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Snowman Logistics Ltd
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Ladies and gentlemen, good day, and welcome to the Q4 FY '22 Earnings Conference Call of Snowman Logistics hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities. Thank you, and over to you, sir.
Thanks, Margaret, and thanks to all the participants joining. Good afternoon. We have today with us the management of Snowman Logistics Limited to discuss Q4 FY '22 results conference, represented by Mr. Prem Kishan Dass Gupta, Chairman; Mr. Ishaan Gupta, Director; Mr. Samvid Gupta, Director; Mr. Sunil Nair, CEO and Whole Time Director; Mr. A.M. Sundar, CFO and Company Secretary; and Mr. S. Kannan, VP Finance. So without further ado, I hand it over to the management of Snowman Logistics for their opening remarks. Over to you.
Thank you, Abhijit. Good afternoon, ladies and gentlemen. Hope you all are keeping well and staying safe. And I hope you all had the chance to look at the financial statements and earnings presentation uploaded on the exchanges and our website. Overall, the company has done well in terms of revenue, of EBITDA and also the expansion. This was in line with -- the expansion was in line with our earlier announcement, where we have added 2 new big facilities, one in Coimbatore and one in Siliguri which, though, delayed are now fully operational. And in the current financial year, we will have -- we will recognize the full revenue of these 2 facilities.
In addition, we have added some drive facilities for the e-commerce business at various locations. We will give you all the details as we go towards the question-and-answer session. And feel free to ask any questions that you have.
And with that, I pass it on back to the operator to please take up the questions one by one.
[Operator Instructions] The first question is from the line [ Kaustav Bubna from BM SPL Capital ]
So basically, I wanted to understand why is this company's fixed asset turnover in general, so low? So even in FY '21, if we saw on PP&E, which you guys reported of around INR 332 crores, your net sales of about INR 237 crores. And this trend has been there for the last 3, 4 years as per the financials I see and even this year, even though you all operationalized 2 new warehouses or you did some expansion in quarter 4, you still at that same fixed asset turnover of around 0.6 to 0.7. So how do you make -- how do you ensure proper return on capital employed with such growth fixed asset turnover and what is your -- I mean, how do you plan to rectify this issue going ahead and increase this?
Yes, I'll take the question, Sundar here. See, our industry -- this particular industry is definitely asset-heavy capital-intensive and fixed turnover of 1 or slightly more than that is the norm. Basically because our core business is warehousing and warehousing involves a huge capital expenditure. The way we are addressing, we also understand that this impacts the ROI in the long run. The way we are trying to address that is to sort of balance it in a way that wherever we can buy land -- land is cheap and easily available, we invest in the land. In other places, we try to go for a long lease. This is for the land part.
Then again, coming to CapEx, warehousing normally involves around INR 60,000 to INR 70,000 a pallet in CapEx. Here again, we have -- our current warehouses, most of that, we have built it with our own investment. But going forward, we are again looking at our mix and match here, wherever possible we are going in for an asset-light model where the landowner does built-to-suit, he builds warehouses for us. This is only warehousing front.
Transportation, we are completely moving towards an asset-light model. If you see progressively our fleet size has been coming down. And in a matter of a couple of years, we may bring it to almost 0 and then only go with market vehicles.
So with this sort of a model, we don't see any problem going forward, reaching ROI of anywhere 15% upwards steady state.
[Technical Difficulty]
We seems to have lost his line. So while we wait for him to join back queue [Operator Instructions] The next question is from the line of Anurag Patil from Roha Asset Managers.
How much is the new capacity addition in terms of pallet from Coimbatore and Pune facility?
Both put together, we are adding 8,200 pallets. In addition to that, we have also expanded in existing setups wherever we had land. So in the last 12 months, we have added another 3,000 pallet positions.
Okay. And sir, are we planning any further CapEx in FY '23?
Yes. So we have purchased a land parcel in Kolkata where we can build around 9,000 pallet positions in 2 phases, and we are at the stage of seeking building plan approvals. At the same time, we are also going for e-commerce facilities, which are asset-light model. We will go for one such facility in North and one such facility in and West and one in South. At the same time, one e-commerce facility is under construction in Gujarat, which should be operational in this month.
Okay. So how much would be the total CapEx for FY '23?
