Adani ports to acquire Snowman Logistics after majority stake purchase.

 Adani ports to acquire Snowman Logistics after majority stake purchase.

Billionaire Gautam Adani’s port-to-power Adani Group acquired majority stake in Snowman Logistics Ltd. for Rs 296 crore to foray into cold chain logistics. Adani Logistics Ltd., a wholly owned subsidiary of Adani Ports and Special Economic Zone Ltd., signed definitive agreements to acquire 40.25 percent stake in Snowman Logistics from Gateway Distriparks Ltd.

Adani Logistics Limited (“ALL”), a wholly owned subsidiary of Adani Ports and SEZ Limited (“APSEZ”), has announced that it has signed definitive agreements to acquire 40.25% stake in Snowman Logistics Ltd. from Gateway Distriparks Ltd.

The purchase price of INR 44 / share represents a 3.2% premium to the market price of

December 27, 2019 and a 12% premium to 60 day VWAP.

As part of the transaction, Adani Logistics will make a mandatory open offer as per the

Substantial Acquisition of Shares and Takeover Guidelines, 2011 for a maximum 26% of the

public shareholding in the Company.The acquisition is subject to customary condition precedents and expected to close by March 31,

2020.

Mr. Karan Adani, Chief Executive Officer and Whole Time Director of APSEZ said, “We are

excited today to announce the acquisition of Snowman Logistics Ltd. The acquisition is in line with our strategy and vision to be a leader in providing integrated logistics services in India and moving from port gate to customer gate. Cold chain is key product in customer gate strategy given India’s consumer driven demand. We will double the capacity in next 5 years.

With focus on increase in utilization, higher realization from product mix and operational

efficiencies, this vertical will help further improve returns of logistics business”

Snowman Logistics Limited: (SLL)

Incorporated in 1993, SLL is in the business of integrated cold chain logistics providing

warehousing, distribution and value added services. With over 25 years of expertise, SLL is the largest organized player in the country with pan India presence operating 31 temperature controlled warehouses at 15 strategic locations. 

The company infrastructure includes warehousing capacity of 1,04,343 pallets and 293 refrigerated vehicles (Reefers). SLL has a demonstrated track record of achieving scale and handling complex supply chain in cold chain industry. 

With a well-diversified reputed client base, the Company derives majority of its revenue from fast growing and high yielding sectors including Seafood, Quick Service Restaurants, Meat and Pharmaceuticals

Adani Logistics Limited

Adani Logistics Limited (ALL) is a wholly owned subsidiary of Adani Ports and Special

Economic Zone Limited (APSEZL) and is the most diversified end-to-end logistics service

provider in the country with presence across all major markets. The company has expertise in handling varied customer across segments like Retail, Industrial, Bulk, Break-Bulk, Liquids, Auto and Grain Handling. ALL currently operates 5 Logistics Parks, 55 rakes ( 39 - Container, 8 – GPWIS, 1 - AFTO and 7 Agri Rakes), 400,000 sq ft of Warehousing space, 5,000 + containers, 0.9 million metric tonnes of Grain Silos and 9 Inland Waterways Vessels.

 ALL has set itself a target of 15+ logistics parks, 200+ rakes, 5 million sq ft of warehouse space, 15,000 + containers, 2.5 million metric tonnes of Grain Silos and 25 Inland Waterways Vessels by 2025.

Adani Ports and Special Economic Zone

Adani Ports and Special Economic Zone (APSEZ), a part of globally diversified Adani Group, is the largest port developer and operator in India. 

In less than two decades, the company has built a formidable presence in port infrastructure and services. APSEZ’s 10 strategically located ports and terminals — Mundra, Dahej, Kandla and Hazira in Gujarat, Dhamra in Odisha,Mormugao in Goa, Visakhapatnam in Andhra Pradesh, and Kattupalli and Ennore in Chennai — represent 24% of the country's total port capacity, handling vast amounts of cargo from both coastal areas  and the vast hinterland. 

The company is also developing a transhipment port atVizhinjam, Kerala. For more information, please visit Website - www.adaniports.com

Next Read: Bharat Bond ETF: Should you subscribe

Bharat Bond ETF: Should you subscribe?

The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it.

The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio').

The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations.

Bharat Bond Exchange Traded Fund (ETF), a move aimed at deepening the corporate bond market and reducing the cost of borrowing in India.

Bharat Bond ETF is expected to create an additional source of funding for Central Public Sector Undertakings (CPSUs), Central Public Sector Enterprises (CPSEs), Central Public Financial Institutions (CPFIs) and other government organizations.

