Sector Update | 17 March 2017
Logistic
Gateway rail volume trend
Gateway Rail (M TEU)
116
81
YoY (%)
69
17
37 29
-9
17
-18
8 8 16
Revival in rail container volumes likely
Pricing environment improving
Concor EXIM volume trend
Concor EXIM - Volumes (M TEU)
Y-o-Y Change (%)
7.2 5.8
1.5
-6.2
-5.6
0.8
9.711.0
10.0
6.6 8.0
We expect a pick-up in container rail volumes over next 12-18 months, led by: 1) a
revival in EXIM trade and 2) the rail sector becoming more competitive and thus taking
market share from road sector.
Pricing in the rail sector has likely bottomed out, given easing competitive intensity.
Against this backdrop, Container Corp (Concor) has initiated price hikes on the key
routes of Kathuwas and Ludhiana with effect from 1 March 2017.
Margins of the rail logistics players are likely to improve due to better volume
aggregation and cost-efficient measures adopted by players like Concor and Gateway
Rail Freight Limited (GRFL).
We prefer Gateway Distriparks (GDPL) over (Concor) due to the former’s better RoCE
profile, led by efficient capital allocation and a superior revenue mix.
Rail container volume revival on the cards
Container rail volumes in tonnage terms have been sluggish for past 24 months,
as the haulage hike taken toward end-FY15 led to market share loss for
container train operators (CTOs). Weak EXIM trade (particularly exports) further
impacted rail volumes for CTOs. We, however, expect a revival in container rail
volumes over next 12-18 months, led by 1) a recovery in EXIM trade growth (a
low base and a pick-up in exports) and 2) market share gains by the rail sector
due to its improved competitiveness (no haulage hike over past 24 months and
the subsequent increase in diesel prices).
Pricing environment improving led by reduced competitive intensity
EBITDA/TEU trend for Concor and
GRFL
CCRI
GDL
Pricing was under pressure over last 12 months as the commencement of new
terminals at Kathuwas and Ludhiana led to intensified competition among CTOs.
However, we do not anticipate the major terminals to add capacity in the north
region over next 12-18 months. Against the backdrop of easing competitive
intensity, Concor initiated a price increase in the Kathuwas and Ludhiana sectors
from 1 March 2017.
Margins bottoming out
Margins have been under pressure over past 24 months due to the subdued
pricing environment, as well as higher empty running charges led by trade
imbalance. With pricing improvement in the rail logistics space, GDPL
commencing the Virmagam terminal and higher double-stacking for Concor, we
expect margins for both Concor and GRFL to recover from the current levels.
Abhishek Ghosh
(Abhishek.Ghosh@MotilalOswal.com); +91 22 3982 5436
Abhinil Dahiwale
(Abhinil.Dahiwale@MotilalOswal.com); +91 22 3980 4309
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
8 August 2016
1

Logistic
Prefer GDPL over Concor
We prefer GDPL over Concor as the expected RoCE profile of the rail segment of
GRFL (12.6% in FY19E) is superior to that of Concor (10.2%) due to the former’s
better capital allocation and favorable revenue mix. Although Concor could
outscore GRFL once the Dedicated Freight Corridor Corporation (DFCC) gets
commissioned, we strongly believe the event will only play out post FY20. Also,
we do not expect the recent issue of direct port delivery at JNPT to be a major
threat for GDPL’s earnings as JNPT CFS contributes only ~20% of its overall
EBITDA.
Valuation and view
At CMP, GDPL trades at 23x/19x on FY18/FY19E earnings (adjusted for 49% stake
of Blackstone in rail), which we believe is attractive, given ~520bp RoE
improvement over FY16-19E. We arrive at a TP of INR318 (upside of 26%) for
GDPL, valuing its CFS business at 12x FY19E earnings and its 40% stake in
Snowman at a 50% discount to market value. We, however, value GDPL’s rail
segment at 15x FY19 EV/EBITDA (at par with valuation of Concor), despite
Concor being the market leader by a huge margin, as GRFL (a GDPL subsidiary)
has (1) sustainable RoCE profile/return ratios compared to Concor, (2) a better
margin profile due to higher proportion of double-stacking and route
optimization based on profitability, and (3) higher volume growth trajectory
than Concor. Maintain
Buy
on GDPL.
