Repro india limited

(Kunal Parikh) #88

Hi everyone,

Thanks for the questions. Valuations are clearly stretched and that is correct. Let me answer some of the issues that have been raised:

  1. Rapples: Samer Shah is correct that last year company was pushing Rapples a lot in their communication. To give a context here, it was a logical thing for them to do. They are in printing business. They have major connection with publishers. They wanted to leverage that presence in e-books(risk to printing) and they went for the academic markets with Rapples. They have been honest this year that they were ahead of the market and they have acknowledged that they are finding it difficult to grow. They completely did not stop this because of the capex they made in Rapples. They have now crossed break even and making profits here. But they do not intend to put in additional capital to expand because of the opportunities in BOD.

  2. Exports: Company would like to export to Africa. But here the company said they were exporting to have met with currency risks. Countries do not have currency and there is a foreign exchange problem. The clients however are ready to pay. And they are paying too which can be seen by the falling accounts receivables figure. As a precaution, they are now doing all business through letter of credit. So they have not stopped it completely but are reacting to changes in the environment.

  3. BOD: Coming to the elephant in the room, BOD. When people here are saying that it is hard to see why people will pay higher for printing, they have offset printing in mind. For publisher, BOD is the biggest advance in their business model.

80% of all books published by publisher gives they 20% of revenue

This is a massive tail that is up for grabs in the organised book market. Basically, publishers have a huge issue for this 80% as they dont want to stock it and it is a huge Working Capital issue for them. Publishers will have no option but to approach Repro for this 80% of their portfolio. But valuewise, Repro will only make 20% of total market. So say for example, by 2020, book market would be Rs. 70000 cr. Out of this, say e-commerce market would be 20%.

This gives us a book market for Rs. 14,000. Out of this, BOD would be Rs. 2800 cr. Now, there is no player in BOD apart from Repro. In this small Rs. 2800 cr market, Repro will have to pay publisher and e-commerce player. In AGM, they clarified that their cut is around 15%-30%. Imagine 20% is something they get which will give them Rs. 560 cr.

4 Offset: What I want to stress is that please look at company from a complete printing solutions point of view. Now, as I have said above, 80-20 rule, says that 20% of titles(Repro calls them FrontEnd title), will give them 80% of revenue. These titles are very low margin for Repro but high volume. This AGM, CEO said that the offset capacity which was underutilised due to exports, is going to be used to capture marketshare of frontend titles. This strategy will show results in next two-three quarters.

5 Supply issues: The other challenge to 2020 plan is the capacity constraint in BOD. 1 lakh books are sold daily on e-commerce site. Repro is selling 3000-4000 books a day. Their capacity is 6000 currently. This capacity utilization has gone up by nearly three times in the last two quarters. And by the next two quarters they should be hitting 6000 a day. They will add in more 6000 capacity by the end of this year. So for next year they should be doing 12k books a day. This will give them nearly 7-8 percent book marketshare in eCommerce. This marketshare is for the mid end and the backend titles(80% of the tail). And the frontend marketshare can be captures through offset printing.

6 Low RPT: Currently, they seem to be getting Rs. 350 per book through BOD. This also has the potential to go up as low tail books are high margin.

7 Valuation: Clearly overvalued. But is their potential to grow? If management can implement on the following parameters

a. Ingram: They have not uploaded 70-80% of the titles given by Ingram. They should do this quickly and convince publishers about the growth in India market

b. Offset-BOD Synergy: They should or must find a way to take leadership for frontend titles. This will give them credibility in the market place and only then will become a “proxy on Indian printing market”

c. Ethics: I have not made up mind if the promoters are ethical or not because of the issues of RPT.

d. Academic Market: We should remember that most of the publishing market is academic. E-commerce has not yet penetrated in this market. Company will have to come up with a strategy for this crucial piece of the puzzle.

