidable network . The role of Concor and private players in India is restricted to ownership of wagons. Concor also provides multi-modal logistics support to both the domestic and Exim (international) trade and targets to become a one-stop logistics solution going ahead. Even the 10. Today private operators have mostly acquired private land at market rates to set up their own inland container depots (ICDs).60 container terminals and around 220 rakes operating per year.000 60 Concor had acquired most if its land around 22 years back on long term lease from Indian Railways (IR) and the network of ICD and CFS on these pan India pieces of land were built in a phased manner.SECTOR REPORT July 29. when it took over the existing network of Indian Railways.difficult to replicate Pan India Infrastructure of Concor FY11 Concor has made a formidable infrastructure in the last 2 decades No of rakes No of wagons No of ICDs Source: Company 220 10. Moreover. The above factors coupled with competitive pricing enables Concor to enjoy ROE of ~ 20%.Private Client Research Please see the disclaimer on the last page For Private Circulation 32 . Consequently the cost of service of Concor is comparatively low than the private players.000 odd wagons which Concor owns were acquired long time back and have depreciated a lot. Barring small pockets the entire rail network in the country is owned by IR and the container train operators pay haulage to IR for using the network. Kotak Securities . These terminals are located strategically along the key container-transporting corridors in the country. Since incorporation in 1988. 2011 ABOUT CONCOR Concor is public sector undertaking (PSU) with the government holding 63% in it. stevedoring and terminal handling. Concor has been the undisputed market leader in the Container Rail Segment with the largest network . Note: Indian Railways (IR) continues to be the sole owner of pan India rail network. Concor enjoys strong operational support from Indian Railways. Even the employee cost (even after the sixth pay commission) has been only around 2% of its revenues compared to 5% for private players like Gateway Distriparks Limited (GDL). one of the factors that lured most of the private players to enter the container rail business.

2011 ASSURED TEUs FOR CONCOR . as the full benefit of rail haulage will not accrue otherwise. it should continue to be the low-cost service provider in the container rail segment over the medium term. the port which accounts for more than 65% of the container traffic handled in the country. Concor is a low cost service provider Concor's infrastructure. It would take 10 years and an investment of Rs. and the company does not bear any interest costs owing to negligible debt in the balance sheet. Discounts are offered on annual volumes but only on containers that use Concor-run ICDs. The rolling stock has also depreciated significantly. The profitability coupled with historical high growth rate may have enticed private players to enter the business.80 billion to build another Concor type of infrastructure. Concor has been offering discounts continually based on committed volumes since 2007 (when private operators had barely started their operations). it has a MOU with the parent to provide guaranteed transit on key routes which the private players are devoid of. Though Concor suffers from higher intermediation costs owing to its public-sector parentage. However. with private operators slowly getting their rail-linked ICDs in place.quasi government organisation Concor is the sole container freight subsidiary of Indian Railways (IR) which is the monopoly government owned rail service of India. Accordingly. In order to keep private competition at bay. at about 85%. Many shipping lines have signed up with Concor on the scheme. The subsidiary status of Concor of IR gives it a quasi ownership of IR's pan India rail network of approximately 75. shipping lines have started exploring alternatives. but it would be very difficult for each of them to replicate the CONCOR model. Today Concor with 10. Continuous committed originating and terminating volumes ensures healthy rail load factor to Concor.minimum empty running Concor has strong relationships with major shipping lines that do business at JNPT. compared to about 80% for private developers. Major shipping lines rely on Concor because of its unparallel infrastructure set up in rail container business. Apart from infrastructure Concor scores over private players in n Client relations n Pricing power n Near term growth prospects n Quality of earnings For companies aspiring Concor like success have to build an integrated logistics chain and customer franchise spending nearly Rs 80 bn and would take years to do.SECTOR REPORT July 29. CONCOR A SUBSIDIARY OF INDIAN RAILWAYS . But discounts are impacting the margins and return ratios of the company negatively A network of CFS/ICDs/ terminals and sufficient number of wagons is very essential to profitably run Exim rail operations. traffic originating and terminating at JNPT accounts for 65% of Concor's volumes. set up over the past two decades. is cheaper than that of its competitors. In addition to this. It also enjoys the highest utilisation of its stock.000 km.000 wagons has built a formidable PAN India infrastructure which translates into high profit margins of ~25 % and healthy ROE of 20% for them. Nowadays shipping lines have tie up with multiple operators. Concor also wanted shipping lines to sign up for a minimum period of three years. (Carrier + CFS + ICD = vertical integration) + (scale + relation = regular business) = success Kotak Securities .Private Client Research Please see the disclaimer on the last page For Private Circulation 33 . assuring it of healthy volumes on continuous basis. we believe.

This step of railways is likely to impact YoY growth figures in FY12E as well. and hence do not expect the Exim lead distance to significantly pick up. Domestic volumes for Concor Year FY06 TEUs 373. Kotak Securities .SECTOR REPORT July 29.FY11) primarily because of lower contribution from JNPT to total volume handled . would still have to pay freight as per their original freight rate classification apart from small 10% difference. 2011 DISINVESTMENT ARGUMENT Railway policy change hampered domestic volumes in Q4FY11 . up until Nov-2010 domestic volumes had witnessed an 8% YoY growth.business change happening for Concor Structural changes is happening for Concor with falling lead distance Average Exim lead distance has declined to ~ 1100 km in FY11 from ~1200 km (average over FY09 .0 YoY growth (%) Domestic volumes to slow for Concor at 6% CAGR over FY11 to FY13E FY07 FY08 FY09 FY10 FY11 FY12E FY13E Source: Company. iron & steel.5% decline in domestic volumes in 4QFY11 primarily led by recent railway policy effective Dec-2010.2 16. the incentive for such bulk commodities has disappeared. alloys & metals. We estimate the domestic volumes to grow at a slow pace of 6% in FY12E (against historical 8%). indexed at 100).405 453. Railways increased the specified rating of five commodities (cement. However.Private Client Research Please see the disclaimer on the last page For Private Circulation 34 .6 0. we do believe the shift of incremental volume share from Mundra and Pipavav is structural in nature. Alumina (190) could have been carried in containerized conditions at lower freight rates (container are lower freight rate class) as container rates are lower than rates for some of these commodities.which declined to about 64% of total volumes from 73% earlier. the Railways have now said that such commodities.g. 110.848 389.4 3. This led to Concor losing almost the entire volumes of these commodities to road transportation. Kotak Securities . several container train operators provided this facility to bulk users and offered some part of the freight rate difference to users as well to entice them to avail of their service. Concor lead distance has declined by 5-6% in Exim . (2) Gujjar agitations leading to loss of about 1 month of volumes and (3) lower volumes to Tuglakhabad ICD during common wealth games. POL products) leading to higher haulage by 100% to 275%. 100.9 6. 140 etc . even if they are carried in containers. In fact. stone other than marbles. Thus. since first eight months of FY11 were not impacted by the policy change.970 543.045 4.828 576. For full FY11. While the latter two factors might be temporary in nature. The lower contribution from JNPT was attributed to (1) higher contribution from Pipavav and Mundra ports.9% YoY.8 14.Private Client Research Railways publish freight charts which classify commodities in various freight rate brackets (e.0 6. Some commodities which were classified higher such as cement.370 538.e.273 470. which were almost completely nullified by the loss of these volumes (reported 9MFY11 domestic volume growth of about 5%).458 611. We expect this trend to continue going forward.domestic volumes to slow down for the company Frequent changes in the rail policy has hurt Concor Concor reported an 8. Using this advantage.140 indicates 140% of the base rate i. Concor reported a domestic volume growth of about 0.

Infrastructure planned by Container rail operators Concor FY11 FY13E 230 65 75 85 Private Players FY11 100 15 20 12 FY13E 140 25 25 15 Private players are aggressively creating capacities No of rakes No of ICDs Exim market share (%) Domestic market share (%) 220 60 80 88 Source: Companies. Each operator would require atleast three to four ICD's for Mumbai-NCR-FaridabadAgra routes to provide full fledged Exim service. Kotak Securities . Firstly it takes a lot of time to arrange for land. which is a JV between World's Window and Central Warehousing Corporation. We expect about 25 functional rail-linked ICDs in the private domain by end-FY13. Boxtrans Logistics. Central Warehousing Corporation (CWC). Kotak Securities . Till they have their ICDs in place. Most private players have accelerated their ICD expansion and rolling stock addition programme to get a share in the Exim business. 2011 Port wise contribution to Concor's Exim volume FY11 Other Ports 5% FY10 Pipavav 8% Mundra 7% Chennai 7% JNPT 64% Pipavav 10% Mundra 10% Other Ports 5% Chennai 11% JNPT 73% Source: Company. GDL which currently operates 21 rakes and would be adding further 8 rakes in the next two years. Note: Mundra & Pipavav are 150km closer to NCR to JNPT Private container business growing gradually Private operators are getting into similar tie-ups with shipping lines to drive their Exim volumes. On the other hand Concor is going slow with their capacity expansion programme. Hind Terminals and GDL are operating ICDs (15 in all) and 3 more companies are in the pipeline. committed volumes are difficult to come.Adani Logistics Ltd (ALL). For instance.one from an inter-ministerial group under the commerce ministry and another from the Rail Traffic Clearance (RTC) set up under the Railway ministry Only five companies so far . secondly investment of atleast Rs 100 crores is required for an 100 acre ICD and thirdly the current policy requires two approvals within six months for every operator which intends to set up an ICD .SECTOR REPORT July 29. Also their Faridabad ICD is expected to become operational by Q3FY12.Private Client Research Please see the disclaimer on the last page For Private Circulation 35 . Setting up rail-linked ICDs has taken longer than earlier envisaged and most private operators have been forced to operate out of the ICD at Loni.Private Client Research Setting up an ICD is a cumbersome and costly task The private operators always blame inadequate terminal facilities for services not taking off in full swing.

