Snowman Logistics Limited (SNOWMAN) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Snowman Logistics earnings conference call hosted by ICICI Limited. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhijit Mitra from ICICI Securities Limited. Thank you, and over to you, sir.

Yes. Thanks, operator, and good afternoon, good evening to all the participants. We have today from Snowman Logistics Mr. Prem Kishan Dass Gupta, Chairman; Mr. Ishaan Gupta, Director; Mr. Samvid Gupta, Director; Mr. Sunil Nair, CEO and Whole Time Director; and Mr. A.M. Sundar, CFO and Company Secretary with us today to discuss Q3 FY '22 results of the company. So without further ado, I hand it over to Mr. Prem Kishan Dass Gupta, Chairman, for his opening remarks. Over to you, Mr. Dass.

Thank you. Very good afternoon, ladies and gentlemen. I hope you are all keeping well and safe. I take the pleasure of welcoming you all the Q3 '22 Earnings Conference Call of Snowman Logistics. All of you are aware, Snowman is a group company of Gateway Distriparks. And we are proud to say that Snowman is leading end-to-end logistics service provider in India. We are offering integrated growth solutions to various investing segments. We have the largest network and capacity in the industry. And we specialize in providing warehousing, distribution and other value-added services across India. Through our international standard warehousing facility and through the integration of technology, we are able to ensure product quality and temperature integrity of critical products. Our focus is to expand our capacity by 10% to 15% every year and, in addition, focus on dedicated warehouses for e-commerce and pharma vertical, which is known by the name of SnowServe. I hope you all had the chance to look at the financial statements and earnings presentation uploaded in the [indiscernible] and our website. We will now open the floor to a Q&A session.

[Operator Instructions] We have the first question from the line of Nitin Shakder from Green Capital Single Family Office.

This is Nitin from the Green Capital Single Family Office. I have one question. So in terms of sectors, where do you think the demand is coming from for Snowman Logistics in terms of which sectors are showing a lot more logistical demand where you see this presence? So can you just highlight how the movement is going on in different sectors and whether logistical demand is coming for Snowman Logistics at least for the next 2 or 3 quarters, what's looking interesting?

Nitin, Ishaan here. So it's a very interesting question that you've asked because in the last couple of years, especially during COVID a lot has changed, and our sectoral volumes have changed, and it's quite interesting to see the trend. So on a broader level, I'd let you know that pharma and e-commerce, as we've mentioned in our recent communications, they have been growth drivers for us. But I will transfer my call to Sunil, and he'll give you some more details on percentages and how we see the trends changing.

Thanks, Ishaan. If we go by the segment, the major segment that has shown growth as compared to last year is QSR and ready-to-cook food products, which has grown by 52%. But this is also because last year the QSR were affected badly due to lockdown. But still, we see good traction there. So QSR, e-commerce and health care are the 3 major segments which are showing promising growth volume as of now.

Okay. And any other new sectors that from your perspective you would like to have a strategy or enter into? Like you mentioned QSR, health care and pharma. I would assume that pharma was a lot more to do with, I would say, vaccine logistics and things like that. And so is there any other sector that you think that the coal chain process can get into and benefit from at least from a company in terms of slightly higher growth rate than what has been shown in the past?

See, when we say pharma, it is not totally dependent on the vaccine. Vaccine still contributes very small amount when it comes to our pharma. We are in pharma much before, 4 years, much before COVID. So -- and we are talking about non-COVID vaccine business when we talk about the health care and pharma. Our strategy is fully built around these 3 segments, which is QSR, health care and e-commerce. Our investments are also directed towards these. The fourth thing where we see opportunity for us as an organization is the transportation, wherein we had created a technology platform where we are aggregating the market capacity and using that for our existing set of customers. We find that in that business, we have grown around 75% on a YTD basis if we compare with the last year. We have 110 transport partners who are onboarded on our SnowLink platform. And on an average, 150 trucks are used on a daily basis through that. So these are the 4 areas where we are focusing in the near future.

Okay. That's all for mine and all the best.

