B's Notes : company analysis, portfolio roundup

Q&A: Questions & Answers
1

Hi folks,
Let me just summarize on what can be your expectations on reading this thread.

  1. It is more like an investigative notes and not a summary where I provide a comprehensive view. You can read the company’s thread or search in google etc.
  2. I prepare my notes in crispier format, which means a gist of few sentences and may be few financials. My rule is unless I can’t fit the story in a page, I have not researched the stock.
  3. I expect the fellow Investors to pick up the holes in my theory so that we can come to a logical conclusion.
  4. " I have the right to be foolish". What this means is, I need not be correct always and sometimes we may not agree.
  5. I am a small retail investor so the resources (mainly time) I can invest are tiny. So please be patient if some of the articles are not properly put.
  6. In future the expectations may change and probably will change. So “Change” will be the buzz word.
  7. I am not a SEBI registered analyst. So please assume that I may or may not buy/sell stocks discussed on this thread or may own some of them.

So that stated lets get on with the thread. If this post is not reported.

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Nykaa (FSN E-Commerce) Notes

Key Factors:

  1. Scale and Ad-spends
  2. Pricing and Valuation

Please go through these sources for detailed info:

Nykaa’s Story Listen to SOIC: https://www.youtube.com/watch?v=Pmgky8DkqWY

Nykaa RHP: https://www.sebi.gov.in/filings/public-issues/aug-2021/fsn-e-commerce-ventures-limited_51574.html

Nykaa Summarised: https://forum.valuepickr.com/t/ipo-review-discussion-until-listing/14547/239

IPO Valuation: https://forum.valuepickr.com/t/ipo-review-discussion-until-listing/14547/235

About Category: Beauty Products are those that require consistent advertising to get the Sales. It can not be compared to something like Zomato, where you are hungry you order. You need to constantly push to achieve Sales Growth that is what Nykaa seems to have achieved.

The company was not profitable for 2019, 2020 but made its maiden profit in 2021.

A beauty product sale co. has only 3 major costs.

  1. Product cost,

  2. Employee Cost (store front + tech stack)

  3. Advt. Costs.

So only logical cost reduction is possible on Ad spends (In fact company reduced spends in 2021 by 30 Cr. vis-a-vis 2020 out of total profit of 61 Cr,). So lets check international firms whether there are any scale benefits(no other financials available)

  1. ULTA (NASDAQ: ULTA). The average advt.(SGA) expenses for ULTA were at 23-26%. ULTA has saloons as well and operates in matured countries.

  2. Sephora is part of LVMH Group and financials are not available separately.

Can the company get scale effect in Ad spend without sales dilution ???

Here’s a toy sheet to find out if what would be the likely revenue growth and EPS

Excel File attached below

[Returns on Capital]
(https://www.notion.so/c86be69071bd4df4b91183bd4ecf5c5f)

The company on an average requires 100 Cr. every year (excluding profit) to run the show with growth.

The co. is now raising(Non-OFS) 630 cr. for company’s use and is gonna partly pay Borrowings.

Coming to P/E it’s around 567.30. Unheard of but what Ms. Nayyar says in her interview as a summary:

Guys, I am gonna give you the whole Online Indian Beauty market, so can’t you pay for the growth we will deliver for next 10 years.

Link: Nykaa IPO | Nykaa IPO pricing: Enough left on the table for the investor while fixing Nykaa IPO pricing: Falguni Nayar - The Economic Times

Is it worth it depends on the context, see the Amazon returns graph till 2008

1998-2008 $4 to $138 -34 times

Post 2008 graph

2008-2021 $138 to -$3376.07 - 24 times - The red mark in both pics is same

Important learnings:

  • Peak to peak 1999 to 2007 too 7 years to just recover money
  • You never know if any thing in such a long term hits you
  • Not every company is AMAZON :joy: :joy:

Scenario 1: Whenever there is Turbulence(Bear Market)

Co. gets Scale effects then no visible effect else gets dumped

Scenario 2: Party Continues (Bull Market)

Co. continues to get re-re-re-rated till …

Scenario 3:

Zomato type double/triples and then quiet

What scenario is most likely ???

PDF File with Graphics and Table
Nykaa_(FSN_E-Commerce)_Notes.pdf (71.8 KB)

Nykaa playsheet.xlsx (10.8 KB)

3 Likes
3

A sorry is due as I was unable to post since a while.

The previous Nykaa post seems prophetic and scenario 3 seems to have played out. The company did have a fall but the market seems to have more tolerance for Nykaa than other New gen companies. The answer lies in the free cash flow that the company generates and the nominal profit the company posts. The management seems very likeable(no controversies). Still the valuation is not something which is comfortable(maybe for me).

