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Grading summary
CRISIL Research has assigned a CRISIL IPO grade of 4/5 (pronounced four on five) to the proposed IPO of Snowman
Logistics Ltd (Snowman). This grade indicates that the fundamentals of the IPO are above average relative to the other
listed equity securities in India. However, this grade is not an opinion on whether the issue price is appropriate in relation
to the issue fundamentals. A CRISIL IPO Grading is not a recommendation to buy / sell or hold the securities to which it
relates (or any other securities); it does not comment on the issue price, future market price or suitability for a particular
investor.
The assigned grade reflects Snowmans strong position as a leading domestic integrated cold chain company and good
long-term prospects for the cold chain industry. CRISIL Research expects the cold chain industry to grow at a healthy
pace over the next few years (15-17% CAGR over FY13-16) driven by growing demand from end-product industries,
uneven regional distribution of cold storages in India and favourable government policies.
The grade is supported by Snowmans strong end-product portfolio, loyal clientele, professional management, seasoned
shareholders and modern cold chain infrastructure. The company has increased its pallet (a structural foundation of a unit
load for efficient handling and storage of products) capacity by five times in less than two years without any adverse
impact on its margins. It further plans to expand its capacity to 1,00,000 pallets by FY16.
The grade is constrained by risks related to Snowmans aggressive capacity expansion plans. The company might not be
able to generate sufficient business to run at a healthy utilsation with the increased capacity which can put pressure on its
profitability and growth.
Snowmans operating income grew at a CAGR of 48.5% from 346 mn in FY10 to 1,137mn in FY13 driven by capacity
expansion, broadening of the end-product portfolio and increase in the client base. EBITDA margin improved by 650 bps
from 16% in FY10 to 22.5% in FY13 due to increase in utilisation and improvement in per pallet realisation.
Consequently, EBITDA expanded at a CAGR of 66.3% from 56 mn in FY10 to 256 mn in FY13.
Adjusted PAT grew at a CAGR of 79.1% from 38.2 mn in FY10 to 219.4 mn in FY13 on the back of strong growth in
EBITDA and tax credit on account of Section 35AD of Income Tax Act 1961. Consequently, PAT margin improved from
11% in FY10 to 19.3% in FY13. The company has a net debt of 885 mn as of FY13.
CRISIL IPO Grading Rationale
Snowman was incorporated by Amalgam Foods Ltd in 1993 as Snowman Frozen Foods Ltd. In 1997, erstwhile Brook
Bond India, (now part of Hindustan Unilever Ltd) acquired 23% stake in the company. In 2001, Mitsubishi Corporation
and Mitsubishi Logistic Corporation jointly bought a majority stake in Snowman. Until then, the company was incurring
losses. In 2006, GDL became the largest shareholder in the company by acquiring 33.34% stake and revamped
Snowmans management structure. In 2010, IFC acquired 20% stake. In 2011, to reflect the change in positioning of the
company, the name of the company was changed to Snowman Logistics Ltd. In 2013, private equity firm NVP bought
14.28% stake in Snowman.
Snowman is engaged in cold chain warehousing and transport and value-added services for perishable goods. In its
transport business, the company offers services through primary and secondary transportation. Primary transportation is
an intercity service while secondary transportation is an intra-city service.
The companys cold chain business currently has 21 warehouses across 13 locations in India with a capacity of
46,751 pallets and a fleet of 238 reefer vehicles (reefers). Also, its ambient (normal temperature) warehousing business
has a capacity of 3,000 pallets. 11 of the 21 temperature controlled warehouses are on leased land. The companys
transport business has 175 leased reefers and 63 owned reefers. The company also offers value-added services such as
labeling, grading, packaging and inventory management to some of its clients.
The company provides services to various industries such as seafood, poultry, fruits and vegetables, dairy, ice-cream,
food processing, pharmaceuticals and some other niche segments. Its key clients are Hindustan Unilever Ltd (HUL),
Al-Karim Exports Private Limited, McCain Foods India Pvt. Ltd (McCain), Novozyme South Asia Pvt. Ltd (Novozyme),
Ferrero India Pvt. Ltd (Ferrero), Graviss Foods Private Limited etc.
