Stock Pick from Transportation - Logistics

LOW PRICE SCRIP

Here Is Why

• Considerable debt repayment to improve profitability.

• Higher institutional holding gives confidence about the company.

• Noteworthy capacity addition with ongoing capacity addition on track.

SNOWMAN LOGISTICS LTD: COOL INVESTMENT

The changing economic environment with improving macro economic data suggests a good increase in manufacturing activity across India. This very event is expected to spur the movement of goods across the country, thus benefiting companies engaged in logistics. Further, the implementation of Goods and Service Tax (GST) will also help transport companies to experience good business traction. Here’s such a transport company which has a niche business model in India’s logistics industry.

Snowman Logistics (SLL) operates temperature-controlled logistics services across India. It is one of the largest integrated service providers in this segment with its ability to service customers through a wide network of temperature-controlled warehouses. During FY15 the company added warehousing capacities at Mumbai, Chennai, Bhubaneswar, Pune, Surat and Vizag, taking the total installed capacity from 61,700 pallets at the start of the year to 85,500 pallets – a growth of 39 per cent. In the transportation division the fleet size increased from 370 to 501 trucks during the year, representing growth of 35 per cent.

[PAGE BREAK]

SLL has finalised its top three priorities, which are to increase capacity, optimize occupancies and improve yields. The company’s capacity expansion is on track. Construction work is already underway for new warehouses at Mumbai, Bangalore, Baramati and Cochin and these warehouses would be starting operations during the financial year 2016. While the company’s average capacity utilisation during FY15 was at 77 per cent, it stood at 92 per cent for March 2015.

On the financial front, SLL posted sales of Rs 203 crore in FY15 as compared to Rs 153 crore in FY14 with growth of 32 per cent. The EBITDA stood at Rs 47 crore in FY15 as against Rs 38 crore last year, indicating growth of 24 per cent. The net profit for FY15 stood at Rs 25 crore as against Rs 23 crore last year, registering 10 per cent yearly growth. Interestingly, the company managed to completely repay its short-term debt of Rs 40 crore and partially its long-term debt worth Rs 20 crore out of Rs 90 crore during the financial year 2015. Further, the company still has its IPO proceeds worth Rs 63 crore which was reflected in its cash and bank balance of Rs 84 crore as of March 31, 2015.

[PAGE BREAK]

Gateway Distriparks is SLL’s promoter and the largest shareholder with 40.41 per cent holding in the company. The company’s other major investors includes Mitsubishi Corporation (9.40 per cent), International Finance Corporation (9.27 per cent) and Norwest Venture Partners VII-A Mauritius (10.30 per cent). The present shareholding pattern gives us good confidence about the company. Its capacity expansion is also on track and considerable capacity addition in pallets and transpiration fleet provide good revenue visibility over the next one year.

Last year, SSL came out with an IPO which was over-subscribed and the stock touched a high of Rs 120 after listing on the bourses. However, the stock has corrected from its high and is now trading at almost 30 per cent discount. On the valuation front, the stock is trading at a PE multiple of 60x times its trailing earnings per share of Rs 1.39 per share. Considering SLL’s niche business segment and revenue visibility, we recommend this stock to our readers.