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India: Transportation & Logistics – Initiating Coverage – Goldman Sachs

May 28, 2008

Breaking NewsJust minutes ago, Goldman Sachs has released a report initiating coverage on India Transportation and Logistics Sector with a BUY rating and long-term growth prospects. Goldman has five stocks representing 63% of the Indian logistics sector’s total market capitalization.

Gateway Distriparks Ltd: GDL
GDL is the largest private port-based logistics services provider in India (accounted for about 5% of container [CFS] traffic in FY2008), and plans to double its capacity over the next three years (expect segment growth of 18% in FY2008-FY2010E).

GDL is a direct beneficiary of the ongoing infrastructure spend in India (US$168 bn in FY2007-FY2012E) and the strong GDP and trade growth expected – GS forecasts GDP growth of 8% annually in FY2008-FY2020E in India, and EXIM trade, which typically leads economic growth, had a CAGR of 29% in FY2004-FY2008.

Goldman has a Buy rating and DCF-based 12-month price target of Rs 175, implying 55% upside from current levels. EPS FY09(E) Rs 6.93 and FY10(E) Rs 9.14.

Gati Ltd.:
Gati is a dominant player in the surface cargo business in India with a strong distribution network and delivery capability to reach 594 of India’s 602 districts. Goldman believes that market has not fully valued the margin strength of its core express business and the potential growth from its freighter and logistics segments.

Gati is currently undergoing a shift in its business mix away from its legacy surface express business (>50% of 2007 sales). Expect higher-margin freighter and logistics businesses to grow at a CAGR of 57% and 23% over FY2008 – FY2010 (which would constitute 24% of FY2010E sales compared with 17% of FY2008 sales).

Goldman has a Buy rating and DCF based 12-month target price of Rs 149, implying 44% potential upside from current levels. EPS FY09(E) Rs 5.99 and FY10(E) Rs 6.91.

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