Snowman Logistics Limited

Retail Research Sector: IPO Note View: Subscribe 22 August, 2014 Price Band (`): 44-47 Snowman Logistics Limited Company Overview Headquartered in Bengaluru, Snowman logistics Limited is a leading integrated temperature control logistics provider, the Company apart from providing temperature controlled services and ambient distribution has recently entered into ambient warehousing business segment. The company started its business as a trader of frozen marine products over four locations but later expanded its operations across various geographies in India. Currently the Company has 23 temperature controlled warehouses located in 14 different locations. Key Highlights The Company is one of the largest integrated temperature controlled logistics provider with 23 warehousing facilities across 14 different locations. The warehousing facilities provide complete range of spectrum of temperature range from ambient to frozen. i.e. (+20 to -25 degree centigrade) The Company follows asset light model as out of 370 fleets which it operates only 63 are owned and remaining are leased. While more than 60% of the land used for warehousing is leased for a period of about 20 years. The Company uses state of the art facilities in its warehouses and most of the equipments are bought from overseas having latest technology. All the fleets are enabled with GPRS system which gives exact information about the movement of materials that helps in better inventory management and real time temperature control. The Company's revenues have grown at a CAGR of about 45% to Rs 153.4 Cr in FY14 from Rs 34.5 Cr in 2010. The net profit of the Company stands at Rs 23.2 Cr in FY14 and has shown a CAGR growth of 54.7% since 2010. ISSUE DETAILS: Date of Opening 26th August 2014 Date of Closing 28th August 2014 Price Band Rs 44-47 Lot Size 300 Shares Bid Lot Maximum bid: 14 lots @ Rs 47 Issue Size @ Rs 44-47 Rs 184.8-197.4 Cr No. of Share Offered 42,000,000 Face Value Rs. 10 BRLM Registrar Post Issue Share Capital Credit Rating OBJECTS OF ISSUE Description SHAREHOLDING PATTERN HDFC Bank Link Intime India Private Ltd Rs. 165.83 Crore CRISIL 'IPO Grade 4/5' (Above average fundamentals) (Rs. Cr.) To set up new temperature controlled and ambient warehouses 128.28 Long term working capital 8.47 General corporate purposes [ ] Total [ ] Pre Issue No. of Shares % Promoter & Promoter Group 59,854,119 48.33 Institutions 15,427,500 12.46 No Institutions 48,554,238 39.21 Public - - Total 123,835,857 100.00 Post Issue No. of Shares % Promoter & Promoter Group 59,854,119 36.09 Institutions 15,427,500 9.30 Non Institutions 48,554,238 29.28 Public 42,000,000 25.33 Total 165,835,857 100.00 Source: RHP, SSL Research For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. Regd. Office: SBICAP Securities Limited, 191, Maker Towers 'F', Cuffe Parade, Mumbai 400 005. For the list of our branches refer to the website: www.sbismart.com

Investment Rationale Pan- India presence in temperature controlled logistics services The Company is one of the largest integrated temperature controlled logistics services provider and has 23 such warehouses spread across 14 locations with a capability to serve clients on pan India basis. The warehouses are strategically set up near areas having large potential for sourcing and consumption. The company operates 226 primary transport vehicles and has ability to cover 242 cities and towns. The company also operates in secondary distributions segment and provides services to QSRs, retail outlets, hotels etc. Technological expertise and state of the art facilities The Company has state of the art facilities in its warehouses and its infrastructure consist of advance equipment handling and racking system. The company uses real time data logging system which enables it to monitor temperature variations in products. All the trucks are equipped with GPS and GPRS systems including other few vehicles which have advanced geofencing technology. This enables the company to monitor its vehicles on real time basis and helps in maintaining efficient inventory management. Established Client base The company caters to large corporate across various industry sectors such as dairy, ice-creams, chocolates, and poultry and meat, which avail of temperature controlled logistic services. Some of the prominent customers are Hindustan Unilever Limited, Baskin Robbins, Graviss Foods Private Limited, Novozymes South Asia Private Limited, McCain Foods India Private Limited, etc. Most of the large customers have remained unchanged due to high quality services and top 20 clients have contributed to around 43% of the total revenues. Capability to captivate competing brands One of the key factors of success in the temperature controlled logistics business in India is brand neutrality i.e. catering to customers who compete with each other in their respective business segments. Over the years, the company has warehoused and distributed various products belonging to entities that are business competitors. In India's extremely competitive FMCG segment, the ability to rely on the service provider is critical. The inventory and the specific products managed are proprietary to each customer and disclosure of these details could have a significant impact on the performance of the product. Strong financials with high growth The Company's revenues have grown at a CAGR of about 45% to Rs 153.4 Cr in FY14 from Rs 34.5 Cr in 2010, while EBIDTA growth for the company exceeds the revenue growth and stands at CAGR of 49% from FY10 to FY14. The net profit of the Company stands at Rs 23.2 Cr in FY14 and has shown a CAGR growth of 54% since 2010. On the margin front EBIDTA margin has improved to 24.7% in FY14 from 21.4% in FY10 while PAT margin has improved from 11.7% in FY10 to 15.1% in FY14. For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. Source: RHP SBICAP Securities Limited 22 August, 2014 2