What is the product?

As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 years and the other in 10. Upon maturity, the fund will be redeemed and the money returned to the investors.

The issue size of the 3-year variant is set at Rs. 3,000 crore (with the option to extend it by an additional Rs 2,000 crore) and for the 10-year variant is Rs 4,000 crore (with the option to extend it by Rs 6,000 crore).

What makes it stand out?

The fund has a lot of things going for it.

    Low-cost structure: The USP of this fund is its wafer-thin expense ratio. At 0.0005% , this bond ETF will be the cheapest mutual fund product in India and one of the cheapest debt funds in the world. In the debt segment, costs matter a lot and this provides it a massive advantage over the more conventional debt fund alternatives.

    High quality portfolio: Comprising bonds issued by government-owned entities, the default risk will be low here. In the middle of credit blow-ups, the consequent side-pocketing, and the generally prevalent risk aversion, this fund offers the kind of safety the besieged debt fund investors are seeking at the moment.

    Predictability of returns: The fixed maturity feature of the ETF will provide predictability of returns. If held till maturity, the investors of the 3-year variant may expect 6.69% per annum while those of the 10-year variant can hope for 7.58% per annum. It is important, however, to note that no mutual fund guarantees returns. The above figures are simply based on the current indicative yields of the indices which these funds will replicate.

    Transparency: There will be daily portfolio disclosures on an independent website. On that front too, it scores over the conventional debt funds which disclose their portfolios once a month.

    Tax efficiency: As with other debt mutual funds held for more than a period of three years, investors will be able to get the benefit of indexation here. In comparison to your interest from deposits which is taxed at your marginal rate of tax, the ETF at 20% inflation-adjusted rate is a better alternative. Importantly, the timing of the launch is such that you may get indexation benefit for an extra year. For instance, the 3-year variant will provide indexation benefit for four years, if held till maturity, further bumping up your post-tax returns.

What about liquidity?

Large investors who wish to buy or sell units worth Rs 25 crore or more can directly do so with the fund house. Smaller investors would be able to transact in the units on a stock exchange. The AMC claims that it will appoint several market makers to ensure that adequate liquidity is available on the exchange. Whether they are able to actually create enough liquidity will become clear only once the units are listed.

In any case, the AMC is also planning to come up with the Fund of Fund (FoF) variants almost simultaneously (expected launch date between 13th-20th December) which puts the liquidity concerns to rest. We believe the FoF variants will be better for small ticket investors or those who do not have a demat account.

Should you invest?

At the time of the ongoing mess in the debt funds space, a fixed income fund that offers high quality portfolio, predictable returns (though not guaranteed, of course!) and ultra-low costs seems too good to be true. Bharat Bond ETF comes across as a good option for fixed income investors, particularly those whose investment horizon coincides with the maturity period of the two variants.

But the ones interested in the 10-year variant should note that it can be fairly volatile in the initial years of its existence. Its long maturity profile will make the portfolio quite sensitive to interest rate movements. But it shouldn't matter much if you are looking to hold for the entire 10-year duration.

The NFO period for retail investors will be from 13th to 20th December 2019 and those interested will be able to invest in unit sizes of Rs 1,000, but only up to a maximum investment amount of Rs 2 lakh.

 Insights About the Fund

The Bharat Bond Exchanged Traded Funds is no doubt a good option for investors looking for low risk, good returns and a substantial level of liquidity. Investing in this fund will ensure that your investment is done in high quality ‘AAA’ rated bonds of Public Sector Companies tracking the Nifty Bharat Bond Index with a fixed maturity tenure. As it is an ETF, once the NFO (New Fund Offer) is out, its units can be bought and sold on the stock exchange. The units will be held in your Demat account.

 However, investors who don’t hold a demat account have an alternative option to invest through Bharat Bond Fund of Funds (FOF) that has similar maturity in line with underlying ETF.

Next Story : SBI Card IPO and its effect on SBI

SBI Card IPO and its effect on SBI

SBI Cards files ₹9500 crores IPO papers with SEBI. SBI to divest up to 4% stake in their subsidiary SBI Cards. The SBI Cards IPO date is not announced yet. SBI Cards and Payment Services Pvt Ltd (SBICPS) is the credit card unit of the State Bank of India. The company to raise between ₹8,500 crores and ₹9,500 crores. The value of the company is estimated at around ₹60,000 crores It will be one of the largest stock market listings in the country.

