RPSG Ventures - A proxy IT play and an emerging FMCG company

Chins · May 7, 2021, 11:19pm

I have done some snooping.

On their LinkedIn, they’re currently in the middle of something called Basecamp, where they’re looking to fund around 8 new D2C brands.

The partner for this is a company called LBB, an online marketplace with an alleged userbase of 2.2 Cr. people.

This is set to kickoff in July, and I’m hoping we get more information. For anyone interested, this is the application form if you’d like to have a glance.

Sorry to revisit this, but this is a valid concern. It was bothering me, and I spent some time to understand how we can tell when this is true, and when it isn’t.

Firstly, I want to highlight that social media platforms now serve as a shopping platform seamlessly. This means that for a brand, your social media page is your store.

When you click on any of the pictures, it shows you the person modelling the products as well as a link to buy the products highlighted.

If you tap on the product, it’s designed to be non-disruptive and seamless. Also notice how smartly they also show you related products at the same time.

Let’s then address the questions of authenticity.

How do we know they haven’t bought followers from companies that offer this service?

We can’t prove a negative, but we can ask smart questions about what would point to this being the case.

If you have bought followers or used various promotions, there would be two key indicators:

Firstly, there would be a huge discrepancy between the number of followers you have, and the number of people that engage with your posts via views, likes and comments.
The standard should be one of the biggest make up companies in the world, Huda Beauty, that has around 50 million followers. The engagement for some of their most popular content is about 5% of their following. On average, it is around 0.5 - 2%.

Insta8

I’ve checked to see this is the case among other brands. They vary between 1 - 2%. Interestingly, the engagement is the highest at around 15% for personal celebrity brands. Non shopping related content has a much higher engagement, between 15-25%.

MomJunction has a following of 417k, and the engagement we should expect is in the 4000 range. Indeed, this is the case:

Insta7

To be a little meta, the final benchmark I’m using is ValuePickr itself, with Hitesh’s Portfolio having over 1.2 million views. The number of comments on the post are 0.5% of the views, and overall, 1.6% of the views have turned into likes given on the post.
There is an obvious difference between the way followers and views work on Instagram versus this forum, but nevertheless…

The second way you can see if brands have bought followers is by looking at the people that follow them. If the people following a brand themselves have no posts and no followers, they’re likely to be bots. However, a cursory look across a random section reveals that they are real people that often talk about their lives.

The takeaway is that a lot of people view posts without commenting, and the nature of social media is that it’s unlikely that all of your followers see every post, but they have signed up to see your advertisements from time to time, and provide your company free advertisement by sharing your products with their friends in the comments. Ultimately, all of this drives traffic to your website, and is often the only way your brand has visibility.

Edit: Double checked the percentages for engagement.

Investor_No_1 · May 9, 2021, 11:30am

Again a well thought in depth points from you…well my 2 cents…I would not bother about brands buying followers…as firstly very cheap brands would do that…the ones I would hardly bother or would matter to me…and secondly such followers would be very easy to identify so companies in my investing or consuming universe would not fall in this category…
From my personal experience what many brands do is “engage” their first time buyers into liking, commenting, sharing and what not and where not…in return of promotions etc.
Will these be repeat buyers…can’t say…are they true reflection of brand strength…can’t say…

Lastly, a new category of people have emerged who develop their fan following…they are not usual celebrity…far enough from that…just usual people who suddenly start endorsing these brands…for obvious some promotion or cut…for obvious reason of “what is in it for me”

Pls note, I am in no way saying these are not great or to be great brands…all I am saying is this ecommerce/social media has more air than matter sometimes and very hard to judge as compared to traditional methods…

nikunj_patel · May 25, 2021, 7:26am

Seeing a rally here in the past few days. I don’t see any news on stock exchanges. Is there some new development happening here?

Chins · May 25, 2021, 8:11am

It’s been removed from the ASM list, so there’s less pressure for people who use margins.

Secondly, the chart shows a breakout from resistance around Feb 2020 levels, it’s currently just above the 52 week high, and the RSI has crossed 70.

No fundamental developments as far as I’m aware.

Chins · June 5, 2021, 6:03am

https://www.indianretailer.com/interview/retail-people/startup/how-d2c-ayurvedic-brand-vedix-is-planning-to-go-global.i1845/

Currently, the annual recurring revenue of Vedix is Rs 160 crore, which is expected to grow to Rs 500 crore by 2025. Since the launch of the brand, 3 million customers have taken the personalized questionnaire VPQ to understand their hair and skin problems in depth. We have served more than a million orders since its launch and continue to add 50,000 customers every month. Vedix has a repeat customer’s rate of 65 percent which is double of the industry average. Among its customers’ base, more than 90 percent opt for a subscription plan as against a single time purchase option.

