l Equity Research l

India | Emerging Companies

2 June 2014

Emerging companies
Following the manifesto
We spoke with select emerging companies that could be exposed to steps the new government may undertake over
the next few years to fulfil the commitments made in the Bharatiya Janata Partys (BJP) election manifesto.
Gateway Distriparks and its subsidiaries, Gateway Rail and Snowman Logistics, are exposed to a pickup in industrial
activity, the implementation of a dedicated freight corridor and increased demand for cold chain logistics, according
to their respective management teams.
Although Sintex has been going slow on increasing its exposure to monolithic structures due to working capital
issues, the company said it could benefit from a potential government push into low-cost housing, rural healthcare
and education.
We include non-rated notes on both Sintex and Gateway Distriparks in this report.

Who we met and why?

We present our visit notes on Sintex and Gateway Distriparks (GDPL) companies
that could be exposed to a potential economic recovery and measures that the
government may undertake to stimulate growth and fulfil the BJPs election manifesto
commitments. GDPL is Indias largest private sector operator of container freight
stations. It is also the largest private sector rail freight operator in the country,
besides running Indias largest private sector cold chain. Sintex is Indias largest
monolithic structure and pre-fabricated housing structure manufacturer besides being
among Indias largest custom moulding players.

What have the issues been so far?

Sintexs working capital cycle has been severely affected due to delays in
government payments and therefore it has been going slow on new orders in the
monolithic construction business, management said. The company would take up
new orders only if working capital bottlenecks ease, it said. GDPLs business,
particularly container freight stations, has also been affected by the economic
slowdown, and the company expects an economic recovery to help improve volumes
and margins over time.

What could go right?

Sintexs management said there is significant scope for debottlenecking government
processes, especially on the working capital front. The company is of the opinion that
while the new governments potential focus on low-cost housing and new city
development could increase demand for monolithic construction structures, the
company would take new orders only after considering its working capital
requirements. Additionally, Sintexs management believes that any potential
government push into rural education, healthcare and infrastructure could drive
demand for pre-fabricated structures over time. GDPLs management pointed to the
recent slowdown in container traffic and believes that its rail business could benefit
substantially from the implementation of a dedicated freight corridor in the future.

Sumit Choudhary
+91 22 4205 5916
Equity Research
Standard Chartered Securities (India) Ltd

Important disclosures can be found in the Disclosures Appendix

All rights reserved. Standard Chartered Bank 2014

http://research.standardchartered.com

Equity Research l Emerging companies

India l Em erging Comp anies

2 June 2014

Sintex Industries

NOT RATED
Standard Chartered Equity Research does not cover this company
and nothing herein should be interpreted to be a recommendation
or price target with respect to the company.

NON-COVERED COMPANY VISIT NOTE

Sintex has suffered from high working capital requirements
following delayed clearances by the government.
The company said its monolithic structures business could
benefit in the event of a push for low-cost housing.
However, the company first wants to ensure timely
payments from the government.
Sintexs pre-fabricated structures business could benefit
from a focus on rural healthcare, primary education and
improvement in infrastructure execution, it said.

PRICE as of 29 May 2014

INR 89.15
Bloomberg code

Reuters code

SINT IN

SNTX BO

Market cap

12-month range

483 (USD mn)

16.8 92.75

Sector

Average daily T/O

Diversified

USD 5.8 mn

Major shareholder

Date of listing for auditor

BVM Finance Pvt. Ltd. (23.7%) Deloitte Haskins & Sells

Saddled with working capital issues. Sintexs net working capital increased to

Company description

125 days in FY12 from 81 days in FY09. Its working capital days have since
declined to 104 days in FY14, as it increased focus on collection efficiency and
growth in the monolithic construction business decelerated. Collection days in the
monolithic construction business rose to as much as 270 days in FY12 and have
now declined to 170 days, according to the company. While potential government

Sintex is a diversified company

and
leader
in
monolithic
construction and pre-fabricated
housing products in India. The
company is also involved in the
custom moulding and textiles

focus on low-cost housing could help Sintex grow its monolithic business, the
company said it would be conscious of collection efficiency before taking on new
projects from the government.

businesses.