Not directly addressing your question, but I would also like to highlight that some of our other segments where we're not seeing as much of a year-on-year growth but which are still pillars of our industry and which give us significant volumes include the seafood export industry. And we see rising exports out there from India to the Western part of the world. Especially from the East Coast, most of our facilities target in that segment. And in addition, there's a dairy and confectionery, which includes things like ice creams, all milk products and chocolates and high-value products in those segments. So those are also catered by us. And the interesting thing is that, traditionally, when we had taken over Gateway Group, when we had taken over the majority in Snowman, at that time, we had limited capacity, and we had to sort of try for business on a regional basis. But now going ahead, there are large brands, both existing ones and new brands, who want to either enter India from the international market or new brand within India itself, who are emerging. And we want a platform that you can address a certain network or together have access to a few different markets within India. And currently, Snowman is the only platform which allows them to do so because we are not a pure warehousing and transportation service provider. We provide end-to-end management for their supply chain so that if there's a person who wants to focus on manufacturing or it's a new brand entrant, they can focus on their core business, and they can leave the distribution part to us. And we will not only give them warehousing and transportation, we'll supply the whole -- we will advise them on the whole supply chain. So that kind of traction is coming in now.

[Operator Instructions] We have the next question from the line of Chirag Goradia from Piper Serica Advisors Private Limited. No response, we'll be moving on to the next question. The next question is from the line of Vikram Vilas Suryavanshi from PhillipCapital.

Sir, regarding our growth, we have seen a strong recovery coming back in transportation side of the business. What kind of growth we can look in the warehousing side of the business? And are we seeing a pricing improvement in cold chain per pallet pricing basically?

Sunil, can you please take that?

Yes, sure. So Vikram, yes, we have almost 35%, 36% of growth in terms of transportation revenue and around 11% growth in warehousing revenue. It is important to understand here that the 2 facilities which were planned for commissioning last year had -- I mean, this year has delayed a little bit due to COVID, where man and material shortages were there. The delivery is up and running now. It was commissioned in October. And Coimbatore also is ready on 1st February, 4 days from now, that will also be operational. So these 2 facilities and 1 Amazon facility in Pune are going to give us the full year remaining next year. So this should help us put a reasonably respectable growth in the next year as well, when it comes to warehousing. And as far as transportation is concerned, this SnowLink platform will continue to contribute more or less at the similar rate. So we believe that the run rate will be maintained as we move forward.

Okay. And in terms of basically do you have like a broad mix, if you can share, of the pallet capacity between food chiller or ambient kind or what is the maximum basically type of products?

So we have total 1 lakh 13,500 pallet positions now. And with Coimbatore adding up in next 3, 4 days' time, it will be 1 lakh 18,000 pallet position. Almost 75% of it is frozen. But when we say frozen, they are convertible to chiller also. We can set any temperature we want between minus 25 and plus 25. And around 5% to 7% are the ones which are typically chiller cannot be converted into frozen. And around 15% to 18% capacity is dry. That's the ratio that we have.

Okay. And normally, how much is a higher realization in frozen or chiller compared to dry per pallet per month?

So frozen yield is the highest yield, and hence, our focus always is to get a frozen customer. So when we talk about QSR and RTC or we talk about dairy and ice cream, they are all major -- and the DMC, they are all major frozen users. So our focus is always there. And so frozen typically would give us a yield of anywhere around INR 1,700, INR 1,800 per pallet. Whereas chilled will give us an average of INR 1,200 to INR 1,300 per pallet per month; and dry, around INR 700 per pallet per month. So that's the typical yield that we have.

And have you seen some improvement in yield or the more or less stable to growth will mainly come from pallet price revisions?

So last year, we could not command much price increase from the customers. But in the last 6 months, as the things have started improving, all pending agreements, renewals were done. So today, when we compare our ASP, average selling price, from last financial year, we are around 4.5% to 5% higher than the last year. So this is basically because of the mix that we have changed slightly, we focused on high-yield products and as well as the price revisions that we have got from the customers. So you can say 4.5% to 5% increase in prices.

