Sumarising my study of Blue Pebble Ltd.- an interior design company, focused on Office Space Designing contracts.
Numbers :
All numbers are from 2024 results from screener. (Crs)
MCap : 110
Sales : 22.06
Operating profit : 5.03
OPM : 22.80%
PAT : 3.75
PE : 21.6
ROCE : 73.11% (Somehow screener shows 147%, felt this was inaccurate hence calculated (op. profit)/ (debt + equity), will try to reason out the high ROCE and if it can be sustained below)
Order Book- 20 cr+
Revenue Guidance- 100%+ growth for FY 25
Business Overview:
THESIS POINTERS:
1. Business Quality (BQ)
- They are into business of creating/beautify office spaces for large MNC clients. First inference drawn can be this isn’t commodity type business and the their past work and its accolades will drive the growth. Also good perception (beauty lies in the eyes of beholder) of their work will give them pricing power to negotiate for quality work.
- Business is divided into 3 sub cats.
Environmental branding - Creates complete theme for the office space designs which is line with what company stands for. 74.23 % of the business
3D installations - Creates wall murals, props for space designs. 15.2% of the business.
Design Services - Here company lends their design teams expertise to bring ideas into tangible realities, since the company already has senior designers on their payroll. 7.56% of the business.
Design Services is the segment with highest margins as confirmed by Nalin in one of the call. But I dont think it offers any moat since this can be done any freelance designer too.
2. Growth Prospects (GP)
- Business up until now was to beautify the already created and furnished office space. However management is now foraying into creation of complete end product starting from bare shell office. 3M india is first of this kind of project confirmed by management. Here the margins would be thinner but will build a good competitve moat and a good product for MNCs who do not want to deal with multiple parties. Potential growth driver.
- Management is planning to venture into hospitality industries, as they also have similar needs for decor and designing.
- We know India is the back end office for the world, many MNCs are shifting there development centre to India. This is a growth driver for the company. They should be able to capture good market based on thier past work prospects and clintele list.
3. Management Quality (MQ)
- KMPs have 25-30 years of experience(whole experience is not in the same industry). They look confident about the future prospects, we can infer they are smart enough since they have created and listed a positive PAT company within 6 years.
- Much cannot be commented about integrity since it is a very new listing and time will tell us, but if they are smart enough an believe in the future they would maintain the integrity.
RISK POINTERS
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Competitive space - The ability of the company to grab contracts remains vulnerable to a pricing war amongst competing agencies This can drastically reduce OPM as well. Current OPM at 22.8% for FY 24.
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Biggest risk that I see is the growth stagnation in commercial real estate. The company is dependent on corporate infra expansion for future growths.
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Lack for diversification currently- Company needs to expand to more service verticals to expand top line and also ensure they are not restricted to commercial Spacial design only.
4. Valuations and Numbers (VN)
- Here the things are little interesting if you see above the ROCE is a whopping 73%, this can happen only if the business is very differentiated, unbeatable moat or IP. But i did not see any such thing, what i observed is their cash cycle.
Debtor days: 113.03
Inventory days: 42.35
Payable days: 165.76
They basically have negative inventory cycle and the business is also very asset light.
Asset turnover ratio: 2.52
This implies they dont need very high working capital to grow exceptionally well. Once the profits starts pouring in internal accruals should suffice machinery and new employee hires. - From linkedin we can see there is 9% growth over past 6 months for total headcount, showing management conviction for future growth.
- Topline is growing at 74% 3 year CAGR
Current valuations of 21.6 PE looks to be fairly valued with little margin of safety for a fairly new listing.
Competition
I could not find any other listed player in the same space. Mangement confirmed there are not many players who do end to end work and MNCs require this type of agency where they get one stop all solutions.
Management mentioned there are 2-3 players in Mumbai region and 3-4 in Bangalore region.
Surfing over the net i could find one unlisted player - https://www.phidesigns.in/. Though could not find much information on their size since they are unlisted but their past projects also looks good.
Discloser- Invested and tracking for more investments
