40% Upside Potential On This Stock

ICICI Securities has upgraded the stock of Gateway Distriparks to a "buy" from a hold with a price target of Rs 134, as against the current market price of Rs 93.

Gateway Distriparks' (GDL) Board has approved: i) amalgamation of Gateway East India (GEI) with GDL, and ii) amalgamation of GDL (post-merger with GEI) with Gateway Rail (GRFL). For amalgamation of GEI with GDL, no consideration will be given to the shareholders of GEI since it is a wholly-owned subsidiary of GDL. For amalgamation of GDL with GRFL, the shareholders of GDL will receive equity shares of GRFL in the ratio 1:4. GRFL will get listed and GDL will cease to exist. GDL holds 99.85% stake in GRFL.

"Promoter shareholding remains largely unchanged post the scheme at 32.12%. Amalgamation into GRFL was expected on account of the existing category-I Rail licence being in the name of GRFL. We upgrade GDL to BUY from Hold with a revised target price of Rs134 (earlier Rs 88)," ICICI Securities has stated in its report.

Rationale for an upgrade on the stock of Gateway Distriparks

According to the brokerage report of ICICI Securities, there are no unpleasant surprises from simplification of group structure, the focus shifts to GDL's (in future GRFL's) journey to captur incremental Rail business share.
"The journey will start with the endeavour to increase the current 13% market share in the NCR by trying to go deep and create satellite terminals. This would entail additional capex and additional debt, hence managing the balance sheet is paramount - FY22E 'Net Debt to EBITDA' (2.2x) appears quite manageable. GDL had Rs2.7 billion of NCD repayment scheduled for FY21. Post rights issue of Rs1.15bn and repayment of similar amount, GDL has repaid Rs2.25bn, leaving a small repayment due for rest of FY21," ICICI Securities has stated.

The stock of Gateway Distriparks last closed at Rs 93 on the NSE.

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