I have been searching for investment ideas for long term holdings (>3 years) in Indian market that can provide me with approx 20% year - on - year (y-o-y) returns for the next 3 - 5 years. After scanning a gazillion pages from newspapers, investment websites, blogs, research reports........ I decided to buy Gateway Distriparks Ltd @192/- before bonus issue in July 2007. I think this is a good growth story with medium risk over the next 3 - 5 years. My dominant logic for purchase is explained below. For questions or detailed information on my personal research data please email me at secmoney@gmail.com
Positive factors affecting GDL:
1) Container traffic expected to grow at CAGR of 15.57% till 2013 - 2014. Please review the attached link for more information.
2) Currently only 14% of port traffic is containerised in India which is much lower than ports in developed countries. Increase in share of containerized cargo at Indian ports will result into more business for GDL as well as its subsidiary Gateway Rail Freight.
3) Retail boom will provide a push for rail based containerized cargo in domestic market.
4) Retail boom will also provide a push for cold chain logistics in India. Here Snowman acquisition will come handy as it is the largest player in Indian market for cold chain logistics.
5) Operates Container Freight Stations (CFS) at important ports in like JNPT, Vishakapatnam and Chennai. In future GDL plans to build a CFS at Kochi thus covering all the major ports in India handling Exim traffic and allowing it to capture a major share of EXIM traffic. As per FY07 annual report GDL has grown it TEU throughput by a CAGR of 26.85% in last 4 years.
6) Started Rail based movement of containerized cargo on Mumbai - Delhi route this year which is the busiest freight corridor in India. Future developments also include building Inland Container Depots (ICD) at industrial belts in Northern India like Ludhiana. Early mover advantage can help it to capture significant rail based traffic on Mumbai - Delhi route.
7) Private ports like Pipava, Mundhra and Rewas on western coast will provide future opportunities of growth to GDL due to its heavy presence on this route.
Valuation and reasoning for investments
1) Net margins are in the range of 40 - 50% which is twice that of CONCOR (largest player in the segment)
2) GDL stock at Rs. 135.4/- is trading at a P/E ratio of 20 with dilluted earnings of 6.736/- per share in FY07 ex-bonus. If the earning continue to grow at an industry average of 15% for the next 5 years.........assuming a P/E ratio of 20 means the stock will be at = 20 x 13.55 = Rs. 270.91/- Assuming that you buy the stock at todays price of 135.4/- your compounded returns in 5 years will be 14.88%. Plus whatever dividends you earn every year is added bonus. At Rs. 2.8/- per share in annual dividends (ex-bonus) you will make 2.8 / 135.4 = 2.06% extra every year. Thus with dividends; total returns can be approximately in the range of 16.94% which means you can double your money in 4.5 years. This is the most conservative scenario.
Considering the growth in Indian economy if the company grows it's earnings at an average of 20% for the next 5 years the stock could be worth Rs. 335.22/- using the same logic as mentioned above. That means compounded returns could be in the range of 19.88%. If you add dividend yield to the above returns the total returns could be approximately 19.88 + 2.06 = 21.94%. This means an investor can double his money by investing in GDL shares in approximately 3.5 years. Heck of a performance by any standards.
Some risks associated with investing in GDL:
1) If ports are not rapidly developed to handle the cargo there will be less business for GDL.
2) Container penetration in India is much below the world penetration level due to inadequate multi-modal transport facility on the back of poor port-rail-road interfaces. 80% of exim traffic is not containerized. If there is a delay in developing this back - end infrastructure it can restrict growth and profits at GDL
3) Management's capabilty to expand their business in new regions and execute successfully are a big risk to the GDL stock. Till now the management has executed well but in future if they are not able to execute; it will affect the share price of GDL
4) Recession or slow down in Indian economy is a significant risk to GDL since success of its operations are tied to manufacturing growth in India.
5) Reduction in EXIM trade can also affect GDL stock negatively.
6) Competition from established players like Container Corporation of India (CONCOR) can be a formidable challenge for GDL.
