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Monday, August 25, 2014

Snowman Logistics IPO Review

(1)    Issue Highlights

Issue Period
Price Band
Rs. 44-47
Issue Type
100 % Book Built Issue
Issue Size
Rs. 1848-1974 million/42 million shares
Lot Size
Face Value
Rs. 10
Link Intime  Indi Pvt. Ltd.
Maximum Retail Subscription
Rs. 1,97,400 or 14 lots
(TCL) Temperature controlled Logistics
Pre issue/Post issue equity shares
124,443,357/ 166,443,357

(2)    Business & Company Profile:

TCL industry refers to the various entities involved in the logistics chain (e.g. warehousing and transportation) of perishable products. The major product segments that Snowman Logistics cater are dairy, poultry, meat & seafood, confectionaries, ice-cream, fruits and vegetables,
healthcare, pharmaceutical and industrial products.
Indian TCL industry is estimated to be in the range of Rs. 120,000-150,000 million and is supposed to register a growth of 15-20 % in forthcoming years.
Snowman Logistics is a GDL (Gateway Distriparks Ltd.) promoted company and GDL is its largest share holder. Besides GDL, other prominent shareholders are Mitsubishi Corp, Mitsubishi logistics, IFC and Norwest venture Partners.
Some of the esteemed clients of the company are Hindustan Unilever, Graviss Foods, McCain Foods, West Coasts FF, TNCMPF, AL-Karim exports etc.

The company is one of the largest TCL players and presently maintains 23 TC warehouses across 14 locations across the country and operates 370 Reefer vehicles (307 leased and 63 owned).

(3)    Issue structure
·         QIB: At least 75 % (including 5 %  allocation limit for MFs) of the issue
·         Non Institutional bidders: At most 15 % of the issue
·         Retail individual investors: At most 10 % of the issue

(4)    Strengths & Opportunities:

·         In a country like India where only 10 % of the total produce passes through cold chains, there lays a huge scope for companies that use state-of-the-art technologies and efficient inventory management.
·         The rising prowesses of the FMCG industry shall augur well for the company
·         Scarcity of organized players in the Indian TCL industry unveils a great bunch of opportunities for the company
·         The company enjoys a pan-India presence and has strategically placed its warehouses near metropolitan cities like Mumbai, NCR, Kolkata, Chennai and Bangalore.
·         MFPS scheme has been launched by Ministry Of Food Processing Industries with a view of having a strong food processing infrastructure-will be favorable for the company.
·         The expertise of GDL as a promoter in the logistics business is beneficial for the company
·         The offering of VAS services like grading, sorting and inventory management to its customers holds a great potential
·         The co. holds an edge over its unorganized competitors by using ERP software and better technology like using environment friendly Freon 404 as refrigerant.

(5)    Weaknesses & Concerns:

·         Top 20 clients contributed for around 57 % of the total revenue for the fiscal year 2014
·         Some temperature controlled warehouses are situated on leased lands and the company’s failure to renew lease agreements could unfavorably impact the business as these warehouses contribute for around 51 % of the total revenue.
·         The dependence on third party reefer vehicles ( around 83 % ) is a concern
·         As Reefer vehicles operate on diesel, government’s policy of de-regulating diesel prices could adversely affect the profitability of the company.
·         Any outburst food borne diseases like bird flu would be detrimental for the business
·         The business requires high capital and operating expenditure.
·         Rising power costs and rising interest rates shall be a major concern

(6)    Objects of the issue
·         Capital expenditure for setting up new TC and ambient warehouses : Rs. 1283 million
·         Long term working capital: 84.17 million
·         General corporate purposes: NA

(7)    Financial Analysis #
# all calculation at upper value of the price band-Rs. 47

Post Issue FY 14
Pre Issue FY 14
Profit CAGR (%)
ROCE (%)
ROE (%)
NPM (%)
Current Ratio

 8)    Inference

The prospects of this company are good in a country like India where a state’s ruling government lost the reign after its failure to curb the rising onion and potato prices. Ours is a country where only 10 % of the total produce goes to cold storage and present government too is expected to boost the TCL industry to curb the rising food item inflation that ultimately leads to rising twin deficits.
Rising number of people with disposable income in their hands have started opting for exotic fruits, vegetables and delicacies and QSR business too is picking up. Thus there is a huge scope for a business like this and especially after  GOI awarding  the infrastructure status to cold chain industry in FY 12 with a view to  curb the price-fluctuation in perishable commodities.
But valuations of this issue are stretched (even when a higher CAGR justifies the price-to-earnings multiple) as pre-issue EV/EBITDA is too high for a company like this.
Besides, cost overrun, delayed projects and company’s inability to generate sufficient business could be detrimental for its financials.
How this share shall perform in the short term will totally depend on market sentiment and the liquidity but this issue definitely is a medium to long term bet.
I think I should go for this one.


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