Saurabh Portfolio for 20% Expected Return

Q&A: Questions & Answers Portfolio Q&A
40

Hi James. Thanks for writing. Please find my responses below:

Sheemaroo:

  1. I understood the complexity of accounting principles in this business and realized that for me it is difficult to find out accounting malpractices if promoter does.So, indirectly need to be dependent on promoter to some extent. Though, Dwanil jee’s response in this regard was encouraging, I could not make up my mind

  2. The second and bigger issue was that I could not convince myself on the business model under a disruptive technological environment and hence could not conclude on a terminal value to business. Shemaroo generates IRR on second wave of copyrights on content. Now, this is a skill set which they have developed over years. However, I feel, with the amazons and netflix of the world coming, they would be in a better position to identify the true potential of older content and may kill this market for sheemaroo (House of cards was a pure result of customer viewership analytics leading to a profitable segmentation exercise justifying ROI). So, I see 5 years down the line amazons and netflix diectly dealing with original content creator dealing for second generation content. I do not see what kind of advantage sheemaroo will have over tech aggregators to do the same. This is just a hypothesis and may or may not play out. However, considering such risks in a highly disruptive environment (M&E is one of most disruptive businesses tech wise), i am unable to valuate the business and hence decided to stay out.

Capital First:

  1. In BFSI, I am not an expert and hence i try to stay with tested companies.
  2. Also, it is very difficult to identify black holes in financial statements in advance. Lending is easy but recovery difficult. So, I am more bothered about quality of lending in finance than quantity of growth
  3. Considering the above, I am more interested in companies who have shown historical examples of conservatism and asset quality with growth as second priority
  4. The below link will give some clues on why I did not like Capital First : Indian Microfinance Sector and the companies in the sector

Look for post no 335 by Yogesh Sane

  1. I would like to wait for few years and see how Capital first evolves. When in doubt, I am willing to pass and stay with more conservative approach in BFSI
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