Gateway Distriparks Ltd Q1 FY2024 Concall Summary

Key Takeaways

• Resilient quarter despite disruptions: Total revenue grew 8% YoY and EBITDA rose 10.6% YoY, even as a private operator's train derailment and a cyclone in Gujarat restricted double-stack operations and shut ports in June.
• Rail margin pressure was temporary: Realization per TEU dipped from ~₹9,400-₹9,500 to slightly above ₹9,000 as double-stack restrictions cut the share of volumes on the second stack to 35% from 40-44% a year ago. Restrictions are now lifted, and Faridabad double-stacking is expected in 2-3 months.
• Snowman is scaling a lower-margin 5PL business: The Snow Distribute vertical grew organically from ₹30 crores to ₹40 crores, but its 10% gross margin is pulling down blended warehousing margins. Management expects this mix shift to lift ROCE over time because the business is asset-light.
• Kashipur ramp-up is on track: Volumes hit 3,000-3,500 TEUs/month with 100% rail share, and the terminal is pulling import and export cargo from nearby catchments. Management aims to take it to 4,000 TEUs soon.
• What to watch next quarter: Whether the export-import mix improves toward 50-50 from 57-43, the pace of Faridabad double-stacking, and any new client wins in Snowman's 5PL vertical.

Rail Business: Disruption & Recovery

• Double-stack hit: A private operator's container train derailment triggered speed restrictions on double-stack trains (now capped at 75 km/h), and Cyclone Biparjoy shut Mundra and Pipavav ports in June. Double-stack restrictions persisted even after ports reopened, normalizing only in July.
• Realization dip: Rail revenue per TEU fell to slightly above ₹9,000 from ~₹9,400-₹9,500 in Q4 FY23, partly because other income was higher in the prior quarter. Without that other-income effect, the rail segment still showed growth.
• Recovery underway: Double-stack restrictions are now lifted. Faridabad terminal is expected to begin double-stacking in 2-3 months (September to October 2023), which should help restore the second-stack volume share.

Samvid Gupta: "35% of our volumes were carried on the second stack during the quarter, whereas a year ago this used to be closer to 40% to 44%."

• DFC tailwind: The 127 km Dadri-to-Rewari stretch of the Dedicated Freight Corridor is operational, and trains are already being routed via DFC to Mundra and Pipavav. Once JNPT is connected via DFC, double-stacking will become possible there (currently single-stack only), improving margins. Management expects 5-10% of volumes to shift from Mundra/Pipavav to JNPT initially, with less competition on that route because not all CTOs hold a pan-India license.
• Rake availability improved: Delivery timelines for new rakes have shortened from 12-15 months to 6 months. Three more trains are in the pipeline and will arrive before the end of the financial year, with a plan to add three rakes every year thereafter.

Volume Growth & the Imbalance Constraint

• 10-15% growth guidance maintained: Management reaffirmed the volume growth target, citing Kashipur's ramp-up, returning auto volumes at Garhi (including auto reefer, electric, and yarn exports), and an uptick in export order bookings for the US and Europe Christmas season at Faridabad. July volumes were good, and healthy Q2 volumes are expected.
• The imbalance binds harder than demand: Imports were 57% of volumes last quarter versus 43% exports. Handling significantly more imports would destroy margins by creating empty running and under-frame running on return legs. Rail capacity is near its limit with 31 trains, so growth must come from a better-balanced mix, not just more volume.

Samvid Gupta: "The imbalance really matters a lot. We can technically handle much more imports if needed, but that will destroy our margins then create a further empty running and under frame running."

• Market share gains: NCR market share held at 17% (Gurgaon plus Faridabad), Sahnewal at 30%, and Uttarakhand share rose from 34% to 38%. Kashipur is targeting 4,000 TEUs/month soon, up from the current 3,000-3,500.
• Pricing stable, no industry-wide hikes expected: Management sees no scope for price increases at the industry level. CONCOR has passed discounts only in areas where Gateway is not present, and while other operators have discounted, Gateway is confident in retaining customers on network and service quality.

