Promoter-companyGateway Distriparks’ `investor return’ exudes optimism though individual promoter’s CBI case raises perception issues.
Gateway Distriparks, though a year younger than its 54% subsidiary Snowman Logistics, priced its IPO at Rs 72 in March 2005. In nine and a half years Gateway’s IPO has fetched a cumulative dividend of over Rs 59 and a capital appreciation of about Rs 310 which yields an annual return of more than 46%! Snowman, whose contribution was about 16% to Gateway’s consolidated working in fiscal 2014, is asking for a market cap equivalent to 26-28% of Gateway’s.
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OFFER AT A GLANCE |
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Name |
Snowman Logistics Ltd |
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Public Offer |
Fresh issue of 4.2 crore shares of Rs 10 |
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Offer % on Total Equity |
25.23% on Rs 166.44 cr |
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Post-IPO Promoter Stake |
40.17% |
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Offer Price |
Between Rs 44 and Rs 47 |
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Offer Amount |
Between Rs 166.75 cr and Rs 181.25 cr |
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Application Quantity |
300 & Multiples of 300 |
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Bid/Offer Opens |
August 26, 2013 |
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Bid/Offer Closes |
August 28, 2013 |
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Listing |
BSE and NSE |
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Rated By |
CRISIL |
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Rating |
4 out of 5 |
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Book Running Lead Manager |
HDFC Bank |
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Registrars |
Link Intime |
The IPO
The present offer is a fresh issue of 4.2 cr equity shares of Rs 10 each made through book building route with a price band between Rs 44 and Rs 47. The issue constitutes 25.23% of the fully diluted post-IPO capital of the company. Investors should apply for a minimum of 300 shares and multiples of 300 thereafter. HDFC Bank is appointed as book running lead manager with HDFC Securities as syndicate member. According to the offer document, underwriting agreement amongst the issuer, book running lead manager and the syndicate member would be entered into on or after the pricing date.
IPO Object
The main object of Snowman’s IPO is to finance the company’s new warehouses at six different cities. Snowman is reportedly setting up 6 temperature controlled warehouses at Taloja (near Mumbai), Cuttack (near Bhubaneswar), Pune, Mevalurkuppam-I & II (near Chennai) and Pune, besides two ambient warehouses at Pune and Surat. The eight warehouses are estimated to cost over Rs 140 cr and the long term working capital need is put at Rs 16.43 cr. Nevertheless, neither the project is appraised by any external agency nor it is funded by any institution. The entire project cost is to be sourced from the IPO proceeds.
Grading
CRISIL Research has assigned a grade of ‘4/5’ (pronounced ‘four on five’) to the proposed IPO of Snowman. The grade indicates that the fundamentals of the IPO are above average relative to the other listed Indian equities. However, CRISIL IPO Grading does not take into account the issue price or future market price.
The assigned grade only reflects Snowman’s strong position as a leading domestic integrated cold chain company and good long-term prospects for the industry. CRISIL Research expects the cold chain industry to grow at a healthy pace of 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.
Background
Though the 1994-registered Gateway Distriparks Ltd (GDL) is claimed to be the current promoter of Snowman, the so called subsidiary was actually incorporated a year earlier than the parent. Snowman was originally floated by Amalgam Foods Ltd in 1993 as Snowman Frozen Foods Ltd. In 1997, erstwhile Brook Bond India, (now part of Hindustan Unilever) 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 Delhi-based newsprint trader Prem Kishan Gupta-controlled GDL became the largest shareholder of Snowman by acquiring 33.34% stake and revamped the company’s management structure. In 2010, IFC, Washington 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 Norwest Venture Partners (NVP), Mauritius bought 14.28%.
Currently, the promoter company, GDL, is holding 54.04% of Snowman’s present equity of Rs 124.44 cr. Other major shareholders are: NVP (13.78%), Mitsubishi Corporation (12.57%), IFC (12.4%), Mitsubishi Logistics Corporation (2.92%), Laguna International Pte Ltd (1.57%), Prem Kishan Gupta (0.35%) and GDL’s chairman Gopinath Pillai (0.35%).
