Gateway Distriparks Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Rail drives the quarter, CFS resets: Rail volumes grew healthily and NCR market share reached 17%, while CFS volumes were flat after a reporting restatement that now includes empties.
• Two acquisitions reshape the network: The Kashipur ICD (signed, closing Q3) and Jaipur land (purchased, construction starting) add two new rail-linked terminals, with Kashipur bringing immediate volume and exclusive rail access.
• Capex cycle begins, leverage stays disciplined: A planned INR 350–400 crores of capex over 18 months will be funded from cash flow while management targets a net debt-to-EBITDA ceiling of 1.2x.
• Volume guidance holds, with upside from new terminals: Existing-business rail volume growth guidance of 6–7% is maintained, and management sees high double digits once Kashipur and Jaipur contribute.
• What to watch next quarter: Closing of the Kashipur acquisition and first disclosure of its rail revenue and margins, plus any progress on the third terminal location being evaluated.

Rail Business: Volume, Share & Margins

• Volume growth healthy: Rail was the major growth driver this quarter, with double-digit growth expected to continue; the 6–7% guidance on the existing base is described as “must be slightly better only.”
• Market share gains vs CONCOR: NCR rail market share rose to 17%, the highest among CTOs, while CONCOR’s NCR share fell below 60% and its overall share has been declining consistently.
• Margin per TEU stable: Rail margin is approximately INR 9,500 per TEU; Kashipur margins are expected to be slightly higher because the longer distance from the port yields higher margin.
• Haulage cost pass-through: Changes in rail haulage are passed on to customers, sometimes immediately and sometimes with a lag of up to 30 days, but all increases and decreases are ultimately passed through.
• Rake strategy shifts to lease: All future rake additions will be on lease rather than captive ownership; plans are to add approximately three rakes per annum starting next year.

Samvid Gupta: “Yes, slightly more actually since the distance is longer from the port. So the further you are away, higher the margin.”

Kashipur Acquisition: The Near-Term Catalyst

• Deal signed, closing imminent: A share purchase agreement was signed on 31 October 2022 to acquire 99.92% of Kashipur Infrastructure and Freight Terminal for INR 156 crores; the transaction is expected to close by end of Q3 FY23.
• What Gateway gets: A 41-acre running ICD currently generating 3,000 TEUs per month, plus exclusive rail access and last-mile connectivity; Gateway previously had no rail revenue from this location.
• Volume ramp ambition: Management expects to double volumes to approximately 6,000 TEUs per month over three to four years, and is also exploring domestic volumes from this location.
• Competitive moat: Gateway will offer an end-to-end solution using Garhi as a hub for daily evacuation, a service level the previous terminal operator could not provide; customers and shipping lines have already begun approaching the company.
• Financials withheld until closing: Management declined to provide rail realization, profitability, or first-year return figures, stating these will be disclosed only after the deal closes.

Ishaan Gupta: “So we are very confident that the way that we would run the ICD would be different from the way currently it is run by a terminal operator who doesn't have rail services.”

Jaipur & Network Expansion

• Jaipur land purchased: In September 2022, Gateway completed the purchase of 30 acres in Dhanakya, near Jaipur; construction of a new rail-linked ICD with planned annual capacity of 125,000 TEUs has commenced.
• Jaipur timeline and ramp: Construction will take roughly a year, with volumes beginning to ramp a year after that; minimal contribution is expected next year, with an eventual target of 4,000 to 5,000 TEUs per month.
• Jaipur as a hub: Jaipur is already a double-stack location and can act as a hub, adding flexibility to the hub-and-spoke network.
• Third terminal being evaluated: A couple more locations are under evaluation, with land parcels being identified; management said 2–3 more terminals can be safely assumed over the next 3–4 years, though no fixed target exists.
• Geographic focus: The strategy prioritizes terminals along the Northwest corridor to leverage the DFC; Eastern DFC and diagonal corridors will be considered later, primarily for domestic business.

Network Strategy & Competitive Positioning

• Hub-and-spoke as the differentiator: Gateway’s network of ICDs at Garhi, Faridabad, Jaipur and Viramgam on the DFC, connected via hub-and-spoke, improves double-stacking, reduces rake requirements, and improves transit times and asset utilization versus competitors.
• Mixed-rake strategy in action: Volumes from multiple ICDs (Faridabad, Sahnewal, Kashipur, Garhi) are combined at the Garhi hub, sent to Viramgam for distribution to multiple ports (Mundra, Pipavav, JNPT), maximizing double-stack distance and improving service levels.
• DFC tailwind: The Sanand-to-Makarpura section is expected by December 2023, with further sections connecting to JNPT over 2023 and 2024; as double-stacking extends, faster turnaround and transit time improvements will provide scope for margin growth.
• Faridabad goes double-stack: Faridabad ICD will be on the double-stack route starting next year, further strengthening the network.

Ishaan Gupta: “Network is very important in this industry and not just having a high number of ICDs, but having them in the right locations through our network.”

CFS Business & Reporting Changes

• Reporting restatement: Gateway changed its reporting method to include CFS empties in throughput numbers; last year, CFS empties were not reported as part of throughput, so both rail and CFS numbers now include laden and empty for like-to-like comparison.
• Volumes flat, but base resets: CFS volumes are flat overall, but on a like-to-like basis (removing the Punjab Conware CFS given up in January), volumes grew 16% on existing facilities; this year is considered the base year for CFS.
• Outlook muted: CFS volumes are expected to be flat from next year onwards.

Balance Sheet, Capex & Capital Allocation

• Net debt reduced: Cash flows were healthy, with net debt reduced to INR 270 crores after INR 30 crores of capex funded from internal cash.
• Capex plan detailed: Total capex of INR 350–400 crores over the next 18 months, comprising INR 250 crores for Kashipur and Jaipur, INR 100 crores for ongoing capex at existing facilities and a third terminal, plus additional ongoing spend.
• Leverage guardrail: Management is targeting a net debt-to-EBITDA ratio of 1:1, stretching to a maximum of 1.2x.
• Dividend to rise: The company will continue paying dividends and expects the dividend to increase this year versus the previous year; cash planning accommodates capex, the leverage ceiling, and the dividend.
• No interest in CONCOR: Management stated unequivocally that Gateway is not interested in acquiring CONCOR; the balance sheet would not support it, and land licensing fee issues remain unclear under Gati Shakti.

Samvid Gupta: “It was an attractive from the numbers point of view, also the payback point of view. ... it's still well within our investment purview of like a good payback and a good ROI.”

Guidance & Commitments

Key Metrics