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Subscribe to Snowman Logistics IPO, recommends GEPL Capital

The stock enjoys premium in terms of valuation as it is the only player in the organised cold storage industry with huge business potential & its pan India presence. Hence GEPL Capital recommend to SUBSCRIBE to the IPO.

August 27, 2014 / 10:50 AM IST

GEPL Capital's IPO review for Snowman Logistics

Company Background

Snowman Logistics Limited is an integrated temperature controlled logistics services provider with 23 temperature controlled warehouses across 14 locations in India including Serampore (near Kolkata), Taloja (near Mumbai), Palwal (near Delhi), Mevalurkuppam (near Chennai) and Bengaluru capable of warehousing 58,543 pallets and 3,000 ambient pallets as of 31st March 2014. Snowman operates 370 reefer vehicles for primary and secondary transportation as of 31st March 2014. Gateway Distriparks Limited is their promoter and the largest shareholder. Snowman's investor profile also includes Mitsubishi Corporation, Mitsubishi Logistics Corporation, International Finance Corporation and Norwest Venture Partners VII-A Mauritius. The company is entering the primary market on August 26 with its initial public offering (IPO).

Rationale

The company is issuing 4.2 crore shares of face value Rs 10 each in the price band of Rs 44-47 per share. The objective of the IPO is to set up new temperature-controlled warehouses and for long term working capital. The company has fixed price band at Rs 44-47 per share for the issue, which will be opened till August 28. Retail investors can apply for up to 10 percent of the total issue size and 15 percent portion is reserved for non-institutional investors while the balance 75 percent is available for qualified institutional buyers. The company is increasing its warehousing capacity from 61,543 pellets in 2014 to 85,000 pellets in 2015 & further to 1,00,000 pellets in 2016 to meet the growing demand which would further boost its operating performance over the coming years. This would enable it to gain strong market share in the organised retail segment. Some of the company's prominent customers include HUL, Graviss Foods, Novozymes South Asia, McCain Foods, West Coast Fine Foods etc.

Diversified Product Mix

Snowman provides solution for the end-product industries like Ready to cook, Diary, Confectionaries & other niche segments which would help the company boost its demand for cold storage. Snowman has client base who are from diverse industries such as HUL, Mccain Foods, Novozymes South Asia, etc. With well diversified products mix & loyal clients base the Company is running throughout the year with highest capacity utilisation levels.

Leader in the organised market

The cold chain industry is expected to grow at around 16 percent. Cold chain industry has strong growth prospects which is mainly driven by growth in end-user industries and organised retail. The Indian cold chain is highly unorganised market with 90 percent market share and the rest is organised market with players like Snowman, Coldex, etc.

Focus on quality

Out of 23 temperature controlled warehouses 22 are ISO 22000 certified temperature controlled warehouses,18 are ISO 14001 certified temperature controlled warehouses and 23 are FSSA certified temperature controlled warehouses. Company adhere to strict guidelines while managing their inventory. The modern warehousing infrastructure comprises equipment handling and racking system as well as warehouse management systems and enterprise resource planning (ERP).

Strong promoter and investor base

Gateway Distriparks the Promoter, one of the largest Indian logistics service providers, operates, directly and through its subsidiaries, container freight stations located at major Indian ports and an inland container terminal. They believe that GDL's experience in the logistics sector, business relationships and financial stability instils confidence in their customers who prefer dependable and established service providers. Further, company leverage the corporate, institutional and banking relationships of GDL for their businesses operations. In addition, they believe that their association with GDL has also enabled them to attract strong financial investors such as IFC and NVP.

Valuation

At the upper price band of Rs 47 the company is trading at 35x its FY14 diluted EPS of Rs 1.35. The stock enjoys premium in terms of valuation as it is the only player in the organised cold storage industry with huge business potential & its pan India presence. Hence we recommend to subscribe to the IPO.

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

first published: Aug 27, 2014 10:50 am

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