S. Vaidya Nathan

SHAREHOLDERS of Gateway Distriparks can remain invested, as there could be room for further gains over a one/two-year period. Logistics is likely to emerge a business with high growth potential and Gateway is well-placed to capitalise on this trend. It is also one of the few stocks available to play the logistics theme and could continue to attract investor attention. This is likely to cushion the downside risk.

The stock has more than doubled from its IPO price of Rs 72; we had recommended a buy at this price in the IPO in March. The stock trades at a price-earnings multiple of about 25 times its likely FY-06 per share earnings. This does appear stiff. But there is likely to be a substantial expansion in the scale of operations whose effect on revenue and earnings numbers is likely to be evident only from FY-07.

Gateway Distriparks provides support services to exporters and importers. It had for several years relied on its container freight station in Mumbai to bolster revenues. Over the past year, it has acquired ownership of container handling facilities at Garhi near Delhi, and Chennai; it also operates a facility at Visakkapatnam through a joint-venture in which it holds a 60 per cent stake.

A wider geographic footprint that ensures that it caters to all important ports that have container handling facilities, the expansion and modernisation of its Mumbai unit and the recently acquired units in Chennai and Delhi, and the expected buoyancy in containerised cargo, are likely to boost revenues.

The enlarged footprint is also likely to enable Gateway Distriparks clinch more contracts at attractive rates. It also places the company in an advantageous position to capitalise on the expansion in container handling facilities at several ports. Once these facilities are commissioned, it should provide a fillip to containerisation. As Gateway Distriparks is a in business where entry barriers are stiff, it should be one of the prime beneficiaries of this trend.

The effect of a price hike for its services from February 1, 2005 is likely to be reflected completely in the revenues and earnings of FY-06. If the earnings numbers for the January-March quarter are any indication, the effect on margins is likely to result in robust earnings growth.

Gateway Distriparks appears well-placed to operate at margins in excess of 50 per cent consistently over at least the next couple of years. This process is likely to be aided by its business model of relying on contract labour, a rising level of mechanisation and limited competition in a business where entry barriers are stiff.

The stock is unlikely to run-up sharply as it did after the listing. But it is likely to gain steadily as earnings expansion makes the stock more attractive. New flow on acquisition of container handling facilities at other locations is likely to be a positive, The principal risk to our recommendation is a legally-mandated change in its policy of using contract labour, as it could lead to spike in costs.

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