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Snowman Logistics, the cold chain subsidiary of listed parent Gateway Distriparks and country's largest player in the segment, is expanding capacity of its temperature controlled and ambient warehouses. The company had a capacity of 61,543 pallets or storage units (includes 3,000 normal temperature pallets) as of FY14 and this is sought to be increased to 90,000 pallets by the end of FY15. Each pallet has the capacity to store a tonne of merchandise. The company is expanding its capacities to cater to the fast-growing cold chain sector, estimated at Rs 15,000 crore, expected to grow annually at 16 per cent between FY14 and FY16.
Given the fast-growing processed food sector, the demand for off-season fruits and vegetables and increase of quick service and other restaurant formats, the cold chain sector is expected to experience rapid growth. The products vary from ice creams and chocolates to industrial products such as X-rays and films.
The company's strength lies in temperature-controlled warehouses (23) across 14 locations. This is unmatched in the organised space. This is a major differentiator for the company as compared to competition (90 per cent are unorganised/regional players), as large companies seeking to roll out their services across the country as well as export and import traders prefer an integrated logistics service provider (like Snowman) with an enterprise resource planning-driven back-end supply chain system in place. While the cold chain business is not high-tech, Snowman, given its first-mover advantage and established infrastructure, has been able to use these strengths to attract Hindustan Unilever, Baskin Robbins, Ferrero Rocher and McCain. In addition to the storage, the company is looking at offering value-added services by packaging/labelling products and offering back-end support. The company proposes to enter cut fruit and vegetable segments as an additional service to its retail clients. These services entail marginal costs but are high-margin services and the current expansion will give the company additional space to offer this service. The other area of operation is the transportation segment whereby Snowman, with its fleet of 370 vehicles (mostly refrigerated), transports and distributes products within and between cities. The company has a large part of its vehicle fleet and warehouse land on a leased basis. While it has helped expand fast with low capital, it has also helped margins.
To fund its expansion, the company plans to raise Rs 184- 197 crore and will be offering 25 per cent of its post-issue capital in the Initial Public Offering (IPO). The retail portion is, however, only 10 per cent, given IPO rules on pre-tax profits in the preceding years. About 75 per cent is for qualified institutional bodies and 15 per cent for non-institutional investors. Given the small portion reserved for the retail investors and the market sentiment, the retail portion could see an oversubscription.
While there is little doubt about the prospects for Snowman, given the growth metrics of this nascent sector and the potential, the valuation the company is asking is on the steeper side. While the lack of such options in the market could mean higher institutional demand after listing, at the lower end of the price band of Rs 44, the stock is valued at 23 times its FY16 estimates. The company should have left something for the investors. Investors with a long-term horizon can look at the issue.
