(1)
Issue Highlights
Issue Period
|
26/8/14-28/8/14
|
Price Band
|
Rs. 44-47
|
Issue Type
|
100 % Book Built Issue
|
Issue Size
|
Rs. 1848-1974
million/42 million shares
|
Lot Size
|
300 Shares
|
Face Value
|
Rs. 10
|
Listing
|
BSE, NSE
|
Registrar
|
Link Intime Indi Pvt. Ltd.
|
Maximum Retail
Subscription
|
Rs. 1,97,400 or 14
lots
|
Industry
|
(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
Parameters
|
Post Issue FY 14
|
Pre Issue FY 14
|
P/E
|
34.8
|
26.02
|
P/B
|
3.53
|
2.64
|
Profit CAGR (%)
|
53.53
|
53.53
|
PEG
|
.65
|
.49
|
ROCE (%)
|
NM
|
7.97
|
ROE (%)
|
10.16
|
10.16
|
Debt/Equity
|
NM
|
.76
|
NPM (%)
|
14.48
|
14.48
|
M-Cap/Sales
|
5.04
|
3.77
|
EV/EBITDA
|
NM
|
29.59
|
Current Ratio
|
NM
|
.82
|
OCF/Sales
|
.09
|
.09
|
EBITDA Margin
|
16.02
|
16.02
|
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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