Gateway Distriparks Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Rail margins improved, CFS margins collapsed: Rail EBITDA per TEU rose to the INR9,000+ level on better mix and double-stacking, while CFS profitability hit an exceptionally low quarter on competition and the rice ban.
• Red Sea disruption is a near-term volume drag: Export bookings are down because cargo from Europe and the US East Coast is taking longer, shifting the EXIM imbalance back to 60% imports, 40% exports. Management expects spill-over volume in February and March.
• Snowman is growing the top line but margins are compressing: Warehousing EBIT fell from 22% to 18-18.5% on an asset-light mix shift, and transportation EBIT margins are lower year-on-year because new vehicles carry depreciation.
• Jaipur terminal is delayed, and capex guidance is absent: A land title issue with 8 acres has pushed operations back by at least a few months, and management declined to give capex guidance for FY25 and FY26, saying timelines are not strict.
• What to watch next quarter: Whether the Red Sea spill-over volumes actually materialize, whether BSS-driven modal shift to road reverses, and whether Snowman's 20 new product SKUs begin contributing revenue by March as guided.

Rail: Margin Recovery, Volume Headwinds

• EBITDA per TEU improved to the INR9,000+ level, up both QoQ and YoY. The drivers were a change of mix, an increase in double-stacking to 42% (vs 35-37% earlier), more originating cargo from Garhi on direct double-stack service, a reduction in empty running, and procurement of empties from shipping lines that reduced the imbalance. The range will vary from INR9,000 to INR10,000 depending on those factors.
• Double-stacking gains are real but incomplete: Faridabad is not yet double-stack capable, though work is in progress and management expects it within two months. Once live, originating volumes from Faridabad will increase and Kashipur can be routed through Faridabad.
• DFC benefits are partly offset by crew shortages: Transit time for NCR-Gujarat went from 30 hours back up to 48 hours during the switchover from DFC to the Indian Railways network. JNPT is at about 80 hours. Feeder routes are not yet upgraded to carry 68-ton to 81-ton loads on a double-stack basis end-to-end, and there is no clear timeline for conversion.
• Busy Season Surcharge (BSS) pass-through has been achieved for most customers, but with a 30-to-60-day lag for some, so a hit was taken in this quarter. BSS has made rail slightly more expensive than road, causing some volume to shift to road. Management is hopeful those volumes will eventually come back.
• Ludhiana volumes dropped sharply over the past 1-1.5 years, partly due to the import imbalance and partly because the company consciously gave up low-margin or negative-EBIT business. Five ICDs now compete in the Ludhiana market.

Prem Kishan Dass Gupta: "We have cautiously given up some business because that was either low margin or minus at EBIT level."

• Market volumes declined QoQ: The Uttarakhand market fell 18-20%, NCR was down 5-7%, while Ludhiana was up 4-5%. Gateway's market share was flat, moving up and down with the market.
• The fleet is growing: 33 rakes are currently operating, with one more joining before the end of FY24. All three new rakes are 81-ton capacity, but no route is fully end-to-end DFC, so the higher payload cannot yet be used everywhere.

CFS: A Business Under Severe Pressure

• Profitability was exceptionally low this quarter. The ground rent component has disappeared, discounting and competition are rising, and Vizag saw a big decline because of the rice ban, on which it was heavily dependent. JNPT has volumes but pricing is very bad; Chennai volumes increased but pricing remains an issue; Krishnapatnam is hardly doing container vessels.
• Management is actively monetizing CFS land: more than INR20 crores was monetized this financial year by selling part of the land, and extra parcels have been identified for further monetization.
• The near-term target is around INR1,500 per TEU, with INR1,700 also possible if volumes increase. For next year, the EBITDA run-rate is expected to be similar to the nine-month pro-rated number, maybe even a slight decline.

Prem Kishan Dass Gupta: "Because of the direct port delivery and the competition. It is going to a level where I mean we are actively looking at monetization of some of our landbanks in the CFS business."