FY '23, we are looking at anywhere between INR 70 crores to INR 80 crores.
Okay. And sir, a broader question on the whole, do you see the demand outlook for the FY '23 going forward and the possibility our margin improving to 30% level, how do you see that going forward?
So see, we are looking at more on absolute terms when it comes to margin rather than percentage because, as you know, we had launched our technology platform for transport aggregation. So that has given us a 35% growth in transportation. We expect the similar growth in the coming year as well. So the contribution from transportation will be increasing in the overall revenue, which has a lesser percentage of margin, but it is 0 asset model.
So overall percentage in terms of the overall margin may not grow, but in terms of absolute, the number should grow. When it comes to warehousing business, there, definitely, we are speaking of, I mean, initiatives where the major one being the price corrections with the customers and we have been fairly successful this year in terms of commanding some price increase. So -- and the other value-added services that we are offering to customers. So that is something which should contribute a better margin when it comes to the only warehousing businesses.
But with the mix of the typical warehouse that we have been offering shared warehouses versus the e-commerce warehouse where it is asset light model, what matters to us is not the percentage of margin but absolute -- in absolute terms, how much we are growing and the focus is in that direction.
[Operator Instructions] The next question is from the line of Abhijit Mitra from ICICI Securities.
I hope I'm audible. Two questions from my side. On a Y-o-Y basis, the growth in warehousing services that we see in your segmental reporting, how much on a percentage term should be driven by volumes and how much would be driven by yield, if you can break it up? And also the incremental top line growth vis-a-vis the incremental EBITDA growth, it seems to be accruing at 10% or less than 10% EBITDA margins. So this is entirely applicable for transportation services. Just wanted to have clarity on these 2 issues.
So Abhijit, our warehousing business grew by 13% year-on-year, whereas transportation has grown by 33% when it comes to revenue, the blended is 21% increase in our top line. In case of EBITDA, our warehousing EBITDA has grown by 6% and transportation EBITDA has grown by 110%, blended is 8%. So -- and then we have agency business, which is a small amount. So ignoring that -- so overall, we have an 8% increase in the EBITDA and 21% increase in the revenue. We have also written off our QIP expenses in this quarter because of which it is 8%, otherwise it would have been around 10.5%.
So this is the ratio, and we believe that the yield that is coming from the warehousing, which is typically -- warehousing EBITDA, which is typically 40%, anywhere between 38% to 40%. We will continue to maintain that. And the future growth, we are already operating at around 85% utilization today, including the 2 new warehouses which we have added. Without that, we should be somewhere around 89%. So we believe that percentage is more than come from utilization or volume as we say. And around 3% to 4% is what we are expecting from the price improvement.
And how would you break that 13% up for this particular year between yield and volumes? The warehousing growth number of 13% for FY '22, how would that -- how would you break it up between yield and volumes?
That is typically 10%, 11% with volume and 2%, 2% to 3% with pricing. So last year, because of the Wave 2, we could not command much, but this year, in last 3 months itself, we could have a lot of collections done. So this year, we are expecting anywhere around 4% to 5% price correction.
Okay. Great. And in terms of your volume guidance, it stays the same, essentially 2 lakh pallets over the next 3 years?
Yes. So the strategy remains the same. We are also looking at the increasing cement and steel prices, and that is where we are going a little asset light model wherever possible. So on a longer run, in 3 years' time horizon, yes 2 lakh pallet positions are still something we are looking at.
[Operator Instructions] The next question is from the line of Abhishek Nigam from B&K Securities.
Just a couple of questions on the new facility. How has the utilization been till now on the outlook for FY '23?
In case of Siliguri, we are at around 35% utilization today. And we expect that by around September, we should be 80%, 85% utilized and then onwards, it will be 85% upwards only. In case of Coimbatore, we are at 50%, 55% utilization now. And we hope to be there around 85%, 90% by September. So by September, we expect both the facilities to be around benchmark with the national average today, which is 85% to 90%.
Okay. Okay. That's very useful. And I was just going through the profit and loss statement. Finance costs have been rising a fair bit. Any plans to sort of proactively bring down debt? Anything that fundamental looking at?