Investment Philosophy: As India grows, the share of organised markets will increase. Be it banks, sanitoryware, plywood, etc. In the printing business, Repro is the closest proxy one can think of in the next 7-10 years. Now, I am not saying that investors need to have such long horizon. Advances in 3d Printing are the biggest risks to BOD which are not discussed by anyone. But again, who owns the content? So one can look at Repro as a printing business. In that case your valuation might be different. You can look at it as a book distributor, and your valuation might be different. Or a content aggregator, and your valuation will be different. It is a tough call.

Disclosure: Invested.

(amit) #89

Following is big area of concern

  1. Samir anyways highlighted change in tjjer strategy in business but now also in BOD they now want to capture front end titles with cut throat competition and on asking for margins they say we want to grow Fast and think about margin later by squeezing Amazon and ingraIngram

  2. They have single point of failure from supply and channel side. Either of them can move to this business they become large

  3. Related party transactions

  4. Lot of books has to bet sold to give them valuations and we still not sure of economics

  5. ESOPS.

I am worried by after recent conf call not able to put large money.

Disc invested 1% already 2x

(Dhwanil Desai) #90

@btunuguntla,As @kunal28parikh mentioned, out of the total revenue that is generated from BOD, share that will remain with Repro is of the order of 25-30%. So, one has to work out numbers based on that.

Secondly, I have learnt it hard way, that the broad numbers of market size growth and market potential, are more often than not, mere extrapolation by experts/agencies or an outcome of someone’s opinion/view.However, reality seldom pans out that way. Just to put this in context…we are talking about market expanding 6-7 times (from current 1200 crore online book market) in 3 years…mind boggling 190-200% CAGR. It is very difficult to fathom this, at least for me.

Hence, it may be a better idea to work with more reasonable numbers on overall industry size and be proven wrong on that rather than the other way round.

On the other hand, I find BOD business model very interesting. First of all, it is creating a win-win for both publishers as well as end users…and shrinks the cost structure of book distributors/publishers…the benefit of which will eventually get shared between all stakeholders. Secondly, it will entail negative working capital and hence can be very remunerative from ROCE perspective. It also has potential to generate strong operating cash flows. So, if BOD scales up in next few years, the balance sheet can look very different than what it is looking today.

The key competitive advantage remains their partnership with Ingram and hence access to 14 million titles…rest all seems to be replicable.

I personally, feel unless the base business returns closer to earlier levels in terms of topline with 13-14% margin profile, it is very difficult to justify these valuations just based on BOD. I feel, recovery in base business remains a key monitorable.

Key risks:

  • Online book market may not grow as fast as expected and hence eventual scale up will take much longer than expected/projected
  • Law of large numbers: In order to reach even 400-500 Crore of topline in next 3-4 years, Repro will have to get CAGR of 100%+ on higher base (to put this in context, we are talking about 10-15 times growth in topline from current run rate of 36 Crore). Again, it is easier said than done and will involve some super execution.
  • Even though going by the approach of Ingram in other markets where they have forged partnership on similar model, they follow one country, one partner approach…contractually, there is no exclusivity. Hence, there remains a risk of competition catching up eventually.

Disclosure: Liked the business model so have tracking position (less than 2%) with average buying price of 450

(Parth2013) #91

If the sales of 800 cr is done by repro in fy20-21 in bod bussiness then what is the revenue for repro ??
Because we have to give it to Ingram, Amazon and publisher also

(Ashusharma) #92

Companies like Amazon have habit of getting into profitable business as they are doing with groceries in USA. If BOD market is of good size and profitable, then Amazon will get in it. Amazon is a Tech company and they will have or will develop superior technology.

(Kunal Parikh) #93

For Amazon to enter into this, they will have to get content from publishers. One can read how publishers and Amazon have fought over the previous decades over fees for distribution. Publishers were one of the earliest victims of Amazons competitive and strong arm tactics. So publishers will never make the strategic blunder of outsourcing printing operations to Amazon. As I mentioned previously, Amazon already has printing arm for self publishers called create space. Ingram has such a service through which is a market leader. So through createspace, Amazon could not compete against Ingram.