Growth Strategies High industry growth to keep the momentum going The size of the Indian temperature controlled logistics industry estimated to be around 12000 to 15000 Cr, at present, is expected to grow at 15%-20% per annum over the next 5 years with the organized market growing at the higher end of the range. The Company as one of the leading temperature controlled logistics service providers is strategically placed to benefit from the expected growth in the industry. Further, the Indian retail industry is expected to increase from an estimated USD 520 billion in 2012 to USD 750-850 billion by 2015. The food and grocery industry constituting 60% is the largest component of the retail industry. The Company proposes to increase warehousing capacity and distribution network to enable to meet the growing demands of the market. To augment market share by expanding into Tier 2 and Tier 3 cities At present, it is estimated that over 90% of the temperature controlled logistics warehousing and around 80% of temperature controlled distribution are catered to by regional and / or unorganised operators who have neither the requisite facilities nor the technical skills to be able to offer complete logistics solutions. The Company's ability to handle temperature sensitive products, technical skills and adherence to food safety standards will enable it to penetrate markets catered to by regional and unorganized operators. Over the last decade the demand for quality food products has increased and consumer spending in Tier II and Tier III cities has been steadily on the rise, and this trend is expected to continue. Expanding operations into such cities will widen the reach and attract potential customers who are either operating in nascent markets. Increasing revenue share from value added services The Company proposes to increase revenues from existing value added services (VAS) such as kitting, labeling and sorting. In Fiscal 2014, VAS contributed 1.05% and 5.20% to revenue and profits respectively. The Company plans to set-up new temperature controlled warehouses which, when will increase the available floor space significantly which in turn will boost the ability to provide VAS to customers. The Company also proposes to provide additional VAS in the fruit and vegetable segment such as pre-cooling, ripening etc. Risk factors Top 20 clients contribute around 40% of the total revenue; hence even if few of them are not retained it could impact the financial performance of the company. The Company operates large number of facilities on leased land, if the company is not able to renew or make new agreements on favorable terms it could impact its business. Temperature controlled distribution is reliant on third party service providers for reefer vehicles, any failure or delay in this assistance could impact the reputation and business prospects. SBICAP Securities Limited 22 August, 2014 3

Financials and Valuation Snap Shot: SNOWMAN LOGISTICS LIMITED Pre Issue Post Issue (Rs. in Cr.) FY14 FY14 Price Band Particulars 44 47 Net Sales 153.40 153.40 153.40 Total Income 155.23 155.23 155.23 EBIDTA 38.01 38.01 38.01 PAT 23.23 23.23 23.23 Equity Share Capital 124.11 165.84 165.84 No of Equity Shares 12.41 16.58 16.58 Face Value 10.00 10.00 10.00 EPS 1.87 1.40 1.40 CMP 47.00 44.00 47.00 Cash and Bank 16.09 16.09 16.09 Debt 130.65 130.65 130.65 Market Cap 583.30 729.68 779.43 BV per share (Rs) 17.83 15.86 15.86 PE(x) 25.12 31.42 33.56 P/BV (x) 2.64 2.77 2.96 Enterprise Value 697.85 844.23 893.98 Mcap/Sales (x) 3.80 4.76 5.08 EV/Sales (x) 4.55 5.50 5.83 EV/EBIDTA (x) 18.36 22.21 23.52 EBITDA Margins (%) 24.78 24.78 24.78 Net Margins (%) 15.14 15.14 15.14 Relative Valuation: Relative valuation for 'Snowman logistics limited' cannot be done as we feel that no other company seems to have similar or comparable business model. Recommendation: Snowman Logistics Ltd is valued at 31.42x and 33.56x of its FY14 earning on post issue lower and upper price band respectively whereas on P/BV the same is available at 2.77x and 2.96x on lower and upper price band respectively. The company has a very niche presence in temperature control business comprising of both warehouse and transportation where the operating margin is nearly 25 percent. we recommend the investors to SUBSCRIBE the issue at Cut-Off price. For complete information and a complete list of the risk factors, please refer the Red Herring Prospectus. SBICAP Securities Limited 22 August, 2014 4

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