Key Rating Drivers & Detailed Description

Strengths:

• Established market position in the temperature-controlled logistics industry: Snowman is the largest provider in the highly fragmented temperature-controlled warehousing, transportation and logistics industry in India. The company provides quality service and end-to-end solutions to customers in the temperature-controlled industry, thereby resulting in repeat orders and long-term contracts providing around 80% revenue visibility. As on March 31, 2023, the company had warehousing capacity of 1,35,552 pallets across 44 warehouses in 18 cities. It also had 239 refeer vehicles (refrigerated trucks) providing last-mile, inter-city distribution services through a consignment agency model. It caters to marquee customers in diversified end-user industries, such as seafood, pharmaceuticals, dairy, e-commerce and quick service restaurants (QSR). Under the dedicated warehouse segment, the company has opened 4 warehouses for e-commerce and pharmaceutical clients including Amazon, Fraazo, Impelpro, among others.

• Adequate financial risk profile: Gearing was 0.25 times as on March 31, 2023, and is expected to remain low in the medium term. Debt protection metrics are adequate with interest coverage and net cash accrual to total debt ratios are ~4.3 times and 0.63 times, respectively, in fiscal 2023. Any higher-than-expected debt for funding capex could adversely impact the capital structure and debt protection metrics and will remain a key rating sensitivity factor.

• Continued parentage of GDL: Post settlement of agreement between Snowman and Adani Logistics Ltd (ALL) in July 2020, GDL is the single largest owner with 40.25% stake in the company and substantial control on the board. The rating continues to benefit from moderate operational and strategic linkages with GDL, as both the companies offer complementary services in the logistics industry, thereby providing cross-selling opportunities to customers. GDL is one of the largest private players in the container freight station, railways and inland container depot businesses in India. Furthermore, Snowman is well established amongst the leading organised players, providing temperature-controlled services in India

Weaknesses:

• Exposure to risks related to capacity expansion: The company has plans for expanding across locations in India over the medium term. The company will be adding 50 owned trucks apart from another 100 trucks under the SnowLink business model. A warehouse in Kolkata is being set up with 5,000 pallet positions. Also, one warehouse each is being planned to be set up in Bhubaneswar with 4,500 pallet positions and Lucknow with 4,000 pallet positions. These 3 warehouses will be constructed in fiscal 2024 and will start operations in fiscal 2025 only. Snowman will remain exposed to risks related to implementation of capex in a timely manner and translation of the same into healthy demand. Any delay in implementation of capex or funding tie-up could adversely impact the company’s financial risk profile and will remain a key monitorable.

• Highly capital-intensive operations: The business is highly capital intensive, with continued investments in the warehousing and transport assets.  Snowman has incurred Rs 312 crore as capex over the past five fiscals through 2022; however moderate operating performance has resulted in return on capital employed (ROCE) of about 2-4% during this period.

• Susceptibility to competition and volatility in end-user segments: The temperature-controlled industry is highly fragmented, with large presence of unorganised players given low barriers to entry. Snowman’s operations are susceptible to competition from local players across markets. However, they lack quality end-to-end service offerings which helps organised players such as Snowman to garner marquee customers across end-user segments, such as pharmaceuticals, seafood, QSR, e-commerce and fast-moving consumer goods. Volatility in demand from end-user segments could impact Snowman’s operating performance and will remain a key monitorable

Key Financial Indicators (CRISIL Ratings-adjusted numbers)

Annexure - Details of Instrument(s)

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