I am posting my portfolio for any comments that which are the companies which have reasonable valuation and scope for further growth.

company name % of portfolio
Avenue Supermarts 31.8%
P. I. Industries 12.7%
Bajaj Finance 9.4%
Clean Science & Technology 5.2%
HDFC Bank 4.8%
Pidilite Industries 3.6%
Shree Cements 3.4%
Divi’s Laboratories 3.3%
Sanofi India 2.2%
Britannia Industries 2.0%
Kotak Mahindra Bank 1.7%
Asian Paints 1.6%
Marico Limited 1.4%
Computer Age Management Services 1.3%
Caplin Point Laboratories 1.3%
Nippon India ETF Bank BeES 1.3%
Coforge 1.2%
HDFC Life Insurance Company 1.2%
Dr Lal Pathlabs 1.2%
Nippon India ETF Nifty BeES 1.1%
Procter & Gamble Hygiene 1.0%
ITC Limited 0.8%
ICICI Prudential Life Insurance Company 0.7%
Colgate-Palmolive India 0.7%
Tata Consultancy Services 0.7%
Berger Paints 0.6%
Dabur India 0.6%
HDFC Limited 0.5%
UltraTech Cement 0.5%
India Pesticides 0.4%
Nesco Limited 0.4%
ICICI Lombard General Insurance Company 0.4%
Titan Company 0.3%
Dalmia Bharat 0.3%
Max Financial Services 0.2%
Happiest Minds Technologies 0.2%
Zydus Wellness 0.1%
Hindustan Unilever 0.0%

LIC IPO Time: Meanwhile have look at this Life Insurance companies comparison

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This is a update to my earlier series on Life insurance companies comparison

First a little Context in what we are trying to do here:

  • As you must be aware that insurance is a business of taking on risk for a fee. The underlying financials of most of the insurance companies are almost like greek and latin, even for the well versed in accounting.

  • The Industry and accountants simplify the whole financials in to simple monitorable like VNB(Value of New Business), Mortality Rate, Types of Policies (Participating and Non-Par) etc. These figures take some facts and some estimates to get to the right answer. The problem is that these estimates differ in each company and have a lot of financial implication on how the company will fare in the future.

  • The problem I am trying to solve is three-fold:

  1. Make the financials comparable across the companies in the life insurance sector.

  2. Take the financial parameters which are as real and not as much subject to estimates as possible. If not at least the parameter must be well regulated (i.e. if the company falsifies the parameter then the promoters should be put in jail).

  3. Make it as easily understandable.

Please go through the previous post mentioned below to avoid repetition and to understand what additional updates we are adding.
https://forum.valuepickr.com/t/life-insurance-companies-comparison/11913/259

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6

https://forum.valuepickr.com/t/polycab-india-connection-zindagi-ka-w-c-fmeg-and-epc-player/23619/234?u=brijwanth

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NSE Symbol : Polyplex

  • Sales Growth has been falling in the last few quarters with PAT
  • Promoters & Institutions exited, Public rolled in
  • P/E very high with reference to company’s standing

Disc: Presently not Invested. I’m not a SEBI RIA. Please consult an RIA before investing.

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Limited Data Post- Listing

NSE Symbol: RKSwamy

  • Company’s brand name Hansa
  • The company’s growth since FY22 growth has dropped
  • RoA is surprisingly low for an ad agency, which is considered asset light business
  • Does seem to have some unlisted co.'s in similar activity(requires deeper search)
  • Leverage seems to be on higher side but will reduce post-listing (fresh issue part). RoE will also reduce.
  • Book Debts seem to be high at 255 days (almost 3 quarters)

Any comments on company’s business are welcome.

Disc: Presently not Invested. I’m not a SEBI RIA. Please consult an RIA before investing.

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Symbol : Dream folks

Company Name: Dream Folks

Its business model is negotiate with the actual lounge owner in the airport and with the credit card company. Offer a software layer between them. The charges are not per software use rather they are accumulated at both ends making it a B2B company.

So there is low CFO, High receivables despite a thriving business with temporary hiccups

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Company : Remedium Lifecare

opm is insanely low
only public shareholders
debt in all forms

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Screenshot 2024-04-15 172136
Screenshot 2024-04-15 1721361159×442 33.4 KB

  1. The company has seen growth in profits due to exports, but it hasn’t translated it into cash flow.
  2. Electrical products are currently popular due to Renewables Theme.
  3. Transformers are one-time investments and not regularly bought moreover technology is widely available for their manufacture except for High Voltage DC Transformers.
  4. Growth is being driven by exports, but it might not last.
  5. The stock’s price-to-earnings ratio is high, suggesting it may be overvalued, and the public has been buying up the stock.
  6. If you are wondering what the 1st graph was it was Sales from 2012 till 2021 where it was almost stagnant. A lomg term historical perspective sometimes is useful
1 Like
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Persistent Systems

Sales Growth(18%) has been falling with rate ~ PAT Growth

BFSI (High Interest Rates) is still falling with Healthcare coming to the rescue. However EBIT in Healthcare is surprisingly lower despite similar margins.

P/E of 50 for growth rate of 16% is slightly on higher side.

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Kotak_Bank

As an optimistic investor I am sure Kotak Bank will correct from their mistakes. It may entail additional expenditure and may hurt their growth temporarily (2-3 qtrs - not this qtr.) but for a long term investor these are the exact opportunities to add in to this stock.

Reference can be found in Dec. 20 to Aug. 21 HDFC Bank ban which is very much similar.

