The holiday truncated three-day trading week pleasantly surprised the stock markets with the Sensex going up by nearly 4%. The top performing sectors in the green this week were auto (7.4%), telecom (4.9) and banking (4.8%) with individual stocks like Tata Motors (9.8%), Maruti, BHEL and ICICI Bank (9%) and Mahindra & Mahindra (8%). Top companies are expected to report their weakest pace of growth in two years for Q4 FY 16 due to slack demand and bad monsoon. The forecast from the IMD is quite positive with above-average rains expected from June to September. This may spur demand for fast moving consumer goods and their stocks in general. The Nifty is once again on an upward trending mode and is now looking for the next target of 8,000 levels. The technical support is seen at 7,650 and hurdle at 7,873. In the small cap category, Snowman Logistics Ltd looks quite good for medium-term investment. The company was founded in 1993 as an integrated pan India temperature controlled logistics services provider. Gateway Distriparks Ltd is the promoter and largest shareholder with a 40% equity stake in the company. The promoter company is also listed on the Indian bourses and traded at over Rs 270 per equity share. The warehousing segment offers services across a spectrum of temperature from from +25 degree Celsius to -25 degree Celsius. The multi facility centres offer easy assembly and distribution of products to different outlets and being near to key port terminals also is an added advantage. Snowman has an excellent and comprehensive transportation solution network servicing more than 500 cities across the country. The primary transportation is generally long haul which facilitates intercity transport of products like door-to-door service, cargo and milk runs, etc. On the other hand secondary transportation is more of an intra-city service providing last mile distribution of products to hotels, restaurants and retail outlets. The company has recently completed the construction of its Jaipur warehouse thereby increasing the total capacity by 4,200 pallets to 98,500 pallets and increasing the revenue.
Unlike other logistic companies having heavy debt, Snowman has the lowest debt equity ratio of only 0.17%. Growth prospects of the industry are extremely bright with the fast growing increasing demand of frozen items and Snowman is right in the forefront with all the segments in place. The passing of the GST legislation in the next few months can transform the industry and spur the Snowman stock to new heights. Currently the stock is quoting at Rs 62 and can deliver at least 40% return from present levels in the next 6-9 months time frame. Investors should bear in mind that this is a small cap stock and risk reward ratios can be huge on this kind of investment advice.
Rajiv Kapoor is a share broker, certified mutual fund expert and MDRT insurance agent.