No. Actually, finance cost hasn't and absolute thing -- it has not gone up, what has happened is earlier the finance costs are being capitalized last year, it was capitalized because there were projects -- I mean capital work in progress, whereas current year, everything has been capitalized and hence, you will get the full charge of the interest cost. And there are no immediate plans to reduce the debt. In fact, we will be taking a little more debt to fund our Kolkata project. And in spite of that -- even with that, we are definitely very lowly geared.
Okay. Fair enough. So it's impacted by the startup of the new units at Coimbatore and Siliguri?
Yes, yes.
Okay. Fair enough. And sir, Q-on-Q, it has -- if I look at the employee expenses, they have gone up by almost 11%. Is that because of some fourth quarter bonus numbers or something else has gone on there?
Sorry, come again. We could not hear you properly. Hello?
Mr. Abhijit, can you please repeat your question?
Sure. So if I look at your employee expenses, they were around, I think, INR 62 crores in third quarter, and it's up to almost INR 70 crores in the fourth quarter. So that increase was mainly because of fourth quarter, there are some bonus numbers? Or is it something else?
No, no, fourth quarter one is the new warehouses were operational. So definitely, the head count has gone up. That was the...
That's the main reason, yes.
[Operator Instructions] Next question is from the line of [ Kaustav Bubna from BM SPL Capital ]. [Operator Instructions] Due to no response, we'll move to the next question, which is from the line of Abhishek Nigam from B&K Securities.
Yes. So I don't know if I missed it -- but on the Kolkata project, if you could give some details in terms of the size, how much CapEx and time lines that will be very useful?
So Kolkata land that we have purchased can have 9,000 pallet positions. We plan to build it in 2 phases of 5,000 and 4,000 pallet positions. The land development work is going on. We are seeking permissions for the construction, which takes a couple of months from now. At the same time, we are also keeping watch on the steel and cement prices. So depending on possibilities, we may start construction in the next 3 to 4 months' time, and it will take 8, 9 months for us to construct the Phase 1 at the stage we are at. This will require with the current steel and cement prices somewhere around INR 40 crores to INR 45 crores of investment for the Phase 1.
Okay. So in terms of time line, it could be, say, broadly about 1 year or so?
Yes.
[Operator Instructions] The next question is from the line of [ Anand V from BM STL Capital ]. Anand, we cannot hear you. Please unmute yourself and ask your question.
Hello?
Sir, can you please speak a bit louder or come closer to the phone?
Yes. Could you -- are you able to hear me now?
Yes. Yes.
Yes, sir.
Yes. Since you are starting CapEx cycle, what is your free cash flow guidance for the next 2, 3 years?
See, we should be generating around INR 50 crores of free cash flow every year.
Any other question, Anand?
No.
The next question is from the line of Bhaskar Chaudhry from Entrust. Mr. Bhaskar Chaudhry from Entrust, your line has been unmuted, please go ahead with your question.
Yes.
Yes, we can hear you.
Yes. yes. I'm sorry. So I wanted to check what's the good, standardized kind of PAT margin for this business? Because I mean, at the PAT level, nothing really flows through, although you're still generating FCF and CapEx has been done now for the next 2, 3 years, the depreciation cost would probably increase. So how should one view the PAT number on a standardized basis?
Currently, what is happening is we have a deferred tax asset of around INR 40 crores sitting in our books. And since that has been written off over the years that is muting the PAT. Otherwise, I think 2 years down the line, we should be having a double-digit PAT around 10% of PAT should be possible 2 years from now.
Okay. But even at the PBT level, sir, it's INR 4 crores on a top line base of INR 290 crores. So is it really the deferred tax asset that is creating this?
Yes. At PBT level, it's basically the deferred tax asset, which is muting the numbers.
No, no. He is asking after tax.
Sorry, Sunil. Just -- I'll just make a point that depreciation is quite high. That's what's putting the number down. So it's about INR 50 crores of depreciation per year. The deferred tax asset is just between the PBT and PAT level. So that will continue over the, say, next 3, 4 years, probably. But we are looking at a PAT of double digits as some were saying within the next 2 years, and it will only improve from here.
Okay. And post the CapEx that you have planned? I mean what is the internal projection on the depreciation line, maybe after 2 or 3 years? And how should that -- how should one look at that number?
