Pick of the Week: Gateway Distriparks

Gateway Distriparks
Cluster: Cannonball
Recommendation: Buy
Price target: Rs236
Current market price: Rs87

Annual report review

Key points

Financial year 2008 proved to be a mixed year for GDL as the company’s top line saw a strong growth in this period on the back of an excellent volume growth. However, a change in the revenue mix in favour of the new businesses and the lower-margin container freight station (CFS) of Punjab Conware led to a decline in the profitability of the company during the year.

Despite challenges, the company expects the growth in the container traffic to continue in FY2009 and is in the process of expanding the capacity at its CFS at Visakhapatnam and setting up a new CFS at Kochi. Its inland container depots (ICDs) at Ludhiana and Faridabad are also expected to become operational in the next couple of years. Besides, the company would continue to aggressively expand its fleet in the rail business and has already placed orders for ten more trains.

The net cash flow from operations after working capital adjustments remained healthy for the company at Rs80.75 crore. The working capital management has improved as the net working capital cycle reduced to a negative 17.5 days in FY2008 as against a positive 14.6 days last year. On account of a strong capital expenditure (capex) owing to its entry into new businesses and a decline in its profitability, the return ratios dipped during the year. The return on capital employed (RoCE) dropped by 1.9% to 12.5% while the return on net worth (RoNW) dipped by 1.3% to 11.1% during FY2008. The current debt/equity ratio is comfortable at 0.3x and despite its big capex plans, we expect the ratio to be maintained going forward.

Increased volumes in the core business, combined with the deployment of more rails on the export-import (EXIM) route, are expected to strengthen the performance of GDL going forward. At the current levels, the GDL stock is trading at 9.3x FY2010E earnings. We maintain our Buy recommendation on the stock with a price target of Rs236.

Pick of the Week: Apollo Tyres

FOR SHORT TERM / MEDIUM TERM

Buy : APOLLO TYRES

Equity : 50.40 Cr, BSE Code : 500877, CMP : 37.45

Apollo Tyres. is the flagship company of the Raunaq Group. Mathew T Marattukalam, Jacob Thomas and his associates incorporated it in 1972. In 1974, the company was taken over by Dr Raunaq Singh. The tyre project was implemented in 1976 and commercial production was started in the year 1977.� The company is the second largest player in the commercial vehicle (CV) segment of tyre industry, and has presence mainly in the domestic market. The main activities are manufacturing and supply of automobiles tyres, tubes and flaps. It has a major presence in the truck and bus (T&B) tyre segment and commands market share of 29% It derives about 70% of its revenues from the replacement market. It also has a presence in the tractor and passenger car radial segment as well.

Apollo Tyres principal activities are to manufacture and sell automobiles tyres, tubes and flaps. The group exports its products to South America, Pakistan, South-East Asia, Middle East Countries and Africa. The manufacturing plants of the group are located in Trichur, Vadodara and Pune. The manufacturing facilities at Durban, Ladysmith and Zimbabwe have helped Apollo Tyres in consolidating its position in the highly competitive tyre market. With 5 sales, services & branch offices, 9 regional offices and 3 distribution centers at Ladysmith, Durban and Jetpark (Johannesburg) the company is all set to meet the demand of a plethora of its international clients.

Apollo Tyres continued leadership in the dominant industry segment of truck and bus tyres has provided the company with the cutting edge over its competitors and proved it global presence with acquisition of Dunlop Tyres International Ltd. in South Africa. The company ability to come out with the product innovations and technical superiority has enabled it to provide world class quality in tyres and tubes with the dynamic and progressive leadership. The continuous thrust in road infrastructure and construction of expressways and national highways and creation of road infrastructure has given and will increasingly give a tremendous fillip to surface transportation in the coming years. Sales and NP for year ended 07 - 08 were 3697.9Cr & 219.6Cr. Sales and NP for latest Quarter 1075.9Cr & 48.6Cr. On YOY basis NP has increased by 93% & On Latest Quarter� NP has increased by 4% Dividend during year ended 07-08 was 50%

Pick of the Week: Allied Digital

FOR SHORT TERM - MEDIUM TERM

BUY BUY BUY: ALLIED DIGITAL

Equity: 17.37Cr, BSE Code: 532875, CMP: 749.90

Allied Digital Services Ltd. (ADSL), a 12-year old Mumbai based company was established in 1995 as a private limited company and later became public limited in 2006. It is engaged in the business of providing a wide spectrum of IT solutions & services to a diverse customer base. ADSL is basically an IT Infrastructure Management and Technical Support Services outsourcing company. It has enabled global, large and medium enterprises and service providers to reduce their total cost of ownership using a combination of onsite and remote services. Its Security Operations Centre facility has state-of-the-art Physical Security Systems ranging from Biometric Access Control, Closed Circuit TV, Fire-detection and Suppression Systems. Mr. Nitin Shah is the chairman and managing director of the company. ADSL, a Systems Integrator and IT Infrastructure Management Services Provider, operates across a network of 92 locations in 25 states across India with a team of about 1,250 employees country-wide. During September 2007, the company announced the launch of Remote Management Services (RMS) consisting of Network Operations Centre (NOC) and Information Security Operation Centre (SOC) at the Millennium Business Park, a Software Technology Park at Mahape near Mumbai. These RMS are supported by Intel Inc, E-Cop, Singapore and HP. NOC comprises monitoring and management of a wide variety of devices & platforms and applications. The company plans to use a combination of industry standard remote monitoring & management systems (RMS), Managed Security Services (MSS) and 'Cheque Truncation Services' (CTS). ADSL has also forged technology and strategic alliances with international leading companies like IBM, Microsoft, Intel, Unisys, CISCO Systems, Stonesoft, Resilience and domestic outfits like NIIT, HP, etc.

The company's clientele includes leading corporate spanning across sectors like banking, finance, insurance manufacturing, services and retail. They include reputed names like Reliance, Pfizer, Thermax, Glaxo and Maruti from the manufacturing sector; ICICI Bank, SBI, BOI, HSBC, HDFC bank and others from the banking sector; TCS, NIIT, Syntel from the IT sector; Reliance Power, BHEL, GAIL, Tata Power, etc. from the power sector and Shoppers Stop and McDonalds from retail. Sales and NP for year ended 07-08 were 297.4 Cr & 43.6 Cr. Sales and NP for latest Quarter 89.6 Cr & 15.7 Cr. Based on quarter latest NP increased by 90 %