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Table 2: Evolution
Year Event
1993 Snowman Frozen Foods was incorporated by Amalgam Foods Ltd
1997 Erstwhile Brook Bond India, (now part of HUL) Ltd acquired 23% stake
1998 Operations commenced in 10 cold chain warehouses across India
2001 Mitsubishi Corporation and Mitsubishi Logistics Corporation jointly acquired a majority stake
2004 Nichirei Logistics Group Inc. (Japan) bought a 15% stake
2006 GDL acquired 6,861,000 equity shares from Amalgam Foods Limiteds and by subscribing to fresh shares to become the largest
shareholder in the company
2008 Warehouses got ISO 22000 (Food Safety Policy) certification
2010 IFC acquired 20% stake
Certain cold chain warehouses received ISO 14001 (Environmental Safety Policy) certification
2011 New warehouses were set up in Mevalurkuppam, (near Chennai) and Bengaluru
2012 Taloja (near Mumbai) warehouse was set up
2013 NVP acquired 14.28% stake
New warehouses in Chennai, Bengaluru, Visakhapatnam, Taloja (near Mumbai), Mulshi (near Pune) and Palwal (near Delhi) were set
up
GDL acquired 5,142,500 shares in the company from IFC
GDL entered into a share purchase agreement with Nichirei Logistics Group Inc.
Source: DRHP
Source: DRHP
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CRISIL IPO Grading Rationale
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RESEARCH
A. Business Prospects
Cold chain industry has strong growth prospects driven by growth in end-user industries and organised
retail
CRISIL Research expects the 150 bn (FY13 estimate) cold chain industry to grow at a healthy 15-17% over the next
three years driven by growth in end-user industries and organised retail. Within the cold chain industry, warehousing
services (which constituted about half of Snowmans revenues in FY13) are expected to grow at a CAGR of 15-17% from
125 bn in FY13 to 218 bn in FY16.
Figure 1: Cold chain storage revenues to grow at a CAGR Figure 2: Cold chain storage volumes to grow at a CAGR
of 16% over FY13-16 of 9% over FY13-16
(. bn) (Mn Tonnes)
30
250
25
200
20
150
216 15
190 27
100 162 24
21 22
141 10 20
125 17 18
110
50 96
5
8 8.5 11 12 15 17.5 21
0 0
FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY10 FY11 FY12 FY13 FY14E FY15E FY16E
Transportation Warehousing Warehousing Volumes
The main growth drivers in the domestic cold chain industry are:
Proliferation of QSRs: The QSR (Quick Service Restaurant) industry is projected to grow at a healthy CAGR of 30%
over FY13-16 driven by factors such as favourable demographics, rise in disposable incomes and increase in
urbanisation. On the supply-side, the entry of international brands, expansion by the existing players and an improving
retail infrastructure are expected to ensure strong growth. This proliferation of multinational QSR chains in India should
create a demand for a pan-India cold chain logistics companies who can provide high quality services across India to the
QSR chains.
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CRISIL IPO Grading Rationale
70
60
50
40
70
30
55
20 43
34
25
10 20
15
-
FY10 FY11 FY12 FY13 FY14 FY15 FY16
Increase in penetration of organised retail: Although food and grocery collectively constitute 60% of overall retail, the
penetration of this group in organised retail is quite low (2.5%). Due to the perishable nature of food and grocery products
such as ice cream, butter and cheese, the biggest challenge for this group is the under-developed cold chain
infrastructure. This challenge creates an opportunity for cold chain service providers.
Skewed distribution of cold storage units in India: India has a very uneven distribution of cold storage units. For
instance, 44% of the cold storage in India is concentrated in Uttar Pradesh (Figure 4).This creates a demand for cold
chain services in areas with low density of cold storage units.
Bihar
5%
Andhra Pradesh UP
5% 44%
Gujrat
6%
Punjab
6%
West Bengal
19%
Increase in export demand for seafood: CRISIL Research expects the fisheries export industry to grow to US$5.19 bn
in 2015-16 at a three-year CAGR of 14% driven by increasing demand from key importing countries such as the US, the
EU, Japan, China and the Middle East.
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India is one of the largest producers of seafood in the world but 20-30% of annual seafood produce is wasted as its shelf
life is short. Although most of the seafood is caught in summer, there is a huge demand for seafood throughout the year.
For assured supply during the non-catch season, there is a need for cold storages to maintain quality and prevent
spoilage of seafood.
Emergence of niche segments that require cold chain services: There is an untapped demand for cold chain
services from niche segments such as pharmaceuticals, enzymes, reagents, films, etc. due to high temperature
sensitivity of the products and potential high loss in case of spoilage.
The industry is shifting towards high premium end-products and organised play
The cold chain industry is moving towards high premium end-products and the organised segment from the plain vanilla
storage of potatoes.