The ambition is also to take the brand global by diversifying the portfolio and launching products tailored to the environment and consumer needs of each market.[…] Vedix plans to launch in key international markets like UAE, North America, Europe and Australia through a combination of D2C and platform partnerships.

In previous posts I grossly underestimated the social media reach / website visitors these various brands receive. Will write a detailed post after gathering more information.

d.investor · June 5, 2021, 7:03am

D2C is the latest trend in the FMCG market and more and more players are getting into this space even the likes of Tata’s and Marico have their D2C brands. FMCG players have just started realizing the power of internet and social media and its like to grow even further with almost all FMCG players focusing more on online sales and building their own website (eg ITC) and social media presence.
What I like the most about this company is the MOS, it is trading at 1/5th the value of it’s stake in Firstsource. Already invested and wating for the annual result/report to further evaluate the prospects of this company.

Lynch · June 7, 2021, 5:46pm

My understanding of the investment opportunity in RPSG Ventures

The business is structured beautifully. A cash cow feeding into potential high growth companies typically remind me of the BCG Matrix. In this case - the clear ‘cash cow’ is FirstSource Limited - a constant source of cash flows. These are then invested into potential ‘question mark’ companies in the holding company, hoping that they turn into ‘stars’ in the future
A 53% stake in Firstsource does make RPSG Ventures seem very undervalued at the moment. Current market cap of FSL - 10,600 Cr. Current market cap of RPSG Ventures - 1192 Cr. This means the holding company discount (only including the FSL stake) - is currently at 79%. For a bull market, that does seem to be very steep.
And it goes without saying - but other high potential businesses - including GuiltFree, Peel Works, Quest Mall, IT Venture, Herbolabs, McCaffeine - are not even included in this calculation. RPSG owns significant stakes in all of the above including 100% stake in a few

The 3 key questions I asked myself:-

- As a long term investor, do I see considerable value in the non FSL companies - could these be big value generation opportunities in the future?

My previous background is FMCG marketing, and what is happening currently in the industry is unprecedented. As other members have posted above - D2C and E-Commerce are the mega trends in the industry disturbing long held distribution MOATs. Amazon, Flipkart, Nykaa, Big Basket have all grown exponentially, especially their grocery divisions during the pandemic, and are still < 10% of FMCG sales. Brands are being made by trial, and not necessarily by advertising. This makes me very bullish on the E-Commerce centric plays in the RPSG portfolio - McCaffeine, Dr Vaidya etc are products perfect for this platform - on the cusp of a consumer mega trend.

Additionally. traditionally brand follows distribution. If distribution can follow brand, it makes the job of the sales teams so much easier and productive. For a product like Too Yumm, the approach being brand first is excellent. Significant investments in awareness and product credibility mean that in the next 3-4 years, when Guiltfree builds up distribution further, they get consumer off take, and that is the hallmark of a successful FMCG company. The much valued sales cycle can keep continuing - and more distribution investments can bring considerable growth. Brand investments would be needed - but much lower than before. Distribution will bring in all the gains - India is still > 90% Kirana stores and Modern Trade

Finally, with a portfolio of products under non competitive categories (Foods, Ayurveda, Personal Care) - the group companies can enjoy a common distribution ecosystem meaning excellent synergy and common costs - the salesman has to visit the same outlets and can cross sell extensively

In my opinion, I see a few of these companies growing to be considerable companies in the future. A base scenario would be small winners in their respective segments, a good synergy would be a full fledged FMCG company being born out of the venture. Great as a long term investor

- What about dependance on Firstsource - is Firstsource not overvalued currently?

This was my major concern. Though no way to judge valuations and the market is always right, I still wanted to have a margin of safety where in I saw good progress in FSL. FSL has run up considerably in the recent past - but that is not only because of the small/midcap indexes. A new CEO has joined in 2019 (Mr Vipul Khanna) - who has brought the company back to a strong growth path through structural changes including changing people. Last years performance for each quarter for FSL has been great in terms of margins + growth. The market is respecting the growth. The guidance from Mr Khanna is 17-18% growth for next year - with the healthcare vertical supposed to take the growth leadership from the mortgage business. Either ways, my fears on overvaluation were quelled by the recent conference call.