Got it. And what kind of sustainable EBITDA margin one can see in this warehousing side of our business?

See, anywhere, it depends on a lot of factors like whether the land is owned or leased, et cetera. But if the land is owned, then we expect around 45% of EBITDA in that unit at a unit level.

Okay. Got it. And last question from me, just to understand more about the kind of work we are doing for Amazon. It will be better if you can give one example exactly what is our group of actual activities with Amazon with an example or something, I think, just to understand more about that part of our business.

So see, we do everything that is between the manufacturer and the home. So what we do is we bring in stuff to our processing center. For example, we bring a lot of vegetables from the palm lines near Pune. We bring it to our facility, we sort, grade and pack them. We make bundles and packets for home delivery purpose. And they are labeled and then they are delivered to Amazon hubs within the city. And from there, Amazon delivers it at home. So bringing in that stuff, sorting, grading, labeling, packing and then having it delivered to hub is what we do for Amazon.

Okay. And are we allowed to do other vendors were also in the same facility or the facilities won by us are basically -- has taken some space within it? Or is it like a multiuser facility or how is it?

As of now, it is not a multiuser facility, it is a dedicated facility. But we are in talks with Amazon, wherever possible, whether we can have the services offered to other customers. As of now, there is no exclusivity. We can offer to other customers from other facilities, which we have already started. But from the same facility, since they are -- the facility is designed to meet their volume expectations, as of now, they are exclusive for that.

[Operator Instructions] We have the next question from the line of Prateek Kumar from Antique Stockbroking.

My first question is on your expansion plans. We -- a few months back. we had laid out certain expansion plans led by [indiscernible]. So is there any update on that?

Thanks for joining the call. So to answer this question, we are expanding our capacities. We are planning roughly 10% or 15% per year. And for this next financial year, our requirement will be roughly between INR 100 crores and INR 125 crores. Now it so happens that our cash flows have improved greatly over this last year. In the next few quarters also, the cash flows having a good impact on our internal accruals. So we can cater to this phase of expansion within our internal accruals as well as debt. Our immediate plan, which Sunil had already mentioned, it will be done. Coimbatore is starting at 1st Feb. And these were delayed because of COVID, because of lack of labor and building materials and so on. But those projects are basically completed. And our next project, we have acquired the land in Kolkata, and we'll be expanding by 9,000 pallets per day in 2 phases of 4,500 each. Apart from that, we are looking at some other locations which are new cities, roughly 3 locations we are planning. Maybe the location -- number of locations might change, but in terms of number of pallets, it will be around 3,000 pallets more on top of Kolkata. Apart from that, we are also looking at some new models, which you've seen in the last couple of years, which we've done, which we call the SnowServe vertical. So like we have Amazon, now we have another e-commerce customer on board. And we are getting a lot of interest from pharma. So internally, we have developed a new pharma vertical with a new pharma head. And we are looking at getting to dedicated pharma facility. The advantage here is not only from the demand side but from an investment on the CapEx side also, when we cater to a specific product, we don't need to make a facility which needs to be multi-temperature between minus 25 and plus 25 and have multiple chambers. Since it will be specific to 2, 3 products or whatever similar products a pharma company might want to have, so the amount of CapEx required will be lesser, and it would be dedicated for a much longer period because, typically, even in pharma, freezer agreements which we have a longer term 3 to 5 years, we are having dedicated, it could be even longer. So that's our general expansion plan.

And Sunil can elaborate on this if you want further clarity.

Sure. So just one thing. 18,000 will move to what number by end of FY '23?

So we'll be adding roughly 15,000 pallets. But I'll just leave it open ended that it could be plus-minus a little bit depending on how much dedicated warehousing we go forward.

My next question is on -- regarding like facilities like Amazon or some other customers where you're getting now dedicated customer-led facility. I remember like -- I mean in your earlier years, maybe 5, 7 years back, when pallet capacity size was smaller. You used to build dedicated facilities and used to get full like sort of immediately, and then you used to build another facility then another facility. Then after some time, the growth of capacity became slower than growth in demand -- sorry, growth in capacity became faster than growth in demand. But now when we are building Amazon customer-led facilities, so do they fill your warehouse immediately like in first quarter of operation or that is also like staggered filling up of your warehouse?

