Investor's Eye
[December 26, 2012] | | |
| Summary of Contents STOCK UPDATE Gateway Distriparks
Recommendation: Buy
Price target: Rs163
Current market price: Rs137 Price target revised to Rs163 In this note, we review the key businesses of Gateway Distiparks Ltd (GDL) in the light of the recent slowdown in the export-import (exim) trade and volume growth at the major ports in the country. Also, the rail freight business would be affected by the steep hike in the haulage charges announced by the Indian Railways. However, we continue to prefer GDL in the logistic space due to its integrated model, leading position in the rail freight business and proven track record. Key points CFS-slowdown to continue, recovery still a couple of quarters away
Both JNPT and Chennai are major ports and witnessing a flattish volume growth due to a tough macro environment and capacity constraints. A positive aspect of GDL's container freight station (CFS) business will be the commencement of operations at the Kochi CFS from January 2013 having an annual capacity of 50,000TEUs (total capacity stands at 6,00,000TEUs today). Even Punjab Conware CFS, the second facility at JNPT that had got damaged earlier, is currently restoring its operations and should push the JNPT volume higher by 18,000TEUs. Gateway rail freight-a hike in haulage charges to put pressure on margins
The Indian Railways recently increased the haulage charges for container trains by 22% w.e.f. December 1, 2012 and by 31% w.e.f. February 28, 2013 against today's levels. The management is confident of passing on 75% of the hike in the haulage charges to the consumers resulting in a fall of 150-200 basis points in the EBITDA margin. In monetary terms, the impact would be worth Rs0.75 crore per month. We thus reduce our margin assumptions for GRFL by 150 basis points in the FY2014 estimates. Outlook and valuation
We expect the company's revenues and profits to grow at a compounded annual growth rate of 17% and 6% respectively for the two-year period FY2012-14. This slower growth is primarily on account of the intense competition in the CFS business at JNPT and a 150-basis-point impact on the margins owing to a hike in the haulage rates by the Indian Railways. We, thus, lower our discounted cash flow (DCF) based price target for GDL to Rs163 from Rs166 earlier and maintain our Buy recommendation.
SHAREKHAN SPECIAL Monthly economy review Economy: IIP growth surges due to base effect; inflation continues to moderate -
In October 2012 the Index of Industrial Production (IIP) grew by 8.2% after declining by 0.7% in September 2012. The higher than expected growth in the IIP in October was due to a lower base effect and a strong festive season-driven rebound in the manufacturing segment (up 9.6%) during the month. The uptick in the consumer durables and capital goods segments, which grew by 13.2% and 7.5% respectively, also aided the overall surge in the IIP during October 2012. The IIP growth for September has been revised to -0.7% from the provisional estimate of -0.4%. Therefore, based on the three-monthly moving average, the IIP growth stands at 3.3% as against 0.3% in October 2011. -
The Wholesale Price Index (WPI)-based inflation came at 7.24% (lower than the markets' expectations) in November 2012 as against 7.81% in October 2012. The month-on-month (M-o-M) decline in inflation was due to a decline in the fuel group inflation and the manufactured goods inflation. However, the inflation rate for August 2012 has been revised upwards to 8.07% from 7.81% as per the provisional estimate. -
India's trade deficit in November 2012 softened marginally to $19.29 billion after worsening the most in at least 17 years in October 2012 to $21.0 billion. The trade deficit increased by 21.8% year on year (YoY). The exports decreased by 4.2% YoY (down 1.6% in October 2012) to $22.30 billion while the imports increased by 6.4% YoY (up 7.4% in October 2012) to $41.59 billion. Banking: RBI leaves rates unchanged; deposit growth at a record low of 12.8% -
In the mid-quarter policy review, the Reserve Bank of India (RBI) surprised the markets by holding the repo and the cash reserve ratio (CRR) rates as the markets were expecting a 25-basis-point cut in the CRR. According to the RBI, the recent policy initiatives taken by the government have improved sentiments in the market but the pitfalls in the global economy remain, especially the US fiscal cliff and the contagion risks to the other economies. The liquidity has tightened due to the rising government balances. The RBI expects to manage it via open market operations (OMOs). Further, the RBI expects the inflation rate to moderate in Q4FY2013. The central bank has also reiterated its guidance of an easing monetary policy by the beginning of Q4FY2013 in order to address the growth concerns. -
The credit offtake registered a growth of 17.0% YoY (as on November 30, 2012), which was higher than the 16.2% year-on-year (Y-o-Y) growth recorded in the previous month (as on November 2, 2012). -
The deposits registered a growth of 12.8% YoY (as on November 30, 2012), which was lower than the 13.4% Y-o-Y growth recorded in the previous month (as on November 2, 2012). The growth in the deposits has been subdued due to the higher yields offered by the other debt instruments and advance tax outflows. Consequently, the growth in the deposits has remained below the RBI's guidance of 15.0%. -
A slower growth in the deposits compared with the advances remains a concern for the banks. Consequently, the credit/deposit ratio (CD) for the banks increased to 76.0% in the year till date (YTD) FY2013 from 73.9% during the same period of the previous year. -
The yields on government securities (G-Secs; of ten-year maturity) stood at 8.14% as on December 24, 2012, lower than the average of 8.20% maintained in November 2012. Moreover, the five-year and ten-year G-Sec yields declined by 9 to 11 basis points on an M-o-M basis. The yields declined due to the OMO of ~Rs31,000 crore (since December 4th) and expectations of the easing of the rates. Equity market: FIIs remain net buyers During the month-to-date (MTD) period of December 2012 (December 3-21, 2012), the foreign institutional investors (FIIs) were net buyers of equities and the domestic mutual funds were net sellers of equities. For the MTD period of December 2012 (December 3-21, 2012), the FIIs bought equities worth Rs17,310 crore while the mutual funds sold equities worth Rs2,984 crore. Banking stocks outperform In the last one month, the BSE Bankex has increased by 7.6% as compared with an increase of 4.2% in the Sensex. The outperformance of the BSE Bankex as compared with the broader index was primarily led by the rally in the public sector banks (PSBs) due to expectations of economic reforms, banking reforms [The Banking Laws (Amendment) Bill, 2011, and the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Bill, 2011.] and the RBI's guidance for monetary easing in Q4FY2013. Moreover, with the passage of banking bills the RBI may expedite the process of issuing new banking licences.
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