Snowman Logistics Ltd

NSE:SNOWMAN

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Snowman Logistics Limited Q2 FY '23 Earnings Conference Call. We have with us on this call, Mr. Ishaan Gupta, Director; Mr. Samvid Gupta, Director; Mr. Sunil Nair, CEO, Whole Time Director; Mr. Balakrishna N., Financial Controller; Mr. Kiran George, Company Secretary. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ishaan Gupta, Director, Snowman Logistics Limited. Thank you, and over to you, sir.

[Ishaan Gupta, executive]

Thank you. Good afternoon, ladies and gentlemen, and a warm welcome to our Q2 FY '23 Earnings Conference Call. I hope you all had the chance to peruse our financial statements and earnings presentation that are already made available on the exchanges and our website.

Before we start the Q&A, I would like to give you an overview of the company and some of our recent activities. Snowman is India's leading logistics service provider in the temperature controlled warehousing and distribution space. We have a large network of 41 warehouses spread across 17 cities, having a total capacity of 130,000 pallets. And currently, we are operating a fleet of over 500 refrigerated vehicles.

Apart from our regular warehousing and transportation activities, we are happy to announce the launch of our fifth party logistics services of 5PL services. We've become India's first coaching company to offer end-to-end solutions to our customers in this regard, ranging from procurement, sourcing, warehousing, distribution, inventory management, quality control and a host of other value-added services.

This is a natural shift for a company like ours in line with global practices in the industry, and it helps our customers with creating a more efficient supply chain so that they can focus on their core business. These services also helps increase customer stickiness and gives a rise in the revenue and profits for our company.

We started offering 5PL services only in the last quarter, and currently, our customers include IKEA, Baskin Robbins and Tim Hortons. We are very optimistic of increasing this line of business in the time to come.

Another significant inclusion to our infrastructure during the quarter is the addition of a warehouse in Hyderabad of 26,000 square feet with a pallet capacity of 1,200, having 6 [indiscernible]. We have been growing our presence in driver housing from meeting the requirements of our existing customers as well as new clients. And also, we are continuing with our dedicated warehousing, which we offer for e-commerce services -- e-commerce customers.

Going ahead, we plan to continue exploring expansion opportunities in all these areas, which includes temperature controlled warehousing, dry warehousing and the new distribution model. On the transportation side, while we have our own fleet, we are expanding rapidly through SnowLink, which is our tech platform for aggregating refrigerated fleet across the country.

So with that, we would like to open the Q&A session and feel free to ask us anything which you would like about any of those activities.

Operator, over to you.

[Operator]

[Operator Instructions] The first question is from the line of Sudhanshu from Arunova.

[Unknown Analyst]

So the company has started reporting a new site that is called trading and distribution. And from the first quarter that this is being reported, it's contributing 25% of the revenues. So I'd like to -- these revenues, what kind of business is it exactly...

[Operator]

Mr. Sudhanshu, your audio is breaking up.

[Unknown Analyst]

Sorry. So I was saying that the company has started reporting a new segment called trading and distribution. And from the first quarter of reporting, it's contributing 25% of the revenues. So could the management provide some clarity around the nature of these revenues. So what kind of business is it exactly? And how has it kind of scaled up so significantly from the first quarter itself?

[Sunil Nair, executive]

Yes, Sudhanshu, this is Sunil Nair. This is -- this trading and distribution business comes under our 5PL service offering, wherein -- and Ishaan mentioned, we do right from sourcing to distribution end-to-end solution, where we develop vendors. We do quality audits. We negotiate with them. We buy inventory from them and then we sell it to our potential customers. That is when we are approaching partner. In case of selling the things, we also provide sales support to the product if the customer wants to distribute any products -- selling products to their distribution. So in this, the inventory is held to our books. So it's typically a trading business, that's where the trading and distribution revenue has come, which includes our service income as well as the cost of goods with a distribution.

[Unknown Analyst]

Okay. And so what proportion of this revenue as a service income? And what proportion is the cost of goods that is being routed through the books?