List of Key ICDs for CONCOR.6 Container Volume (million TEUs) 4. The location of the ICDs is very critical. Tughlakabad ICDs alone accounts for more than 25% of the EXIM traffic for Concor Tughlakabad Jaipur Tondiarpet Whitefield Dronagiri Mulund TRADE FLOW . Exim trade a 12 major ports Total Volume (million tons) FY06 FY07 FY08 FY09 FY10 FY11 424 464 520 530 561 570 YoY (%) growth 10. Concor losing exim market share to private players even as containerization grows in India The fundamental business driver of container rail business is foreign trade of containerisable commodities between India and its trading partners. Out of the 60 CFS/ICDs at least 10 to 12 ICDs are strategically located to garner traffic from different parts of the country. A network of CFS/ICDs/ terminals is essential to profitably run Exim rail operations.demand creating hubs A CFS is an extended arm of Port where import/ export goods are kept till completion of their examination and clearance.8 21. An ICD is a CFS located outside the port town. There is no legal distinction between ICD & CFS from the point of view of Customs Act. Concor today has a pan India network of 60 ICDs/CFSs. The imported goods (60 % on an average) are immediately shifted from the port to CFS which also helps in the reduction of port congestion. This has grown at a CAGR of 7% in volume terms over FY06 to FY11.7 4. custom clearance.6 6. 2011 CFS's and ICDs . Key ICDS Nagpur Dadri Sabarmati Ludhiana Source: Company.5 YoY (%) growth 12.4 9.3 16.1 -1. ease of access (road and rail) and proximity to major industrial townships.Primary growth driver.5 6.We model in 8% growth in container volumes at the 12 major ports in FY12E and FY13E. de stuffing. These 10 ICDS account for more than 80% of Exim traffic for Concor. as the full benefit of rail haulage will not accrue otherwise. temporary storage for onward transit and outright export and transshipments take place from such stations.0 5. Note: 1.SECTOR REPORT July 29.7 6. as container traffic depends on the number of factories in the vicinity.3 12.Private Client Research Please see the disclaimer on the last page For Private Circulation 36 .8 1.9 7. Activities such as stuffing.8 5.8 Source: Indian Ports Association Kotak Securities .2 9. warehousing.0 2. 2.While container traffic has grown at a CAGR of 11% during the same period.

and Arshiya International.29 18.95 4.589 1.113 17 Source: Company.537 5.30 4.497 2. While cargo traffic has grown at a CAGR of 7 % at these ports.541 3.249 1.178 1.8 420 18 FY11 7. Concor losing market share in exim business 000' TEUs Total Exim volumes (12 major ports) Hinterland movement (67%) By rail (50%of hinterland movement) Concors Exim Volume Concors Exim Share (%) Private operators Exim TEUs CAGR for private operators (%) FY06 4.80 3.6 CAGR (%) Concor has conceded 20% Exim business to private players since FY07 Containerization of cargo facilitates seamless movements and eases handling through various modes of transport like rail.8 23.Private Client Research Concor may be in a formidable position today in rail container business as it has the requisite infrastructure and tie ups in place. Kotak Securities .712 4.712 1.6 2.0 33 FY07 5.4 140 332 FY08 6.596 4.9 271 93 FY09 6.9 507 21 FY16E 11.872 4. we believe that Concor which has already lost 20% Exim business to private operators would lose further market share to private operators like In logistics Solutions.0 1.525 2.716 92.9 355 31 FY10 6. Gateway Distriparks. safeguards the goods and facilitates quick and easy transfers. Container volumes at JNPT (in mn TEUS) Year FY05 FY06 FY07 FY08 FY09 FY10 FY11 Source: JNPT Mn TEUs 2.06 3. road and air.856 1. 2011 Container traffic has grown faster at 12 major ports of India than the total trade due to increase in containerisation.1 -2.597 70.210 1.SECTOR REPORT July 29. container traffic has grown at a CAGR of 11%.882 81. Standardization of the dimensions of a containers and mechanizing the handling of such container has considerably improved the efficiency of ports. Kotak Securities .557 98.06 4. Indian Ports Association.1 17.855 83. Boxtrans Logistics.7 5.37 2.018 79.419 2.420 3. Basically containerisation eliminates multiple cargo handling.977 87.710 2. But private operators who entered the business with much fanfare are slowly eating into the business of Concor in Exim Though private operators are going moderately with their capex plans. For JNPT the performance has been a tad poor having a CAGR of 9% during the same period of FY05 to FY11 .074 7.302 1.Private Client Research Please see the disclaimer on the last page For Private Circulation 37 .050 2.744 3.604 2.

959 -6.561.39 Source: Company.077 1.Private Client Research Please see the disclaimer on the last page For Private Circulation 38 . flat YoY and 550 bps below 3QFY11 levels led by higher freight expense of 58. The company has a policy of booking volume discounts in 4Q which led to the margin compression.884 10.017. The miss-match between our estimates and management guidance is likely on potential sluggish growth in domestic volumes.889 6.262.562 373.698.000 0 FY08 FY09 FY10 FY11 FY12E FY13E 24.000 30. The policy was implemented only in December-2010 and hence the first eight months of FY12E are likely to witness weak volumes on a YoY basis.463 5.828 0.LHS) EBIDTA margin (% .000 40. Management guides for 10% top-line and bottom-line growth in FY12E Concor management has guided for a revenue growth of 10% in FY12E with sustained margins.028.381.769 16.000 20. This is above our estimate of an 8% growth in revenues. Volume Assumption for Concor FY06 Exim TEUs YoY % Domestic TEUs YoY % Total YoY % 1.873.854.23 647.000 10.844 6.232 -5.24 470. A similar trend was seen in 4QFY10 when margins compressed sequentially to 23.Private Client Research Sequential decline in margins primarily on discount rebates to customers .708 6.79 2.045 6.556.63 611.RHS) 27. 2011 FINANCIAL ANALYSIS Revenue to grow slowly in line with volume growth .19 453.105.2% in 4Q from 28.4% as percentage of sales versus 55.447.CAGR of 8% over FY11-FY13E to ~ Rs. Our estimates imply an overall volume growth of ~5.122.088 5.00 2.370 20.3% in 3QFY11. kotak Securities .00 3.16 2.90 2.8% in 3Q.6 % in FY12E primarily led by Exim volume growth estimate of ~ 5.0 26.46 538.916 5.70 FY10 1.208 5.930.458 6.405 4.545 5.00 2.421. margins for Concor estimated to fall 25.273 -3.308.89 FY11 2.50 FY14E 2. Overall margins of Concor would remain under pressure primarily due to 3 reasons: (1) Competition from private players (discounts given to customers to retain market share).4% for 4QFY11.SECTOR REPORT July 29. primarily due to competition.20 543.05 FY08 1.0 With growing competition.715.Private Client Research Kotak Securities .0 Source: Company. EBITDA margin for Concor Sales (Rs mn . Kotak Securities . Revenues are expected to follow a lower trajectory than what we have witnessed over FY06 to FY11.45 bn We expect 8% CAGR in its revenue over FY11-FY13E.0 50.714 FY07 1.882.91 2.80 FY12E 2.63 2.047 4.22 389.970 18.635 7. falling lead distance in Exim segment and slow growth in domestic segment.35 FY13E 2.18 576.5% with domestic volumes growing by 6% YoY.399 15.27 FY09 1. (2) Falling lead distance in Exim segment (leading to fall in revenue per TEU) and (3) Erratic increase in haulage charges by Indian Railways (not able to pass on the entire hike).overall margins to remain under pressure Concor reported EBITDA margins of 23.977.848 1.289 9.

