Saturday 9 April 2016

Snowman Logistics Ltd - The Hot Snow for Future

The Ace Investor
Snowman Logistics Ltd
  Listed on both NSE: SNOWMAN & BSE: 538635
Currently trading around 60 with a market cap of around 900 crores.
Promoters hold 40.25% stake.
It has a Debt of around 90 crores.
Total Reserves are around 250 crores.

Snowman was incorporated in 1993 by Amalgam Foods as Snowman Frozen Foods Ltd and in 1997 Brook Bond India (now HUL) acquired 23% percent stake in the company. In 2001 Mitsubishi bought a majority stake in the company.

In 2006, Gateway Distripark Ltd became the majority stake owner in Snowman and revamped the company's management structure. In 2010 IFC, USA acquired 20% stake in the company. In 2013 the company was renamed as Snowman Logistics Ltd and in 2014 the company came out with its IPO at an issue price of Rs 47 per share

Snowman is a leading integrated temperature controlled logistics service provider operating across locations servicing customers on a pan-India basis. They have set-up their temperature controlled warehouses adjacent to cities with a large potential for sourcing and/or consumption of temperature sensitive products including the larger cities such as Mumbai, Chennai, Bengaluru and Kolkata.

The company has total warehousing capacity of 98,500 pallets from earlier 49,750 pallets capacity in 2014. The fleet strength is 463.

As per latest quarterly investor presentation: The volume pie chart industry wise shows that: 19% volumes are from Poultry and Meat, 9% and 10% each is Ice-Cream and other dairy products, Agro Items (Fruit/Vegetables, Pulps etc) and Sea Food is at 13% each, Another 10% is from QSR and the rest divided between Confectionery, Healthcare-Pharma, Industrial Products, RTC.

The cold chain sector in India is a combination of surface storage and refrigerated transport. The industry has been growing at CAGR of 20% in last three years and expected to reach Rs 624 (Rs 62,400 crores) billion by 2017 as per an earlier report by ASSOCHAM.

India's cold chain industry is still evolving, Not well organized and operating below capacity.
The Indian cold chain sector is highly fragmented with more than 3,500 companies operating in the sector.

Organized players like Snowman contribute only 8-10% of the entire market size.

The need for cold-chain in India is beyond question, for instance: 11% of the world's vegetables production is from India alone but the trade participation by India in the global trade is only 1.7%.

127 million tonnes of Milk was produced in 2011-12 but cold-storage was available only for 70000-80000 tonnes of milk.

Presently, almost 76% of cold storage volume is utilized only for potatoes.
Potato margins are not high hence it has not proved to be a money spinner.

20-30% of the total fish production is annually wasted in India.

This scenario for a resource rich country is terrible, The resource is going wasted due to lack of cold-storage even as Farmers are committing suicide even due to losses incurred in these wasted crops, Huge percentage of the population do not get proper food.

Whether it is the NDA or the UPA the problem needs to be resolved by the ruling government urgently and it can only be solved by private companies participation, and they will participate if they see a large cake of revenue and for that to happen the GST is also very key.

The GST puts the organized players and the unorganized players in the same bracket by putting same taxation bracket on all, In this case the GST will put great focus on the Cold-Chain sector in India.

As already said the organized sector commands only 8% of the total cold-chain industry, so if this improves there is a large cake for companies like Snowman to take.

The same is with the logistics sector in terms of GST and unorganized/organized businesses, but Snowman offers more of a niche play here. Gati also has the Cold Storage units but Snowman comes minus the traditional logistics business.

Coming to the financials of Snowman it has shown good growth.

The growth has been very good and the company enjoys tax benefits under section 35 AD as per the incentives provided to the cold chain sector.

Including the tax benefits the annual eps for Snowman in FY15 was 1.67 and presently so far in FY16 the EPS is at 0.78, after adding the wonderful March 15 quarter the EPS goes up to 1.64.

It will be interesting to see what the company delivers in the March quarterly results.

Valuation wise Snowman may not look undervalued at current juncture, having a P/E of almost 35 and Market Cap to Sales of 3.85. The current p/e valuation appears to be in line with how the logistic companies are rated (VRL,GATI,SICAL) all are at 30-35 p/e range. Exceptions are BlueDart at p/e of 80 and Allcargo at p/e of 15.

But SNOWMAN is a niche Cold Chain sector play only. Gati Kausar (Gati's cold chain) is a loss making business and revenue wise it trails SNOWMAN by a significant margin.

As far as stock price is concerned, After coming with an IPO at Rs 47 Snowman touched all time high of 135+ in November 2014 within just 3 months of listing. Later in March 2015 the stock crashed to 70 odd levels and from there it again went up to 116 in July 2015.

The last one year has not been great for the midcap-small cap stocks and that shows for Snowman too, from 116 it cracked to all time low levels of Rs 46 in Feb end. At present levels of around 58 odd it is 20% away from all time lows.

This stock on the first look does not look like a Good Value investment for Investors looking at the P/E and Mcap/Sales etc. but while all that gives an indication about current valuation of the company. We have to look at the boarder stuff and understand the industry to spot a future multibagger.

GST is key for Snowman and the industry and as PM Modi suggested recently GST is going to be a reality soon lets hope he is right.

All in All i feel: Five years down the line, Snowman can become one famous multibagger in the market.Yes its not very cheap right now but this is a Niche Play and its valuation should be aggressive going forward too. 

Note: The above is not a research report but information as available on public domain and it should not be treated as a research report.

Registration status with SEBI: I am not registered with SEBI under the (Research Analyst) regulations 2014 and as per clarifications provided by SEBI: “Any person who makes recommendation or offers an opinion concerning securities or public offers only through public media is not required to obtain registration as research analyst under RA Regulations”

Disclosure: It is safe to assume that i might have Snowman Logistics Ltd in my portfolio and hence my point of view can be biased. Readers should consult their financial advisory before any investments.