The cold chain industry in India is highly fragmented with the unorganised segment comprising an estimated 90% market
share. The unorganised sector consists mainly of low quality warehouses offering simple storage or standalone
transporters. Although there are many standalone transporters, most of the organised players have a limited number of
cold storage units. The main players in the organised sector are Snowman, RK Foodlands, Coldex, Devbhomi, Kausar
India, Fresh and Healthy Enterprises and Bulaki Deep Freeze.
There are almost 6,500 cold storages across the country, most of which are operated by small players with less than five
cold storage units. In terms of catering to end products, 74% of the cold storage facilities are used for potatoes. With
growing demand for multipurpose storage facilities, the share of potato storage, which is a low-margin business, is
declining.
Favourable government policies offer incentives such as viable gap funding, tax cuts, liberal FDI norms etc. to the cold
chain infrastructure companies to encourage them to invest heavily in the industry.
In FY12, the Government of India awarded infrastructure status to the cold chain industry in India to curb post-harvest
losses, increase realisations for farmers and lower price fluctuations in perishable commodities.
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CRISIL IPO Grading Rationale
Foreign investment norms 100% FDI norms & liberal ECB norms
Snowman - a complete cold chain provider with presence across value chain
Snowman is a leading integrated cold chain player in India with presence across the value chain of the industry. The
company offers high quality cold chain storage, distribution and value-added services. It has high-end equipment and
handling mechanism, and uninterrupted power and fuel supply. Further, the companys presence in 13 locations allows it
to offer services to clients across India.
Snowman charges its clients a premium based on high quality offering, pan India operations and presence across the
value chain.
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Caters to diverse end-product industries to counter demand volatility and realise growth potential
Snowman offers cold chain logistic solutions for diverse industries such as seafood, poultry products, fruits and
vegetables, dairy products, ice-cream, retail, pharmaceuticals and some other niche segments. Serving diverse end
products helps the company in countering demand volatility as most of the end products that require cold storage have
seasonal demand.
Snowman is also well placed to gain from the growth prospects in the end-product industry it serves.
Figure 5: Well-diversified product mix (FY13) Figure 6: Segmental revenue mix FY13
RTC Sea Food Consignment
QSR 9% 19% Transportation Agency
10% 52% 2%
Other
1%
Industrials
4%
Dairy
Products Confectionery Warehousing
Icecream Pharma 14% 46%
7% 11%
3%
Snowmans clients are from diverse industries such as FMCG, QSRs, poultry, seafood, dairy, food processing,
confectionaries and pharmaceutical. The strong and diversified customer base helps the company in running at high
utilisation throughout the year. Snowmans key clients are Hindustan Unilever Ltd (HUL), Al-Karim Exports Private Ltd,
McCain Foods India Pvt. Ltd (McCain), Novozyme South Asia Pvt. Ltd (Novozyme), Ferrero India Pvt. Ltd (Ferrero),
Graviss Foods Private Ltd etc.
The company has relatively low client concentration as its top 25 clients contribute ~40% to the companys total
revenues.
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CRISIL IPO Grading Rationale
Dedicated chamber: The entire chamber capacity is sold on a dedicated basis. Rent for the capacity is charged
irrespective of whether the client uses capacity or not.
Guaranteed space: A fixed number of pallets are guaranteed to the client, which can be used whenever required. If
the client is not using its capacity, Snowman can use this capacity for pay-and-park customers.
Pay and park: Under this model, clients pay for the capacity and store their products.
Snowman has been focusing on offering superior services to its clients compared with the unorganised players. It offers
value-added services (VAS) services including cleaning, grading, sorting, packaging and inventory management to its
clients.
Snowman uses very efficient modern warehousing infrastructure which includes real time data logging and enterprise
resource planning (ERP system) to monitor and track the quality and quantity of products stored and being transported.
Clients can themselves track and monitor the temperature of its products in storage and distribution.
Snowman uses Freon 404 as refrigerant, which though expensive is safer and better compared with ammonia used by
the unorganised players. Use of ammonia has regulatory repercussions as well.
Snowman also offers ultra freezing facility to its clients. It has installed a blast freezer which can be used to freeze
products to as low as -40 degree Celsius. Bacteria multiply fastest between +8C (46F) and +68C (154F). By reducing
the temperature of cooked food from +70C (158F) to +3C (37F) or below within 90 minutes, the food is rendered safe
for storage and future consumption.
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Key risks
Aggressive incremental capacity expansion
Snowman is aggressively expanding its capacity from 36,210 pallets in FY13 to 100,000 pallets in the next couple of
years. In case the company is unable to generate sufficient business, its utilisation could come under pressure,
subsequently putting pressure on profitability and growth.