We expect Concor's FY11-13E EPS CAGR to slow down to 4%. 2011 Low Depreciation Concor's infrastructure.23 0.06 1.78 18.42 0.89 0.22 0.23 0.79 14.21 0.23 0.Private Client Research. Unlike its global peers it doesn't have to invest in common rail infrastructure.87 11. Depreciation as % of sales 4.66 Financial Leverage Capital Employed/ Equity Source: Kotak Securities .5 4.63 FY12E 0.20 0.29 FY13E 0.87 20.21 0.6 3. w increasing competition and structural changes in the operations ith (falling lead distance and erratic rail haulage policy) we expect the return ratios of the company to come down. However.Private Client Research Please see the disclaimer on the last page For Private Circulation 39 .22 0.04 1.70 1.04 1.79 15.31 FY10 0.43 0. CFS and rail linked ICD's.77 20.SECTOR REPORT July 29. the company in relation to its balance sheet size does not have significant capex programme.Private Client Research Return Metrics Falling Du Pont analysis Parameter EBIT margin Asset Turn over Interest Burden Tax burden ROE (%) EBIT Margin Capital Turnover ROCE (%) Ratio EBIT/ Revenue Revenue /Capital employed PBT/EBIT PAT/PBT PAT/Equity EBIT/ Revenue Revenue/ Capital Employed EBIT/Capital Employed FY09 0. The rolling stock has also depreciated significantly.71 15.79 16.05 1.22 0. no funding issues Concor has a strong balance sheet with cash reserve of Rs 22 bn We estimate Concor to spending around Rs 10 bn over the next 24 months towards capex.22 0.72 16.0 FY08 FY09 FY10 FY11 FY12E FY13E Source: Company. is cheaper than that of its competitors.04 1. However. set up over the past two decades.23 0.21 0.2 3.81 18. The company doesn't have to take high cost debt in these uncertain times. It also enjoys the highest utilisation of its rolling stock.18 FY11 0. Also land for ICDs is on long term lease from railways and rolling stock has depreciated a lot.71 1. kotak Securities . at about 85%. Company Concor enjoys the highest ROE due to its unique combination of relatively high margins and asset intensity. against the 11% CAGR it registered over FY06-11 Healthy balance sheet .92 0. The cash balance of Rs 23 bn and operating cash flow of about ~Rs 10 bn per year very comfortably support such a capex. compared to about 75% average for private operators.22 0. Consequently the depreciation to sales ratio of Concor is lowest in the industry and that is one of the reason for high return ratios of the company.9 3.26 0. Investments are confined to wagons.72 1.3 3.70 14.81 1.substantial cash balance. Kotak Securities .08 0.23 0.

361 131.086 FY10 0 45.618 7.384 662.894 2.795 22. Kotak Securities .957 9.44 0.274 1.490 229 5.43 0.812 2.5% decline in 4QFY11 volume).00 12.353 1.491 -0.438 6.711 209 5.46 0.With a cash balance of Rs 23 bn as on Q1FY12 and comfortable capex plans.173 7.068 517. we can always expect the payout to go up which could be a trigger for the stock.470 27.095 9.811 1. capex and cash flow analysis (Rs mn) Gross Debt Networth Cash Net Debt/equity (x) Gross Debt /EBITDA (x) Operating cash flow Free cash flow Capex Source: Kotak Securities .442 194 5. 2011 Debt.023 7.price supportive Concor's payout ratio has been about 20% historically translating into a dividend yield of 1. Concor grew its Exim business only by 7.725 612.068 4.255 17.473 19.689 2.806 28.596 27.00 7.4 589 0 402 441 2.780 9.212 FY11 0 52.616 2.342 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Concor Q1FY12 results .461 145.918 FY12E 0 58.010 Healthy dividend payout .649 27.276 6.44 0.623 2.270 29.977 7.00 9.619 27.428 5.897 -0.109 9.46 0.SECTOR REPORT July 29.Private Client Research Please see the disclaimer on the last page For Private Circulation 40 .725 TEUs versus 127.325 6.397 7.202 1.371 1.295 518.7 381 0 365 567 2.0 358 0 353 541 1.Private Client Research FY09 487 39.159 202 5. alumina among others) since December 2010.693 -0.686 -0.490 5.845 7. Quarterly snapshot (Rs mn) Volumes (TEUs) Exim Domestic Total volumes (TEUs) Exim revenues Domestic revenues Total revenues Employee cost Rail freight expenses Others Operating expenditure Operating income (EBIDTA) EBIDTA margin Other Income Interest Depreciation Taxation PAT Source: Company 488.013 501.384 TEUs).4 516 0 385 449 2.142 9.384 616.444 657.174 139.Weak operational performance lifted by below EBITDA line items n Despite strong Exim growth in volumes at all the ports in Q1FY12 (8.010 FY13E 0 64.163 5.275 6.213 6.823 2.1% (2.954 229 5.333 2.639 127. n Concor reported de-growth in domestic volumes of 13% YoY (110.390 1.583 7.905 2.5% volumes growth).This is the second such quarter of volumes decline (8.00 11.5%.01 9.616 624.710 1.672 110. This is primarily due to excess dependence on stagnant JNPT volumes and lower market share from fast growing port of Mundra and Pipavav due to strong competition.9 479 0 335 655 2.934 493.061 -0.809 5.331 23.7% YoY). The loss of volume is attributable to the change in freight policy for certain commodities (cement.

5% growth in Exim volumes and 6% growth in domestic volumes in FY12E (5. We also factor in the following to arrive at the fair value (assumptions): n Container volume at 12 major ports of India to grow at 8% CAGR over FY11 to FY13E. Exim margins remained firm at 27. We believe volumes for Concor would grow at a slow pace to industry. n Gradual fall in market share in Exim to ~70 % by FY16E from current ~80%.6 % over FY11 to FY13E primarily led by Exim volume CAGR of 5. down 1% QoQ). 2011 n Revenues were up 4% YoY (down 5% QoQ) at Rs 9. We build in 5. Concor is trading at 17x FY12E EPS .4%. However. Our value reflects the following:1) sluggishness in domestic segment. VALUATION At current market price. n Other income grew by 64% YoY at Rs 588 mn as the company continues to capitalize on its huge cash hoard (currently at Rs 23 bn) coupled with strong dividend on its investments.6% growth in overall volumes) for Concor. n Domestic margins declined by 556bps YoY (36bps QoQ) due to higher empty running coupled with the continuous reduction in lead distances.Private Client Research Please see the disclaimer on the last page For Private Circulation 41 . Private operators are gradually adding more rakes and building terminal infrastructure adding to the competition of Concor. better margins and low competition. while domestic segment revenues declined by 9% YoY (17% QoQ). The management has guided that the lower tax will now continue going ahead. 16% QoQ). n Overall volume CAGR of ~5. n EBIDTA margins grew by 39 bps YoY (394 bps QoQ) at 27. 321bps QoQ).5 bn. This led to a PAT of Rs 2. n Incremental volume share in Exim coming from Mundra and Pipavav Kotak Securities . Kochi amongst others) reducing dependence on JNPT.higher than its average 1-year forward P/E of 15 x in the past five years when it enjoyed higher market share. n Concor intends to start doing business from new ports such as Krishnapatnam (and other such as Karaikal. Exim realisation was up 5% YoY (2% QoQ) and domestic realisation was up 5% YoY (5% QoQ).5 % and domestic volume CAGR of 6% YoY. Our value for Concor is Rs 1000/We are valuing Concor at 15x FY12E P/E.8% (up 27bps YoY.3 bn (up 21% YoY.SECTOR REPORT July 29. (2) potentially slower Exim growth as imports growth slow and competitors shift capacity to Exim from domestic amidst relatively slow growth.1% YoY. n Tax rate at 15. Sequential improvement in margins was on account of lower 4th quarter margins as volume discounts to clients for the full year are expensed only in the 4th quarter. The Exim segment showed modest growth (up 7.9% was down 601bps YoY (240bps QoQ) after the Income Tax Authorities allowed claiming certain expenses for tax benefits that were disallowed earlier. particularly imports and (3) declining market share.

Private Client Research Cash Flow Statement (Rs mn) FY10 Consolidated PAT Non-cash items Cash profit Cash flow from opns Capital expenditure Investments Dividends Equity raised Debt raised Inc.585 45.474 45.299 1.362 7.6 26.4 17.810 1.446 27.080 2.939 2.0 60.594 FY12E 8.000 250 201 4.125 Source: Company.7 2.303 8.371) 29.Private Client Research Source: Company.6 12.042) (3.3 3.504 FY13E 1.490 (2.300 42.2 FY11 3.5 (3.9 76.872 12.SECTOR REPORT July 29.4 16.6 27.281) 2.4 25.897 45.3 2.4) 27.281) (3.894 826 9.0 485.3 20.876 2.7 8.665 FY13E Equity Reserves Deferred tax liability Networth Debt Minority interests Capital employed Fixed Assets Investments Debtors Inventory Loans & advances Other current assets Creditors Provisions Working capital Cash Capital deployed 30.Private Client Research Kotak Securities .650 51.450 (458) 19.730 1.498 57.562) (5.300 48.Tax PAT + (Associates-Minorities) Consolidated PAT 37.Depreciation .173 11. in minority interests Miscellaneous items Net change in cash 7.260 1.068 (4.057 25.491 51.0 442.440 9.708 2.3 5.618 1.4 2.268 51. Kotak Securities .840 1.9 25.706 2.1 70.236 795 4.2 18.3 0.504 63.9 26. 2011 FINANCIALS: CONCOR Profit and Loss Statement (Rs mn) FY10 Net sales Terminal expenses Employee expenses Others .010) Cash flow from finance (2. Kotak Securities .665 8.3 10.216 1.595 9.475 26.5 16.475 FY11 1.601) (5.840 FY11 38.810 2.120 11.7 63.2 10.Operating expenses Operating profit + Other income .300 59.233) 27.3 1.602 1.438 Cash flow from invest (3.000 270 219 4.7 4.3 2.871 30.650 29.204 FY11 8.Interest .343 2.082 2.8 3.070 998 1. Kotak Securities .150) (43) (4.908 10.300 53.1 (0.803) 2.7 Changes in working capital 1.836 1.2 14.193) (2.9 14.625 Ratio Analysis FY10 Revenue growth (%) PAT growth (%) Operating margins (%) FDEPS (Rs/share) CEPS (Rs/share) DPS (Rs/share) BV (Rs/share) PER (x) P/CEPS (x) Dividend yield (%) P/B (x) EV/Sales (x) EV/ EBITDA (x) Debt/Equity (x) Dividend payout (%) ROE (%) ROCE (%) 7.510 28.155 838 1.686 41.159 873 5.004 Balance sheet (Rs mn) FY10 1.1 3.1 15.6) 41.000 1.9 18.064 2.9 9.5 13.6 FY12E 8.296 57.1 18.180 9.200 1.0 397.7) Source: Company.351 38 2.129) 332 (487) 2.010) (3.742 63.575 (1.9 25.299 8.3 72.564 281 368 22.2 5.448 153 29 4.180 23.4 15.677 2.111 45.199 7.504 63.6 66.050 10.Private Client Research 57.5 1.8 2.284) (2.455 (1.676 2.278) (724) (2.522 9.5 1.665 1.002) (4.180 2.042) 4.4 14.8) 35.646 11.438 2.0 14.010) 448 (3.6 86.569 FY13E 9.1 15.798 784 4.734 1.2 15.061 32.573 (1.125 - 10.300 (138) (5.3 FY13E 8.299 FY12E 28.7 81. Kotak Securities .706 834 1.4 16.803) Working capital turn (days) (13.125 Source: Company.9 (10.650 FY12E 1.083 2.213 8.840 7.7 15.025 33.0 349.631 2.439 9.5 2.266 25.500 945 5.Private Client Research Please see the disclaimer on the last page For Private Circulation 42 .405 176 70 4.

