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Kotak Upgrades CONCOR + Gateway Distriparks

October 18, 2007

Kotak has upgraded the stocks of Container Corporation of India Ltd [CONCOR] and Gateway Distriparks Ltd after the Q2 results.

CONCOR:
You can see the Q2 results flash in our earnings news section. Here is the rationale behind the upgrade. Accommodating for lower average realizations, lower operating margins, higher other income and lower then expected average tax rates, Kotak revises earnings estimates and expect the company to report EPS of Rs.125.0 in FY08E and Rs.145.1 in FY09E as against earlier estimates of Rs.126.7 and Rs.149.3, respectively.

At Rs.1885, the stock trades at 3.0x book value, 13.0x earnings and 11.4x cash earnings based on FY09E. Concor has a tremendous advantage in terms of its scale of operations consisting of volume of traffic, network of terminals across the country, strong base of low cost assets like hi-speed wagons and containers, which would ensure its No.1 position in India in the visible future for transportation of containers through rail. Kotak reiterates BUY on Concor with a revised price target of Rs.2875.

Gateway Distriparks Ltd: GDL
Q2FY08 results of Gateway Distriparks were above expectation on the revenues side. However, the margins have disappointed us. On the profitability side, the results were below expectations.

On a consolidated basis net sales for Q2FY08 were at Rs.640.3 mn, up 67.8% on YoY basis and up 32.5% on sequential basis. EBIDTA for Q2FY08 was at Rs.255.5 mn, up 16.6% YoY and up 15.9% on sequential basis. Consolidated PAT for Q2FY08 was at Rs.188.8 mn, down 10.4% YoY and up 1.6% on sequential basis thereby translating into quarterly EPS of Rs.1.6 and quarterly CEPS of Rs.2.2.

Gateway Rail Freight Ltd, subsidiary of GDL, has acquired its first own container train and subsequently it deployed two of its own rakes on the domestic route. The cold chain business of the company through Snowman Frozen Foods has done well as the revenues grew by 10.1% on sequential basis to Rs.71.4 mn.

Expect GDL to report EPS of Rs.7.2 in FY08E and Rs.9.5 in FY09E, as against earlier estimates of Rs.8.2 and Rs.10.7, respectively. Revised Target price is Rs 170.

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