Positive factors affecting GDL:
1) Container traffic expected to grow at CAGR of 15.57% till 2013 - 2014. Please review the attached link for more information.
2) Currently only 14% of port traffic is containerised in India which is much lower than ports in developed countries. Increase in share of containerized cargo at Indian ports will result into more business for GDL as well as its subsidiary Gateway Rail Freight.
3) Retail boom will provide a push for rail based containerized cargo in domestic market.
4) Retail boom will also provide a push for cold chain logistics in India. Here Snowman acquisition will come handy as it is the largest player in Indian market for cold chain logistics.
5) Operates Container Freight Stations (CFS) at important ports in like JNPT, Vishakapatnam and Chennai. In future GDL plans to build a CFS at Kochi thus covering all the major ports in India handling Exim traffic and allowing it to capture a major share of EXIM traffic. As per FY07 annual report GDL has grown it TEU throughput by a CAGR of 26.85% in last 4 years.
6) Started Rail based movement of containerized cargo on Mumbai - Delhi route this year which is the busiest freight corridor in India. Future developments also include building Inland Container Depots (ICD) at industrial belts in Northern India like Ludhiana. Early mover advantage can help it to capture significant rail based traffic on Mumbai - Delhi route.
7) Private ports like Pipava, Mundhra and Rewas on western coast will provide future opportunities of growth to GDL due to its heavy presence on this route.
Valuation and reasoning for investments
1) Net margins are in the range of 40 - 50% which is twice that of CONCOR (largest player in the segment)
2) GDL stock at Rs. 135.4/- is trading at a P/E ratio of 20 with dilluted earnings of 6.736/- per share in FY07 ex-bonus. If the earning continue to grow at an industry average of 15% for the next 5 years.........assuming a P/E ratio of 20 means the stock will be at = 20 x 13.55 = Rs. 270.91/- Assuming that you buy the stock at todays price of 135.4/- your compounded returns in 5 years will be 14.88%. Plus whatever dividends you earn every year is added bonus. At Rs. 2.8/- per share in annual dividends (ex-bonus) you will make 2.8 / 135.4 = 2.06% extra every year. Thus with dividends; total returns can be approximately in the range of 16.94% which means you can double your money in 4.5 years. This is the most conservative scenario.
Considering the growth in Indian economy if the company grows it's earnings at an average of 20% for the next 5 years the stock could be worth Rs. 335.22/- using the same logic as mentioned above. That means compounded returns could be in the range of 19.88%. If you add dividend yield to the above returns the total returns could be approximately 19.88 + 2.06 = 21.94%. This means an investor can double his money by investing in GDL shares in approximately 3.5 years. Heck of a performance by any standards.
Some risks associated with investing in GDL:
1) If ports are not rapidly developed to handle the cargo there will be less business for GDL.
2) Container penetration in India is much below the world penetration level due to inadequate multi-modal transport facility on the back of poor port-rail-road interfaces. 80% of exim traffic is not containerized. If there is a delay in developing this back - end infrastructure it can restrict growth and profits at GDL
3) Management's capabilty to expand their business in new regions and execute successfully are a big risk to the GDL stock. Till now the management has executed well but in future if they are not able to execute; it will affect the share price of GDL
4) Recession or slow down in Indian economy is a significant risk to GDL since success of its operations are tied to manufacturing growth in India.
5) Reduction in EXIM trade can also affect GDL stock negatively.
6) Competition from established players like Container Corporation of India (CONCOR) can be a formidable challenge for GDL.
If you are interested enough by now, please do your own analysis and decide whether you want to buy Gateway Distriparks (GDL). If you are not convinced then give it a pass. There will be lot more opportunities in future.
For details in on GDL please visit their website on
http://www.gateway-distriparks.com/
For questions or comments please email me at secmoney@gmail.com
Regards,
Bargain Hunter
FULL DISCLOSURE:- I have this share in my personal portfolio before posting this blog and may also plan to buy more in future
DISCLAIMER:- Investment in equity and equity related instruments is extremely risky and there is every possibility you will loose all the money that you invest. Please consult your financial advisor before making any investment decisions.