At CMP, Concor trades at 25x FY19E earnings and 15x FY19 EV/EBITDA, which we
believe is expensive, given the deteriorating return ratios due to incremental
capex. On DFC-based valuation (WACC: 12.3%, TGR: 4.5%), we arrive at a fair
value of INR1,309/share. Given rich valuations, poor return ratios and limited
upside to our fair value, we maintain
Neutral
on Concor.
Revival of rail container volumes on the cards
After growing 18% YoY in FY15, container rail volumes in tonnage terms declined
3% YoY in FY16 and increased by ~2% YoY from April 2016 to January 2017.
While the volume decline in FY16 can be ascribed to the sharp haulage hike of
~25% toward end-FY15 (which resulted in market share loss to the road
segment), the muted growth performance in FY17 was on account of weak EXIM
trade. We see a high probability of container rail volumes reviving over next 12-
18 months, led by: 1) recovery in EXIM trade growth (due to a low base and a
pick-up in exports), 2) market share gain by rail from road led by its improved
competitiveness (no haulage hike over last 24 months and subsequent increase
in diesel prices) and 3) commencement of JNPT’s fourth terminal toward end-
FY18 (which should support EXIM trade pick-up). While volume growth at GDPL
is likely to be led by the ramp-up of its terminal in Faridabad, we believe that of
Concor should be supported by the ramp-up of its six operational multi modal
logistics parks (MMLPs) and another nine MMLPs that are likely to be
operational over next 12 months. Concor has also gained market share by
~200bp over last 2-3 quarters led by the ramp-up of its new MMLPs.
17 March 2017
2

Logistic
Exhibit 1: EXIM container rail tonnage growth
% change (YoY)
40
20
0
-20
Exim container rail growth in tonnage
Source: MOSL, Company
Exhibit 2: Gateway rail volume trend
Gateway Rail (M TEU)
116%
81%
69%
0.11
0.04
0.07
0.13
17%
0.18
37%
29%
-9%
0.23
0.21
YoY (%)
0.25
0.20
17%
-18%
0.22
0.24
0.28
8%
8%
16%
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: MOSL, Company
Exhibit 3: Concor EXIM volume trend
Concor EXIM - Volumes (M TEU)
7.2%
1.5%
-6.2%
1.9
FY09
1.9
FY10
2.0
FY11
2.1
FY12
2.2
FY13
2.4
FY14
2.6
FY15E
2.5
FY16E
2.6
FY17E
2.9
FY18E
3.1
FY19E
9.7%
5.8%
0.8%
-5.6%
11.0%
6.6%
Y-o-Y Change (%)
10.0%
8.0%
Source: MOSL, Company
Pricing environment improving led by reduced competitive intensity
Pricing was under pressure over last 12 months as the commencement of new
terminals at Kathuwas and Ludhiana led to intensified competition among CTOs.
However, we do not anticipate any major terminals to be added in the north
region over next 12-18 months. Against the backdrop of easing competitive
intensity, Concor initiated a price increase in the Kathuwas and Ludhiana sectors
from 1 March 2017. The key risk to our assumption would be any haulage price
hike on container rail movement.
17 March 2017
3

Logistic
Exhibit 4: Realization chart quarterly
Realizations (INR / TEU)
38,247
19,070
GDL
37,034
18,897
36,326
18,102
CCRI
34,965
17,266
32,263
18,833
33,137
16,656
34,458
15,883
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
2QFY17
3QFY17
Source: MOSL, Company
Margins bottoming out
Margins have been under pressure over past 24 months due to the subdued
pricing environment, as well as higher empty running charges led by trade
imbalance. GRFL’s EBITDA/TEU declined by 20% from the peak level of INR7,800
to INR6,200/TEU currently due to lower proportion of double-stacking and
higher trade imbalance. Concor’s EXIM EBIT/TEU declined 38% from its peak
level of INR4,400/TEU in 3QFY15 to INR2,700 in 3QFY17 due to higher trans-
shipment volumes, competitive pricing and increase in LLF (Leave and License
Fees). With pricing improvement in the rail logistics space, GDPL commencing
the Virmagam terminal and higher double-stacking for Concor (from present
levels of 6-7% led by ramp-up of its Kathuwas terminal over next 12 months), we
expect margins for both Concor and GRFL to recover from the current levels.