Snowman: 5PL Scaling at Lower Margins

• Snow Distribute is the growth engine: The 5PL vertical grew from ₹30 crores to ₹40 crores organically from the same three clients. One client (Tim Hortons) expanded from 1 store to over 20; the other two added scope and new products. Management expects to add another ₹50 crores from this vertical this year.
• Margin mix is shifting down: Snow Distribute carries a 10% gross margin and 3-4% net margin, so as its revenue share rises, blended warehousing margins have declined over the last two quarters. Warehousing margins are expected to sustain around 15% as new facilities are added, while Snow Distribute gross margin will remain at 10%.
• But ROCE should improve: Because Snow Distribute is asset-light (capital deployed is mostly working capital for inventory holding), management expects blended ROCE to move up as the 5PL share increases. Overall Snowman ROCE currently stands at 8-8.5%.
• Capacity expansion underway: Snowman plans ₹200 crores of CAPEX over the next two years, a 40% addition to current capacity, including chill and frozen storage, 5PL distribution services, and dry warehousing under an asset-light management-services model. The company added 20 trailers and 50 new refrigerated trucks this quarter and expects to settle at 250-260 owned trucks with a similar number on lease.
• New facility utilization de-risked: 60-70% of utilization at a new facility typically comes from existing customers, and within six months of commissioning, a facility is expected to reach 70-80% utilization.

Sunil Nair: "What we do usually is when we decide the location for new setup, we do the demand estimation and mostly 60% to 70% of our utilization is done by the existing set of customers."

• Price increase above inflation: Snowman took an overall price increase of 5% this year versus typical inflation of 3-4%. Transportation margins improved from 5% to 8% as SnowLink Technology's outsourced trucking (12-13% margin) grew its contribution.

Terminal Expansion Pipeline

• Jaipur by Q4 FY24: The terminal should be operational by Q4 FY24, with approximately ₹50 crores of CAPEX between now and March. The first year will be slow volume building, with proper volumes expected from FY26.
• Two new greenfield terminals: Management is evaluating two locations immediately, with a possible third, at a cost of ₹100 crores per terminal. Locations will be in the Northern and Central regions, hinterland sites with a lead distance of at least 750-800 km from ports. Specifics will be disclosed only after land is purchased. Post land acquisition, construction takes about 12 months, with another 12 months to ramp up.
• Total CAPEX: ₹300 crores over the next two years, covering the two new terminals, upgrades at existing terminals, vehicle replacement, and the balance of Jaipur construction.
• Land acquisition friction: Remaining 5-10% of land acquisition issues are expected to be sorted within the next couple of months.

Capital Allocation & Ownership

• Gateway increasing Snowman stake: Gateway bought about 1.5% of Snowman last quarter and does not rule out adding another couple of percent in the near future, but timing depends on cash flows (dividend, own CAPEX, term loan repayments).

Prem Kishan Dass Gupta: "We watch our cash flows very closely and I mean we don't mind increasing in the near future kind of another couple of percent, but timing is not, and it will all depend on the cash flows."

• No stake sale in Snowman: Management pushed back firmly on speculation about private equity interest, stating they are not looking for any outside investment and definitely not any stake sale from Gateway's perspective.

Ishaan Gupta: "There is a lot of interest in warehousing and in cold chain in general... we will not be looking for any outside investment at this point and definitely not any stake sale from Gateway's point of view."

• Net debt discipline: Management intends to maintain net debt to EBITDA at 1.5:1. Interest cost will continue at approximately ₹10 crores per quarter or may decline depending on capital investment. Depreciation of ₹23 crores per quarter will hold steady until Jaipur CAPEX addition in Q4.
• Tax rate visibility: MAT at 17.47% will continue for the current year. FTI benefit is available until FY26-27, and MAT credits will exhaust in FY31-32.

Guidance & Commitments

Key Metrics