750 59 135/98 230. We believe GDL is undervalued at the current price. We estimate the PBT of the company to grow a CAGR of 25% over FY11 to FY13E.1 7.160 RECOMMENDATION : BUY FY12E PE: 13X Stock details BSE code NSE code Market cap (Rs mn) Free float (%) 52 wk Hi/Lo (Rs) Avg daily volume Shares (o/s) (mn) Source: ACE Equity : : : : : : : 532622 GDL 14.3 1.640 million purchasing rakes and developing ICDs for its haulage business which would give an impetus to GDL's revenues going ahead.018 Net profit 964 EPS (Rs) 8.The stock is currently trading at one-year forward P/E of 13x as compared to its historical three year average one-year forward P/E of 16x.0 EBITDA 1.000 108 Summary table (Rs mn) FY11 FY12E 6. Source: Company. In FY11.both together handle more than 80 % of India's containerized trade.amit@kotak.com +91 22 6621 6222 July 29.030 9.893 Growth (%) 14.4 1.2 17.1 7.a.0 2.329 15.194 28. PE player Blackrock invested Rs 3 bn in the rail business through compulsory convertible preference shares.577 EBITDA margin (%) 26.6% of Concor over FY11 to FY13E.rail haulage volumes to grow at 14% CAGR vs.123 NW Capital (Days) 2.8 We initiate coverage on Gateway Distriparks (GDL).0 ROE (%) 9.0 4.7 11. GDL has a location advantage with it CFS present at key ports including JNPT and Chennai .2 P/BV (x) 1.8 10.9 P/Cash Earnings 9.0 16. GDL is also among the early entrants into the container rail business.8 72.0 9. We estimate rail haulage volumes to grow at a CAGR of ~14% to 1.9 4. We estimate that the hitherto bleeding rail business would make material contribution to earnings for GDL in FY12E and FY13E and would the key segment for the company.136 TARGET PRICE : RS.889 28.1 13.6 CEPS (Rs) 13.626 12. Today it operates 21 rakes (Concor operates ~220 rakes and other private operators operate ~ 80 rakes) which is highest amongst private operators in the country and we expect the company to add another 8 rakes in the next 24 months (20% CAGR) spending around Rs 1. Despite the intensely competitive business scenario. after it was thrown open to private participation almost five years ago.5 % of Concor).3 6.SECTOR REPORT Amit Agarwal agarwal. 2011 GATEWAY DISTRIPARKS (GDL) PRICE : RS.9 14.8 -3.0 8.205 11.5 Book value (Rs/share) 67. GDL is one of the 9 players registered for pan India container rail operations with Indian railways for a license fees of Rs 500 million. Recently GDL won a bid to operate a CFS in Vallarpadam International Container Transshipment Terminal (ICTT) which would have a capacity of 50.626 1.Private Client Research Please see the disclaimer on the last page For Private Circulation 43 . Gateway Distriparks Limited (GDL) commenced operations in 1995.0 10.Private Client Research Shareholding pattern Public 22% Promoter 40% FIIs 24% Domestic Institutions 14% Source: ACE Equity 1 year performance (Rel to Nifty) Source: ACE Equity Kotak Securities . q Company to scale up rail business . today has the largest port-based container freight station (CFS) capacity among private players in India.000 TEUs from FY13E. Kotak Securities .7 -3.623 15.390 19.6 EV/EBITDA (x) 8.We initiate coverage on the stock with a BUY rating and a price target of Rs 160 implying 18% upside from current levels.8 PBT 1.4 1. Blackstone recently invested Rs 3 bn in the rail business which the company would be investing to add rakes and ICDs. 5.8 1.7 mn Twenty Feet Equivalent Units (TEUs) p. The recently won contract of Vallarpadam terminal should boost the CFS volumes of the company from FY13E. Current facilities include 4 CFS and 2 Inland Container Depot (ICD) with aggregate handling capacity of 0.9 Growth (%) 21. These funds will be used for commissioning of the Faridabad terminal and expansion of existing terminals and addition of rakes.7 FY13E 7.6 ROCE (%) 9.5 Dividend / share (Rs) 5.2 11.5 6.7 lakh TEUs in FY13E (vs.9 80. India's leading Container Freight Station (CFS) operator with a BUY rating. Investment Arguments q CFS/ICD volumes to grow at a healthy 9% CAGR over FY11 to FY13E.5 1. we remain positive on the theme of containarisation and expect GDL to achieve 9% CAGR in CFS/ICD volumes over FY11 to FY13E.0 Net cash (debt) -3. Today it is the largest private container rail company operating 21 rakes and 2 functional Inland Container Depots (ICD). 5.5 P/E (x) 13. we estimate CFS/ICD volumes of GDL to grow at a healthy 9% CAGR versus 8% growth in Exim volumes (12 major ports) over FY11 to FY13E.390 1. With the above infrastructure in place. With containerization low in the country.6 Sales 5.

ICD/CFS expansion. some of which are evaluating setting up their own CFS/ICD for captive use.SECTOR REPORT July 29. This would enable GDL to provide an inter-modal end to end solution to the customer in a more seamless fashion with all the value added services. We expect GDL to spend around Rs ~ 2000 million on network development (ICD/CFS) and around Rs.Acquisition of Snowman frozen foods. GDL acquired a 50. 480mn from Hindustan Unilever. it could adversely impact GDL's business. The actual earnings growth of the group can be judged by the healthy PBT CAGR of ~ 25% over FY11 to FY13E.000 pallets for Rs.Private Client Research Please see the disclaimer on the last page For Private Circulation 44 . P/B and P/E as valuation tools we assign a target price of Rs 160 for the stock which is a 18% upside from the CMP Rs 136. if shipping lines decide to divert traffic to competing CFS. q Valuation and recommendation. Further. 2011 q Bleeding rail business (GRFL) has become profitable in H2FY11. any significant delay in development of port infrastructure would adversely impact the entire industry. given its expected earnings CAGR of 12% (FY11-13E) as compared to a historical (FY08-11) CAGR of 11%. The stock is currently trading at a one-year forward P/E of 12x as compared to its historical three year average oneyear forward P/E of 16x. It largely depends on shipping lines and consolidators for business.Using EV/ EBITDA. q Shipping companies opening their own CFS. margins in rail business to improve. GRFL has reported PAT of Rs 41 mn in H2FY11 (Rs 38 mn in Q4FY11 alone) in the rail business. We believe that the current valuations are attractive. Key risk to our call q Delay in execution of strategic initiatives.The ETR has increased for the company from an average 15% (FY06 to FY11) to 25% both in FY12E and FY13E as the CFS business would attract full tax from FY12 (benefit under section 80IA until FY11). capex plan and Blackrock investment in GRFL should act as valuation support . Kotak Securities . Management is confident of improving this load factor to 85% (level for Concor) going forward and we model the same of 85% over FY11 to FY13E. This would lead to EBITDA margin expansion for GDL (consolidated) with increasing share of rail business in total revenue. Any delays in implementing the strategic initiatives like growing at JNPT via the organic/inorganic route. q Cold chain business .We believe GDL is undervalued at the current price.200 million in cold chain operations over the next 24 months.Company to focus more on Exim segment. Rail freight business model profitability is highly linked to load factors. acquiring rolling stock and wagons for the rail container project or delays in clearances from the government would have negative impact on GDL. Basically these terminals would be demand creating hubs for the company. giving it an entry into the nascent but fast expanding cold chain logistics market. In 2006. q Capex plans to integrate business . After reporting losses since inception. And therefore we expect the margins in rail business to improve from current ~14% to 16% in FY13E. Thus. We believe that the current dividend yield of ~4% . GRFL would also increase the percentage of rakes deployed on the more profitable Exim operations from the current 65% to 85%.1% stake in Snowman Frozen Foods with a capacity of around 10. Load factor has gradually improved for GRFL from 70% in FY08 to 80% in FY11. The company would be investing around Rs 200 million in next 24 months in the business to augment capacity to around 25. GDL's business model has a relatively high level of client concentration due to the prevalent industry dynamics where only a small number of players account for majority throughput (TEUs).000 pallets on Pan India basis which would roughly translate into the revenues growing at a CAGR of ~25% over FY11 to FY13E to Rs 798 mn for the segment.