Concor intends to increase the proportion of revenuefrom its high-margin
handling segment from 25% currently to 40%, which should also result in some
margin uptick. However, we do not expect any rapid change in the revenue mix
from the current levels.
Exhibit 5: EBITDA/TEU trend for Concor and GRFL
CCRI
GDL
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Source: MOSL, Company
17 March 2017
4

Logistic
Capex commitment at elevated levels for Concor over FY17-FY19E
GDPL is likely to incur minimal capex for both CFS and rail as it has created
sufficient ground handling capacity. The incremental requirement of rakes would
be met through a lease model, resulting in lower capex.
On the other hand, Concor would continue incurring annual capex in excess of
INR10b, majority of which would be into MMLPs. After investing ~INR40b
toward MMLPs over FY12-FY17, Concor is looking to invest the next leg of capex
into 19 more MMLPs. Capex toward DFCC-compliant rake acquisitions could also
increase from 2HFY18.
Exhibit 6: Investment details of Concor into various MMLPs
LOCATION
Nagulapallee
Kathuwas
Krishnapatnam
Pantnagar
Rasayani
Vishakapatnam
Naya Raipur
Nagpur
Jharsuguda
Haridwar
Duburi
Parjang
Swarupganj
Vernama
(Vadodara)
Ahmedgarh
(Kila Raipur)
STATE
Andhra pradesh
Rajasthan
Andhra pradesh
Uttarakhand
Maharashtra
Andhra pradesh
Chhattisgarh
Maharashtra
Odisha
Uttarakhand
Odisha
Odisha
Rajasthan
Gujarat
Punjab
Approx. AREA
(in Acres)
60
280
140
40
60
100
115
110
30
35
55
55
420
145
135
TIE UP THROUGH
APIIC
RIICO
APIIC
SIIDCUL
HOCL
VPT
NRDA
MADC
IDCO
SIIDCUL
ASRL/IDCO
ASRL/IDCO
State Govt.
State Govt.
PSWC
Prefer GDL over Concor
We prefer GDPL over Concor as the expected RoCE profile of the rail segment of
GRFL (12.6% in FY19E) is superior to that of Concor (10.2%) due to the former’s
better capital allocation and favorable revenue mix. Although Concor could
outscore GRFL once the Dedicated Freight Corridor Corporation (DFCC) gets
commissioned, we strongly believe the event will only play out post FY20. Also,
we do not expect the recent issue of direct port delivery at JNPT to be a major
threat for GDPL’s earnings as JNPT CFS contributes only ~20% of its overall
EBITDA.
17 March 2017
5

Logistic
Exhibit 7: RoCE profile
15.7%
CCRI-ROCE
15.0%
13.8%
13.9%
GRFL-ROCE
12.6%
9.8%
8.3%
9.8%
7.0%
FY12
FY13
FY14
FY15
FY16
9.9%
7.6%
FY17E
FY18E
FY19E
9.9%
10.2%
10.2%
13.2%
10.0%
Source: MOSL, Company
Valuation and view
At CMP, GDPL trades at 23x/19x on FY18/FY19E earnings (adjusted for 49% stake
of Blackstone in rail), which we believe is attractive, given ~520bp RoE
improvement over FY16-19E. We arrive at a TP of INR318 (upside of 26%) for
GDPL, valuing its CFS business at 12x FY19E earnings and its 40% stake in
Snowman at a 50% discount to market value. We, however, value GDPL’s rail
segment at 15x FY19 EV/EBITDA (at par with valuation of Concor), despite
Concor being the market leader by a huge margin, as GRFL (a GDPL subsidiary)
has (1) sustainable RoCE profile/return ratios compared to Concor, (2) a better
margin profile due to higher proportion of double-stacking and route
optimization based on profitability, and (3) higher volume growth trajectory
than Concor. Maintain
Buy
on GDPL.
