iStreet Networks - Flipkart kind of business

Stock Opportunities Untested - but worth a good look
7

@chaitu_1614 : I have taken a token position here in this idea. Now time for some more questions to develop more conviction in this idea:

  1. Sales/Store: As of Q4 2015(March Qtr) they have 1506 stores. (An increase of 100% from 727 in Dec 2014 qtr). Even assuming all new stores were opened in the last month of the qtr, with the total sales of 70.59 Lakhs in Q4 means sales/store of ~10,000.(7059000(q4 sales)/727(stores as of q3 end) I have excluded all the stores opened in q4 for this calc).
    This # is too low to me. In a retail franchise, for a branded product, you are looking at 10-15% kinda margin. so Rs 1500 is the net earnings for a store - how will the franchise pay for real estate and employee with this earning?

  2. Buying Habit: In a tier3 town, when you purchase a new appliance the entire family would go, visit the local appliance store, have a look and feel at that appliance before they make the decision(as purchasing an appliance is not a frequent buying process. having said this, we have seen change in buying habit as the e-commerce players offer a different form of value to the customer - which is price - that leads to my next question:

  3. Value for the customer: iStreet is not selling anything different from a normal local appliance store. It is selling the same product. Unless iStreet offers them value by cutting down the price (compared to the local retail store), what is the incentive for the customer to change his buying habit? To understand if iStreet has room to cut down the price, we should look at the value chain and see if iStreet cuts down 1/2 levels in the supply chain.

eCommerce is about scale. Higher the scale, you will be able to run at thinner margins(even losses initially using PE money) and beat the competition out(or entice the customer to build a new buying habit). I understand that iStreet is trying do something on this by building a large network. But sales/store as of now is a big concern area for me!.

Thanks,
Ravi S
Disc: Initiated a token position as I like the idea, but I dont have conviction as of now.