India Ratings & Research (Ind-Ra) has affirmed Gateway Distriparks (GDL) long term issuer rating at 'A+'. The outlook is positive.

GDL's positive outlook reflects Ind-Ra's expectation of significant improvement in net leverage in FY15 due to the fund inflow from the IPO of its subsidiary, Snowman Logistics (SLL) in 1HFY15. Ind-Ra also expects operations to improve now that all its container freight stations (CFS) have begun complete operations and would contribute to full year revenue FY15 onwards.  IPO plans for SLL are in advanced stages with the draft red herring prospectus having been filed and SEBI’s approval procured. The company’s management expects the IPO to take place in June/ July 2014.

The agency has taken a consolidated view of GDL's business and financials while assigning the ratings. GDL has a strong presence in the containerised cargo industry both in CFS and inland container depots (ICD) along with container rail transport. It also has a pan India presence in the cold storage business. Overall, GDL is the largest private sector CFS/ ICD operator in India and the second largest after Container Corporation of India (CONCOR).

GDL's consolidated revenue grew at a CAGR of almost 17% to Rs 9.5 billion in FY13 from Rs 5.1 billion in FY10 and is likely to exceed Rs 10 billion in FY14. The revenue growth is likely to continue with full year contribution from two new CFS', one renovated CFS and one new ICD contributing to revenue in FY15 along with a significant increase in the number of cold storage warehouses.

As per the agency's expectations, FY13 operating EBITDA margin was 25.8%, comparable to average margins of around 26%-27% over the last four years. EBITDA margins in FY14 may see a slight dip due to tough operating conditions but would likely rebound to around 26% levels in FY15 as two new CFS’ became fully operational in 4QFY14.

GDL's liquidity is comfortable with free cash and equivalents of over Rs 1,000 million on average over the last three years and short-term debt and near-term maturities of just Rs 340 million as at FYE13. Despite undertaking significant capex , GDL at the consolidated level has maintained low net adjusted leverage over the past four years due to strong profitability leading to positive cash flow from operations (CFO) and significant free cash reserves.

In line with Ind-Ra's expectations, adjusted net leverage deteriorated slightly and was 1.89x at FYE13 due to narrower margins. GDL's debt component includes Rs 2,958 million of compulsory convertible preference shares which the agency has considered as debt as per its criteria. The debt at the subsidiary level increased in FY14 to fund the ongoing capex expense and Ind-Ra expects the consolidated net adjusted leverage to deteriorate slightly by FYE14. However, Ind-Ra expects net adjusted leverage to improve significantly in FY15 due to the cash inflow from SLL's IPO and sustained revenue growth and profitability.

Shares of the company declined Rs 0.55, or 0.35%, to trade at Rs 156.80. The total volume of shares traded was 93,115 at the BSE (Tuesday).