Again, let me reiterate this, publishers will never let go of manufacturing to Amazon as they already have lost complete say in distribution.

Also, Ingram was trying for the last three years to establish presence in India. But they failed. Apart from Repro there was no one can deliver them such presence in India. Also, they only have one partner in every country. One can check Ingram Global Conmect program for this which hasn’t all the partners in countries.

(Dhwanil Desai) #94

Based on management commentary, it seems around 30% so around 240-250 crore may be good estimate.

(anshul jain) #95

Is Amazon self publishing model threat to this business model ?
Management in recent concall said that they are trying to get printing contract of Amazon self publishing business. However, I feel that this will be very low margin business as it is B2B in nature.

(Parth2013) #96

Even if it is low margin bussiness but it will create huge revenue potential if it will happen. So it’s a very big opportunity on my view. Please expert comments.

(nowin) #97

Some big bulk deals seen today with promoter names.

(Parth2013) #98

I think it’s just transferring the shares from one to another account.
What’s your view ??

(nowin) #99

Param value investments is not a promoter entity (concluded this after i saw its deals). So this cant be a share transfer.
Very difficult to draw any conclusion ,but promoters selling off doesnt seem to be a good sign. Other members please comment whether i am drawing a wrong conclusion

(Kunal Parikh) #100

Is Param Value Investment owned by Mukul Agarwal? He owns param capital but I don’t know if he also owns param value investment. Here is Mukul Agarwal’s holding.

(hrfacebuk) #101

Yes, Param Value Investments belongs to Mukul Agarwal. Can be seen in Shaily Engg corporate announcements in July 2015.

Discl.- Invested in Repro since sometime and also transactions in last 2 weeks.

(Kunal Parikh) #102

Repro is planning to issue equity shares and / or warrants and / or global depository receipts to investors including Qualified Institutional Buyer(s) other than promoters and promoter group, by way of preferential allotment and / or by way of a Qualified Institutional Placement up to an amount of Rs. 100 crores only in compliance with Sections 23, 42 and 62 of the Companies Act, 2013 read along with the rules thereunder.

(btunuguntla) #103

Yes, waiting to see who will be the buyers. Hope to see some good names! but will result in equity dilution? :-/

(sivakkri) #104

Here’s the Equity and Warrants allotment detail (Rs.80 crores in worth)… EGM called on 2nd Nov 2017 to approve the same.

I believe Kedia owned 7.1 % of shares in the company before the above allotment (If they haven’t sold any, their holding will be at 8.33%).

Promoter holding comes down to 52.6% post this. 10.87% dilution overall.

During last quarter earnings conf call, management alluded that they’ll do capex from internal accruals. So wondering what changed from then and now … Are they increasing the capacity drastically ?. I do not see much details on how they plan to use the raised capital. If anyone here is attending the EGM, please probe the management on how they intend to deploy this capital.

BTW, Issue price is Rs. 675 (based on 3rd Oct 2017 price, 30 days prior to the upcoming 2nd Nov EGM).

(Kuldeepjadeja) #105

I guess they are increasing capacity more than they have initially planned …
And Mr.Kedia is also increasing its stake above 8% thats also very healthy sign…his value could be around 60cr…its a huge personal investment on small cap company…

Disc.- Invested in last month
Suppose to add more

(Kunal Parikh) #106

I do not think they will increase capacity as the existing one is not 100% utilized. They might reduce their debt.

In the last two months, promoters first sold their stake to Param capital. Now they diluted nearly 10% stake. They are clearly taking advantage of high valuation. For earnings to come at a respectable level in BOD, it will take 3-4 quarters and maybe even more. Maybe I am being conservative, but price has run up very quickly.

DIscl: Invested

(Kuldeepjadeja) #107

Company secretary resigned and Promoters stake comes down…
Vijay kedia also sold some shares…