Incorporated in 1998, SBI Cards and Payment Services Limited is a subsidiary of SBI, India's largest commercial bank in terms of deposits, advances and the number of branches. SBI currently holds (along with its nominees) 689,927,363 Equity Shares, constituting to 74.00 % of the pre-Offer issued, subscribed and paid-up Equity Share capital of the Company.

The company the 2nd largest credit card issuer in the country, with a 17.6% and 18.0% market share of the Indian credit card market (number of credit cards) as of March 31, 2019, and September 30, 2019, respectively, and a 17.1% and 17.9% market share of the Indian credit card market ( total credit card spends) in fiscal 2019 and in the six months ended September 30, 2019.

SBI Cards offers a wide range of credit cards to individual and corporate clients including lifestyle, rewards, shopping, travel, fuel, banking partnership cards, and corporate cards, etc.

SBI Cards has partnered with several leading names across industries, including Air India, Apollo Hospitals, BPCL, Etihad Guest, Fbb, IRCTC, OLA Money and Yatra, amongst others.

As a subsidiary of SBI, the company has access to SBI's extensive network of 22,007 branches across India. The partnership enables it to market its cards to a huge customer base of 436.4 million customers.

Headquartered in New Delhi, as of September 30, 2019, the company has a sales force of 33,086 outsourced sales personnel operating out of 133 Indian cities.

The company's total income increased at a CAGR of 44.9% and the revenues from operations have increased at a CAGR of 44.6% between fiscal 2017 to 2019. The net profit grew at a CAGR of 52.1% during the period.

According to a report by Macquarie, the IPO is expected to be around Rs 9,000-9,600 crore in size. The IPO is likely to hit the markets early next year.

SBI, which holds a 74 percent stake in the unit, along with private equity firm Carlyle Group, which holds the rest 26 percent through its subsidiary CA Rover Holdings, will together sell 13 crore shares or 14 percent of the company through the IPO. While Carlyle is looking to sell a 10 percent stake via the IPO, SBI would sell a 4 percent stake in the company.

How the IPO will impact the valuation of parent SBI

SBI holds a 74 percent stake in SBI Cards, which Macquarie currently values at Rs 27,500 crore in its model. However, the brokerage, citing media reports, said SBI expects a valuation of Rs 60,000 crore (2.2 times Macquarie's valuation of Rs 27,500 crore) for its share in SBI Cards, which translates to Rs 47 per share of SBI.

The brokerage notes that if value unlocking happens at this price, it would add Rs 16 or 5 percent to their current target price of Rs 320.

Could SBI Cards IPO make it the most expensive financial services company in India?

As per Macquarie, in case SBI Cards gets listed at a market cap of Rs 60,000 crore, it could be the most expensive financial services company in India at 11 times the book value (P/BV).

"As such there are enormous growth prospects for the credit card industry as it is significantly underpenetrated and economics of the business for successful players have significantly improved post-global financial crisis," the report quoted.

India's credit card industry

According to the global brokerage, India’s credit card industry offers vast room for growth, with less than 5 percent cards per capita, less than 1 percent of banking system loans and less than 7 percent of non-cash spends.

Business models have also become more sound with 50 percent of revenues coming from stable fee income thereby significantly boosting RoE in credit cards business at over 30 percent, said the brokerage.

Credit card issuances remain strong at 25% year-on-year (y-o-y) in the three months till June this year– a trend that we have broadly maintained since demonetisation. The three frontline private banks (HDFC Bank, Axis Bank and ICICI Bank) along with SBI Cards and Payments dominate this business with 70% share between them. RBL Bank is a relatively new player but is emerging strongly on the back of its partnership with Bajaj Finance. Despite strong growth in issuances, penetration is quite low at 4% as compared to 60% of population using cards.

Notwithstanding the cyclicality that is inherent to this business, Market experts believe that the Indian banks would continue to show solid growth in issuances given the demographic advantage and strong investments in payment infrastructure.

SBI Cards is the second-largest credit card issuer in the country with 9.46 million credit cards and has an 18 percent share of the Indian credit card market as of September 30, 2019. Meanwhile, HDFC Bank has the largest credit card business in the country with 13.3 million cards issued, while ICICI Bank stood third with 7.9 million credit cards, as of September 30, 2019, according to data from the Reserve Bank of India.

The share sale is poised to become the fifth-largest IPO in the country after Coal India, Reliance Power, GIC Re, and Oil and Natural Gas Corp and will help the parent, SBI, raise funds to boost credit growth. For FY19-20, it will be the largest IPO.