- What about looking forward like the market does? What does the long term future look like?

I see businesses in the mix which would actually currently be affected but I would expect to pick up as COVID eases. Quest is a top mall in Kolkata with luxury brands, Too Yumm mainly relies on out of home sales which would pick up once things open up, and the E-Commerce companies in personal care should continue to do as well. FSL guidance remains strong, this might change if the IT/BPO market does not pick up as expectations are baked in, but which company does not have a potential downside?

Finally, the company fit in all my core parameters that I steal from a well known investment house - Longetivity (huge runway for growth), Quality (of businesses, brands and management teams), Growth (from the cash cow as well as the potential stars) and Price (relative undervaluation for holding company as well as some great upcoming companies available in the mix).

The key risk remains FSL not doing as well in the future - but as a long term investor - even if 1 or 2 of these companies pay off for the group - I think that could be a large wealth creation opportunity - so a lucrative long term reward outweighs the relatively short term risk.

On basis of all these parameters, I invested into RPSG Ventures with a multi year timeframe. Not going to worry about buying/selling short term falls/spikes in price - just going to stay invested and monitor the company every year on how things are progressing.

Discl : Invested. I am not a SEBI registered advisor. Above statements on valuation are as per my best understanding and I would request senior members to correct any of this in case it does not seem correct.

nikunj_patel · June 8, 2021, 8:04am

Quite a good writeup on this. I was worried about the FSL as well.

My bet is on the underlying fmcg brands which are under incubation.

I am invested with the intention to hold for long term

Investor_No_1 · June 8, 2021, 8:52am

Hi @Lynch @Chins - Really liked your write ups, details & thoughts on B2C brands and appreciate that! Agree on the potential, although lot depends on execution. Would be great if you or anyone aware of how the revenue and profit growth of these major incubating FMCG companies are growing - like Guiltfree, TooYum, Herbolab/Dr Vaidya etc. That would give us insights into how their strategy is working. Thanks!

Chins · June 8, 2021, 10:29am

For the benefit of anyone wanting to look at the D2C model in greater detail, I’m updating this post over time. It contains a full breakdown of the FMCG / Personal care sector, and sheds light on why RPSG has chosen these specific avenues.

It’s also worth pointing out that the RPSG fund is an extremely small fish in the VC space in the country. It has funded 7 deals in its life, compared to Sequoia that’s completed over 40 this year. This means their hit rate has to be near perfect.

The revenue/profit for Too-Yumm, etc have been documented earlier in this thread:

What’s annoying me is that a further subset of really interesting ventures such as ShopG, mCaffeine and IncNut fall under the RPSG Venture Fund, which itself is listed as a subsidiary of the real estate subsidiary, QPL.

Which means when we look at the quarterly revenue, what really should come under FMCG would be classified under real estate. (If I’m wrong about this, please give me a shout) There isn’t a full breakup given in the quarterly reports, so we’ll have to wait for the upcoming annual report to see how they’ve fared. I’m highlighting some of my readings on a few of these ventures below.

Dr. Vaidya’s

Founded by a 24 year old, this interview tells the whole story of the company.

Came from a family of the biggest Ayurvedic doctors in India, grandfather saw over 250 patients a day, didn’t ever charge for consultations. Difference in ambition in the family. Younger generation wanted to turn this into a business from hundreds a day to lakhs.

Went to the US for undergrad, and saw how Yoga became a multi billion dollar industry. Why can’t we do the same with Ayurveda?

Came back to India, worked in a fund that looked at B2C businesses like PVR, got to understand the best brands in the country and how to build a brand.

Grandfather passed away, left behind an empty clinic, a factory in Silvassa that produced the medicines. The patients didn’t let them close the clinic, they kept it open as a dispensary, and slowly decided to turn the family legacy into Dr. Vaidya’s.

Bootstrapped the business, focused on disruptive marketing. Started with one product → gave away 2,00,000 samples. After a year, decided the business can only run with more SKUs. Came back with 27 more SKUs (November 2017)

Saw growth in the online / e-commerce space. Started with a few orders on the website. Wife worked at Nykaa, built their own website and took time to curate the content on the website. In November 2018, first milestone was 50 orders a day.

Since that day, scaling and growth haven’t stopped. From 50 orders a day, they’re now at 5000 orders a day. 95% of sales are online. Saw people in Trichy, Jammu who don’t have access to doctors, but want Ayurvedic products. Where do they go to get them? 84% of our demand comes from outside Tier 1 cities. This is the real value add.

