ValuePickr Forum

Snowman Logistics

Snowman logistics, promoted by Distipark group, is going for an IPO very soon. They are into cold chain logistics - warehousing, distribution and transportation.

Indian Cold Chain industry is expected to grow at a **CAGR of ~28% **over the next 4 years and reach a market size of ~USD 13 Bn in 2017 and is largely unorganised in nature.

http://indiacoldchainshow.com/Cold-Chain-Industry-in-India-A-Report.pdf

Invite seniors to comment on this IPO

Had a cursory look at their latest financials. Here -http://www.snowman.in/about_profile.html

It seems to be a capital intensive business with poor ROCE. It may be due to the fact that they are still in the initial phase when all the assets are not fully operational. Needs a deeper study from anyone with knowledge of how this industry works.

Hi, read the ARs and other resources of gateway and you will find details about Snowman.

Disc: no interests

The issue will open on 26 August and will close on 28 August.

Snowman Logistics will issue 42 million equity shares viaIPOat a price band between Rs 44 to Rs 47 per share.

CRISIL Research report on Snowman Logistics IPO

CRISIL Research has assigned a CRISIL IPO grade of 4/5 to the proposed IPO of Snowman Logistics (Snowman). This grade indicates that the fundamentals of the IPO are above average relative to the other listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation to the issue fundamentals. A CRISIL IPO Grading is not a recommendation to buy / sell or hold the securities to which it relates (or any other securities); it does not comment on the issue price, future market price or suitability for a particular investor. The assigned grade reflects Snowman’s strong position as a leading domestic integrated cold chain company and good long-term prospects for the cold chain industry. CRISIL Research expects the cold chain industry to grow at a healthy pace over the next few years (15-17 percent CAGR over FY13-16) driven by growing demand from end-product industries, uneven regional distribution of cold storages in India and favourable government policies. The grade is supported by Snowman’s strong end-product portfolio, loyal clientele, professional management, seasoned shareholders and modern cold chain infrastructure. The company has increased its pallet (a structural foundation of a unit load for efficient handling and storage of products) capacity by five times in less than two years without any adverse impact on its margins. It further plans to expand its capacity to 1,00,000 pallets by FY16. The grade is constrained by risks related to Snowman’s aggressive capacity expansion plans. The company might not be able to generate sufficient business to run at a healthy utilsation with the increased capacity which can put pressure on its profitability and growth. Snowman’s operating income grew at a CAGR of 48.5 percent from Rs 346 mn in FY10 to Rs 1,137mn in FY13 driven by capacity expansion, broadening of the end-product portfolio and increase in the client base. EBITDA margin improved by 650 bps from 16 percent in FY10 to 22.5 percent in FY13 due to increase in utilisation and improvement in per pallet realisation. Consequently, EBITDA expanded at a CAGR of 66.3 percent from Rs 56 mn in FY10 to Rs 256 mn in FY13. Adjusted PAT grew at a CAGR of 79.1 percent from Rs 38.2 mn in FY10 to Rs 219.4 mn in FY13 on the back of strong growth in EBITDA and tax credit on account of Section 35AD of Income Tax Act 1961. Consequently, PAT margin improved from 11 percent in FY10 to 19.3 percent in FY13. The company has a net debt of Rs 885 mn as of FY13.

Only 10% allotment to retail investors. Seems like Sebi will make retail investors pay more for good issues. Is there a way, we can make a strong protest against this foul play of Sebi?

The benefit of Section 35AD of IT Act availed by the company is a ONE TIME benefit. Does anyone have the number of that benefit separately? It would be interesting to see what is the EBITDA CAGR without this one-time benefit.

The company is issuing 4.2 crore shares of face value Rs 10 each in the price band of Rs 44-47 per share.

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According to the report, at the upper band, the company is trading at a P/E and P/BV of 20.6x and 1.6x based on our F16e preliminary estimates (EPS of Rs 2.4 and BV of Rs 29.1).

http://articles.economictimes.indiatimes.com/2014-08-22/news/53112588_1_price-band-snowman-logistics-ipo-grade

so it will be available at 47/- and FY16 estimated book value is 29.1.

The EPS estimates in press reports include deferred income tax income (this is the second immediate time I am coming across this, after Singer), which should be ignored as advised by some forum members.

