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Snowman Logistics Ltd
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Ladies and gentlemen, good day, and welcome to Snowman Logistics Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.We have with us on this call, Mr. Sunil Nair, CEO and Whole Time Director; Mr. Balakrishna, CFO; Mr. Kiran George, the Company Secretary. And I now hand the conference over to Mr. Sunil Nair. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us for our Q4 FY '23 earnings conference call. We appreciate your presence today. We hope that you have had the opportunity to review our financial statements and earnings presentation, which have been made available on the exchanges and our website.This year has been a remarkable one for Snowman Logistics, as our financial performance has not only recovered but surpassed the pre-COVID level. We are pleased to announce that our diligent efforts, strategic initiatives and strong execution have enabled us to achieve outstanding results. We have witnessed a significant rebound in our operations, demonstrating the resilience and adaptability of our business model. We remain focused on capitalizing on this momentum and continuing to deliver exceptional value to our stakeholders.During the year, Snowman Logistics achieved a significant milestone by establishing fifth-party logistics services catering to renowned brands like IKEA, Baskin-Robbins Tim Hortons. As a wide scale provider, Snowman Logistics offers comprehensive end-to-end supply chain management solutions, optimizing efficiency and reducing costs for its clients. We also inaugurated a 50,000 square foot warehouse in Shoolagiri, Tamil Nadu, which is specially dedicated to serving the chemical segment with a pallet holding capacity of 4,000 pallet acquisitions. We are fully equipped to cater to the storage and handy requirements of our valued chemical industry clients now.We are immensely proud of the achievements and milestones we have reached throughout the year at Snowman Logistics. We would like to express our gratitude to our dedicated team, valued clients and stakeholders for their unwavering support. As we move forward, we remain committed to delivering exceptional results innovation and operational excellence in the dynamic logistics industry.Now I would like to hand over the call to Mr. Balakrishna, and CFO.
Thank you. Good afternoon, everyone. We are delighted to announce a robust financial performance for Q4 FY '23. Our revenue experienced significant growth, reaching INR 1,162 million, which demonstrates the effectiveness of our business strategies and our success in capitalizing on market opportunities. This represents substantial progress compared to the same period last year when our revenue was INR 70 million.Our EBITDA also exhibited notable improvement rising to INR 256 million, marking a 42% year-on-year growth from INR 180 million in the corresponding quarter of the previous year. This enhancement underscores our commitment to optimizing operational efficiency and cost structures. Additionally, we experienced a remarkable turnaround in our PAT, recording INR 51 million. This positive outcome reflects our dedicated focus on profitability and sustainable growth.On an annual basis, we achieved outstanding results with revenue amounting to INR 4,252 million, demonstrating a substantial growth of 1.5x compared to the previous year. Our EBITDA dropped INR 961 million, representing a growth of 1.3x compared to FY '22, which signifies our consistent delivery of strong financial performance. Moreover, our PAT experienced significant growth, reaching INR 134 million, a substantial increase of 7.8x from INR 17 million in the previous year.With a solid financial foundation, industry expertise and a focus on innovation, we are well positioned to capitalize on market opportunities and drive continued success in the dynamic logistics sector. With this, I would like to open the floor for Q&A sessions.
[Operator Instructions] The first question is from the line of Yash Tanna from ithought PMS.
Congratulations on a good set of numbers. So my first question is on the warehousing segment. Our margins dipped from about 22% last quarter to about 10% this quarter. So what was the reason for this? And on these lines, so for the full year, we have done about 10% return on capital employed in the warehousing segment, which is -- I believe it is a little lower than some of the newer warehouses that we have opened. So will it be a fair assumption that over a period of 1 to 2 years, the warehousing segment can show 15% to 18% or that range sort of an ROC on a sustainable basis?
Yes, sorry, we are not able to connect with the numbers that you are quoting. In case of warehousing business, our EBITDA for Q4 is 36%.
Okay. All right. I'm talking about the PBT margin, which is mentioned in the results.
PBT?
Yes.
PBT margin, that's at company level, right? You are not talking about the warehouse level?
Right, right. Sorry. My bad.
Okay. So see, the PBT, as you can see that with the induction of SnowDistribute business, which is the 5PL services business, we are able to optimize our warehousing and transport resources better. And also, we are able to charge a little premium there. So that is what has helped us in the last couple of quarters to have better numbers. We, as of now, have 3 clients in this category, as I mentioned in my opening remarks. We were setting up our IT systems to be able to handle this business, which is now set up. So as we start growing our 5PL business and alongside the transport and warehousing, we expect this number to look much better, if that is what is your question.
