My stock analysis on snowman logistics- your feedback please, Hitesh ji
Only listed and organised player in a 15000 crores value coldchain sector. Huge unorganised sector dominance of 94% in the market which speaks a lot of untapped potential in capturing the market share. That too with GST on the anvil it will be good news for this organized player. Serves in a niche field of logistics and with high growth in upwards of 15% in organised retail food industry and its ability to reduce the food wastage with cold storage facilities( the very reason why govt is giving IT exemption) THE COLD CHAIN POTENTIAL The prices of vegetables, fruit, milk, eggs, meat and fish have been rising faster despite India being the second largest producer of fruit and vegetables globally. Around Rs. 300 billion can be saved annually by developing an integrated supply chain (including cold chain).
Snowman caters to multiple sectors like poultry, FMCG, quick service restaurants, pharmaceutical, tyres and films. This multi-sectoral customer base has helped strengthen Snowman’s business model in a number of ways. One, this has helped the Company reduce an excessive dependence on the fortunes of any one sector; no industry accounted for more than 20% of the Company’s revenues in 2014-15. Two, the downstream industries addressed by Snowman represent robust economic proxies of a fast-growing nation. Three, Snowman has enhanced efficiencies in each these logistics-intensive customer segments. Four, Snowman has leveraged the learnings from one customer space in another, strengthening its overall solutions complement. To summarize the sector looks very promising and being the only listed and organized player it has lot of potential.
Now lets look into its financials as per the AR 2015, the first one after its ipo( 2016 AR is not out).
Return ratios are not high ( sub 10) coz of capital intensive nature of business( capex as percentage of sales is above 40%) . But the sales and earnings growth over the three yr and five year period are in upwards of 30, that indicates the high growth nature of the cold chain sector. Debt equity ratio is 0.22 and the management indicates the ease of debt raising in the future coz of this( capital intensive nature- reinforced).
Promoter holding is low (40%) . Gateway disparks is the promoter. Management remuneration is 4.8% of PAT ( slightly on the higher side).
Dupoint analysis of ROE( 7.74%) indicates the average to good NPM(12%), low Asset turnover(0.43) - implying capital intensive nature and Financial leverage ( 1.34). Though RoA was only 5%, the have used the leveraging part to increase their returns.
So going forward, How are they going to increase their RoE- primarily by increasing the Asset turnover after all their capex(They have already achieved 1 lakh pallets) and by deleveraging. Also they have turned their focus on higher margin products and efficient capacity utilization (as per the management words they start marketing spaces the day they begin building a new warehouse, to achieve optimum capacity utilisation generally within a few months of commencing operations and have acheived 75% capacity utilisation in 3-6 months of warehouse commisioning).
As per the cash flow statement , though the operating cash flow is good because of high capex outflows and ipo proceeds ,there is net NEGATIVE FREE CASH FLOWS.
One point to note is they have Deferred tax of 13 crores which significantly adds up on earnings( PBT of 14 crores + net tax credit 10 crores) under section 35 AD of income tax. I think the capital intensive nature gets partially offset by this tax rebate from the govt.
To sum up, Being initial days of coldchain logistics and capital intensive nature of business, the financials may not reveal the true potential of this business. Maybe once they attain a critical mass it may become a superstar in India growth story.
DISCLOSURE : I am a novice in stock analysis and I have got no roots in financial education. The above analysis is purely based on knowledge gained from open forum from fellow investors and I have all rights to be wrong in my analysis. The intention of this post to know the faults in my analysis which will help me in becoming a better investor. Also I thank Mr.Jatin Khemani of stalwart advisors for his blogpost on India’s Consolidation Wave.
At this juncture I dont have any position in the Company discussed. Am waiting for your comments. Thanks in Advance.