At CMP, Concor trades at 25x FY19E earnings and 15x FY19 EV/EBITDA, which we
believe is expensive, given the deteriorating return ratios due to incremental
capex. On DFC-based valuation (WACC: 12.3%, TGR: 4.5%), we arrive at a fair
value of INR1,309/share. Given rich valuations, poor return ratios and limited
upside to our fair value, we maintain
Neutral
on Concor.
17 March 2017
6

Logistic
NOTES
17 March 2017
7

Disclosures
Logistic
This document has been prepared by Motilal Oswal Securities Limited (hereinafter referred to as Most) to provide information about the company(ies) and/sector(s), if any, covered in the report and may be distributed by it and/or its
affiliated company(ies). This report is for personal information of the selected recipient/s and does not construe to be any investment, legal or taxation advice to you. This research report does not constitute an offer, invitation or
inducement to invest in securities or other investments and Motilal Oswal Securities Limited (hereinafter referred as MOSt) is not soliciting any action based upon it. This report is not for public distribution and has been furnished to
you solely for your general information and should not be reproduced or redistributed to any other person in any form. This report does not constitute a personal recommendation or take into account the particular investment
objectives, financial situations, or needs of individual clients. Before acting on any advice or recommendation in this material, investors should consider whether it is suitable for their particular circumstances and, if necessary, seek
professional advice. The price and value of the investments referred to in this material and the income from them may go down as well as up, and investors may realize losses on any investments. Past performance is not a guide for
future performance, future returns are not guaranteed and a loss of original capital may occur.
MOSt and its affiliates are a full-service, integrated investment banking, investment management, brokerage and financing group. We and our affiliates have investment banking and other business relationships with a some
companies covered by our Research Department. Our research professionals may provide input into our investment banking and other business selection processes. Investors should assume that MOSt and/or its affiliates are
seeking or will seek investment banking or other business from the company or companies that are the subject of this material and that the research professionals who were involved in preparing this material may educate investors
on investments in such business. The research professionals responsible for the preparation of this document may interact with trading desk personnel, sales personnel and other parties for the purpose of gathering, applying and
interpreting information. Our research professionals are paid on the profitability of MOSt which may include earnings from investment banking and other business.
MOSt generally prohibits its analysts, persons reporting to analysts, and members of their households from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. Additionally, MOSt
generally prohibits its analysts and persons reporting to analysts from serving as an officer, director, or advisory board member of any companies that the analysts cover. Our salespeople, traders, and other professionals or affiliates
may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment
decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all of the foregoing among other things, may give rise to real or potential conflicts of interest.
MOSt and its affiliated company(ies), their directors and employees and their relatives may; (a) from time to time, have a long or short position in, act as principal in, and buy or sell the securities or derivatives thereof of companies
mentioned herein. (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an
advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing
whatsoever on the specific recommendations made by the analyst(s), as the recommendations made by the analyst(s) are completely independent of the views of the affiliates of MOSt even though there might exist an inherent
conflict of interest in some of the stocks mentioned in the research report
Reports based on technical and derivative analysis center on studying charts company's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match
with a report on a company's fundamental analysis. In addition MOST has different business segments / Divisions with independent research separated by Chinese walls catering to different set of customers having various
objectives, risk profiles, investment horizon, etc, and therefore may at times have different contrary views on stocks sectors and markets.
Unauthorized disclosure, use, dissemination or copying (either whole or partial) of this information, is prohibited. The person accessing this information specifically agrees to exempt MOSt or any of its affiliates or employees from, any
and all responsibility/liability arising from such misuse and agrees not to hold MOSt or any of its affiliates or employees responsible for any such misuse and further agrees to hold MOSt or any of its affiliates or employees free and
harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The information contained herein is based on publicly available data or other sources
believed to be reliable. Any statements contained in this report attributed to a third party represent MOSt’s interpretation of the data, information and/or opinions provided by that third party either publicly or through a subscription
service, and such use and interpretation have not been reviewed by the third party. This Report is not intended to be a complete statement or summary of the securities, markets or developments referred to in the document. While we
would endeavor to update the information herein on reasonable basis, MOSt and/or its affiliates are under no obligation to update the information. Also there may be regulatory, compliance, or other reasons that may prevent MOSt
and/or its affiliates from doing so. MOSt or any of its affiliates or employees shall not be in any way responsible and liable for any loss or damage that may arise to any person from any inadvertent error in the information contained in
this report. MOSt or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of
merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations.