[Sunil Nair, executive]

So the 10% of this is service income and 90% is cost of goods.

[Unknown Analyst]

90% is cost of goods. And I mean, trading is quite a risky and volatile business. So how do you take a call when you want to hold inventory or how you want to increase or decrease your inventory levels because that could also lead to trading profits or losses and that contributes more volatility in the earnings. So could you shed some light on that, please?

[Sunil Nair, executive]

So the arrangement is complete end-to-end from supplier to the customer. We have tied it to the agreement which clearly states that we will buy against the projections from the customers, and they will have to buy that much quantity against that projection. In case of overall city that we have today with these 3 customers, almost 50% of them are just in time. The day we buy the same day we sell as well. So yes, there is a risk associated with this, but we have covered that through various terms and conditions. And at the same time, we are doing business only where there is very less of seasonality or up and downs in the sales and requirement of our customers.

[Unknown Analyst]

Right. Okay. And what would be the kind of strategy to scale up and grow the trading and distribution business, who do you see as your competitors in this space?

[Sunil Nair, executive]

So for the type of service that we are offering, which includes typically the 5PL we're sourcing and vendor development services, there is no other 3PL or [indiscernible] company which is offering this service. So we don't find direct competition, but there are many distribution companies. So from the distribution point of the view, yes there is the competition. We have huge potential here. We take this as one of the -- maybe in a couple of years' time, they will be one of the biggest vertical for us -- segment for because today, the amount of book that we are distributing under 3PL agreement is close to INR 12,000 crores to INR 15,000 crores worth of material has moved. And our intent is to move these customers into a 5PL service offering.

[Unknown Analyst]

Okay. So -- but distribution seems like a completely new business vertical from cold chain warehousing, which has been Snowman's historical strength. So what is your competitive advantage in distribution?

[Sunil Nair, executive]

No. So if you see, we are doing the same thing. This 5PL also comes as an attractive business proposition because the warehousing and transportation is the base here, okay? So that additional services are just an extension of those 3PL activities that we have been doing. And we -- all these customers who are now onboarded are -- were our 3PL customer and they saw a better integration, and we're taking more responsibilities from their supply chain team and executing that is what the customer looks at it, and we are also looking at that, that from their supply chain spend, we get a larger pie of share.

So it is a win-win as we move forward vertical customers of same segments would be able to get a better pricing because of we doing consolidated buying for them. If there are 4 or 5 [indiscernible] customers onboarded, we can do a consolidated buying from various manufacturing companies and on the bulk quantity would always give us a better price, which is win-win for the manufacturer for us as the distribution company and as well as to the customers, so that aspect is taken care of.

[Unknown Analyst]

Okay. And you mentioned that the inventory is purchased on projections. And if those projections are not met, so do we still have to -- because we've bought the inventory, we would still have to end up holding it, right?

[Sunil Nair, executive]

Yes, we have to still hold it. The risk that in this business typically you face is the expiry, because most of it is cool, but that risk is with the customers because it is brought against the projection.

[Unknown Analyst]

But let's say that the projection is not met, then what happens to be goods do they -- would they have to be returned down on our books? Or what are the safety at in place that we have if the projections are not met?

[Sunil Nair, executive]

If the predictions are not met, the products have to be disposed off or the customer will send it on a promotion, all the -- either it's disposed off, returned to supplier or promotions with the offerings and all -- will all with the customers account.

[Unknown Analyst]

And then what would be the order pipeline for this segment trading and distribution? Are there any other contracts that are under negotiation?

[Sunil Nair, executive]

Yes, there are.

[Unknown Analyst]

Okay. And can we expect any announcements in the next few quarters? Or it's more long term?

[Sunil Nair, executive]

It depends on how fast the customer wants to fix. Typically, these are -- we have triggered usually people -- customers who like to change when the year and year beginning. So if it is a multinational company where the year begins on 1st Jan, then maybe we'll be able to have something from use in the coming quarters, if it is Indian company from 1st April there will be changeover. So it all depends on which will get closed and when.