CFS/ICD is a very competitive business with location of the facility and rates offered decides who gets the business. 2011 q Competition among CFS and ICD players . GDL primarily operates its CFS/ICD in JNPT where all the major players have good presence. Kotak Securities . there could be short term pressure on realization as many new players have entered the business by obtaining Pan India license vying for share in Exim. q Competition in railway haulage business .huge capex and tough gestation.highly competitive environment. Further competitive pressures is arising from setting up new CFS/ICD facilities by competing players in the vicinity of GDL's facility leading to under cutting of rates or divergence of volume.SECTOR REPORT July 29.Private Client Research Please see the disclaimer on the last page For Private Circulation 45 . which could hamper GDL's profitability. As GDL has ventured in rail container business.

and currently enjoys a ~5% share in the country’s EXIM container traffic. Apart from its CFS operations. Gateway Rail Freight and cold chain solutions through its subsidiary. Chennai.Private Client Research Please see the disclaimer on the last page For Private Circulation 46 . labeling. Cochin and Vizag. sorting and inspection. Snowman Frozen Foods. GDL offers a variety of services at its CFS/ ICDs such as packing.SECTOR REPORT July 29. GDL group GDL Group CFS GRFL Snow frozen foods 50.1% subsidiary JNPT (old) JNPT (Punjab Conwar) Chennai Vizag Kochi (upcoming) Vallarpadam (upcoming) ICD Garhi Ludhiana Faridabad (upcoming) Rakes 21 rakes on exim & domestic Source: Company Container Logistics Value chain Rail-linked ICD Rail Roa d Container port Road CFS Customer premises Ro ad ICD ad Ro Source: Company Kotak Securities . with operations in key locations such as Jawaharlal Nehru Port Trust (JNPT). GDL also provides end-to-end logistics solutions through its container rail haulage subsidiary. 2011 BACKGROUND GDL is India’s leading CFS/ ICD (Inland Container Depot) operator.

368 TEUs which is ~12% market share among CFS business in JNPT. Recently GDL won a bid to operate a CFS in Vallarpadam International Container Transshipment Terminal (ICTT) which would have a capacity of 50.763 497.5 19 20 90 33 66 8 Capacity (TEUs) 216.192 192.999 25.568 262.000 100.168 33.337 149.621 FY13E 80.543 31. it handled about 230.032 390. Volumes for GDL in TEUs Location JNPT + Punjab Conware Chennai Vizag/Kochi Vallarpadam Rail linked ICDs Total CAGR (%) CFS/ICD CFS CFS CFS ICD FY09 55. 2011 INVESTMENT ARGUMENT Container Freight Station (CFS)/ Inland Container Depot (ICD) GDL currently has CFS operations in four locations and ICD operations at Garhi and Ludhiana.250 CFS 247.000 FY10 64. Kotak Securities .888 66.000 250. The company here earns ground rent charges with no variable cost involved. we estimate CFS/ICD volumes of GDL to grow at a healthy 9% CAGR versus 8% growth in Exim volumes (12 major ports) over FY11 to FY13E.777 6.000 150.both together handle more than 80 % of India's containerized trade.600 215.427 FY11 73.000 75.921 416.498 558. With containerization low in the country.000 Status Fully operational Fully operational Fully operational Fully operational Fully operational Partly Operational Q2FY12 H2FY13 CFS/ICD volumes to grow at a healthy 9% CAGR over FY11 to FY13E versus 8% volume growth at major ports Gateway Distriparks Limited (GDL) commenced operations in 1995.2 7.095 24. The CFS business is characterized by high margin (above 40%) and high asset intensity (~ 100%).438 27. With the above infrastructure in place.000 TEUs from FY13E. Kotak Securities .000 80.463 464.a. today has the largest port-based container freight station (CFS) capacity among private players in India.Private Client Research JNPT (old CFS) – the main profit contributor for GDL CFS/ICD volumes to grow at a healthy 9% CAGR over FY11 to FY13E GDL operates one of the largest CFS at JNPT located about 9 km away from the port. CFS/ICD Infrastructure of GDL group Location JNPT Punjab Conware Chennai Kochi Garhi Ludhiana Faridabad Vallarpadam Source: Company CFS/ICD CFS CFS CFS CFS ICD ICD ICD CFS Area (acres) 35 27.067 169.000 100. Current facilities include 4 CFS and 2 Inland Container Depot (ICD) with aggregate handling capacity of 0.7 mn Twenty Feet Equivalent Units (TEUs) p. GDL has a location advantage with it CFS present at key ports including JNPT and Chennai . This CFS’s prime location coupled with early mover advantage has made it highly profitable.302 FY12E 77.075 30. The key asset is land and facilities within the CFS.0 12.6 7.000 24.368 240.SECTOR REPORT July 29.735 251.756 29.5 11.301 599.500 131.Private Client Research Please see the disclaimer on the last page For Private Circulation 47 .521 112.800 21.4 Source: Company.000 FY14E 84. In FY11.441 230.

The CFS has a total capacity of 150. the O&M contract for Punjab Conware CFS significantly enhances GDL’s container handling capacity from 216.4 mn TEUs) and 15 million tonnes of liquid cargo. GDL has paid a onetime upfront fee of Rs 350 million and would pay an annual fee of Rs 10 million during the contract.4mn TEUs demand) would ease only after FY15E. leading to margin and volume pressure. GDL bagged the operations and management (O&M) contract of Punjab Conware. List of CFS at JNPT 1 2 3 4 5 6 7 8 9 10 11 12 13 Maersk India Private Ltd Gateway Distriparks Ltd United Liner Agencies of India Pvt Ltd Transindia Logistics Park Seabird Maritime Balmer Lawrie & Co. JNPT has been making every effort to improve capacity and volume by installing more sophisticated equipments at the three terminals operating (present capacity is 4 million TEUs at the 3 terminals). Concor. We believe that the demand-supply equilibrium (2.SECTOR REPORT July 29.Private Client Research Please see the disclaimer on the last page For Private Circulation 48 . the capacity of the terminal will be 4. We expect above 20% growth in container volumes only when the fourth new terminal comes on stream and with stabilization of global trade.000 TEUs Kotak Securities .000 TEUs located just 7 km from JNPT. the total expenditure being about Rs 70 bn. when the fourth container terminal at JNPT comes on-stream.5mn TEUs supply vs 1.000 to 360.Punjab Conware’s CFS In December 2006. unless this gap narrows For instance the market share of GDL has fallen by 3% in the last 5 years and continues to be under pressure. Forbes patvolk Hind terminal Ameya logistics Ashte logistics Apollo logistics Preeti logistics Navkar Source: JNPT website Growth driver/Major risk at JNPT Major risk at the JNPT is the mounting competition with addition of newer CFS.The railway has also augmented additional rail lines which have resulted in additional number of trains coming in and out of JNPT. Pressure would be more as the port container volumes are slated to grow at slow rate of 8% for the next two fiscal. with the major players at this location are Allcargo.4 million TEUs (total at JNPT would be = 8.The O & M is for a period of 15 years beginning Dec 06. JNPT currently operates three container terminals (total capacity = 4 mn TEUs per annum) and has invited bids for the fourth container terminal project and a marine chemical terminal project. Today when starting a CFS near the port terminal is a big entry barrier to enter CFS/ICD business. 2011 The total CFS capacity at JNPT is estimated to be 2. a Punjab Government owned container freight station (CFS).W. When fully developed. JNPT . Realizations and volumes will be under pressure for each operator. We believe would come up only after FY15E. Continental Warehousing Corporation (CWC) and GDL. The CFS throughput at JNPT is estimated to be ~34% of the port’s container throughput of ~4 mn TEUs per year (FY11) which comes to around 1.4 mn TEUs per year.5 mn TEUs per year with 24 operators. Punjab State Warehousing Corporation Ltd (CONWARE) Container Corporation of India DRT Central Warehousing Corporation Distriparks Central Warehousing Corporation Impex park SPEEDY TRANSPORT 14 15 16 17 18 19 20 21 22 23 24 25 Kalamboli Mulund Maharashtra s WHC Continental J.C.