Cost overruns and delay in building the new warehouses may hamper growth and put pressure on the companys
financials.
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CRISIL IPO Grading Rationale
B. Financial Performance
Snowmans operating income grew at a CAGR of 48.5% from 346 mn in FY10 to 1,137mn in FY13 driven by capacity
expansion, broadening of end product offering and increase in the client base. EBITDA margin improved by 650 bps from
16.0% in FY10 to 22.5% in FY13 due to increase in utilisation and improvement in per pallet realisation. Consequently,
EBITDA grew at a CAGR of 66.3% from 56 mn in FY10 to 256 mn in FY13.
Adjusted PAT grew at a CAGR of 79.1% from 38.2 mn in FY10 to 219.4 mn in FY13 on the back of strong growth in
EBITDA and tax credit on account of Section 35AD of Income Tax Act 1961. Consequently, PAT margin improved from
11% in FY10 to 19.3% in FY13.
Due to large capex of 1,153 mn in FY13, the company has a negative free cash flow. It has a net debt of 885 mn as of
FY13.
mn FY09 FY10 FY11 FY12 FY13
Operating income 316 346 452 614 1,137
EBITDA 27 56 91 130 256
EBITDA margin 8.4% 16.0% 20.0% 21.1% 22.5%
Adjusted PAT 9.6 38.2 62.7 34.3 219.4
Adj PAT Margin (%) 3.0% 11.0% 13.9% 5.6% 19.3%
Adj EPS () (0.1) (0.4) (0.6) (0.3) (2.1)
RoCE (%) (2.1) 2.3 5.0 6.7 9.9
RoE (%) 2.8 4.6 6.2 3.2 18.4
Actual o/s shares (mn) 82.3 102.9 102.9 102.9 102.9
Net debt/equity (x) (0.4) (0.5) (0.3) (0.1) 0.7
Net worth - - - - -
Cash flow from operations (65.7) 32.8 70.7 94.5 244.2
Source: DRHP
RoE rose sharply from 4.6% in FY10 to 18.4% in FY13. RoCE increased from 2.3% in FY10 to 9.9% in FY13.
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Financials
Income statement
( mn) FY09 FY10 FY11 FY12 FY13
Operating income 316 346 452 614 1,137
EBITDA 27 56 91 130 256
EBITDA margin 8.4% 16.0% 20.0% 21.1% 22.5%
Depreciation 34 36 40 59 91
EBIT (7) 19 50 71 165
Interest 0 0 0 0 23
Operating PBT (8) 19 50 70 142
Other income 16 18 23 20 3
Exceptional inc/(exp) 0 (8) 1 17 (15)
PBT 8 30 75 107 130
Tax provision (1) (0) 11 56 (74)
Minority interest - - - - -
PAT (Reported) 10 30 64 51 205
Less: Exceptionals 0 (8) 1 17 (15)
Adjusted PAT 10 38 63 34 219
Source: DRHP
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CRISIL IPO Grading Rationale
We believe that the company is led by an experienced and professional management. The management is headed by
Mr Ravi Kannan (CEO and whole-time director) who has 18 years of experience in the supply chain industry. The
management has been able to demonstrate strong understanding of the business and planning and execution
capabilities by increasing the capacity five times in less than two years without any detrimental effect on the realisation
and margins. Under the current management, the company has successfully increased its client base and strengthened
its offerings.
GDL as a promoter brings in experience in the logistics industry. GDLs chairman, Mr Pillai, was instrumental in
completely revamping and restructuring Snowmans management in 2007, when GDL became the majority shareholder.
IFC, a World Bank member, is another strong shareholder. It has 12.46% stake in Snowman. Since its investment in
2010, IFC has been very critical in bringing the best practices, quality assurance checks, increasing efficiency, setting out
specific environmental measures and giving direction to the recent capacity expansion plan. The company has obtained
many certifications under IFC guidance to improve the internal audit practices and monitoring to assure the quality of the
products stored and transported.
Snowmans board consists of eight directors, of whom four are independent directors. Two of the independent directors
are from the logistics industry and other two have experience in the financial industry. The diverse backgrounds help in
constructive contribution in the decision-making process during the board meetings.
We believe that board processes are in place. All the major decisions are discussed at the board meetings and the
independent directors receive the necessary documents in advance. The company currently has four committees (audit,
compensation, share allotment, transfer & investor grievances and IPO). The companys quality of disclosure can be
considered good judged by the level of information and details furnished in the DRHP, websites and other publicly
available data. Further, based on our interactions with the management, we believe that the management is transparent
and forthcoming with information.
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CRISIL IPO Grading Rationale
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