The most difficult part is assessing what price is right for such an entry.
Disclaimer: May Hold positions.

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HDFC_Bank

NIM’s are below 4% range due to merger. It is on the rise but may take a few years to get back to normal.

The CASA drop(38%) since 2022 continues and is yet to come back to normal

The cost of borrowing is at 4.9% on account of above along with merger of effects of HDFC.

The key concern is 1.6% growth in Gross advances QoQ and 4.34% Book Value Growth

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My notes on Land of seven rivers

This is a book by Sanjeev Sanyal, the Economist.

This book presents a view of Indian History through its Geography and tries to frame the present day problems from that prism.

The authors view is that the Indian Economy’s GDP as % of world,GDP has reduced as we turned towards rigidity towards our mercantile system. This was in part caused due to geographical factors as well as lack of technological advancement and more importantly our mindset.

It’s a good read particularly to the history buffs.

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Being an economist respected author Sanjeev seldom could know nuances of Financial markets. Considering “Land of the Seven Rivers” from a stock market perspective, the potential cons might include:

  1. Limited Direct Relevance: The book’s focus on historical geography and cultural evolution may not provide direct, actionable insights for stock market analysis or investment strategies.

  2. General Historical Focus: The broader historical context might not offer specific economic data or trends that are immediately useful for making informed stock market decisions.

  3. Lack of Contemporary Financial Analysis: The narrative does not delve into contemporary financial markets, modern economic policies, or recent economic data, which are crucial for stock market analysis.

  4. Historical Perspective Over Market Dynamics: The emphasis on historical events and geographic factors might not adequately address current market dynamics, investor behavior, or financial instruments.

  5. Absence of Practical Investment Guidance: Readers seeking practical advice on stock trading, portfolio management, or financial planning might find the book lacking in direct, applicable guidance for these areas.

1 Like
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I agree with the point that there is no direct strategy for stock market. But sometimes understanding things from historical prism helps us evolve as an investor.

For example the Book speaks indirectly about climate change. Last year VBL faced an slowdown due to relative lack of heat in North India which effected it’s sales in the peak season. This year the season started early and in southern India weather has been pretty fickle.

When we do a Business model analysis. I have several questions in my mind.
How does the company produce adequate Inventory? Do unseasonal rains reduce the consumption ? and many more. These are the things which effect my EPS.

Again as I mentioned in my post it’s strictly for history buffs.

Disclosure: May or May not hold positions in stocks discussed.

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My 2 cents on long term prospects of liquor industry:

  1. Heavily political. There is no national policy and is heavily reliant on local government. Hence one brand can’t be a national brand for long term unless it has something unique.
  2. There are some niche brands like one manufactured by Rampur Distilleries but they are not mass product.
  3. They have to compete for Raw material.
  4. Pricing not in their hands.
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Business Analysis of Secured MSME Financing:

There has been a huge growth and in this segment and also 2-3 firms are available at a reasonable valuations due to the recent correction in this segment. So a small write up to clear my mind.

First the Problems:

  • Very high default ratios.
  • Lack of scale benefits.
  • Lack of formal documents like GST Returns and CIBIL Scores.
  • Lack of collection Infrastructure and Geographical penetration.

Now the Solutions:

  • Securing it with their Home.
  • Technology to some extent but feet on Ground are required for such business
  • Again Technology to some extent but either references network may help
  • Slowly expanding geography and adequate seasoning

There are few companies which fit the Bill
MASFIN, SBFC and FIVESTAR

Please share your views/ critique
Disc: I eat my pudding. Hence Please presume that I may have financial interest in some of these companies.

2 Likes
20

Couldn’t find a Budget 2024 thread hence I have posted here

Recently, the Honourable Finance Minister tabled the Budget, which has received significant criticism. One major point of contention is the proposed uniform taxation on capital gains from equities, debt, real estate, and other assets. To understand why different taxation structures existed previously, we need to consider the key concept of “risk.”

For example, if someone buys company shares, a gold bar, and a house, even a layperson can see that the company’s shares have a risk of dropping to zero, whereas the other two assets do not. To attract investment in riskier assets, tax incentives were provided. As frequently reported in the news, substantial amounts of money have been flowing into the market during this bull run. The government wants to capitalize on this trend.

But is this fair? From a capitalist perspective, the answer is “Yes.” From a governmental standpoint, the answer is “No.” The government has a mandate to ensure smooth operations and implement policy reforms. In this case, the government appears opportunistic, hastily implementing new taxes and creating policy uncertainty. While such measures might be praised or accepted depending on political allegiance, haphazard taxation can drive away investors by creating investment uncertainty.

For context, consider the economic slowdown during 2017-2019 under BJP, and the scams from 2011-2014 under Congress.

Here are some possible outcomes of these policies:

  • An external shock reduces liquidity, leading to a bear market.

  • Economic slowdown stifles growth, resulting in a lackluster equity market.

  • Market participants could form a voting block, demanding tax reductions (quite possible in India).

  • This discontent could eventually lead to a change in the Finance Minister or even the government.

These scenarios are not listed in any specific order or timeline but represent potential consequences of the taxation policies.