we need to wait and see how volumes develop for all the CFS’s at the port CFS at Kochi GDL would have a Greenfield CFS to handle 50. GDL may experience a fall in market share at Chennai in the near-term. we believe that operations at these locations lack the scale to impart material growth momentum.000 TEUs per annum with the port capacity at around 50 lakh TEUs.5 acres and on which the company is currently constructing a CFS which would have a capacity of 50. Even as GDL has sought to diversify its presence by moving into Kochi and Vizag. Vallarpadam – transshipment hub Company in Q3FY11 won a contract to operate a CFS at Vallarpadam (Kochi) close to International Container Transshipment Terminal (ICTT). The expansion of Chennai is managed by PSA Singapore with an outlay of Rs. Japan.000 TEUs from FY13E.30 bn which will also involve improving road connectivity and rail connectivity with the port to provide customers a complete solution. But this port on the east cost of India has the potential to grow as a gateway for India’s Exim trade with the east countries like Singapore. Volumes at the port . All the vessels which come to the West coast of India first call either Mundra or Pipavav and then call on JNPT and then return to Pipavav and Mundra again.000 TEUs per annum at Kochi port. CFS at Vizag – gateway to east GDL’s Vizag CFS has a capacity of 24. however management stated that full fledged commercial operations would begin in FY13E. Kotak Securities . 2011 CFS at Chennai – catering to 2nd largest container port Chennai is the 2nd largest container port after JNPT accounting for 16% of container traffic at 12 major ports. and is strategically important for GDL in the future. Since it is a transshipment hub (unlike JNPT and Chennai).000 TEUs per year with 8% CFS market share at the port.SECTOR REPORT July 29. We estimate GDL’s Vallarpadam CFS to handle about 25.5 mn TEUs per annum to 2 mn TEUs per annum from CY12 with more CFS entering the fray. GDL’s Chennai CFS is currently running at above 90% utilization with no expansion on the cards. So the north Indian cargo requirements are effectively serviced through these three ports. which would boost the CFS business of the company from FY13E.At Vallarpadam the company has one plot of land which is of 6. Thailand. Vallarpadam is a transshipment port and would primarily replace the transshipment requirement of India shifted from Colombo. It is expected to start operation in 2QFY12. GDL has another plot of 20 acres which is at some distance from the port and which the company would utilise in future to expand the CFS capacity in future. None of the north India volumes are expected to go to Vallarpadam because of the concept of double dip which is being followed by most of the container shipping lines.Private Client Research Please see the disclaimer on the last page For Private Circulation 49 . GDL’s Chennai CFS has a capacity of 80. China etc.000 TEUs in FY13E and 27. Today there are no major plans either by the Port or GDL to enhance capacity. given that Chennai container port capacity is set to expand from current 1.000 TEUs in FY14E.

This facility is also utilised by APL and Hind terminal. These funds will be used for commissioning of the Faridabad terminal (in Q3FY12) and expansion of existing terminals and rakes. This would lead to overall margin expansion for GDL with increasing share in revenue and profitability of rail business.000 TEUs per annum and would be partly operational by Q3FY12.SECTOR REPORT July 29.000 TEUs by FY12 end. ease of access (road and rail) and proximity to major industrial townships. We expect the volumes to be low for this ICD in FY12E as container train service would begin from the terminal only in FY13E.000 TEUs per annum from this facility. to operate container trains on the Indian railways network. Navi Mumbai.000 TEUs and which the company intends to ramp up to 150. Garhi ICD is currently having a throughput of 100. we expect GRFL’s revenues to grow at ~20% CAGR over FY11-FY13E.GRFL through compulsory convertible preference shares. along with improving load factor leading to EBITDA margin expansion from 13. including Delhi. GRFL signed the concession agreement with Indian Railways in 2007 for a period of 20 years. Faridabad ICD Faridabad ICD has a total capacity of 100.64 % in FY11 to 16% in FY13E. Leading player like Concor enjoy 25% ROE and 25% EBIDTA margins and this explains the keen interest in this space from new entrants since the sector opened up to private competition in January 2006. GDL is currently handling 50.Its a very critical ICD for GDL as container traffic depends on the number of factories in the vicinity. Haryana. Rail based container business is the smallest and the fastest growing business in the entire logistics chain. GDL is earning usage charge and rent for that from these 2 operators for the same. With this development.000 TEUs per annum for all the operators put together. both together handle about 75. Pipavav and Mundra ports in Gujarat on the Delhi -Mumbai corridor. we anticipate volumes of Faridabad to grow at healthy pace. GDL expects some of these volumes to shift from Tughlakabad to Faridabad from FY13E onwards. Investment by Private Equity Player Blackstone in Gateway Rail Freight Ltd (GRFL) to help add capacity Blackstone has invested Rs 3 bn in the rail subsidiary for 40% stake valuing the subsidiary at Rs 7bn Blackstone in FY11 has invested Rs3bn in the rail subsidiary . thus providing the North-West link for cargo movement .000 Exim TEUs per annum.Private Client Research Please see the disclaimer on the last page For Private Circulation 50 .This terminal is close to congested Tughlakabad ICD of Concor (key ICD with 20% of total volumes for Concor) and which handles close to 450. Kotak Securities . We believe this segment has the potential to grow 20% CAGR for the next 5 years for GDL. The market around Ludhiana is not very big and has a total business opportunity of 250. Ludhiana ICD Ludhiana ICD has a total capacity of 240. With rail connectivity in place from FY13E.000 TEUs per annum and the main product handled here is scrap. RAIL HAULAGE – Long term growth engine for GDL GDL’s rail business is managed by Gateway Rail Freight Limited (GRFL) a 100% a subsidiary company of GDL. 2011 Garhi ICD – gateway to NCR and northern India from JNPT GDL’s Garhi ICD is strategically located in south of Delhi near Gurgaon and caters to the rich hinterlands of Northern India. Punjab and Rajasthan.000 TEUs per annum from the facility. It links these regions to the major gateway ports of India including JNPT.

one at Garhi which is strategically located to garner traffic from the northern hinterland.SECTOR REPORT July 29. GDL currently has two ICDs.5 33 1. Ebidta margins to improve for the rail business GDL to add 8 more rakes by FY13E GDL currently owns 21 rakes. ease of access (road and rail) and proximity to major industrial townships. In comparison. and second is the recently started Ludhiana ICD.5 million TEUs now.Private Client Research Terminal infrastructure expansion by GDL .57 FY07 5.Private Client Research Please see the disclaimer on the last page For Private Circulation 51 . Kotak Securities . Third ICD for the company would start at Faridabad by Q3FY12. as the full benefit of rail haulage will not accrue otherwise. more focus on Exim segment. Rake addition in rail business– 8 rakes to be added till FY13E.5 33 2.6 33 2. China has created capacity at its ports to handle more than 100 million TEUs a year.49 FY16E 15.21 FY09 6.7 33 2. Two important aspects for setting up a strategically located ICD are: (1) Real estate costs at important locations and (2) Land acquisition.5 mn TEUs opportunity by FY16E Opportunity for container rail operators estimated at ~5 mn TEUs by FY16E Container cargo represents only about 30% by value of India’s external trade—pale when compared with the global containerized cargo average of 70-75%.27 FY11 7. Company currently runs Exim operations primarily out of JNPT and Mundra and would start Pipavav service in FY12E. Exim operations of GDL Route Garhi to JNPT/ Mundra circuit Ludhiana to JNPT/ Mundra circuit Faridabad to West Coast NCR to Pipavav Number of rakes in domestic Source: Company No of rakes 8 4 2HFY12 2HFY12 7 Kotak Securities . as container traffic depends on the number of factories in the vicinity. Going forward the company intends to add 8 more rakes and most of them would be primarily placed on Exim routes. 2011 Containerization low in India . Exim Opportunity Mn TEUs Container trade (EXIM) Conversion to rail container traffic (average %) EXIM opportunity FY06 4.8 33 1.demand creating hubs A network of CFS/ICDs/ terminals is essential to profitably run Exim rail operations.83 FY08 6. India’s container cargo traffic is estimated to reach 15 million TEUs by FY16E from about 7. At a growth rate of 19%. Almost 2/3 of these rakes run on Exim routes which are more profitable because of low empty running and assured cargo.95 Source: Indian Ports Association. Start of Faridabad ICD operations should help improving the Exim business We expect the share of Exim operations to increase from the current 65% to 85%. We estimate Exim rail container traffic to be ~5 mn TEUs by FY16E.0 33 4. This would lead to EBITDA margin expansion for GDL (consolidated) with increasing share of rail business in total revenue. Concor operates more than 60 Pan India ICDs/CFSs.9 33 2.18 FY10 6. And therefore we expect the margins in rail business to improve from current ~14% to 16% in FY13E. The location of the ICDs is very critical.

Crore Rs Crore Source: Kotak Securities .9 Comment GRFL would have 29 rakes by end FY13 GRFL third ICD at Faridabad would be functional by September 11 Load factor to improve with formation of network of ICDs Size/Nos 10 4 12. Concor with 80 % market share has built formidable infrastructure with 60 PAN India owned ICDs/CFSs and 10.SECTOR REPORT July 29. 2011 GDL aspires to be leading rail container operator – Herculean task Concor is the market leader in the container rail business with ~ 80 % market share operating 220 rakes.5 GRFL 21 3 85 15 4 4. We estimate it to add 8 more rakes by FY13E. List of private players with Pan India license Adani Logistics Arshiya International Boxtrans Logistics India Central Warehousing Corporation Concor Container Rail Road Services Delhi Assam Roadways Emirates Trading Agency Source: Industry Gateway Rail Freight Hind Terminals India Infrastructure & Leasing Innovative B2B Logistics Solutions Pipavav Railway Corporation Reliance Infrastructure Engineering Sical Logistics Brief comparison between Concor and GRFL Assumptions Avg size of Rail Linked ICD Cost per acre Cost per rake Infra per ICD Brief Comparison (FY11) CONCOR Rakes (no) Rail linked ICDs (no) Current Load factor (%) EBIDTA margins (%) Exim Market Share (%) Replacement Value (Rs Bn) 220 60 85 25 80 72.Private Client Research Kotak Securities .5 35 Acres Rs crore Rs. Today GDL operates 21 rakes through 2 ICDs (third ICD to come up by Q3FY12).000 wagonsreplacement value could be ~Rs 73 bn.Private Client Research Please see the disclaimer on the last page For Private Circulation 52 .