[Unknown Analyst]

Okay. Right. And just one last question, probably. So you mentioned that you don't have competitors on the 5PL side, which is both -- which is all 3 warehousing, transportation and distribution, but you have a lot of competition on the distribution side. So probably, how do -- I mean, how do you kind of stand out from the companies on the food distribution side? What advantage do we have?

[Ishaan Gupta, executive]

Sudhanshu, Ishaan here. One major advantage which we have over the competition is that we are giving a bundle, like when we said our base is warehousing and transportation. So compared to a pure distributor or a pure cold chain supplier, we are able to offer all these services in a single platform. So apart from like you were mentioning, how soon do we plan to build this up further, apart from existing customers shifting the arrangements from 3PL to 5PL, there's a huge opportunity of new brands and new QSR specifically entering India.

One example is that out of the 3, we have started with IKEA, Baskin and Tim Hortons. Tim Horton is the recent brand from Canada, which has just entered India. And from the beginning, we have partnered with them and wherever they go, we will be growing along with them. They are just one company, and they have a very aggressive plan, so opening all over India. So like that, if any new chain wants to enter India, for example, the advantage that we'll have over a pure distributor, is that they will be speaking to us for cold storage anyway. So we can offer them the full package.

[Unknown Analyst]

Congratulations on these numbers. And it would be interesting to kind of see how the new segment plays out.

[Operator]

[Operator Instructions] The next question is from the line of Kushagra from Old Bridge Capital.

[Kushagra Bhattar, analyst]

Congrats on a good set of numbers. A few questions. So basically to understand this 5PL business more, can you help us picturize or probably take an example, for example, IKEA versus the traditional services of 3PL, what incrementally you would be doing for IKEA? And what commodity probably you would be doing it for them? So just to picture -- help picturize this.

[Sunil Nair, executive]

So Kushagra, what we do is typically a distribution company or a 3PL company would do the primary transportation, warehousing and the secondary transportation, these are the typical service offerings. What we do as a 5PL offering to them is, let's take an example of they need an ice cream cones. Now they would say that I want to sell ice cream in cones now, so can you help with buying ice cream cones. And then we go and find out ice cream cone manufacturers in the country. We do quality audit of their facilities to see that all food safety norms are followed. We take quotation and specification of the products. We select samples. We go and give it to the product development team of IKEA. They check the product. They identify 2 or 3 options. They give it back to us. We go back. We do the commercials with the manufacturers. And we do a recommendations to IKEA saying that, okay, these 3 we validated and from various assessment, technical assessment of the suppliers, their financial condition, their track record, everything put together, we recommend to buy it from this and this supplier.

Once that is identified and they approve it, then we buy that product and supply to IKEA under 2 arrangements. One, we have a service charge for doing the whole sorting and vendor development activity. Second, is we have distribution markup and margin on the full trading business. So this is [indiscernible].

[Kushagra Bhattar, analyst]

Got it. That is quite helpful. So just to understand the way you report right now, you said 10% is the services component 90%. And if I look at that 10%, which is actually your gross profit from that business. So basically, had you not reported the inventory or not taken the inventory on your books, probably the revenue, which you would have reported otherwise, would have been that gross profit, which is a service as a component, which is 10% of the goods, which you are mentioning, right?

[Sunil Nair, executive]

No, it won't be even 10% then because this 10% includes our service charges for resourcing and all, and also the trading margins. So it would be lesser than that if it is not 5PL service.

[Kushagra Bhattar, analyst]

Okay. Got it. So then -- I mean, if you can give some more color as to generally what are the broad trading margins? And then second, if I look only the gross profit of that and if I compare the EBIT portion of it, that comes out to be a significantly high margin business for you guys, this particular business. So though it looks a little bit margin dilutive because of the higher inventory which you're booking. But overall, it's probably adding you or giving you some more cash flows because of the value-added services which you guys are providing?

[Sunil Nair, executive]

Yes, you're absolutely right. So see, if you take a general distribution business where you do the affiliated services and primary transportation storage, secondary transportation in a mature phase, we will be 6% to 9% of our customers [indiscernible]. So we are taking that to 10%. So definitely, this is going to be the higher margin, higher cash flow business as we move forward as compared to our earlier business model.