No doubt, GDL as a promoter brings in experience in the logistics industry. They claim that GDL’s chairman, Pillai, was instrumental in completely revamping and restructuring Snowman’s management in 2007, when GDL became the majority shareholder.
Business profile
Snowman 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 company’s presence in 13 locations allows it to offer services to clients across India.
At present, Snowman reportedly has 21 warehouses across 13 locations in India with a capacity of 46,751 pallets and a fleet of 238 reefer vehicles (175 leased and 63 owned). 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 company also offers value-added services such as labeling, grading, packaging and inventory management to some of its clients.
Snowman offers cold chain logistic solutions for diverse industries such as seafood, poultry products, fruits & 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. The strong and diversified customer base also helps the company in running at high utilization throughout the year.
Financial Performance
Snowman’s revenue grew at a CAGR of 43%, from Rs 36.90 cr in FY10 to 155.23 cr in FY14, driven by capacity expansion, broadening of end-product offering and increase in the client base. The company’s EBITDA margin too has improved from 15.7% in FY10 to 24.8% in FY14 due to increase in utilisation and improvement in per pallet realisation. Consequently, EBITDA grew at a CAGR of 51% from Rs 7.77 cr in FY10 to Rs 39.84 cr in FY14. Net Profit has grown at a CAGR of 53% from Rs 4.13 cr in FY10 to Rs 22.48 cr in FY14.
Business Prospects
As regards Snowman’s future, cold chain industry seems to have secured prospects driven by growth in end-user industries and organized retail. More over, the Quick Service Restaurant (QSR) industry is projected to grow at a healthy CAGR of 30% in the next couple of years. Proliferation of multinational QSR chains in India should create demand for pan-India cold chain logistics players. Increase in penetration of organized retail vis-à-vis the under-developed cold chain infrastructure thus provides an opportunity for cold chain service providers. Further, the current conducive government policies towards the cold chain infrastructure augur well for the industry as a whole.
Promoter’s Track
In March 2005, GDL offered public shares at Rs 72 and in August 2007 the company rewarded the shareholders with 1 for 4 bonus shares thereby bringing down the investment cost to less than Rs 58. GDL has an impressive record of liberal dividend distribution through regular interims. In all, the company made 25 dividend-payouts effectively adding up to over Rs 59 per share. In other words, in nine and a half years, an investment of Rs 72 has fetched a return of about Rs 314 (46.2% annualized). At present GDL is quoting around Rs 255, which could be attributed partly to the current market boom and largely to the subsidiary’s IPO. It is worth noting that GDL fell to a low of Rs 42.50 in March 2009 and it was available at less than Rs 125 early this year.
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GATEWAY DISTRIPARKS’ INVESTOR RETURN |
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FISCAL YEAR |
RETURN (%) |
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2006 |
110.4 |
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2007 |
-34.1 |
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2008 |
-22.2 |
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2009 |
-41.5 |
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2010 |
133.5 |
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2011 |
0.6 |
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2012 |
32.1 |
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2013 |
-11.6 |
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2014 |
39.0 |
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2015 |
143.4 |
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Cumulative Return per annum |
46.2 |
Valuation & Perception
The Government’s recent sops to the Logistics industry have generated a lot of investor interest in Logistic players which is amply demonstrated by the market discounting of the shares. While companies like Allcargo Logistics and Gateway Distriparks have put up consistently good performance in recent times, mega player like Arshiya International has failed miserably.
Snowman’s ‘parent company’, GDL, reported a consolidated EPS of 12.51 for the fiscal 2014 which is discounted more than 20 times. GDL’s market cap is put at Rs 2770 cr. In fiscal 2014, Snowman contributed about 15% of GDL’s consolidated revenue and 16.5% of net profit. By asking for a price of Rs 44-47, Snowman is aiming to carve out 26 to 28% of GDL’s market cap.