In 2010, 2011 and 2012, when this component was absent in the financials, the company had achieved net margins of 11.1%, 13.4% and 9.8%. This has further reduced to 8.7% and 7% in 2013 and 2014. However, this could be the impact of interest cost as the company took on debt in 2013. Hence I assumed net margin of 10% as the company is expected to reduce part of its debt from the IPO proceeds. Also I assumed 35% growth in revenues which is in line with past rates. Based on this basic assumptions, the EPS (pre-deferred tax income) is 1.2-1.3 giving a PE of around 36-39 for FY15 and Book Value of 15 with PB of 3.2 for price of Rs 47 per share.

The company’s deferred tax income increased from Rs 9 cr to Rs 11.7 cr from 2013 to 2014. This is a fairly large component compared to profit from operations, and I am not sure whether ignoring this is the right approach.

Although our buying and selling should generally not be based on who else is buying and selling, it is heartening to note that none of the marquee existing shareholders are offloading in the IPO.

The most attractive part is that one is getting a leading player in the sector at less than 1000 crore market cap (800 crores) with the sector dominated by unorganised players giving ample scope for the organised players to take away market share. The icing is that the sector itself is expected to grow at CAGR of 15-20% per year for next few years. Thus if execution is right, there is immense scope to grow in the backdrop of the NaMo effect (industry revival), which incidentally also would imply that the tax breaks available to the company would continue.

Some links:

http://www.hdfcsec.com/Share-Market-Research/Research-Details/IPOReports/3007867

https://www.sptulsian.com/article/81195

Discl - interested, but currently no funds available to buy/apply.

Evn though I am positive on this ipo, May be we can play cold chain market with bluestar also assuming they will be equipment suppliers to cold chain industry.

Positives of IPO

Economic Recovery, Namo Effect, Sector Tailwind ,Market Leader, small market cap, Taking Market share from unorganised sector, Better than avg Management, No offloading by existing shareholders.

Negatives

Capital intensive industry, Poor ROCE( Not sure whether it will go beyond 15% even in good times), Pricey valuations, Excessive growth in last 2 years compared to avg growth, Regulations /Licenses, seasonality of demand

I feel its very overvalued and not worthy of long term investment. If QIP participation is more than 4X then can be played for listing gains…

Please note that 4X is just an arbitrary number which i chose to indicate that there is some serious interest by QIPs in it…you can chose your own level …

This is how retail investors are fooled…

SnowmanLogistics IPO fully subscribed on retail support

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the same article says:The reserved portion of retail investors subscribed 3.82 times followed by qualified institutional buyers with 0.03 times and non-institutional investors with 0.13 times

The people recommending for buying it are themselves not buying

1 Like

achal,

QIBs and HNIs generally invest on the last day of the issue as they dont want their money to be stuck for extra 2-3 days.

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SnowmanLogistics support **

says:The

yup…that might be the reason ringa…thanks for pointing that out :slight_smile:

Regards

Achal

On last day one can expect better subscription number from QIB, HNI.Ringa rightly said that last day is crucial for higher side allocation.

Speculation on IPO is a dangerous bet and mostly destructive in average case. It should not be looked for easy money like listing day gain. However it depends on case to case. Snowman looks interesting bet for +1 year investment.

Kunal

Disc : Subscribed.

Last updated on 28 Aug 2014 | 12:48 PM

Category No of share bids No of Times
Qualified Institutional Buyers (QIBs) 33269400 1.5088
Non Institutional Investors 51766800 8.2170
Retail Individual Investors (RIIs) 74342700 17.7654
Employee Reserved 0 0
Total 159650700 4.9048


Kunal

Last hour rush made IPO subscribed by almost 28 times overall

QIB = 10 times
NII = 93 times !!
Retail = 26 times

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SnowmanLogistics support **

says:The

Right…good interest from QIB and NII investors…

there must be something in IPO which i am not able to see… :slight_smile:

rest aside…i am happy not subscribing to it as per my thesis…and would look to take position if it gives me the desired price in future :slight_smile:

I applied for 4200 shares at Rs. 47 = 197400

Today after listing I find that no shares were alloted to me. Does anybody have similar experiences?

There is serious questions on changed allotment process by SEBI.

I asked to almost 15-20 guys and nobody got single share.

However you can think in terms of probability here.

IPO was subscribed roughly 60 times so only 1 out of 60 subscribers will get benefit.

Kunal