All right. Got it. And my second question is on the transportation division. So what sort of growth rates and margins are we looking at in this segment? And since I believe we don't need a lot of capital for this segment, I believe that the denominator that, that is the EBIT can grow much faster than the capital employed and thus ROCs can expand further in this line of the business. So any numbers that we are targeting here?
So see, with our introduction of the technology platform, which we talked about, which is called SnowLink, where we are aggregating the market resources. We have had a growth of 54% as compared to last year in terms of revenue from this market aggregation from INR 35 crores, we have reached INR 55 crores of top line this year. And the margin typically, when we do the aggregation from market, it's anywhere between 10% to 12%. And our transportation for this year stands at Q4 is 8% and YTD 7% margin. As we increase our market aggregation, we expect it to grow to a couple of more percentages in the coming year.
All right. Got it. And one last question, if I can. So now we are on a growth path, and we have good cash generation. And since I believe the management has said that they do not wish to sell stake in Snowman any further, Gateway, so is there any discussions around increasing stake by the promoter group in Snowman?
So as of now, that is not something which is shared with us. It is a GDL decision. And maybe when you get into a conference call with GDL, you should ask this question.
The next question is from the line of Harsh Shah from Dimensional Securities.
Can you help me with the volume of pallets handled for Q4 FY '23 and full year FY '23?
Volume of pallets, one sec, I'll tell you. So we have -- you wanted the pallets we build, right?
Pallets handled.
Pallets handled, okay. So one sec. So we -- so I tell you, we build 13 lakh pallet positions. Typically, with 1 ton a month, you can say 13 lakh pallet positions were handled, physically handled.
13 lakhs were handled?
Yes, 1.1 lakh pallet per month on an average.
Last year, we did around 13,61,000. So have we degrown in terms of pallets handled?
No, pallets handled -- you mean -- you saying, inward, outward is what you're asking?
Yes, sir, actual pallets that we handled and we build to our clients.
Okay. In that case, it is -- pallets handled is handling revenue that we talked about and pallets build is towards revenue we calculate all. So in terms of handling revenue 1.5 million means 15 lakh pallet positions is what we have handled.
Okay. And build, you say 13 lakhs?
Yes.
Okay. And can you break it further down into how much of the pallets that we have handled is dry and how much would be the cold storage?
So 20% is dry and 80% is temperature controlled.
And also, I need a number for Q4 FY '23, pallets handled for Q4.
One sec. Q4 is 3.4 lakhs pallet positions built.
And handled?
4 lakh pallet positions.
Okay. And on the trading and distribution side, the margins have come out pretty well at around 8%. So earlier we used to guide it somewhere between 5-odd percent. And since revise this guidance or you expect this to trend down going ahead?
No. But where 8%? There is no 8% in SnowDistribute. We are -- in Q4, it is 2-point-some percentage, 2.5% in Q4.
The EBIT margin.
EBIT margin?
Yes.
Which slide are you referring?
So this is in the segmental disclosure, where you give segment-wise data. Revenue of INR 30 crores and EBIT of INR 2.4 crores.
Bala here. See, this percentage what you're referring to is at a gross level basically. But if you allocate all overheads and all, our margins will be at 2.5% to 3% for the distribution model.
So Harsh, when we referred last time 3% to 4%, we were talking about net margin and this 8% is the gross margin.
So what are the expenses that would come below this 8%?
After this, there will be IT cost, there will be people cost, common cost basically, all overhead costs.
Because when I refer to your segmental result, it is typically EBIT, earnings before interest and tax. And then you add other income and less only finance costs.
Then there is another called other unallocable expenditure, you should refer that.
Okay. So that needs to be deducted. So after netting that you are saying it will be around 2% to 3%.
Correct.
Okay. And for the transportation business, since our platform is now already established, what is the number of vehicles that you expect to build there? And what kind of growth can we expect in this segment going ahead?
So this financial year, we will be adding 50 bus, which will be owned by us, and we'll add another 100 trucks, which will be leased under SnowLink business model.
So earlier, a couple of years back, we were pruning our own vehicles because we -- I believe we were making losses there. So now there's this change in strategy, you're adding owned vehicles. So what is the rationale behind that?