Red Sea Disruption & EXIM Trade

• The problem started mid-December and the effect is coming through in January. Export bookings are down because of low inventory availability: cargo from Europe and the East Coast US is taking longer on the normal route, and once the delayed cycle is through, regular flows should resume.
• The EXIM imbalance has shifted back to 60% imports, 40% exports. Overall EXIM trade in India dropped in Q3, and that was reflected in Gateway's volumes.
• Management expects spill-over volume in February and March and believes it should be able to catch up.

Samvid Gupta: "We have to wait for the macros, before giving a proper guidance for next year."

Snowman Logistics: Growth with Margin Compression

Warehousing

• EBIT margin declined from 22% to 18-18.5% due to a mix change: the company added leased warehouses in the dry segment, which carry lower margins but require no capex, consistent with an asset-light strategy. A completely leased facility was added in Guwahati.
• Growth expectation is 10-12%, dependent on capacity creation. Management is aggressively exploring leasing options. Owned facilities under construction in Kolkata and Lucknow (a built-to-suit with a partner investing in the structure) will take another 6-7 months to be ready.
• The capacity target remains INR2 lakhs by the end of FY25, with a mix of lease and own. New facilities are confirmed for Bhubaneswar and Krishnapatnam, and a couple more built-to-suit or co-invested facilities may be added in the next financial year.

Transportation

• EBIT margin is lower year-on-year because 70 vehicles added this year carry depreciation; last year all vehicles were fully depreciated. At the EBITDA level, margins are comparable. Management did not directly address the sequential EBIT margin decline from 2% to 1.5%.
• Growth expectation is around 15%, with a mix of owned vehicles and Snowlink partners. Feedback on trailers has been encouraging, and the plan is to add more trailers on own investment and leased basis in other locations attached to ports in the next financial year.

Distribution (5PL)

• Pallet volumes declined in Q3 due to seasonality: it is the lean quarter for ice cream and seafood, both large-volume segments. Management expects an upward trend in the coming quarter.
• 20 new products/SKUs were added this quarter for existing clients, expected to start generating revenue in about a month's time, by the end of Q1. No new clients were added. Four to five hot leads are not yet closed; decision-making takes time, and some clients want to change only when the financial year changes.
• Growth expectation is 20-25% year-on-year.

Terminal Developments & Capex

• Jaipur terminal is delayed: the plan is being rethought toward a road-based CFS using a public user siding across the facility. Of 30 acres total, 21 are owned and 8 acres were under an MoU for transfer; that 8 acres has been questioned by government agencies. Operations are delayed by at least a few months versus earlier guidance. Capex is expected at up to INR50-60 crores.
• Kashipur terminal is targeting over 5,000 TEUs per month long-term, with 100% of volumes guided on Gateway's own trains only, no third-party business.
• Garhi terminal now has a complete built-up unit opened at Mundra Port for vehicles and passenger cars, developed two days before the call.
• New terminal capex is estimated at INR100-200 crores per terminal, but management declined to give a strict timeline or multi-year capex guidance, saying it will provide numbers closer to the time. Management also declined to provide cash flow from operations and nine-month capex figures on the call.

Capital Allocation & Structure

• Gateway increased its stake in Snowman by 4% in the current financial year and will look at crossing 50% to consolidate it as a subsidiary, depending on GDL cash flows.
• Tax rate: the effective tax rate is about 17%, with 80IA benefits finishing by FY27. MAT credit can be utilized until 2031 or 2032.
• Road-to-rail shift is expected to be slow, at 1-2% per year in the long run. Something may happen on the JNPT side once it is connected to DFC.

Samvid Gupta: "Road to rail shift will be a slow shift. Maybe something happens on the JNPT side... other than that in the long run, it's like a 1%, 2% shift per year from road to rail."

Guidance & Commitments

Key Metrics