No doubt, GDL has given impressive returns to its investors which exude optimism for the prospective investors of Snowman. While GDL’s track record may reassure the investors in Snowman, one should also not forget the fact that, despite as many as 25 dividend pay-outs in nine and a half years besides a small 1:4 bonus, GDL was quoted below its investment value in the year 2009. In fact, GDL fetched negative returns Y-o-Y basis in four out of nine years.
An impression is being created that GDL and Snowman will immensely benefit from the expertise of their common chairman, Gopinath Pillai, a Singapore national. While the Gateway group has ably been steered by its non-resident chairman, the group is financially controlled by the Delhi-based businessman, Prem Kishan Gupta, whose connection with a 1998-CBI case casts a shadow on the Gateway group image.
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LOGISTICS INDUSTRY DISCOUNTING |
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STANDALONE |
MC |
EQ |
REVENUE |
P/E |
P/R |
OPM |
PRICE |
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Container Corporn |
26,249 |
194.97 |
4,984 |
26.5 |
5.3 |
22.1 |
1,346.30 |
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Blue Dart Express |
10,566 |
23.73 |
1,933 |
84.9 |
5.5 |
8.8 |
4,452.60 |
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Allcargo Logistics |
3,076 |
25.21 |
961 |
60.3 |
3.2 |
18.0 |
244.05 |
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Gateway Distriparks |
2,770 |
108.61 |
201 |
74.8 |
13.8 |
36.4 |
255.05 |
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Transport Corp |
1,510 |
14.59 |
2,027 |
24.0 |
0.7 |
7.4 |
207.05 |
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Gati |
1,279 |
17.45 |
309 |
41.5 |
4.1 |
0.2 |
146.60 |
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Snowman (Hi-band) |
782 |
166.44 |
155 |
26.0 |
3.8 |
24.8 |
47.00 |
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Snowman (Low-band) |
732 |
166.44 |
155 |
24.4 |
3.5 |
24.8 |
44.00 |
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Gateway Distri (Consoli) |
2,770 |
108.61 |
1,030 |
20.4 |
2.7 |
25.4 |
255.05 |
Lead Managers’ Track
Snowman has hired HDFC Bank as its sole book-running lead manager. The investment banker has associated with just two public issues in last three years. The performance of these two IPOs is far from impressive.
Muthoot Finance, which was offered at a price of Rs 175 in April 2011, got listed slightly above the issue price. It scaled a peak of Rs 246 in January 2013 fetching a gain of more than 40%. Nevertheless, post-issue, except for a brief period, the share was quoted below the offer price. It hit a bottom of Rs 75 in August 2013 inflicting a capital loss of 58%. Since April 2014, this scrip has been quoting above the offer price though the compounded gain for the IPO investor is a miniscule 2.5%.
Another high profile IPO, Bharti Infratel, was listed in December 2012 at much below its IPO price of Rs 220. In fact, Bharti Infratel languished below the offer price until a few months ago. This scrip has fetched positive returns only in last three months.
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TRACK RECORD OF HDFC BANK-ASSOCIATED IPOs |
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ISSUER NAME |
MUTHOOT FINANCE |
BHARTI INFRATEL |
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IPO DATE |
18-Apr-11 |
11-Dec-12 |
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IPO PRICE |
175 |
220 |
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HIGHEST PRICE |
246 |
276.85 |
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HIGHEST GAIN (%) |
40.6 |
25.8 |
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HIGH PRICE DATE |
3-Jan-13 |
5-Aug-2014 |
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LOWEST PRICE |
74 |
126 |
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CAPITAL LOSS (%) |
-57.9 |
-42.7 |
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LOW PRICE DATE |
6-Aug-13 |
28-Aug-13 |
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CURRENT PRICE |
190 |
259 |
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CURRENT GAIN (%) |
8.7 |
17.6 |
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COMPOUNDED p.a. % |
2.5 |
10.2 |