No, there is no change in strategy. As we communicated earlier also, there will be specialized trucks which are basically to cater to our end-to-end customers, which will be always owned by us. And rest common trucks will be always leased. And now since most of our trucks are getting old, we need to have some new set of vehicles. So we have added 50 trucks. As you know, we were owning almost 500 trucks. We brought down the count to 239 now. So going forward at any point in time, we would have anything around 200 trucks owned and rest will be leased. So by the end of next year, we should be having close to 500 plus trucks, out of which 200 will be owned and rest will be leased.
Okay. And on the blended basis, so as you mentioned that the leased vehicles on anywhere up to 10% to 12% margin. And since our blended margin currently is around 7%, 8%, then I believe that we might be making loss in the owned vehicles. So going ahead, once all the vehicles become profitable, what kind of EBITDA margin can we expect in this business on blended basis?
As I told you, for the coming year, we are targeting 10%. That's the immediate target. We don't want to have further years estimate as of now because it all depends on how the market shapes up and how many vehicles we can onboard to SnowLink business model.
Okay. And last question for the warehousing segment. You said the split is 80:20 between cold storage and dry warehouses. Going ahead over the next 3 years, at what rate do you expect to increase your capacity under both of these segments?
So by default, it is expected to be same 80:20. But since we have also got into chemical storage, and we are getting into contract logistics, where large accounts will be onboarded even if it is dry, but very similar nature of operations, it may change a little bit, but it will be around 80:20 only, at least for the coming year.
And at what rate will we be increasing our capacity?
We will be increasing at the rate of 10% to 12%.
And for this current year, what is the increase in realizations that we have taken? And going ahead, what kind of realization can we expect for us to continue?
So this year, with the introduction of SnowDistribute, where as I told you, we have summed a little premium, the realization has gone up to INR 1,500 as against INR 1,407 last year, so 7% growth.
And can this run rate continue going ahead?
At least 5% is what we are targeting in this financial year.
Next question comes from the line of Saloni Hemnani from Molecule Ventures.
Sir, I have a question regarding your 5PL business. So as you mentioned that your margins on a gross level are 8% and after cutting down some expenditures, it comes down to 2% to 3%. So I wanted to understand the rationale behind focusing on the segment. Is this going to be purely a scalability gain where we are focusing on getting on board with big clients and getting the volumes in? And what sort of margin trajectory do we see going forward in this segment?
So see, when you do a 3PL operations where you are an end-to-end partner, you own up all the accountability throughout the distribution network. And in case of this 5PL operations also, you are doing more or less same thing with an additional responsibility of either sourcing or providing your IT technology. So you are becoming an integral part of the customer organization, which increases 3PLs and interdependency and thus commands a little premium. So 3% on a product cost is much better than even 5% on the logistics cost. So that's the rationale behind why we are pursuing this.As you can see, this has helped us increase our pallet ASP from 1,400 to 1,500. So this is the main reason we are targeting this. This also helps us grow our business faster with respect to the growth of the customer.
[Operator Instructions] The next question comes from the line of Nitin Shakdher from Green Capital Single Family Office.
Good afternoon to the management and excellent set of results and bounce back. So once again, very good to see. My question is on relation to health care and pharma segment and industry offtake from that and agriculture. Can the management talk about why the industry was a bit soft and a bit degrowth there for the year financial year? [Technical Difficulty]
Please stay connected, ladies gentlemen, I will check with the management.Ladies and gentlemen, we have the management line connected again. Mr. Nitin, the management has got your questions. They will now begin to answer the same.
Okay. Nitin, sorry, something wrong with the technology. So your question was on health care and pharma. I have not added any clients this year. And while we participated in certain bits because of cost reasons, we could not get those leads. There is no reduction as such in the business. All the clients are with us. Only thing is in terms of percentage ratio, their contribution has come down because other verticals have grown better. So that's the reason. We are on with our health care and pharma plans. We are revisiting on the cost structure, how we should be structuring it.
So is this in relation to cold chain transportation or any difference on the business on that considering pharma has a lot to do with the cold chain transportation?
No, it is with respect to both, warehousing as well as transportation.
And is this similar for agriculture trend, because agriculture is also a bit soft. Any particular reason for that?
Agriculture is by design because that is -- that's one vertical, which is the lowest yielding vertical. So our focus always is to move as much as possible our capacities from agri to other verticals, so that our realization per pallet is better.