Important is to understand that this is -- we are looking at it as an incremental opportunity from the infrastructure, which is already created. So instead of doing a business base debt related that margin, we have opportunity to have the same infrastructure used to create better revenue and better margin and that's the whole intent behind this distribution business model.

[Ishaan Gupta, executive]

Ishaan here. Just to add to that a little bit more from a strategic point of view rather than specifics. The reason -- one of the reasons why we've entered this business is not only for the additional revenue also increasing the throughput of the company. But more importantly, on absolute terms, like you said, EBITDA also our cash flow benefit from this. So as a percentage, it might look lower. It definitely will look lower. But as an absolute number, it's increasing.

At the same time, the customers are getting sticky. So once someone -- again, I'll take the example of, right now, the 3 customers that we have, any one of them if they want to migrate to someone else offering the same services, they have zero options available in India because we are giving them this whole package end-to-end.

Going ahead, apart from these specific customers' and requirements of sourcing, once we have a base of a few more customers, we will have negotiation power from the buying side also. So hypothetically speaking, say, tissue paper, for example. If a bunch of restaurants need tissue paper, and we are already doing storage and transportation for them. We can source tissue paper at a larger volume and then sell to each of our individual customers and increase our trading margins out there. So those kind of possibilities will come in. And over time, in the developed part of the world, this is the model that cold chain and food companies are operating in. So Snowman will transition from the warehousing and transportation company to a food services or a food distribution company in the time to come.

[Kushagra Bhattar, analyst]

Got it. Got it, Ishaan. That's quite an exhaustive answer. A few more questions. On your traditional, I mean, 3PL business which you're doing, so when you say you're expanding it asset-light, right, can you give some more color as to how you do it? I mean, is it largely on the leases, right? And going forward, if you can give some sense on the quantity of expansions from dry pallets and cold storage. So probably, right now, try would be around 20,000, 25,000 out of those to 130,000, but going forward, as you move towards 230,000 -- 250,000 pallets, what proportion you are seeing coming from the dry ones overall?

[Sunil Nair, executive]

Yes. So you're right, 3 years back, we had some strategies on going middle asset light, and we started with the transportation where we created moving platform, and we started doing -- perhaps today on an average is anywhere between 152 to 200 plus on a daily basis. Coming to warehousing, we started using dry warehouses. Wherever we have cold storage and we have same customer needing dry space, we started building next to our existing cold storage facilities, and that's where we started. And now we are also going into leasing larger independent dry warehouses and offering dry logistic service to food and near food segment. So yes, I don't know, dry capacity is around 18%. A year back, it was 15% [Technical Difficulty] capacity that we have. Does that answer your question?

[Kushagra Bhattar, analyst]

Yes, generally, you sort of go out and scout for independent warehouses and get them on lease, right?

[Sunil Nair, executive]

Yes. So, so far, we were doing on a back-to-back basis where we already have demand and hence we have to go for a dry space. Now we may also go for leasing the dry space and then at the same time looking for customers.

[Kushagra Bhattar, analyst]

Sure. Got it. There is significant expansion -- can you give some more color as to what sort of goods get stored. I mean, how different would this business be versus the cold storage, both in terms of your margins as well as the realizations, broad color will be helpful?

[Sunil Nair, executive]

So each warehouse would be different, but on a [indiscernible] basis, these are dry warehouse and without much modification and if I -- further needed to customers and start offering services. We get anywhere around 13% to 15% margin there. So that -- yes, so that's the -- that we have and the lease would typically be anywhere between 6 to 9 years lease, both ways. And there are other models where we have to put some infrastructure within the warehouse, where the racking and all those things are done. In that case, it works out to be around 20% to 22% EBITDA with [ PBT ] of around 10%.