So how are the difference between what we used to do earlier and what we do now, and I'll ask Sunil to give some more details, is basically, we don't have the risk of occupancy anymore. So in these dedicated warehouse, we give the full facility to the customer, whether it's Amazon or someone else. And how do you utilize it, whether they keep it empty or whether they fully utilize it is up to them. But having said that, there are advantages the more utilization there is, the more handling we earn and some other value-added services. So in the case of some of the initial ones which we did, it was a joint exploration of this model between us and Amazon. And we both had some learnings, and they shared the capital -- they took the CapEx actually as part of the agreement and spread it over the agreement period. And in some other places, we've done some different models, but our CapEx is recovered within 2 to 3 years in these models. But I'll ask Sunil to give you some more details on this.

Yes. So as I mentioned earlier, in case of Amazon, the facility is dedicated because it is designed and made as per the requirements of the customer. And here, the utilization risk is with them. So all the fixed cost of warehouse investments, fixed set of people and everything is assured month-on-month from the customers. Only the variable cost depends on the throughput that we make from the facility. So there is no utilization risk with us there. And the utilization risk comes in the preserve facilities which we build for the multiple set of customers and wait for the utilization purpose. But now the story is what used to happen 5 years back was this today is we have enough data and information about each customer. We have 700-odd customers enlisted with us, and we always very closely work with top 15. And we understand their strategy, and then we decide where to put a facility we have 70%, 80% utilization is assured by our existing set of customers. So earlier, it was more of a discovery. Today, it is more of the data and communication and the information-based decision.

Sure. Understood. And just one last question. Can you just also like comment on competitive landscape? So has there been any been interest from start-up space on this segment, whether it being transportation or warehousing or cold chain segment? Or we're just still like the old players which are like sort of driving the business?

So Prateek, the most interest that we've seen in the start-up space has been on the transportation side. You know some of the companies trying to both refer and dry transportation, which are big names in the start-up space. But over time, what has emerged is that they have been very high user base and revenue base but very high losses as well. So we don't attract to that philosophy, and we want to build volumes only if they are profitable. So in that sense, we have not come across any start-up where we have to work together as of now. Having said that, there is one partnership which we've done with the World Bank and IFC and the U.K. government under a program called Tech Emerge. So this program invites innovators in the field of cold storage for transportation, anything related to our industry, wherein we can solve a couple of issues. One is that how we can integrate technology to lower our costs and bring value to the customer, and more importantly, how we can improve our carbon footprint and sustainability in this industry in the future. So in that regard, there are many start-ups which we are doing trials and test and initial conversations with. Some of the areas are some easy targets are things like solar power or using cooling solutions which reduce our impact. Then there are some more interesting solutions as well. And once our trials are successful and we start working with some of them, then we'll let you all know about that.

Even the listed peers like ITC Express, they are also now talk about doing much in this business defining the very good opportunity. So even the bigger are also looking at the segment now also.

Right. Even, I mean, from one of the projects which we've spoken about before, it's become quite successful for us internally. We've launched a tech platform called SnowLink. And what we are doing is that a lot of the customers -- see we've always wanted to focus on warehousing. But a lot of our customers want an end-to-end solution, which includes transportation. And where we find value instead of owning our own fleet and handling that business on our own is to provide this platform for aggregation, and we can be the front end for the customer. But at the back end, there's a vendor who is using our platform and providing the first mile and the last mile. So in this case, I'll just hand over to Sunil, who can give you a little bit more detail about SnowLink, what kind of run rate we are having and how the vendor participation has been and how we see it going forward.

And I mentioned earlier, in case of SnowLink, what we are doing is our existing set of customers need transportation services. When we did an analysis 1.5 years back, we realized that we are only catering to the 10% of requirement. And hence, they have to go out and look for transportation support. So now with this, we are onboarding the small transport operators, and we are making the part of the complete end-to-end game that we have. Today, we have 110 vendors -- vendor partners who are onboarded to SnowLink platform. And on an average, we use around 150 trucks daily through this platform. So this is the number. You are right when it comes to the attraction in the industry, has a lot of attraction there. A lot of large operators are also looking at this industry because there is a lot of positivity around the volumes are growing. And hence, everyone wants to look into it.

