You can ask the same in the concall today.
Good Job Hardik. Really appreciate your efforts.
Notes from AGM:
Mahpe Strike: The strike is still continuing but there has been no disruption in operations as Surat plant is meeting the demand
Rapples: There will be no new investments in Rapples. They are there in 20 schools and they intend to keep it that way. They with subtlety, indicated that it is to meet future demand. But with no new investment, it is a nice way to say this is a failure. This is important because last years annual report was completely on Rapples.
Debt: It has come down from 237 cr to 193 cr
Debtor: 9 crore of receivables has come back. They are trying hard for others too but macro situation in Africa is still challenging. Export business is only done now on LC. They do not intend to scale export business.
Ecommerce: They said that 1 lakh books are sold online everyday.
Justification of Loss: The management said that in the last 24 years, this is the first time the company has made a loss which is pinching them. They are taking correcting measures by reducing employee, finance, material cost.
Chennai and Delhi plants: Location chosen because it is near important markets. Currently their presence is in western India only.
Related Party Transaction:
a. Rent: They said that company did not want to do capital expenditure. So directors bought offices and now are collecting rent.
b. Materials: They said that Paper Mills give cash discount and no credit to Repro. So Directors have opened a Paper Trading company. This company gives them 3 months credit and passes on the cash discount. When we asked the head of finance why can’t Repro demand credit directly from paper mills, he gave the weird answer that it will increase burden on Repro as we will have to borrow to buy so much material. This is clearly a red flag in my opinion. There is no justification on why Repro cannot buy paper directly from paper mills or other distributors for cheap. The Head of Finance then threw in the “arms length” card and said the board(J.J Irani, et al.) have approved it.
10 Academic Publishing: As major aspect of the book publishing industry is academic market. CEO said they have plans to penetrate here and in next two quarters we will see some announcements. This is critical.
11 Strategy for Bestselling/Frontend titles: It is important for investors to understand the limitation of books on demand model. 20 percent of books for publishers provide 80 percent of revenue. So imagine I am a publisher of Harry Potter books. I know that the series is a bestseller and will sell a million copies. I will never go for BOD. I will rather go for offset printing and reduce cost of books.
Here, Promod Khera said that they will use their offset printers for exports, to capture this market. This is again a critical piece of the puzzle to capture 10% market share. For the long tail curve of publisher, which is 80% of books and 20% value, Repro is the only game in town. There is no competition. But the value is in the bestseller categories which have waffer thin margins. This is critical for Repro to capture in the future. One can check Amish Tripathi or Chetan Bhagat books sold by Repro on Amazon. These bestselling books are not BOD but Offset printing projects
12 Ingram: 1.8 million books have been uploaded. Total is still 14 million. Our earlier apprehension on pricing front was validated by Khera. The Average Selling Price of the book is Rs. 1000 which is very high for Indian markets. They make anywhere between 10-20% of that depending the deal with Publisher-Ingram. They are also in regional books which is again a major chunk of the market, but the ASP is just Rs. 300-400. They are also trying to get Ingram-Publishers to get hold of frontend/bestselling titles for offset
13 Offset/BOD Synergy: This will be a major implementation challenge where management will have to implement a fluid strategy to implement offset printing strategy for bestselling titles and BOD strategy for mid and tail end titles.
14 Options: They allocated options and I asked them about the vesting period. They again said one year is a fair time which I do not agree. But anyways, RPT was a major redflag.
Great work Kunal and Hardik. Appreciate it.
buddy, i understand your concern but request you to go through last 5 years of ARs. There are good indicators to get a sense of governance. I am not debating as we need to be cautious on every small transaction but encouraging to take a holistic view covering all research areas in detail. In case, you have already done the same, then, respect your views.
I did attend the first half of the conf call. On the RPT, I think they did sound clean.
Hi…I could not attend. Could you please tell what they said on RPTs
The concall recording is available on the website. I heard it and have the following points to note :-
Mahape plant strike continues ,but there wont be a revenue loss because of this as the surat plant can handle the current demand.
With regards to related party transactions they clarified that the rent that is charged fair rent less the interest on the deposit. The paper trading company (which i understand in zoyaska) earns nothing out of this and sells the paper to repro at thr price at which it buys.
The above is a serious concern for me and i have exited partial qty of my holdings in repro.
On second thoughts , if management did this with wrong intentions they could have hidden all this by keeping close friends as directors of these companies and somehow ensure that these dont qualify as related party transaction.