Okay. Sir, one last question. If I go through the cash and cash equivalents and the bank balances previous year versus this year, both balances were INR 15-odd crores on cash and cash and bank and bank balances. And now the balances are far lower. So where are we seeing -- is that investments have increased, or -- from what I can see? Or is there something that the deployment has been very aggressive in terms of the cash?
See, the cash and cash equivalents is INR 46 crores around regarding the balance sheet, out of that [ INR 43 crores ] is placed in the mutual funds just to avoid having status and get some return from the mutual funds. Also, just for information, we are going for an expansion plans in current year. So this cash will be handy during the year expansion.
Okay. Sir, I'm assuming that these mutual funds are debt mutual funds or are they equity mutual funds?
These are debt mutual funds.
Thank you for the clarification and all the best. And once again, congratulations for the excellent set of results.
The next question comes from the line of Pranay Khandelwal from Alpha Invesco.
I wanted to ask this particular question. Few calls back I think we mentioned that we will be benchmarking ourselves to a company called Sysco Corp. And like looking at the strategy, it seems that they did a lot of acquisitions. So is that something Snowman will also be looking to do?
I'm sorry, if you don't mind, can you repeat your question, please?
So a few calls back, our company mentioned that we will be benchmarking ourselves to Sysco Corp. I think that was when we were starting our 5PL segment. And their strategy is Sisco Corp. strategy was to acquire a lot of companies and become sort of like conglomerate. So is that something Snowman will also be looking for going forward, like acquiring a lot of small players and aggregating them under one roof?
Yes. So you're right, we are following Sysco model where they became a complete food service distribution company. And on that line, only we started the 5PL services. As of now, our focus is to expand 5PL services and integrate as much as possible with our customers as well as our suppliers. We do not have any immediate plan of acquisition, but we will think about it maybe a couple of years down the line.
So if we are to do an expansion, it will be like a greenfield expansion rather than going for acquisitions as of now, that's what the model is, the strategy is, right?
Yes. For a couple of years, yes, it will be purely developing more businesses with the existing set of customers and developing more product range from the suppliers.
All right. And also, can you just give me sort of an idea as to which sectors are better yielding and which are lower yielding, like you said that agriculture is a low-yielding segment. So which would be the ones which are like better yielding and more margin accretive?
Okay. So top ones which yields better to us are typically QSR, ice cream, dairy and ice cream and meat, seafood and poultry are the top ones, which gives us better yield. And average would be FMCG, e-commerce and pharma. Agriculture is the lowest one. But coming to the categories in case of dairy, there is one product called butter, which also is a low-yielding product, which is high volume, low yield. So butter and agriculture is the lowest yield products as of now.
[Operator Instructions] The next question comes from the line of Harsh Shah from Dimensional Securities.
So coming back to the trading and distribution, the 5PL business, last 3 quarters, we are doing revenue of around INR 20 crores to INR 30 crores. You mentioned that we are catering to 3 clients. So going ahead this year, how many clients do you expect to add to this at your tally? Because I remember in one of the calls, you were referring that you do GMV of almost INR 10,000 crores in your warehousing and transportation business. So at what rate one can expect for this business to grow and how many clients are we in discussion with, which we can add?
So see, while we have a GMV of INR 10,000 crores, most of it are the ones which are exporters, and we do not have much value add for them. But good 20%, 25% is somewhere where we can add a lot of value. So now since our IT system is in place, we are going a little aggressive on this. I'm not sure because usually, this is a big change for customers because they have to do away with a lot of activities, which are being done in-house and outsource that to us. So it's long-term strategic decisions and usually it takes time for the organization. So from a realization point of view, I'm not sure how much time it will take, but we are hoping to add at least a couple of clients in this year and seeing that we grow this vertical by at least 40%, 50% this year.
Okay. And then returning back to the segmental information which we have given, so there is this unallocable expense of INR 4.4 crores for this quarter and INR 27 crores for the entire year. So are these major corporate overheads? Or actually, but -- since obviously, it's unallocable, so are these mainly corporate overheads and what hedge will this fall?
This is again in a overheads part, it includes peoples cost and it includes IT infrastructure. The major part is that.
IT infra?
IT infra, the people -- the common costs.
Your employee costs -- so employee costs you're not dividing in the segmental expenses?
Which one? Sorry?
Employee cost.
There are always direct cost that is taken care in the segmental. I'm talking about corporate, the leadership team and management is here, that is some costs where we will not be able to allocate it. So I'm just giving you a reference. So whenever there is an allocated cost, we will not be able to divide any CapEx here. Only direct cost is the one which will be shown above in the segment result.