[Operator Instructions] We have the next question from the line of Abhijit Mitra from ICICI Securities.

I have 2 questions. First of all, on your mix, I can see that the ramp-up in e-commerce is really commendable. Almost in a span of 7, 8 quarters, you have reached a quarterly revenue run rate of almost INR 4 crores per quarter. So just to sort of understand what would be the total addressable market here. Your estimate, what would be your current market share? Who would be your key competitors? So if you can give some details on the way forward and in your understanding, how profitable this segment is, so some thoughts on that.

Okay. So Abhijit, as far as the addressable market is concerned, it is quite big, but we have not quantified it so far. We have not done any research on that, either we have a ready research material. What I want to tell you here is all the e-commerce companies, particularly the Flipkarts and Amazons of the world, are now getting into it. So while they have set up all other general merchandise part of the business well, this is one area where they found that some expertise is required in handling food, and that's when they partnered with us. So with Mumbai and Delhi, we set up now. Pune is functional. Ahmedabad is under construction. We have another e-com company for whom we are doing in Bangalore. For Amazon, we are also doing from our own facility which is not a dedicated facility in Hyderabad and Bangalore. So this is not something where we find a competition. We find that the customer is expanding and they want their expertise to come up and help them up in this whole expansion phase. So this is -- I think this is just the beginning. So the size of the market is not clear to us, but yes, the growth that we are showing here is also, to some extent, limited because of the bandwidth that the customers have in terms of opening centers in multiple locations. We have our project team which can open 4 to 5 such centers every year. But there are a lot of IT related stuff that the customer also has to take care of. So there, they have some bandwidth limitations, hence, we are opening 2 to 3 facilities a year.

But even if we are starting out, I think the market that we can see from your top line, around 150 -- or INR 15 crores per annum, it looks too small. So there has to be some other entities who are addressing it right now or they're doing it on a captive basis or a combination of both. So in case you can offer some clarity on that. And my second question is that most of your segments are -- have grown pretty tremendously, barring meat, seafood and poultry. So is it a conscious decision to move away from the market? Or is it something of a market trend?

So for your first question, yes, you are right. There are a lot of companies which are doing on their own, when you talk about the ropes or food basket, they manage their own back end. And we find that our customers are those who want to do it a little differently. And hence, we are tied up with the Amazon. And for Amazon, it is just the beginning. They have just set up these 4 facilities. And we believe that everywhere they go, we are going to partner with them. So it all depends on their strategy as of now. And that's the reason I avoided quantifying the business size here. And your second question was, sorry?

Yes, on meat...

Meat, seafood and poultry right?

Yes, yes.

Yes. So see, the seafood and poultry are still doing good. When it comes to meat, there has been a lot of restrictions in the country for the meat processing as well as for exports. And hence, it was coming down around 3, 4 years back. And we also realized that this is not an industry which we need to focus on because of the uncertainties that we have. So we kept reducing our exposure on meat. And hence, we tried replacing those capacities with more consistent volume of QSR and the ice cream. And hence, you will see some growth segments, whereas the meat volume has come down a lot.

Okay. And my last question is that you have given a capacity heat map across state cities. And you also mentioned that you have plans for new Kolkata facility with 9,000 pallets in 2 phases being planned. I think that's the facility which is coming after Coimbatore. So in terms of your capacity heat map, could you also point out the key thought process that you have, which of the regions that you're targeting and which are the segments which you are sort of seeing grow in those regions to sort of attribute capital to them. Thanks.

Yes. So after Kolkata, we will be setting up a pharma warehouse in Bangalore. We are already setting up one around in Ahmedabad. And then we plan to have 2 more facilities. We have not decided on the locations. We are just doing a customer -- existing customer study with respect to what -- where do they want to expand with their reach. And then we'll be finalizing the locations.