If we look at some big group companies in India ,related party transaction like these are quite common. So may be we are doubting repro too much. Request other members to comment on this.
10 mio titles will be listed before 2020. Which sounds pretty good.
Either chennai or delhi capacity will be onboard by this FY end. This will help to reduce lead time for north and south customers and will help to get matket share.
Contribution margins from books on demand are 4-5 % front end titles and 30-35% for back end titles.
Can I get answers for few questions:
Current revenue from BOD is 3 cr per month, in order to achieve 1500 crore sales target in 2020 it has to 125 cr sales per month with 10+ million books listed, current 3 cr revenue is from 1.8 million titles listed. do you feel 125 cr revenue per month is achievable? it means it has to sell 3571428 books per month with 350 rs per book revenue i/e 1.19 lakh books per day!! what’s the current capacity and how much it should expand more?
In spite of increasing BOD sales qoq, the top line isn’t increasing.
Disc: Holding Repro from one year
Who said you that there 1500 cr sales target ?? Have you read at somewhere??
Sir you can see the Vijay kedia sir video on Repro and even management says 10,000 crores sales of online books in 3-4 years and Repro to be leader (Meaning at least 20% market share) so they mean sales should be around 1500 crores right?
Okkk . that assumption is okk.
But repro will achieving market share slowly and steadily.
20% in 2020 is in my view is something very difficult.They have to do lot of works to do still now . 10% market share in 2020 at 8000 cr industry is I think conservative target.
800 crore sales on lower end and 15% minimum pat margins will make it 120 crores PAT and 110+ EPS in 2020. if we take 20pe on lower end (coz it’s light asset model and low debt will command more pe), then price should reach 2200+
Why do people have so much faith in what the Repro Management claims? They have changed their business model many times.
First, there was this whole thing about export of printed books to Africa and so on. This seems to have worked for a while, and then fallen flat, with high account receivables and declining sales.
Then, there was this whole about Rapples and E-Learning. Anybody with a semblance of intelligence would have recognized that this was a business which was likely to bleed for a long time (and one which requires long term VC type funding). No wonder the business model has sort of been abandoned.
And now there is books on demand. Where is the traction for books on demand? Indeed, all over the world, printed books are rapidly going out of fashion. And what is really special about books on demand? Who will make the money? The publisher, the copyright owner and the online book seller. Why should a simple operation like printing make real money in this?
I started following Repro about 3 years ago. In these three years, the company has shown zero growth, severe drop in margins, net losses. I think instead of some vague bet on technology (which may or may not play out), there are better buys out there.
There is of course, the chance that the technology of BOD actually gets traction. In that case, it will be reflected in the financials, and there will be a long runway in which one can buy. By passing this today, you only lose some opportunity cost. But by buying today (or not selling today), and seeing BOD fail, you are risking severe capital loss. This emperor has really no clothes.
All your points are valid except printed books getting out of fashion. They are here are they will remain. One such article is below.
The bet on Repro is on two major things:
- Most important is Ingram tie-up which gives them access to huge number of titles(14millions). Though it’s not exclusive, but Ingram has not tied up with two players in the same market.
- The negative working capital model where they collect money first and pay to Ingram later.
However, BOD is still a very small part of the business and I feel it will take some time before they can actually prove it. As of today it’s in my watch list.
Disc: Sold my position in recent run up but watching closely
I agree. My mistake. I should not make the mistake of extrapolating my behavior to mass behavior
To all people above, my view is: Yes it has disappointed till now! just wait for more 2 Q’s and even after that it doesn’t show any improvement in topline then exit, we have waited so long, another 5-6 months should not be a issue.
As per screener it’s PE is about 300. With June 17 sales and OPM
decreasing, can any one justify a PE of 300.
Disc: Following since long but not invested since PE does not appear to
justify the stock price.
It’s turnaround and futuristic story, company is back to profits recently after completing all the Capex, hence High pe, anyways I wont recommend anyone in buying Repro India at current price.
I really dont get how they are going to make profit from BOD, I had waited in this stock to see real numbers and it just failed . The BOD is now being talked as the best thing that could have happened for Repro, but honestly no one has a clue about how much profit BOD will bring in. Everyone is just talking about the printing volumes growing , but what that will bring to the profit/loss has to be seen .
Dis:I dont own it now , nor planning to renter anytime soon.