It will stay a similar number because the old facilities that we had made that depreciation amount will reduce whereas this new facility depreciation amount will increase. So INR 50 crores of depreciation per year is something that's standard for us.
So in case of, I'd just like to add in case of your first question, because of the IndAS treatment -- accounting treatment for the leased lands, we end up overcharging depreciation and interest in the initial years, which also goes and impact the PBT as of now. But maybe in a few years down the line, it will start benefiting us since we have charged overcharged in the beginning years.
I understand, sir. I understand. I'll reach out separately and make like -- do a deeper dive.
The next question is from the line of Abhishek Nigam from B&K Securities.
Yes. So I was just looking at the presentation and QSR is a pretty big category overall for you. I assume a decline in the fourth quarter is because of a bit of COVID that we saw in January. I just wanted to check how is that segment doing now in the first quarter? And overall, what do you expect for FY '23, considering it's still trending below FY '21 levels?
Sorry, there is no decline in QSR, which slide are you referring to?
Yes. So if I look at Slide #9, so Q3 FY '22, the number was 152 and that comes down to 129 in the fourth quarter. This is Page 8, probably in the presentation.
Page #8, right?
Where it says industry-wise revenue?
Yes, industry-wise revenue, Page #8, QSR, Q4 is 172 versus last year Q4 116. So there is a 48% increase in the overall revenue from QSR.
Okay. Okay. I think I have the wrong presentation on that maybe. I understand. How is it doing in the first quarter?
Yes. First quarter, so far, you are saying, you mean in April?
Yes. So far in the first 20, 25 days probation.
It's good. April and May are again season for them. June onwards, it starts slightly coming down as schools open and the vacation is over. But season wise, they are very good as compared to last year's performance.
The next question is from the line of Abhijit Mitra from ICICI Securities.
Just to sort of take the thread followed from one of the previous questions. I think you guided that Kolkata 9,000 pallets will incur an investment of INR 40 crores to INR 45 crores. So increasing to 2 lakh pallets will incur how much investment? Is it a multiple of this? Or how to look at it?
No, 9,000 pallets won't cost -- we said that we are going to put up 9,000 pallets in Calcutta in 2 phases. The first phase is going to be around 4,250 pallets, which is quite -- for first sales cost is around INR 45 crores this year.
So only for 5,000 pallets, we said INR 45 crores. When it comes to 2 lakh pallet position, as I told you, we are also looking at asset-light models. So if you ask us today, we are not doing that multiplication of how much will it require because we have some good leads on asset-light model as well. So today, we are only looking at 1 year at a time. And as we progress on our asset-light model, and we will have to calculate how much capacity can come from that model and then the rest is what we need to invest.
Okay. Okay. But in general, these pallets when you sort of guide for this pallet you're also including the volumes that you are handling in some conversion from the e-commerce facilities on the back end or the e-commerce facilities that you are managing, say, for Amazon, are you including those things and sort of converting and giving that guidance? Or how is that guidance?
So we a business model called SNOWPRESERVE, which is a warehouse setup, which is palletized which is shared by multiple customers. This is where we calculate capacity on a pallet basis, our unit of charge to customers also is on pallet basis. So whenever we talk about pallet, this is typical shared ware on this under SNOWPRESERVE service offering. The other offering is now SnowServe, where we do dedicated warehouses for e-commerce customers or at least dedicated earmark compartments within a warehouse. And that's where it is completely on a square-foot basis, which is asset light model. We lease a dry warehouse on square foot basis. We invest in terms of setting up the internal equipment, and then we start serving customers here that the major is square foot basis. And today, we have about 6 facilities totaling to 1.4 lakh square foot.
So just to sum up, we are not converting any of the facilities into a number of pallets of these types. So the 200,000 pallets is independent of these Amazon type facilities.
Yes.
Right. Got it. Got it. But in terms of preference or priority, is the priority shifting towards this kind of back-end warehouse solutions for e-commerce players instead of putting out direct CapEx for pallets. Is that the thought or -- because I keep on hearing being asset light, so.
It will be a mix of both. We'll have expansion on the cold storage where we build our own facilities also. And we'll continue expanding these other verticals of dedicated warehouses also.
Okay. Okay. But the annual CapEx run rate of INR 70 crores to INR 80 crores is a decent enough annual CapEx standard to expect in the medium term as in not only '23, but maybe '24 also.