Pre-fabricated structures beneficiary of infrastructure spending. This

Did you know Gujarat is one of
the most efficient in clearing project
dues with receivable days at 60-65
days vs. over 100 days for most other
states, according to the company.

business caters to rural healthcare centres and rural school businesses, and
benefits from central government programmes, such as Rashtriya Sarva Siksha
Abhiyaan and National Rural Health Mission. In addition, this division also caters to
army barracks and infrastructure construction segments. According to the
company, many rural outreach programmes in Gujarat were based on the use of
pre-fabricated structures.

Share price performance (INR)

Textile capacity expansion. Sintex recently approved capex of c.INR 17bn to
increase its textile capacity. The company is setting up an export-oriented textile
unit in Gujarat and expects to complete construction over the next 12-18 months.
Valuation. Sintex trades at 5.8x/4.9x FY15/FY16 EV/EBITDA, based on
Bloomberg consensus estimates.

100
90

Sintex Industries
BSE SENSEX 30 INDEX (Rebased)

80
70
60
50

Basic financials and valuation

Revenue (INR mn)
EBIT margin (%)
EPS (INR)
EPS growth (%)
PER (x)
Yield (%)
ROE (%)

2012A
44,368
12.0
11.32
-33.3

2013A
50,794
10.5
11.38
0.5

2014A
58,426
11.8
11.72
3.0

12.2

11.2

10.9

* Estimates based on Bloomberg

Source: Company

2015*
67,049
12.1
11.68
-0.3
7.8
0.9
10.3

2016*
77,845
12.8
15.08
29.1
6.0
0.9
11.1

40
30
20
10
May-13

Aug-13

Nov-13

Feb-14

Source: FactSet

Sumit Choudhary
SINT IN

+91 22 4205 5916

Equity Research
Standard Chartered Securities (India) Ltd

2 June 2014

Equity Research l Emerging companies

Building products division: This division comprises of monolithic structures and

pre-fabricated structures. Monolithic structures have historically been used in lowcost and mass housing projects, according to management. However, the company
has seen delays in payment of receivables and approvals from government agencies,
which led to high working capital and low-return orders in the past. Therefore, Sintex
has become less focussed on growing the monolithic construction division in the past
few years. While the company believes that government focus on the establishment
of low-cost housing and new cities could provide a tailwind to the monolithic
construction industry, it would be cautious in taking new orders because of high
working capital issues in the past. The building products division also manufactures
pre-fabricated structures, which are used in construction sites and rural infrastructure
projects. Management said working capital requirements are lower for pre-fabricated
structures, as it typically receives approval from the public works department before
the launch of such projects. Sintex has factories in five states across India for prefabricated structures. It also has a smaller storage tanks business as part of the
building products division. The building products divisions FY14 revenue was INR
27.3bn with an EBITDA margin of 18%, according to the company.
Custom moulding division: This division manufactures and supplies composites to
customers in multiple industries including to ABB, Alstom, BMW, Caterpillar and
Vodafone. According to the company, there is potential for composites to replace
metal in many industries including automobiles, airlines and defence, given lighter
weight and higher strength of composites. The company acquired two companies,
Nief Plastics in France and Wasaukee in Poland, to diversify globally in the
composites business. The custom moulding division contributed revenue of INR
25.7bn in FY14 with an EBITDA margin of 13%.
Textiles division: This division is the largest manufacturer of high-end Jacquard and
structured fabrics in India. The company directly provides fabrics to players such as
Arrow and Van Heusen in India. The company is setting up a spinning facility with
capex of c.INR 17bn and expects this facility to be operational by FY16. According to
the company, this project should yield an IRR of 18%. The textiles division generated
revenue of INR 5.5bn with EBITDA margin of 25% in FY14.
Leverage: Sintex had gross debt of INR 38,2bn as of March 2014 with net debt of
c.INR 35bn. The company reported EBITDA of c.INR 9.6bn in FY14. The companys
debt included USD 140mn of convertible bonds. Additionally, the promoters recently
exercised 16.4mn warrants at INR 69/share.

