Dear fellow boarders,
I have had an elaborate study on Palred Technologies, and finally giving up my reluctance on it.
In this post, rather than going into company details and discussing declared numbers (which already well covered by many writers), I tried to project and fine-tune the logic to invest in Palred.
After all these capital reduction and equity consolidation, the co is now looking fit and proper to survive and grow in the much maligned Indian eCom space.
A rare breed of pure play, listed ecom co, with differentiated inventory based business model, talking straightaway about profits since inception (in December 2014) rather than GMV and deep discounts.
With the fully loaded cost (of technology including cloud, hardware, software, maintenance, staff and infrastructure) is below Rs.20 per transaction, the co is emerging as one of the most efficient e-com companies – technically, financially n operationally – in India.
This David is now almost hitting a revenue rate of Rs.50 cr (with cash burn steadily declining) on a total funding of just Rs.50 cr. Quite commendable, seeing what all those Goliaths puts in and gets out!
The company attained direct cost breakeven level as per schedule, could be EBIDTA positive over next 2 quarters which is quite a deal.
They are continuously strengthening the business model to reduce the return rate to about 20-25% from current 35%. They brought 10000 pin codes into prepaid mode and having an order cancellation policy by creating a bad customer database (which is now 50000 strong).
Robust, investor friendly management at the helm, now with a vision and clear road map, admiring and inspired by Amazon and its founder Jeff Bezos. (I see the top management team of LatestOne.com holding 10% of its equity as a big positive).
Its promoter Palem Srikanth Reddy (PSR - as famously known in AP) has deep logistics background & ability / history of building companies from scratch (involving in all aspects of business, building a strong second level management team & giving perpetuity to business model) & later selling out at much higher valuations.
We witnessed that in Four Soft.
He also done that in Emery Worldwide India Pvt Ltd (an air cargo specialist – now acquired by UPS) where he was the cofounder and MD btw 1996 – 2000.
He was also served as the Logistics Manager at Hewlett Packard, Singapore btw 1989 – 94, where he was credited with improvement of processes by implementation of direct order processing and direct delivery systems with the end customers.
So, though he seems a stranger to ecom, his strategies would be driven by his core competency – logistics, which can make or break an ecom co. Also there is cause to believe that he will dilute stack at higher valuations.
It’s funny to see our governing laws are so trivial that blames PSR for unduly gaining 0.5 cr – somebody who generously distributed 170-180 cr to shareholders. That too when he was having only 24% promoter stack. Says a lot about his governance standards!
Currently I know many renowned value investors are turning positive and taking positions in this stock (unfortunately, I can’t disclose the names).
But seeing at SHP, many marquee investors already took stack at much higher valuations:
• Ashish Dhawan increased his stake by taking preferential allotment at 210 per share
• Erstwhile Chairman of Singapore Telecom and Singapore Airlines is a shareholder of Palred
• Founder of Alliance Capital and Rothschild Ventures too is a shareholder.
Earlier the company raised funds at about 200 cr valuations in the recent preferential allotments.
And now the company proposing another round of preferential issues to raise fund on forthcoming Board meet on 13.3.2017. I’m expecting the valuations will be higher than previous rounds.
And another huge positive development is the company started B2B portal – appointing 1000 dealers per month and has plans to add 25000 by 2017-18. Will lead to high volumes (lower margins though), lower returns, increase average order size plus reduce warehouse and logistics cost per order.
Again, I’m not much interested in number crunching but getting the big picture right.
In the esoteric world of ecom valuations (which so far defied the law of gravity but now giving up), with a MCAP 90 CR, healthy balance sheet with cash, Palred Tech looks quite attractive & worthy punt with multibagger potentials.