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Citi recomemnds BUY on Gateway Distriparks

March 28, 2007

Citigroup Research has recommended a BUY/Medium Risk on Gateway Distriparks with a price target of Rs 216, 33% upside from current levels.

GATE [through its subsidiary (GatewayRail)] and Concor are to form a 51-49 JV, which replaces the prior restrictive agreement between Concor and GATE that prohibited the latter from running its own trains until Oct/Nov08. Total outlay envisaged is Rs700m, albeit phase 1 capex will be around Rs210m (which GATE and Concor will fund through equity infusions). Also GATE’s current business at the Garhi ICD will be transferred to the JV. GATE will earn lease rentals (as yet undecided) for use of its ICD.

Citi expects margins at GATE’s JNPT facility to remain depressed over the next 6 months due to increased competition. This remains an area of concern. However, we are satisfied with the trajectory of the train operations, and believe that GATE is taking the right steps to develop an integrated logistics business model.

Citi expects an EPS of Rs11.32 and Rs 13.68 for FY08 and FY09, a 21% YoY growth.

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