CRISIL has assigned a CRISIL IPO Grade 4/5 to the proposed initial public offer (IPO) of Snowman Logistics. SEBI, in February 2014, made the IPO grading exercise voluntary for issuers. In spite of it being a voluntary exercise, companies continue to opt for IPO grading. Snowman opted for IPO Grading after it became optional and is the second company to follow it with an IPO issue.

The assigned grade reflects Snowman’s strong position as a leading domestic integrated cold chain company and good long-term prospects for the cold chain industry. CRISIL Research expects the cold chain industry to grow at a healthy pace over the next few years (15-17% CAGR over FY13-16) driven by growing demand from end-product industries, uneven regional distribution of cold storages in India and favourable government policies.

The grade is supported by Snowman's strong end-product portfolio, loyal clientele, professional management, seasoned shareholders and modern cold chain infrastructure. The company has increased its pallet (a structural foundation of a unit load for efficient handling and storage of products) capacity by five times in less than two years without any adverse impact on its margins. It further plans to expand its capacity to 1,00,000 pallets by FY16.

The grade is constrained by risks related to Snowman's aggressive capacity expansion plans. The company might not be able to generate sufficient business to run at a healthy utilsation with the increased capacity which can put pressure on its profitability and growth.

Snowman’s operating income grew from Rs 346 million in FY10 to Rs 1,137 million in FY13 driven by capacity expansion, broadening of the end-product portfolio and increase in the client base. EBITDA margin improved from 16% in FY10 to 22.5% in FY13 due to increase in utilisation and improvement in per pallet realisation. Consequently, EBITDA expanded from Rs 56 million in FY10 to Rs 256 million in FY13.

Adjusted PAT grew from Rs 38.2 million in FY10 to Rs 219.4 million in FY13 on the back of strong growth in EBITDA and tax credit on account of Section 35AD of Income Tax Act 1961. Consequently, PAT margin improved from 11% in FY10 to 19.3% in FY13. The company has a net debt of Rs 885 million as of FY13.