A niche play within logistics, BUY Snowman Logistics, Target Rs 120/-

Logistics as a sector is gaining prominence in the Indian space – we have seen rapid growth in the sector.   I believe that as we move increasingly towards an e-commerce platform the existing facilities will fall woefully short.


The list of items that will get added to the list of goods to be transported -perishables, non-perishables, luxury and fashion items – is endless and the demand is only likely to go up. And as this demand goes up various differentiators will come into play. So what we have is a market who’s size and scope are both on the rise!


One stock that I want to highlight within that space which has a niche kind of a market and which will grow robustly over the next couple of years is Snowman Logistics. Ltd (SLL).


SLL promoted by Gateway Distriparks Ltd, a leading supply chain logistics company, is at present a mid-sized player with a market cap of ~Rs 1650 crore. The company operates primarily in warehousing and transportation of both Temperature Controlled Services (TCS) and Ambient Services.


Under TCS the company offers cold storage warehouses and reefer transportation services to clients who operate in niche businesses including Dairy, Meat & Poultry, Sea Food, Fruits and Vegetables, Healthcare and Pharmaceuticals and Quick Service Restaurants (QSR).


The companies business model currently divides customers into Dedicated Customers who pay a fixed charge irrespective of whether they use the allotted space, these tend to be the large clients, then come the guaranteed space customers who have assured space but SLL is free to sell the space to others if the client does not use it. Last come the Pay-and-park who pay as they use, these tend to be the small ticket clients.


Investment Rationale:


The company has warehouses at 23 locations across 14 areas. It operates 370 reefer vehicles of which 63 are owned. SLL has a capacity of 85000 pallets at its warehouses. The management has indicated that the company added more than 150 refrigeration trucks and that the pallets capacity will rise to 100,000 pallets and then to 115,000 by March.


Typically a couple of quarters are required to get the optimum utilization of over 95%.


SLL has signed a contract with a food service company, Compass wherein it will do the vendor consolidation and the warehousing. Also value added services such as pre-cut vegetable and a supply of ready-made sandwiches to coffee shops is on the anvil.


The company is also focusing on the pharmaceutical sector where a warehouse has been opened in Mumbai this quarter with six varying temperature zones and with all the possible certifications for the pharma industry.


Currently organized players like Snowman Logistics Limited have less than 10% share combined in cold chain industry which is largely dominated by Government agencies and unorganized players.  But with their differentiated approach and rapid expansion SLL’s reach, market share and volumes all improve.


Allowing for a couple of quarters for the utilization levels to peak and adjustment for seasonality which is still to be completely understood, this stock can be bought with a 12 month view. Looking at a FY17E EPS of Rs 3 and giving it a small premium in PE the stock can be bought with a target of Rs 120/-



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