Gateway Distriparks – Upsidse from Rail freight subsidiary

Gateway Distriparks has announced its plans to raise INR 2.5-3.0 bn through private equity in its subsidiary called Gateway Rail Freight (GRF) in the next 3-6 months. GDL owns 90% in the subsidiary whereas 10% is owned by directors of the company. Gateway rail freight is formed with a view to carry container train business and further expansion into its ICD business and plans to invest INR 8-10 bn over a five year period (INR 6-8 bn from equity and remaining debt contribution).

In its first phase of development, it plans to develop two ICDs at Faridabad and Ludhiana with an estimated capacity to handle 36,000 TEUs each and to run 30 container trains in the next 2-3 years. It is also looking at a possibility to list the subsidiary in the next two-three years.

Gateway rail freight post infusion of private equity is expected to have 70% share in two ICDs and 35% share in the container train business (GFR owns 50% in the container business through its JV with Concor). We have estimated the revenue potential for the subsidiary by assuming 36,000 TEUs capacity for the two ICDs in FY10-11 and 20 and 30 trains in FY10 and FY11, respectively.

On the basis of FY09 SOTP, the stock targets are set to INR 227 and INR 273, giving 15x and 18x one year forward multiple.