This report is intended for distribution to institutional investors. Recipients who are not institutional investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for
any necessary explanation of its contents.
Most and it’s associates may have managed or co-managed public offering of securities, may have received compensation for investment banking or merchant banking or brokerage services, may have received any compensation for
products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months.
Most and it’s associates have not received any compensation or other benefits from the subject company or third party in connection with the research report.
Subject Company may have been a client of Most or its associates during twelve months preceding the date of distribution of the research report
MOSt and/or its affiliates and/or employees may have interests/positions, financial or otherwise of over 1 % at the end of the month immediately preceding the date of publication of the research in the securities mentioned in this
report. To enhance transparency, MOSt has incorporated a Disclosure of Interest Statement in this document. This should, however, not be treated as endorsement of the views expressed in the report.
Motilal Oswal Securities Limited is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014. SEBI Reg. No. INH000000412
There are no material disciplinary action that been taken by any regulatory authority impacting equity research analysis activities
Analyst Certification
The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or
indirectly related to the specific recommendations and views expressed by research analyst(s) in this report. The research analysts, strategists, or research associates principally responsible for preparation of MOSt research receive
compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues
Disclosure of Interest Statement
Analyst ownership of the stock
Served as an officer, director or employee
Companies where there is interest
No
No
A graph of daily closing prices of securities is available at www.nseindia.com and http://economictimes.indiatimes.com/markets/stocks/stock-quotes
Regional Disclosures (outside India)
For U.S.
This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which
would subject MOSt & its group companies to registration or licensing requirements within such jurisdictions.
Motilal Oswal Securities Limited (MOSL) is not a registered broker - dealer under the U.S. Securities Exchange Act of 1934, as amended (the"1934 act") and under applicable state laws in the United States. In addition MOSL is not a
registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United States. Accordingly, in the
absence of specific exemption under the Acts, any brokerage and investment services provided by MOSL, including the products and services described herein are not available to or intended for U.S. persons.
This report is intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This
document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which this document relates is only available to major institutional investors and will be
engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the "Exchange Act") and interpretations thereof by
the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOSL has entered into a chaperoning agreement with a U.S. registered broker-dealer, Motilal Oswal
Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore,
may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Hong Kong:
This report is distributed in Hong Kong by Motilal Oswal capital Markets (Hong Kong) Private Limited, a licensed corporation (CE AYY-301) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC)
pursuant to the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “SFO”. As per SEBI (Research Analyst Regulations) 2014 Motilal Oswal Securities (SEBI Reg No. INH000000412) has an agreement with
Motilal Oswal capital Markets (Hong Kong) Private Limited for distribution of research report in Kong Kong. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any
investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and
services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The Indian Analyst(s) who compile this report is/are not located in Hong Kong & are not conducting Research Analysis in Hong Kong.
For Singapore
Motilal Oswal Capital Markets Singapore Pte Limited is acting as an exempt financial advisor under section 23(1)(f) of the Financial Advisers Act(FAA) read with regulation 17(1)(d) of the Financial Advisors Regulations and is a
subsidiary of Motilal Oswal Securities Limited in India. This research is distributed in Singapore by Motilal Oswal Capital Markets Singapore Pte Limited and it is only directed in Singapore to accredited investors, as defined in the
Financial Advisers Regulations and the Securities and Futures Act (Chapter 289), as amended from time to time.
In respect of any matter arising from or in connection with the research you could contact the following representatives of Motilal Oswal Capital Markets Singapore Pte Limited:
Kadambari Balachandran
Email : kadambari.balachandran@motilaloswal.com
Contact : (+65) 68189233 / 65249115
Office Address : 21 (Suite 31),16 Collyer Quay,Singapore 04931
Motilal Oswal Securities Ltd
17 March 2017
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
8