Yes.
Okay, okay. Got it. That's all from me.
[Operator Instructions] The next question is from the line of Rohit Ohri from Progressive Shares.
Sir, 2 questions. First question is related to SnowLink. So we know that it is -- SnowLink on its own is profitable. But then the issue is related to the transportation cost. And now with the shift from the regular warehousing to transportation, don't you think that fuel cost will be an issue to you?
So since SnowLink is a platform, which is typically a back-to-back arrangement. The risk is shared here and most of our new agreements with the customers have clear fuel clause with them. And unlike a cost plus model, this is a price minus model. Okay. So typically, what is the price that customer is paying minus our margin is the price that we offer our partners.
Okay. So the reset of the prices will happen on a quarterly basis or half yearly?
So in case of dedicated model, it is the quarterly pricing and 75% of our revenue today under SnowLink is on a trip basis. So it is for everything. That is a bidding process that happens on our platform -- SnowLink platform for every 3 months.
Okay. Second question is related to SnowServe and Fraazo, if you can take us through the business model or revenue generation as to how will you go about it this?
So SnowServe is an e-commerce solution for us as of now, wherein we lease a dry warehouse convert it an e-commerce back-end platform in terms of research, learn, packing, sorting grading lines and the IT solutions that whatever the customer wants. And Fraazo and Amazon are the 2 customers who are being served under this platform today.
Okay. But then how is the revenue sharing or the revenue generation in this system for Fraazo then?
The revenue is close to 5% as of now, the revenue contribution. The -- last year, we did -- the last year number -- we did INR 13 crores revenue from this. And that means -- sorry, this year, with FY '22, we did INR 13 crores of revenue from SnowServe vertical and we expect it to grow by around 25% to 30% in FY '23.
Okay. And any increase in the average selling prices that you've seen during the year?
The average selling prices, as I told earlier, we are expecting anywhere between 4% to 5% this year.
Okay. If I can just go in the balance sheet. There is a statement which is saying contract assets of INR 36 lakhs. What are these related to?
Well, these are the trips where we have still not got the confirmations on completion. These are in-transit transportation trips.
[Operator Instructions] The next question is from the line of Abhijit Mitra from ICICI Securities.
I have 1 more question. I just checked the total pallet that you have handled for the year. So that's almost 1.36 million. Is that the turnaround of like 1,17,000 static capacity that you have by the year-end. Is that the way to look at it?
Yes, that's -- those many pallet positions we have billed -- pallet months we have billed.
No, sorry, what was your last statement I missed it.
Capacity -- billed capacity over a year. So 1,17,000 x 12, so it needn't be completely 1,17,000 some months, some locations could be less billing. Some locations could be more than 100% billing. So overall, the total pallets billed would be what we are talking about.
Okay. So that many turns of the static capacity -- the average static capacity for the year. And essentially, that has grown by 10% on a Y-o-Y basis. That's the way to look at it, right? I mean when you said that your volume growth in pallets is 10%, this 1 lakh -- 1.36 million, that has grown by 10% on a Y-o-Y basis?
Yes.
[Operator Instructions] The next question is a follow-up from the line of Rohit Ohri from Progressive Shares.
So would you like to share any guidance for the next 2 years in terms of the top line? Or are we okay with the growth of 20%, 21% on the top line and around 25%, 26% at the EBITDA margin level?
See, as we have set up these 2 new facilities where the utilization is still to reach our benchmark of 85% plus. And also the e-commerce facilities are set up recently in Pune and Mumbai and the Ahmedabad one will be operational this month end. We look forward for a similar growth. We would not like to put a number to it as of now, and we are still finalizing a few other strategic items.
Okay. But these capacities will be onboard by September. So there should be a slightly higher uptick, right, in terms of the numbers as to what -- is around 20%, 21%?
As I said, since we are still finalizing a few things, we would not like to put a number to it. But our objective is to definitely do better -- have a better run rate than what we have done this year.
Okay. That helps sir.
As there are no further questions from the participants, I now hand the conference over to the management for closing comments.
Thank you. ladies and gentlemen. The management is available if you still have any questions, and they will be happy to answer you. Thank you for your participation.
Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.