So do you sort of maintain your old target of doubling the capacity in 5 years, 6 years?

Sorry, sorry?

I mean do you maintain your previous targets of doubling the pallet capacities in 5, 6 years' time? Is that target on?

Yes, that's why we are saying 15,000 to 20,000 pallets every year we will be expanding it.

Yes. I just want to add that apart from the normal organic expansion, we'll be also looking at ETS model and lease model. So we are on track for getting to 200,000 pallets as well as [indiscernible].

We have the next question from the line of Prathika, an individual investor.

I had a couple of questions. One was regarding the -- on the warehouse side. We've been reading a lot about dark stores coming up in different parts of the world. Just wanted to get your thoughts on if any of the retailers have approached Snowman Logistics regarding this, what kind of change or demand are you seeing this having on the business, that's my first question.

Miss Prathika, can we have your second question also, please, and then we'll answer them together?

Sure. Okay. So my second question was on the SnowLink, regarding SnowLink, I think it's really nice how you changed the SnowLink platform and all that. But I think some segment has also been doing well. Last few quarters, it has been doing really well. Just wanted to understand when do you see it turn positive.

Okay. So when it comes to dark store, there are the last mile fulfillment centers. And what we do for Amazon today is the same thing, only the dark store is maintained by them, but complete back end to that transfer is what we maintain. So we have a couple of more inquiries coming up to do the same thing. So that space is interesting, but we being bulk operators, dark store is as good as a last mile of a bigger supermarket management kind of activity where the customer is not walking in. So what we are doing is we are becoming a back-end to that facility. So Amazon has edged such food dark stores or fulfillment centers or hubs they call it within the Mumbai City, and we supply to those stores from our new Mumbai large fulfillment center. Did I answer your first question completely?

Yes. You do see some kind of demand coming from this, that is my understanding right?

Very much. This means a little bit of consolidation and value add before it reaches dark store, and that is where we come in and play that role of consolidating and the value-add activities of sorting, grading, packing, labeling, everything. Your second question on SnowLink, so SnowLink on its core is profitable as of now. SnowLink is profitable, but overall transportation is not profitable for us because there are trucks which are owned and operated by us, and we see some inefficiencies there. And that's the reason we decided we will not invest too much on the transportation side, whether we will use our partners who we find more efficient when it comes to managing the driver or maintenance of the vehicles or fuel efficiency and all. And we decided to focus more on the customer and operations side. So we run those vehicles, we utilize those vehicles, and we serve customers, give them visibility on temperature and everything. So that's how SnowLink comes in. And we operate at a reasonably good gross margin there. So SnowLink on it's own is profitable right from the first day.

Okay. So do you see the SnowLink platform is something only [indiscernible] will use? Or do you see it in future as something that you will make it as a service for other providers to use as well? Any thoughts on that?

No. As of now, it will remain a Snowman product because, as I said in one of the earlier questions, we only serve 10% of our demand. When I say our demand, Snowman's demand from Snowman's customers. So we would like to take it to 40%, 50% first and then see whether there is a merit in sharing this application with others.

Okay. So for the transportation segment to turn profitable, what would -- what would that take? I'm not clear on that.

So see, the transportation is more of SnowLink businesses coming in, overheads are being optimized. And with our existing trucks that we have, we have put in some controls there. Mostly what was happening was the fuel price increase was not being passed on to customers because of the agreement related issues and with the last 2, 3 years, COVID-related issues. But now we have a very clear agreement terms with the customers, and hence, almost 75%, 80% of the customers will -- fuel price increase will be passed on to them. So once we do these 2, 3 things and slow revenue goes up and optimize our overheads that potentially should get profitability.

Thank you. Yes, sir, do you have any comments?

Yes. I would like to thank all of you for participation and impactful questions. We will now be closing this call. If you would like to know more details, we are linked to getting in touch with our management and trade partners who are handling our Investor Relations. Thank you, Abhijit, for organizing the interaction. With that, you may close the call.

Thank you very much. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines.

Thank you.