Okay. And the IT infra spend which we are doing, are this onetime in nature, or it will be recurring?
It's recurring, the support cost, basically.
Okay. And you mentioned that you do around 2% to 3% in the distribution business out of -- which works out to around INR 1.8 crores of additional expense per quarter below the EBIT, the INR 7 crore expense on an annual basis. So I believe in the sourcing, we mainly did the procurement and distribution, which is procure goods and distribute it. So what is the INR 7 crores expense for that line item over turnover of around INR 60 crores, which we have done -- INR 85 crores.
May I know where you are referring INR 7 crores?
You said that in this trading and distribution, you do around 2% to 3% margin on a net basis.
Yes.
When it comes to around INR 0.8 crore of net profit -- for the quarter, I mean, INR 30 crore multiplied by 2.5%?
See, I'll tell you, so net basis, we got INR 3 crores -- INR 2.8 crores is for the year where we make the money on net basis in SnowDistribute.
For the entire year?
Entire year, yes, INR 3 crores. And what you are seeing there is INR 5.67 crore in the segmental reporting, so roughly INR 3 crores is what for the year is the common cost attribution to the segment.
Okay. So that is merely a portion of cost?
Yes.
And it's done based on turnover.
We will not be able to allocate. That's the reason we have kept it down. But if we have to apportion based on the turnover, it will come to roughly 3%, yes, turnover yes. I would say this is a concentration, yes.
Okay. So if I have to look at this business on a gross basis, we did INR 2.4 crores in the current quarter on a revenue of INR 30 crores, which is 8%. So on a gross basis, can we continue to expect these margins for this segment?
Yes, it all depends on the product mix again. See that the margins, the growth of the margins because we know that the clients completion right now is Tim Hortons, Baskin and IKEA, where the product composition changes and we do all other products where 4% margins we yield, also we yield the 10% margin. So on an average basis, I would say, 6% to 8% is what where we can -- at that level can maintain.
Okay. And then can you apprise us on the size of this opportunity, if we talk outside your own GMV, how scalable is this business? And which are the other players in India which does this business? And if you have to look at this business over the next 5 years or even 10-year horizon, how scalable this opportunity is?
The scalability of this opportunity is very, very, very big because what we are doing indirectly is we are trying to replace the distributor concept in most of these businesses. So typically, what happens today is an FMCG company would manufacture, use a transportation company to reach it to regional warehouses. And then some large company, large retail company would be operating the regional warehouse. And then they will use another transporter to reach it to state warehouses and some small company would be operating state warehouse. And then from there, it goes to distributors and then the distributor delivers it to retail. So we are trying to see that we, as a single party does everything for them. So from an opportunity point of view, yes, it is very, very big. But at the same time, it has lots of complexities attached to it and a big change management from the customer side. So while we say it is going to be slow, but the ticket size is going to be big in this case. Like you can see in last 1 year, we have reached a good number of INR 85 crores, INR 86 crores. So the ticket size is bigger, decision-making is going to be a little slow. So accordingly, we are pursuing this opportunity.
[Operator Instructions] The next question is from the line of Pranay Khandelwal from Alpha Invesco.
Now I wanted to know if you can guide us on the expansion plans that we may have for the year? Are we looking for any -- setting up any new facility or anything?
Yes. So we are -- as I told you, we are buying 50 trucks. And in addition to that, we'll be setting up our warehouse in Kolkata, which is around 5,000 pallet positions. We are also planning to set up one warehouse in Bhubaneswar around 4,500 pallet positions. We will also be setting up a warehouse in Lucknow, which is going to be around 4,000 pallet positions. So these 3 warehouses will be constructed in this financial year.
So I believe Kolkata was already on -- in the pipeline for some time. So has there been any progress that has been made over there? Like where are we in that?
So Kolkata, we had purchased land last year. And this year is what it was budgeted for the construction purpose. So we are doing the land development activities last year. And now in this Board meeting, it is approved, and we are now going to go ahead with the construction plant for all the 3 locations.
So would we be -- would these facilities come online like midyear or we are expecting them to come online by the end of the year only and then start adding on the revenue after in FY '25?
Yes. So they will add revenue in FY '25 only. They will be ready by the Q4 of this year.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Okay. Thank you so much for all the participants, and we look forward to connect with you very soon. Thank you so much.
Thank you.
On behalf of Snowman Logistics Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.