Hi Hrusikesh,
Small cap investing is like investing in options & start ups but with superior reward to risk ratio . Only one needs to be diversified .
During bull market one will hear lot of stories that will tell you how the business model is superior and how management is intelligent and in bear market you will equally hear how flawed the business model is and how corrupt / fraud the management is … Some of it may be true and some of it be may be noise .
In past I have experienced this in many stocks like Nilkamal , Graphite India . Venkys , Sona Steering , Cosmo films , etc … I have mentioned my experience in my post LUCKY TRADE (July 2018 ) in BULL in BEAR Market - #14 by kb_snn
Now coming to Byke … I have too invested in this stock @ Rs 150 odd but as startup kind of investment … I am ok if the value goes to zero … What was my logic when I invested in this stock
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Focus – Like take example of thought of being Pure vegetarian even in Goa and Himachal - It takes guts to take any strategic position and sticking to it for years & across location… My experience in investing in business - often management with guts to stick to a strategic position across time lines often wins
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Ability of think different - However stupid or intelligent Room chartering business may sound - in common trade terms it is called whole selling - It is what tata coffee does with coffee , ITC does it with soyabean , coffee and wheat and or KRBL does with Rice . There are time when it works wonderfully like when your own Cost of capital is cheaper . Most companies boost their ROCE of anchor business with these trades plus it gives them more bargaining power for anchor business . While OYO may also do the same thing , the approach by BYKE is like traditional wholeselling - that makes it more interesting … I would like to see if such a solution can really work on large scale .
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Focus on events vs individual travellers : This is positioning that makes them focus on Food vs Room and focus on Local / regional crowd vs outside tourist … Hence you see them less sensitive to trip advisors kind of tourists ( though recently you see them responding to travellers issues at least on website ) … This business model is very popular in budget hotels ( not the ones that are listed ) – Here cost of Bulk room rates and food rates are critical … Also you need maintain few rooms very well for key guests and rest rooms will be in OK OK condition.
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Cost Focus : In the opportunistic business model chosen by BYKE you need to cost focussed . It has no loyalty to location unlike TAJ etc wherein they fought hard to win back Delhi property . Byke will leave location if customers flow is lower or some other issue happens … Hence it invest very little in leased property making exit easy and landowner often has less bargaining power … and hence lease rentals can be lower … Plus they run firm on lean management and staff . Now one may debate this model is not scalable or cannot be branded - That is reason this startup idea is different and needs to be tested … If it works we may have hotel business model that makes money … Rest models like TAJ and rest will never give you good returns on capital .
Finally what if business numbers are Fudged … Well that is risk we need to take in small business and hence one needs to diversify …
Best wishes – Keep spirit & hope high in equity investing … It is required in market as things can be even uglier or better from here