452 131.142 16 663 4.000 1. In FY11.256 45 2 90 612 85. These funds will be used for commissioning of the Faridabad terminal and expansion of existing terminals and addition of rakes. Rail freight business model profitability is highly linked to load factors.701 16 592 FY13E FY14E 29 24 12 8 2.0 24.160 181.400 164. Today it operates 21 rakes (Concor operates ~220 rakes and other private operators operate ~ 80 rakes) which is highest amongst private operators in the country and we expect the company to add another 8 rakes in the next 24 months (20% CAGR) spending around Rs 1. And therefore we expect the margins in rail business to improve from current ~14% to 16% in FY13E. PE player Blackrock invested Rs 3 bn in the rail business through compulsory convertible preference shares.960 24.681 14 235 FY11 21 19 12 8 1.640 million purchasing rakes and developing ICDs for its haulage business which would give an impetus to GDL's revenues going ahead.600 75. margins in rail business to improve After reporting losses since inception.6% of Concor over FY11 to FY13E Volumes in rail business estimated to increase at 14% CAGR over FY11 to FY14E GDL is one of the 9 players registered for pan India container rail operations with Indian railways for a license fees of Rs 500 million.328 154.260 45 2 90 491 78.720 113.440 203.584 201.224 172.040 237.016 45 2 90 612 85.008 45 2 90 90.5 % of Concor) Kotak Securities .824 45 2 90 576 80. Management is confident of improving this load factor to 85% (level for Concor) going forward and we model the same of 85% over FY11 to FY13E.0 33 28 12 8 2.000 1.000 3. Kotak Securities .000 4.0 Ebidta margins in rail business estimated to improve to 18% from current 14% No of rakes ( end of fiscal) No of rakes ( average running) Period Operated (no of Months) Trips per Trains Per month (one way) Total no of trips per year Wagons per rake TEUs per wagon TEUs per rake Total TEUs capacity Fill factor/Load Factor (%) Revenue TEUs Average tariff per TEU Average Revenue per km per TEU Revenue (Rs Mn) EBIDTA Margins (%) EBIDTA (Rs Mn) 15 12 12 7 1. GRFL has reported PAT of Rs 41 mn in H2FY11 (Rs 38 mn in Q4FY11 alone) in the rail business.Private Client Research Please see the disclaimer on the last page For Private Circulation 53 . Assumption for Container Rail Operations FY09 FY10 21 15 12 7 1. 2011 Bleeding rail business (GRFL) has become profitable in H2FY11.Private Client Research Company to scale up rail business .225 12 147 Rev containers/TEU/per train/per month 473 88.0 19. We estimate rail haulage volumes to grow at a CAGR of ~14% to 1.rail haulage volumes to grow at 14% CAGR vs 5. This would lead to EBITDA margin expansion for GDL (consolidated) with increasing share of rail business in total revenue. GRFL would also increase the percentage of rakes deployed on the more profitable Exim operations from the current 65% to 85%.847 18 872 Source: Company.SECTOR REPORT July 29.0 24.152 14 441 FY12E 25 21 12 8 2. 5.040 18.640 45 2 90 612 85.Company to focus on more on Exim segment.000 3.000 24. Load factor has gradually improved for GRFL from 70% in FY08 to 80% in FY11.0 68.7 lakh TEUs in FY13E (vs.

000 pallets in the next 30 months.0 FY14E 40000 95.064 904 160 15.0 FY12E 20000 95.0 9500 28. Amul.12 % stake in Snowman Frozen Foods for Rs 481 million in 2006.000 798 678 120 15.0 28500 28.000 1.000 248 215 32 13.0 9500 28. led by the FMCG companies. 2011 Cold Chain Business .000 452 388 63 14. In our view.0 FY11 13000 95.0 Source: Company. Performance of cold chain business FY09 Total no of Pallets Utilisation (%) Pallets Utilised Revenue per pallet Revenues (Rs Mn) Operating Cost EBIDTA EBIDTA % 10000 95.0 38000 28. and ITC. GDL would be investing around Rs 200 million in increasing capacity to more than 30.garnering value but still nascent GDL entered the cold chain business through its acquisition of 50. Snowman Frozen Foods currently has 16 cold stores spread across the country with a total capacity of 13.0 12350 28.Private Client Research Kotak Securities .000 532 452 80 15. It has partnered with Mitsubishi to enter this fast growing organized cold chain logistics business and has a client base comprising companies such as HLL. operates around 120 refrigerated trucks and has the capability to handle variety of products.0 FY10 10000 95. Mother Diary.0 19000 28.000 266 234 32 12.SECTOR REPORT July 29.0 FY13E 30000 95. Kotak Securities . There is a growing demand for cold chain operations in India.000 pallets. this business will take time to scale up for GDL given that the industry is still nascent.Private Client Research Please see the disclaimer on the last page For Private Circulation 54 .

328 in FY11 to 172. the profitability of this business has been on a decline with the emergence of competition. we expect overall margins and profitability of the company to improve.050 4.020 2.8 54. However.9 39.9 FY09 2.6 53.0 36.853 4. Segmental revenues for GDL (Rs mn) CFS Rail Haulage Cold chain Total % share CFS Rail Haulage Cold chain 52.The CFS volumes grew marginally over FY09 to FY11.167 FY11 2.589 532 6.806 FY14E 3.834 343 4.1 56. However.2 34.584 in FY13E (14% CAGR) and CFS volumes to grow from 333.2 10.426 in FY11 to 389.7 7.443 1.900 248 5. purchasing rakes for its haulage business (rakes) and expanding cold chain business over the next 24 months. Segmental Share of revenues The CFS business use to contribute a majority of the company’s revenues (53% of FY09). The company is currently making investments to add CFS capacity at Vallarpadam.064 8.SECTOR REPORT July 29.2 53.64 % in FY11 to 16% in FY13E and with increasing share in revenue of rail business. As a result the revenue mix would change marginally in favour of rail business in future over FY11.155 798 7.Private Client Research Please see the disclaimer on the last page For Private Circulation 55 . Committed capex as on May 2011 Capex Rs mn CFS/ICD Rail Haulage/ICD Cold Chain Total Source: Company FY12E 200 820 100 1120 FY13E 200 820 100 1120 FY14E 200 820 100 1120 This would expand its capacity from its current two ICD at Garhi and Ludhiana and 21 rakes to three ICDs (adding Faridabad by Q3FY11) and up to 29 rakes by FY13E.901 FY12E 2. Kotak Securities .We expect the margin in this segment to continue to be under pressure.810 1.923 Share of rail business to increase in overall revenues and load factor to improve to 85% Source: Company.9 11.619 FY10 2. In FY11 CFS contributed ~40 % of the topline. ICD at Faridabad and to add 8 rakes.626 FY13E 2. 2011 FINANCIAL ANALYSIS Capex to drive topline We expect GDL to spend around Rs 2240 mn on network development (ICD/CFS).Private Client Research Operating margins to improve for GDL with improving load factor in rail business GDL’s core business of CFS is very profitable with EBITDA margins of ~48% (FY11).5 7.8 39. With ramping up of the high growth rail business the share of rail business to the topline has increased from ~40% in FY09 to ~53% in FY11.8 52.350 3.4 39.2 8. with margins falling from a high of 55% in FY08.110 in FY13E (9% CAGR).7 37. With such proportionate investments. we expect the rail volumes to grow from 131. we expect the operating margin of the rail business to improve from 13.100 452 5.1 4.505 3. with load factor improving for rail segment. Kotak Securities . With this capex we expect GDL’s sales to grow at 14% CAGR over FY11 to FY13E.

6 1.51 10.170 Source: Company. However. Kotak Securities .Private Client Research Healthy balance sheet – no capex issues.099 6.284 1.RHS) 36 32 28 24 20 Source: Company.81 Source: Company.459 433 FY11 4.21 0.SECTOR REPORT July 29.180 -360 1.4 0.209 0.49 1.51 12.74 10.410 7.15 0.411 181 1.22 1. with improving operating margins.225 7.51 1.936 874 0.95 9.21 0.18 0.21 0. Kotak Securities . 2011 Revenue share and margins CFS (%) COL Storage (%) 100% 75% 50% 25% 0% FY09 FY10 FY11 FY12E FY13E FY14E RAIL (%) EBIDTA Margins (% .94 0.749 429 1.23 0.4 0.55 11.01 0.54 1. Kotak Securities .4 0. DuPont table Parameter EBIT margin Asset Turn over Financial Leverage Interest Burden Tax burden ROE (%) EBIT Margin Capital Turnover ROCE (%) Ratio EBIT/ Revenue Revenue /Capital employed Capital Employed/ Equity PBT/EBIT PAT/PBT PAT/Equity EBIT/ Revenue Revenue/ Capital Employed EBIT/Capital Employed FY09 0.210 FY12E 4.18 0. we expect ROE to improve marginally to~ 12% in FY13E from ~10 % in FY11.50 0.109 -818 FY10 2.24 0.21 0.42 FY10 0.15 0.62 0.2 0.864 1.5 1.Private Client Research DuPont Analysis The growth in top line and margins does not percolate to the bottom line due to the CFS business attracting full tax from FY12 (benefit under section 80IA until FY11).4x (FY11) and generation of healthy operating cash flow comfortably supports such a capex.045 6.Private Client Research Kotak Securities .3 1.54 8.99 0.44 0.49 9.524 701 0. The net debt/equity ratio of 0.102 0.21 0.081 0. Debt and cash flow analysis (Rs mn) Gross Debt Networth Cash Net Debt/equity (x) Gross Debt /EBITDA (x) Operating cash flow Free cash flow Capex FY09 2. The effective tax rate has increased to 25% from average of 15% over FY07 to FY11.68 0.73 FY13E 0.599 8.6 1.070 FY13E 4.55 1.45 0. free cash flow positive in future GDL would be ambitiously spending around Rs 2 bn over the next 24 months for capex.This translates into a ~22% PBT CAGR over FY11 – FY13E and ~12% CAGR at the PAT level.87 14.93 0.24 0.2 0.75 0.3 1.629 1.93 0.02 FY12E 0.Private Client Research Please see the disclaimer on the last page For Private Circulation 56 .91 1.74 9.51 1.34 FY11 0.09 11.