2 June 2014

Equity Research l Emerging companies

India l Em erging Comp anies

2 June 2014

Gateway Distriparks

NOT RATED
Standard Chartered Equity Research does not cover this company
and nothing herein should be interpreted to be a recommendation
or price target with respect to the company.

NON-COVERED COMPANY VISIT NOTE

Gateway Distriparks (GDPL) has been severely impacted by
the prolonged economic slowdown its combined
throughput volumes declined YoY for the first time in FY14.

PRICE as of 29 May 2014

The company believes an economic recovery could help the

company improve volumes and margins in the CFS
business.

Bloomberg code
GDPL IN
Market cap
430 (USD mn)
Sector
Transport - Services
Major shareholder
Prism International Private Ltd (22.28%)

Management believes the implementation of a dedicated

freight corridor can help it improve margins and volumes
over time. It intends to list the Snowman Logistics business
in the next few months.

INR 218.70
Reuters code
GATE BO
12-month range
98.1 240.4
Average daily T/O
USD 0.96 mn
Date of listing/ auditor
1994; Price Waterhouse

Double impact of a slowdown on the container freight station (CFS) business.

Company description

GDPL has seen relatively stagnant volumes in its container freight stations,

GDPL is the largest private sector

container freight station operator in

management said. Additionally, the CFS business EBITDA margins declined to

39% in FY14 from 55% in FY12 due to less congestion. Management believes that
in the event of an economic upturn, the company could benefit from higher volumes
and storage time, potentially increasing the CFS business revenues and margins.

India. The company also owns the

largest private sector rail operator
(Gateway Rail) and the largest
private sector cold chain operator
(Snowman Logistics) in the
country.

Gateway Rail beneficiary of dedicated freight corridor. According to

management, Gateway Rail (GR), with a fleet of 21 rakes and 4 inland container
depots (ICD), could improve its revenue and margin by (1) increasing double
stacking of containers on its trains, (2) reducing the proportion of empty rakes
through better efficiency if overall trade volumes improve in the country, and (3)
improving the turnaround time for rakes if the dedicated freight corridor is
implemented on the routes in which the company operates.

Did you knowThe

containerization level for general
cargo in India is only 45-50% vs.
70% globally, according to
management

Snowman Logistics capacity expansion and listing on the cards.

Management of Snowman Logistics (54% owned by GDPL) highlighted the

companys plans to expand capacity to 85,000 pellets in the next few months from Share price performance (INR)
66,000 pellets currently. Snowman has also filed a draft prospectus with t he
Securities and Exchange Board of India (SEBI) and intends to list the company
through an IPO over the next few months.

Gateway Distriparks
220

Valuation. GDPL trades at 15.1x/12.9x FY15/FY16 PER, based on Bloomberg

200

consensus estimates. The stock has outperformed the Sensex by c.70% over the
past 12 months.

180

BSE SENSEX 30 INDEX (Rebased)

160

Basic financials and valuation

Revenue (INR mn)
EBIT margin (%)
EPS (INR)
EPS growth (%)
PER (x)
Yield (%)
ROE (%)