[Kushagra Bhattar, analyst]

Sure. No, what I was trying to get from you is, I mean, given there would be some differences between the goods, which you will deal in the dry and the cold storage. If you can give a broad color as to what sort of goods get stored in the dry segment? And also, I mean cold storage, we totally understand the way you guys have differentiated in terms of quality, in terms of delivery and all those sort of things. But dry, there would already be a lot of inventory or a lot of capacities in the market. So I'm just trying to figure out how you guys sort of differentiate in that particular segment?

[Sunil Nair, executive]

Okay. So one important thing that we should keep in mind is we are still focusing on food as a category. And our differentiation primarily comes from ensuring the FSSAI compliance on the ground, where there are a lot of complications right from people health check up every 6 months to the upkeep of the warehouse, we track documentation, traceability records and all those things. So that is our differentiation in the market. And typically, the products are, you can say, FMCG products chemical products are also something which we store. So the ones we don't need temperature control but need all other care from the compliance point of view is what we are looking at. So we don't want to do a generic warehousing, which other recent services offer. We want to do where there is some complexity in terms of compliance documentation in [indiscernible] that spent due to our experience in cold chain and food products.

[Kushagra Bhattar, analyst]

Got it. Sure. Just one last question from my side. If you can give broadly what would be the fixed cost in the business, let's say, considering the power -- the electricity, the manpower at this point of time? And once you change and shift more towards asset like the rentals, which you would be signing would also be a component of your fixed cost. So just broadly, if you can give some numbers around that?

[Sunil Nair, executive]

It's very difficult because each vertical has a different ratio of fixed and variable. I can roughly tell you that in case of my snow preserves business which warehousing business, our fixed cost comes to somewhere around INR 600 per pallet. That is an average of frozen, chilled and dry. So it's difficult to quantify this at a business level.

[Operator]

[Operator Instructions] The next question is from the line of Rohit from Progressive Shares.

[Rohit Ohri, analyst]

A couple of questions related to the 5PL business and the other aspects of the operations. Firstly, you did touch up on some of the risks which are associated and there are certain terms and conditions related to that. But what sort of special certifications or compliance requirements are there for 5PL business? Since you are looking at vendor sourcing as well as vendor development and an addition to that, you're looking at quality inspection also. So are there any special certifications required for this business?

[Sunil Nair, executive]

So Rohit, for us as an entity, there is no special certification required. All what is required is in place in terms of warehousing and transportation, whether you talk about FSSAI license or BRC certification or ISO 22000, those are in place anyway. But yes, when we are auditing the manufacturer, we have to ensure that all whether because food processing or the special requirements related to each product, whether they are complying to that or not. So it's part of our audit process where we check at the manufacturer level. For us, as Snowman we don't have to go for any special licensing requirement.

[Rohit Ohri, analyst]

Okay. In addition to the stickiness of the customers, which some of them are already with us, what is the other factor that will differentiate you from the competition then, because if somebody has a client base, then we can also start up with the 5PL services, right?

[Sunil Nair, executive]

Right. You're right. If someone is already working as 3PL with someone, they can always start this thing. The differentiation that we have is the amount of client base that we have and some of the clients that -- our clients are actually suppliers to our other clients. So they are storing in our warehouse only. So when I have the supply and the customer meeting in my warehouse, so that is the one major benefit that we have found. So when we are doing the buying and selling method, we are doing just in time without holding any inventory. It is basically moving from one chamber to another chamber. So this is one strength.

Second strength is all our target customers in each segment, we have a good amount of different customers, which are stored and operated from a single facility. So when I consolidate our period of time their volume and go back and negotiate with the suppliers, we would have much, much larger volume for negotiations, and that would differentiate in the market very clearly.

[Rohit Ohri, analyst]

Okay. Okay. My next question is related to the CapEx plan that we had. Earlier, you had indicated that somewhere around INR 75 crores to INR 100 crores was planned over the next 2 years. So are you still continuing with the plan? Or are you trying to become more aggressive? Or is there some let down on these CapEx plans that you have?