n PAT was reported at Rs 330 mn against Rs 140 mn in Q1FY11 ( beating consensus estimate) Kotak Securities .1 280 87.2 20. Hence the Blackstone funding values GRFL at Rs 6bn to Rs 8 bn which we believe is at premium to Concor’s value of ~ Rs 80 bn based on asset replacement valuation.876/ TEU n Operating margin in the CFS business was reported at 54% (Q1FY11 ~45% and Q4FY11 ~49%).565 115. GRFL would consider an IPO in FY13E or post that and we believe this IPO would lead to significant value unlocking for the parent which has been working hard on improving the performance of the rail business.8 991 374 27. Depending on achievement of certain undisclosed operational performance.1 42.robust performance n Consolidated sales grew by 43% YoY and 9% QoQ to Rs 1.212 618 33.5 1.365 6.018 1.0 333 Q1FY11 Q2FY11 Q3FY11 Q4FY11 Q1FY12 Gateway Distriparks Q1FY12 results .0 331 -19 -5. n Company reported healthy volumes both in the CFS business and Rail business at 90. This performance of the CFS division is similar to the performance of the period FY05 to FY07.7 283 3 1.769 28.140 538 32.546 13. n Effective Tax rate (ETR) of the company has gone up to 20% as the CFS business is now a full taxpaying segment of the group.859 39.1 963 319 24.6 1.SECTOR REPORT July 29.065 1.830 9.Private Client Research Please see the disclaimer on the last page For Private Circulation 57 .900/TEU (+45% YoY and +20% QoQ). n Consolidated EBIDTA came at Rs 618 mn which translates in EBIDTA margin of 34% against 32% in Q4FY11 and 25% in Q1FY11.7 2. 2011 Private Equity investment values GRFL at Rs 6 bn to Rs 8 bn Blackstone has invested in FY11 Rs 3 bn in the rail subsidiary GRFL through compulsory convertible preference shares.134 1. Quarterly snapshot (Consolidated) (Rs mn) Volumes (TEUs) CFS Rail/ICD Total Revenues Growth QOQ (%) Growth YOY (%) Expense EBIDTA EBIDTA (%) PBT Taxation Effective Tax rate(%) PAT Source: Company 75.344 1.102 444 28. n The performance of the rail division was also very healthy with load factor of 84% and EBIDTA margin of17% (Q1FY11 ~12% and Q4FY11 ~17%).7 140 83.9 166 26 15.522 36.500 31.225 1.822 124.The ETR of previous years for the group was ~15%.5 20. Realisation for the rail business was flat YoY at Rs 22. when there was little competition in the CFS business at important ports of JNPT and Chennai.456 104.2 205 86.159 TEUs (+40% YoY) respectively n Even the realisation was healthy for the CFS business at Rs 8.830 mn in the quarter.159 130.494 121.8 1.7 350 90.678 8. The CFS business would attract full tax from FY12 (benefit under section 80IA until FY11).281 -7.8 416 83 20.640 34.859 TEUs (+20% YoY) and 39. Blackstone would be eligible for 39 to 49% in GRFL.4 221 16 7.9 1.

The actual earnings growth of the group can be judged by the healthy PBT CAGR of ~ 25% over FY11 to FY13E. Using EV/EBITDA.5 8.Private Client Research 16. P/B and P/E as valuation tools we assign a target price of Rs 160 for the stock which is a 18% upside from the CMP Rs 136. given its expected earnings CAGR of 12% (FY11-13E) as compared to a historical (FY08-11) CAGR of 11%. 2011 VALUATION The stock is currently trading at a one-year forward P/E of 12x as compared to its historical three year average one-year forward P/E of 16x.We believe GDL is undervalued at the current price.Private Client Research Please see the disclaimer on the last page For Private Circulation 58 .The ETR has increased for the company from average of 15% (FY06 to FY11) to 25% both in FY12E and FY13E as the CFS business would attract full tax from FY12 (benefit under section 80IA until FY11)..5 FY12 (x) 16. We believe that the current dividend yield of ~4% .SECTOR REPORT July 29.136.EV/EBITDA. capex plan and Blackrock investment in GRFL should act as valuation support . Combining GDL’s various businesses of different capital intensity and different growth trajectory.5 8. we value the company on 3 financial parameters . Kotak Securities .5 Target (Rs) 153 182 145 160 GDL is into multiple businesses 1) CFS .0 2. Valuation table Historical average one-year forward (FY09 to FY11) Price/Earnings Price/Book EV/EBIDTA Target Price (Rs) Source: Kotak Securities . P/B and P/E. We believe that the current valuations are attractive.0 2. P/B and P/E as valuation tools we assign a target price of Rs 160 for the stock which is a 18% upside from the CMP Rs.Using EV/EBITDA.steady and predictable 2) rail business capital intensive. fast growing venture and becoming more profitable like Concor and 3) cold storage business – small and nascent but a big opportunity.

4 6.205 Fixed Assets Investments Debtors Loans & advances Other current assets Creditors Provisions Working capital Cash Capital deployed 8.0 11.411 (1.126 12 5 1.689 227 3.205 622 1.5 13.626 4.463) (631) 2.599 665 12.3 41.5 14.Operating expenses Operating profit + Other income .006 199 7.827 78 1.577 122 488 193 43 976 (12) 964 FY12E 6.180 (1.020 287 (99) 874 9.916 1.9 (12.099 625 9.3 11.2 1.316 1.Private Client Research Kotak Securities .6 9.9 10.704 182 681 503 24 1.531 254 7.0 FY12E 12.6 2.209 Equity Reserves Deferred tax liability Networth Debt Minority interests Capital employed Balance sheet (Rs mn) FY10 1.Depreciation .1 64. Kotak Securities .Private Client Research Please see the disclaimer on the last page For Private Circulation 59 . Kotak Securities .3 16.079 5.4 48.6 15.9 13.623 5.2 1.660 FY11 1.225 637 12.512 229 FY12E 1.4 3.0 80.629 4.9 6.105 646 291 118 518 354 183 1.8 11.0 28.Private Client Research 12.756 1.893 Source: Company.462 282 1.125) (1.230) 105 (505) 185 13 (307) (21) FY13E 1.936 2.079 7.Interest .9 4.5 9.893 Source: Company.8 4.9 28.251 125 455 195 (78) 804 (12) 792 FY11 5.250 1. 2011 FINANCIALS: GATEWAY DISTRIPARKS (GDL) Profit and Loss Statement (Rs mn) FY10 Net sales Terminal and rail expenses Employee .000 744 454 133 568 398 365 1.320) Source: Company.146 10.0 67.6 65.8 Changes in working capital (209) (1. Kotak Securities .043 (13) 1.3 FY11 14.079 6.220 (15) 1.079 6.5 19.893 4.021 295 4.0 21.0 9.030 FY13E 7.026) 48 (978) (387) 2 54 20 2 (309) 172 FY11 964 498 1.146 FY12E 1.410 650 FY13E 1.030 563 1.3 3.0 72.9 8.2 4.000 877 522 152 651 457 443 1.284 4.0 17.3 0.320) (505) 189 15 (301) 128 Ratio Analysis FY10 Revenue growth (%) PAT growth (%) Operating margins (%) FDEPS (Rs/share) CEPS (Rs/share) DPS (Rs/share) BV (Rs/share) PER (x) P/CEPS (x) Dividend yield (%) P/B (x) EV/Sales (x) EV/ EBITDA (x) Debt/Equity (x) Working capital turn (days) Dividend payout (%) ROE (%) ROCE (%) 11.1 0.102 12.241 1.194 150 557 160 407 1.5 5.2 7.2 16. in minority interests Miscellaneous items Cash flow from finance Net change in cash 792 458 1.081 11. Kotak Securities .5 1.737 1.5 0.749 (1.0 1.540) (923) (2.429 2.889 150 507 141 348 1.8 10.7 FY13E 15.4 8.593 182 1.405 331 4.3) 24.0 8.167 3.8 11.478 1.6 1.6 26.2 7.864 4.Private Client Research Cash Flow Statement (Rs mn) FY10 Consolidated PAT Non-cash items Cash profit Cash flow from opns Capital expenditure Investments Cash flow from invest Dividends Equity raised Debt raised Inc.7 2.924 13.7 11.459 (1.Private Client Research Source: Company.9 13.1 7.230 319 8.660 9.674 189 6.2 0.5 0.6 3.8 10.9 2.048 381 5.1 49.5 9.9 10.8 2.9 9.924 13.SECTOR REPORT July 29.7 2.8 8.Tax PAT + (Associates-Minorities) Consolidated PAT 5.

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