Saturday, September 13, 2014

Cool growth

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The recent IPO of Snowman Logistics, at an issue price of 47,  was oversubscribed nearly 41 times by retail investors and listed at a huge premium of 68% today. Considering the over-subscription, very few people who would have applied even for more than 1000 shares would have received a few shares.  The response therefore is not really surprising. Snowman is promoted by a major logistics player, Gateway Distriparks. This is another promising company considering that the state of logistics infrastructure in India currently.  You just have to look at the valuations CONCOR (Container Corp) gets,  and that too with the govt. running it.
Other major shareholders of Snowman are Mitsubishi Corporation (9.4 %), Mitsubishi Logistics Corporation (2.18 %) International Finance Corporation (9.3 %), Norwest Venture Partners VII-A Mauritius (10.3 %).

Snowman is the largest cold chain solutions provider (also referred as an integrated temperature-controlled logistics services provider), currently in India. The company, which operates 23 temperature-controlled warehouses across 14 locations in India (including Kolkata, Mumbai, Delhi, Chennai and Bengaluru), proposes to set up another such 6 and 2 ambient warehouses at 6 cities.
It has a pan-India presence with warehousing capacity of 58,543 pallets and 3,000 ambient pallets, which is expected to increase to 85,000 pellets in current financial year (FY15) and further to 1 lakh pellets by FY16 (all this info is from their IPO prospectus). Revenue and profit growth of the company in last 4 financial years was very strong, up 40-50 % on compounded annual growth rate (CAGR) basis. Total income from operations and reported profit after tax in FY14 grew by 35 % to Rs. 153.41 crore and 18 % to Rs 22.48 crore while operating profit margin (OPM) expanded to 24.7% from 22.4 % year-on-year.

Even though it has listed at a huge premium, it still makes sense to buy it if u can get it in the next few days (once it comes out of circuit and stabilizes). The reasons are not too far to see:
  1.  It is the only listed company in this space and hence would continue to command a substantial premium over similar companies (though there isn’t one in the same space, it would be compared with other logistics providers such as CONCOR, Sical, Gateway Distriparks - its promoter, etc. )
  2.  GDL is an established player in the logistics business. Its experience and expertise in the logistic sector has instilled confidence in SLL’s customers, who prefer dependable and established service providers. Further, SLL  can leverage its corporate, institutional and banking relationships for its business operations.
  3.  Its big expansion plan (of raising capacity to 1 lakh pallets by next financial year) is expected to boost the operating performance of the company over the next two years.
  4. Strong and credible foreign shareholders such as Mitsubishi, IFC, and established PE such as Norwest.

Given all the above, it would be a good idea to keep an eye on this, and buy it when it stabilizes after the pent-up demand is done.

Also, as a proxy, get into GDL. It is equally promising and also holds 40% in Snowman. So u can ride bith the growth stories.