[Sunil Nair, executive]

We are still with that plan. We have said INR 75 crores to INR 100 crores in 12 to 18 months, we are still on that. This quarter, we'll decide about Kolkata, which -- where the land is already purchased. We are also leasing some dry warehouses where we may have to do some [indiscernible] for our customers. So the INR 75 crores to INR 100 crores in 12 to 18 months is still on.

[Rohit Ohri, analyst]

Okay. And if you can take us through the progress on the expansion plans for 1, Kolkata; 2, Pune; and 3, Hyderabad, which you have also mentioned in the PPT as well.

[Sunil Nair, executive]

Yes. So Pune and Hyderabad are existing facilities where we had some small portion of land where we are expanding. Kolkata is greenfield project, which will be close to 10,000 pellets positions based in 2 phases of 5,000 each. And we will be adding some drive warehouses at [indiscernible] Haryana and one in Bangalore, where we'll be doing some for [indiscernible] specific customer.

[Rohit Ohri, analyst]

And in terms of capacity utilization of Siliguri, have you been able to scale it up some 35%, 40%? Or is it still the same?

[Sunil Nair, executive]

Yes. We are at 55% now. And with the business pipeline, which by December end we would be somewhere around 75%. Coimbatore is at 85%.

[Rohit Ohri, analyst]

Okay. So Sunil, in terms of 5PL and the requirement for probably the capacity or the shares that 5PL business might require. Can you take us to how will you differentiate since we have one part of business which is having dedicated storage client base strategy. And now we are having this business, where we are looking at vendor sourcing and development, how will you manage the capacity requirement of 5PL then? If it has to scale very high, which appears that it is growing at 25%, how will you kind of have the capacity for 5PL then?

[Sunil Nair, executive]

So see, 2 things here. One is as I said our first focus is to convert our 3PL customer into 5PL. So that's what we are doing. That typically means that I may not add much of the -- I may not need much of the storage and transportation. It's already happening under 3PL. I'm only moving into a 5PL accounts where I help my customer in terms of sourcing, vendor negotiation, vendor identification and rare activity. So if I have today 5%, 6% of their cost, I will become 9%, 10% of their cost, but they are outsourcing all these activities to us. That's point number one.

Point number two, in case of more 5PL accounts, 5PL services are attracting newer accounts, yes, we will need space, and that's why these expansions that we are planning in terms of Kolkata and other places. In all customer segments and some 3 peers, there are 3 categories, A, B, C. A is where we get the premium yield per pallet or premium yield per kilometer/. C category where we get lease, so this C category will get replaced with the 5PL customers wherever we get it. So that are yield from -- per pallet improves.

[Rohit Ohri, analyst]

Okay. Okay. In terms of the addition of [ PPE ] of some INR 7.34 crore during the first half. If you can take us to where is this expansion happening, which city are you targeting?

[Sunil Nair, executive]

Sorry, come again which?

[Rohit Ohri, analyst]

Industrial plants and the equipment addition that has happened INR 7.34 crores...

[Sunil Nair, executive]

No, that is not for expansion. That is the regular CapEx that we incurred in terms of replacement some equipment.

[Rohit Ohri, analyst]

Okay. Okay. Sunil, you had guided in the past that you will be looking at some 20%, 25% kind of top line growth and with 5PL growing at the same rate, do you think that you want to revise your guidance for the top line growth?

[Sunil Nair, executive]

We will look at it. As of now, we are still summing up our next 3-year plan. So maybe we'll be able to share some thoughts on that in the next quarter.

[Rohit Ohri, analyst]

Okay. Okay. Fair. And lastly, with the EBITDA margin with blended ones I'm asking, we have come to a range of like 2023, kind of, range in EBITDA margin. So you think that this will be sustainable and we should be working with this number going forward, the blended margins, EBITDA margins what I'm asking?

[Sunil Nair, executive]

So if we see individually, the warehousing and transportation, it is growing. It is 1% up as compared to last year in percentage terms. And as we slow distribute business -- the distribution and trading business both, the overall weightage and percentage will come down because of the cost in it, but in terms of individual line items, it will continue to grow.

[Rohit Ohri, analyst]

Should we revise it to somewhere like 26% or 28% which was historic EBITDA margins in the past, which we have seen 3 years or 4 years ago?