SBI Cards IPO Dates & Price Band: (Tentative)

IPO Open:	20-January-2020
IPO Close:	22-January-2020
IPO Size:	Approx ₹9500 Crore (Approx)
Face Value:	₹10 Per Equity Share
Price Band:	₹615 - ₹618 Per Share
Listing on:	BSE & NSE
Retail Portion:	35%
Equity:	130,526,798 Shares
Discount:	₹18 Per Shares

SBI Cards IPO Market Lot:(Tentative)

Lot Size:	Minimum 24 Shares & Maximum 312 Shares
Minimum Amount:	₹14832
Maximum Amount:	₹192816

SBI Cards IPO Allotment & Listing:(Tentative)

Basis of Allotment:	27-January-2020
Refunds:	28-January-2020
Credit to Demat Account:	29-January-2020
Listing Date:	30-January-2020

Next Story 

Thomas Cook India is it a hidden gem ?

Thomas Cook India: Is it an hidden gem ?

After demerger of Quess Corp, the standalone business of Thomas Cook India looks interesting with a reasonable valuation

What exactly is happening with Thomas Cook India?

Thomas Cook India holds about 50% stake in Quess Corp. In order to simplify the corporate structure, the management decided to demerge the company’s holding in Quess Corp.
Essentially, shareholders of Thomas Cook will receive shares of Quess after about 2 weeks. The ratio, which was announced about a year ago, stands such that for every 100 shares of Thomas Cook, shareholders will receive 18.89 shares of Quess Corp.

Since Quess trades at ~Rs.500/share, it accounts for ~Rs.100 of the price of Thomas Cook India’s shares (current price is Rs. 150). Thus, one can expect the price of Thomas Cook to correct by ~Rs.100 ex-date (today), or down by ~66% from closing price on December 4^th. Thus the effective price of Thomas Cook after listing should be Rs. 50.

What is Thomas Cook India’s standalone business?

The company has two major revenue streams, namely, travel packages and prepaid forex cards. Both these businesses are essentially cash cows. Travel packages including fees for booking a person’s tour/itinerary and kickbacks/commissions from airlines and hotels.
In the forex business, the borderless pre-paid cards generates float. Float is the amount of money that the company has collected on the cards, but that has not yet been utilised by the customer. The company earns a small interest on the float, and a small spread on the currency conversion.

What is opportunity in travel industry?

Centre for Asia Pacific Aviation India (CAPA India) estimates that only around 4-5 million unique individuals in India travel overseas for leisure in any given year, a miniscule 0.4% of India’s population.
The room for growth is immense as India’s young millennial population spending on overseas travel increases. Foreign tourist arrivals (FTAs) in 2018 stood at 10.56 million compared to 10.04 million in 2017, and approximately 6.5 million in 2012, showing the spectacular growth in inbound tourism.

What are the triggers for Thomas Cook India?

Management claims to have 50% market share in the organized tours market (5% of the total) prior to Cox and Kings shutting down. As discretionary income of Indians increases, people are likely to spend more on overseas travel. An organized player like Thomas Cook, with a recognizable brand name should get a meaningful chunk of this business.

What are risks for the business?

1. Competition from digital platforms like MakeMyTrip: Digital platforms have been growing their airline bookings at a blistering pace, thereby growing the market share in the overall airline bookings space
2. Short-term/Transitory: The Cox and Kings saga has damaged the reputation of tour providers. Company will probably have to increase discounts to attract customers. Also the company’s parent, Thomas Cook PLC, filed for bankruptcy in the UK. These events have caused a near term hindrance to the company’s business.

Where does Thomas Cook stand in all of this?

Looking at the standalone numbers, the company has generated more operating cash flow than EBITDA. The cash flow from operations/EBITDA ratio is 2x on average over the past 5 years, shows the strong cash generation ability of the company.
Based on closing price on December 4^th, after demerger with Quess Thomas Cook should be available at a market cap of ~Rs.1850 cr. The company has net cash + deposits of about Rs. 700 crores. If we take this into account, we get an adjusted market cap of Rs. 1100 crores.
The company is expected to generate Rs.200 crores of free cash flow for calendar year 2019 (one of the most challenging years in its recent history with Jet crisis + Thomas Cook PLC + Cox and Kings).
Thus, the company is available for less than 6x FCF, a rather reasonable valuation for a leader in a burgeoning industry.

Next Story : How to pick a company strong on ethics and corporate governance