2012A
8,173.0
22.6
12.21
36.3

2013A
9,497.3
18.3
11.69
-4.3

2014A
10,080.5
17.5
12.51
7.0

18.4

16.5

16.7

2015*
11,996.8
20.0
14.49
15.8
15.1
2.7
15.9

2016*
13,994.4
21.0
17.01
17.4
12.9
2.8
17.3

140
120
100
May-13

Aug-13

Nov-13

Feb-14

Source: FactSet

* Estimates based on Bloomberg

Source: Company

Sumit Choudhary
GDPL IN

+91 22 4205 5916

Equity Research
Standard Chartered Securities (India) Ltd

2 June 2014

Equity Research l Emerging companies

CFS division: This division operates six container fright stations: two located in
Jawaharlal Nehru Port Terminal (JNPT), two in Chennai, one in Visakhapatnam
and a recently opened CFS in Kochi. The CFS in JNPT are on long-term leases until
2022 and 2060, the company said. The company handled a total of 340,000 TEUs in
FY14. According to management, the CFS divisions revenue stream comprises (1)
handling and transportation of containers, (2) storage of cargo, (3) warehousing, and
(4) value-added services such as packaging and handling. Given this business is
largely a fixed-cost-based model, higher volumes and storage revenues could lead to
an improvement in margins, management said. The CFS divisions EBITDA/TEU
declined to c.INR 3,500 in FY14 from over INR 5,000 in FY12. The CFS division
posted EBITDA of INR 1.2bn and PAT of INR 730mn in FY14.
Rail division: This division operates three ICDs in Gurgaon, Ludhiana and Navi
Mumbai. Another ICD in Faridabad is expected to commence operations soon,
management said. The rail division operates a fleet of 21 rakes and is the largest
private sector freight rail operator in India, according to management. GDPL currently
owns a 98% stake in GR. GR has also issued convertible preference shares to a
private equity investor. GDPL has an option to buy out the preference shares for
c.INR 6bn or allow the preference shares to be converted into 47% equity shares in
GR, management said. GR management believes that the company managed to
improve EBITDA margins by c.400bps in FY14 owing to (1) a conscious exit out of its
low-margin business and (2) increasing the proportion of double-stacked containers.
A continued increase in the proportion of double-stacked containers could help the
company improve margins over the medium term, it said. In addition, in the event a
dedicated freight corridor becomes operational, the rail divisions profitability could
improve through a faster turnaround time for rakes. GR posted EBITDA of INR 1.1bn
in FY14 and PAT of INR 513mn in the period.
Snowman Logistics: Snowman Logistics is a 54% owned subsidiary of GDPL and is
engaged in the business of providing cold chain storage solutions to companies in
industries such as fast food, FMCG, and food and beverages. Snowman has seen a
rapid rise in capacity to c.66,000 pellets currently, from 9,000 pellets in 2007.
Management expects to increase capacity to 85,000 pellets over the next few months
and is in the process of listing this business through an IPO. According to
management, the cold chain solutions industry is largely unorganised in India and a
national player like Snowman has the advantage of being able to provide end-to-end
national level solutions to key customers. Snowman reported EBITDA and PAT of
INR 398mn and INR 115mn, respectively, in FY14.

2 June 2014

Equity Research l Emerging companies

Disclosures appendix
The information and opinions in this report were prepared by Standard Chartered Bank (Hong Kong) Limited, Standard Chartered Bank Singapore Branch, Standard
Chartered Securities (India) Limited, Standard Chartered Securities Korea Limited and/or one or more of its affiliates (together with its group of companies, SCB)
and the research analyst(s) named in this report. THIS RESEARCH HAS NOT BEEN PRODUCED IN THE UNITED STATES.
Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify that: (1) the views expressed and
attributed to the research analyst or analysts in the research report accurately reflect their personal opinion(s) about the subject securities and issuers and/or other
subject matter as appropriate; and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views
contained in this research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
Where disclosure date appears below, this means the day prior to the report date. All share prices quoted are the closing price for the business day prior to the
date of the report, unless otherwise stated.
Recommendation Distribution and Investment Banking Relationships
% of covered companies
currently assigned this rating

% of companies assigned this rating with which SCB has provided

investment banking services over the past 12 months

OUTPERFORM

54.4%

12.7%

IN-LINE

35.4%

11.5%

UNDERPERFORM
As of 31 March 2014

10.2%

7.7%

Research Recommendation
Terminology
OUTPERFORM (OP)
IN-LINE (IL)
UNDERPERFORM (UP)

Definitions
The total return on the security is expected to outperform the relevant market index by 5% or more over the next 12 months
The total return on the security is not expected to outperform or underperform the relevant market index by 5% or more over the next
12 months
The total return on the security is expected to underperform the relevant market index by 5% or more over the next 12 months

SCB uses an investment horizon of 12 months for its price targets.

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Equity Research l Emerging companies

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2 June 2014