[Sunil Nair, executive]

No, see without trading business, even now it will be somewhere around that 27%, so I'm saying with more of trading business, the percentage will keep coming down because the contribution of trading top line is higher as compared to EBITDA. EBITDA there is about 10%, right. So this percentage will go down. What we are looking at is how the absolute EBITDA keeps going up. So from last quarter's INR 21 crore of EBITDA we went INR 24 crore of EBITDA with a similar 3PL business, but with the 5PL services. So we are looking at that as an objective that our EBITDA in terms of absolute number is going up.

[Rohit Ohri, analyst]

Okay. And anything -- any thoughts on the comfortable debt equity or the comfortable debt that you will be peaking out at?

[Sunil Nair, executive]

So when we do the expansion of Kolkata and other 2, 3 expansions, we will be doing around 75-25 debt, equity.

[Ishaan Gupta, executive]

But at the same time -- Rohit, Ishaan here, we are also reaping [indiscernible] they are due. So in Snowman, we will follow a similar strategy which we follow in gateway, that net debt to EBITDA. And net debt to EBITDA will keep it as not more than 1, maximum 1 going 2, going ahead as these new projects come in.

[Rohit Ohri, analyst]

In terms of rupees crore, what is the debt which is there at the end of half year? Sorry, sir, you're not audible. Can you be a bit loud?

[Ishaan Gupta, executive]

INR 114 crores gross. And net debt is INR 94 crores.

[Rohit Ohri, analyst]

INR 114 crores, is it? Did I hear that well?

[Ishaan Gupta, executive]

[indiscernible] net debt is INR 94 crores.

[Operator]

Next question is from the line of Ruchita from I-Wealth. [Operator Instructions]

[Ruchita Ghadge, analyst]

So most of my questions are answered. Just 1 or 2 questions that I have in mind. One was on the growth part. So the prior participant mentioned that you were expecting a growth of 30%. So is this guidance for this year or the coming 2, 3 years, the guidance that you had given?

[Sunil Nair, executive]

So this was 25% projection as compared to last year versus this year budget, this financial year. And on a YTD basis, we are at 44% now. So you are suggesting whether you would like to revise those numbers for the rest of the year?

[Ruchita Ghadge, analyst]

Right now, the run rate has been increased. So considering that, would you like to change the guidance for reaching as such?.

[Ishaan Gupta, executive]

We will be changing the guidance, but not at this point because this was -- this new business has been very recent, only in the last quarter. And we are seeing traction now. We'll be building more customers. So right now, we won't feel comfortable putting a number to it, but we share that with you once we have done our internal calculations.

[Ruchita Ghadge, analyst]

And will you be able to maintain this topline growth in the coming 2 to 3 years, like a 20%, 25% growth?

[Ishaan Gupta, executive]

Yes. In fact, we are quite confident that it will be higher than that to topline level, again, because we'll be adding on and building on to this 5PL business in a very big way. And then with other expansions our traditional 3PL model will also continue growing.

[Ruchita Ghadge, analyst]

Okay. And on the 5PL that you started, I missed on the point. So what is the risk involved in this business?

[Sunil Nair, executive]

So see, in general, when someone does a 5PL service and core inventory on behalf of customers, the risk of over inventory is there always. The risk of -- in case of food products, the risk of expiry is there. But so far, with all the accounts that we are dealing with, we have back-to-back arrangements where the procurement is done against the projection given by the customer. And if they don't lift stock as per their projection, the responsibility of expiry is written. So far, we have protected ourself from the risk. But as we move forward and when we start getting, we really have to revisit the whole arrangement and see how we can derisk ourselves.

[Ruchita Ghadge, analyst]

Okay. Sir, for my understanding this right, the inventory that you buy. So if the end consumer, the ones you were selling it to, if they do not buy it you will have to bear the expenses?

[Sunil Nair, executive]

That is general thing. As of now, the 3 accounts that we have, if they have to buy it compulsorily as per their projection.

