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Recommendations India

Snowman Logistics IPO Note

August 28, 2014, Thursday, 09:58 GMT | 05:58 EST | 14:28 IST | 16:58 SGT
Contributed by Nirmal Bang

Snowman Logistics (SLL), a leading player in a predominantly unorganized cold chain industry in India is engaged in cold chain warehousing and transport and value-added services for perishable goods. The company’s cold chain business currently has 23 warehouses across 14 locations in India with a capacity of approx. 62000 pallets and a fleet of 370 reefer vehicles (reefers).

CRISIL has assigned a ‘Grade 4/5’ to the Snowman Logistics IPO which indicates that the fundamentals of the issue are above average relative to other listed securities in India.

Objects of the Issue

The issue consists of fresh issue by Snowman Logistics and the net proceeds from the fresh issue (Rs 185 – 197 cr) would be utilized for (a) Capital expenditure for setting up new temperature controlled and ambient warehouses (b) Meet Long term working capital (c) General corporate purpose.

Valuation and Recommendation

Being a subsidiary of the logistics behemoth – Gateway Distripakcs – Snowman Logistics with its strong business model could be a good proxy play on the consumption led India growth story. It is a complete ‘sourceto- stores’ pan India cold chain services provider catering to diverse endproduct industries, enjoying a well diversified and loyal clientele and commanding a clear superior edge over the unorganized players in its industry. However, despite its vast business prowess, the valuations constrain our recommendation on this IPO. Though there is no direct listed peer company, we compared SLL to Gati and Concor as they have cold storage logistics businesses which form part of their main businesses. At the given price band of Rs 44-Rs 47, SLL, commanding a PE of 32.6x–34.8x its post issue diluted FY14 EPS of Rs 1.39/sh and EV/EBIDTA of 21.02-21.5x looks expensive, leaving very little on the table for retail investors. However, the company’s aggressive expansion plans coupled with strong presence in niche segments and healthy management bandwidth provides long term growth prospects. We recommend subscribing the issue with a long term view as it may have limited listing gains.