[Ruchita Ghadge, analyst]

Okay. And right now for the EBITDA margins are at around 21%, if I understand it because of the new business there is parted risk. So this 21% is this sustainable or it will fall further?

[Sunil Nair, executive]

So if the distribution business goes up where the inventories in our books, the percentage may go down, but in absolute terms, it will look much, much better.

[Ruchita Ghadge, analyst]

So any names that you can basically help us with like between what we can expect this EBITDA margin to be?

[Sunil Nair, executive]

Sorry, come again?

[Ruchita Ghadge, analyst]

Any range that you can suggest for these EBITDA margins like below or certain point that you don't fall like anything like that? If you could just throw some light on that?

[Sunil Nair, executive]

No. See, basically, it will depend on the mix of warehousing, transportation and the distribution business. Our warehousing business today is at around 35% to 37%. It will remain at that percent or do slightly better. Our transportation is around 6% to 7%. It will remain at that 6% to 7%, it will not go down. Distribution business is at 10%. We will have to see -- at EBITDA level distribution business is at 5%. If that contribution in that overall revenue increases, then it will pull down the overall percentage average. But from an individual line item, they will all do same or better. So it will depend on completely the mix that comes in for the quarter, which will drive the blended percentage.

[Operator]

The next question is from the line of Kushagra from Old Bridge Capital.

[Kushagra Bhattar, analyst]

Thanks for the follow-up. Just 2 questions. One, last time, you sort of mentioned that for the overall the demand/supply dynamics is in your favor, Hence, there are 5% to 6% price increases, right? I just want to pick your thoughts on -- as to how is the situation now, are more capacities coming in, more capital chasing the sector, broad color will be helpful over there.

[Sunil Nair, executive]

The situation is more or less same with an increase of 12% to 15% volume of our customer side. If we see a comparable capacity increase in the country, it has not been much just a couple of facilities are being built as of now. So the situation continues. We have commanded a 5.5% price increase this year. And as we start negotiating from Jan onwards, we are hopeful that similar price increase we will be able to get in the next year or so.

[Kushagra Bhattar, analyst]

Sure. Got it. And last one, so basically, in a lease versus a fully owned model, let's say, you earn INR 1,400 -- around INR 1,400 revenue per pallet, right, on an average, including, I mean, on an aggregate basis. So on that, what would be the component of lease, which probably because you will not own the assets, which will expand your ROC, but there will be cash outflow in the form of leases or rental. So just trying to get a sense on INR 1,400 revenue per pallet what would be an equivalent per pallet lease out on that broadly?

[Sunil Nair, executive]

So see, the yield per pallet is same irrespective of whether it is owned or leased, because the quality of the infra is same, service offering is same. So from a revenue point of view, they are same. Mostly the lease ones are dry warehouses. So if you categorize frozen, chilled and dry, if you make 3 categories, then frozen typically would be somewhere around INR 1,500, INR 1,600, INR 1,700 per pallet. Chilled will be somewhere around INR 1,200 to INR 1,300 per pellet and dry would be somewhere around INR 750 to INR 800. So dry is what we are leasing most of the cases. Frozen and chilled are almost 97%, 98% are in our own warehouses.

[Kushagra Bhattar, analyst]

Right. So on that INR 600 , what would be the component of leases? I mean, around 10% of it, 10%, 12%, 15%?

[Sunil Nair, executive]

No, you're saying that dry is said to INR 800 is my rental revenue. You are saying out of that, how much is the rental paid to the landlords.

[Kushagra Bhattar, analyst]

Yes. So I'm just trying to compare because you would not be -- I mean doing the CapEx for owning the asset, there will be certain outflows in the form of rentals and the leases. So just trying to figure out what it would be as a percentage of your revenue per pallet?

[Sunil Nair, executive]

Average around 25%. It will be rental -- lease rental.

[Kushagra Bhattar, analyst]

20% -- 29%?

[Sunil Nair, executive]

25%.

[Operator]

Ladies and gentlemen, that was the last question on behalf of Snowman Logistics Limited. That concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.