Most important thing for us it to be close to our customers. First product was LIVITUP, an Ayurvedic hangover cure. We did customer service ourselves on Sundays, this allowed us to engage and know them. Packed thousands of orders ourselves at the office.

The next step for us (FY22) is to improve customer experience and build more value in the chain, and scale up customer engagement. We constantly look for feedback on the products, the instagram page, etc. Want to take the company across 5 countries now, doing groundwork for this.

Financial Year	Revenue
2017-18	86,83,525
2018-19	2,04,17,905
2019-20	16,33,16,371

Dr. Vaidya’s success can be attributed to the family legacy, smart decision making with respect to distribution and marketing, but also the care that they put in to the brand. The big question is whether the new management changes the anatomy of success, and how this story transforms.

maheshraja · June 9, 2021, 2:24am

Excellent research and write up throughout the thread. First stumbled across the stock in April’2020 and have invested since, after reading investor presentation and annual reports. One mistake I did is I did not accumulate the stock with further increases. One of the main reason being inability to scale Guiltfree plus the movement of ex-CEO to Bharat Pe. Ever since that move the company has become kind of a venture fund with cash cows like FSL supplying the ammunition’s.

Peel works is a great investment because it’s a B2B startup like Udaan which directly connects manufacturers to retailers without traditional distribution channels. This means FMCG space which lacked POS data will have lot of data points like Telecom sector and can make tailor made offerings for different regions. The can leverage Peel Works as distribution network to expand reach of Too Yumm and other FMCG products. Also since this business is being set for the next generation I believe it will be given the best possible support by parent organization.

Technically the stock is strong as it reflects the movement of FSL. It has given an ascending triangle breakout in weekly charts with 657 the ATH being a real possibility for short to medium term as long as 394 level holds. Would add more to portfolio based on annual report and results.

Chins · June 11, 2021, 9:58am

The primary investment thesis for RPSG Ventures has to be the valuation gap between the current market cap and the FSL holdings, but I thought we can shed some more light on the startups currently held by the venture fund.

What are the different rounds of funding for a startup and where does RPSG fit in?

(Sourced from wikimedia commons)

A high percentage of startups fail at the seed round, and very few make it to the Series A stage. At this point, it’s worth noting that the majority of RPSG investments have been in Series A funding rounds. This means you’d expect all of these companies to have crossed break even.

In general, working capital from Series A would be used to hire more people and expand, and it lasts between 12-18 months before they start another round of funding.

mCaffeine is the only one so far to have gone on to Series B, 15 months after their Series A.
ShopG went through two rounds of seed funding, again lasting around 15 months. We should expect the next round of funding in April 2022.
It has been roughly a year since IncNut had their funding round, and we should expect to hear developments about this fairly soon.
The Souled Store is the outlier, looking to raise funding over two years after the last round.

Companies like Swiggy are at Series J, Nykaa was raised funding through Series F in March 2020.
The following snippet from the ongoing basecamp leads me to believe that they’re now taking on riskier startups at the seed stage. An objective benchmark is that 80% of these will fail, and it’s a clear monitorable to see how many of these go through to Series A in early 2023. (Almost like asset quality check for an NBFC). We can expect RPSG to have a 15-25% stake in companies that they seed fund.

How much stake does RPSG own in these companies?

I wrote to the investor relations, but haven’t received a response. Did some scuttlebutt with a friend who works at one of the largest VCs in the country. He thinks they aren’t obligated to disclose their stakes, and we shouldn’t value these companies based on the stake that RPSG owns as it gets diluted over time and valuations change very quickly with startups. However, it’s useful to have an overview of their portfolio.

Really nice infographic, sourced from Adioma.com

While it looks like we should expect VCs to have ~30% ownership, it depends on how many other investors participated in the series A funding rounds. A look at the funding rounds shows us that RPSG wasn’t the sole investor in a lot of these rounds. Amicus Capital lead the investments in mCaffeine’s series B. Crunchbase lists RPSG as the lead investor for five rounds.

Here’s the overview:

Brand	RPSG Stake	Valuation	Revenue	Management’s Revenue Target	Data Validity	Shares held as of March 2020
mCaffeine	12.8%	230.71 Cr.	~100 Cr.	500 Cr by FY24.	September 2020	6171 (Listed as Pep Technologies)
Souled Store	1.5%	146 Cr.	~100 Cr.	1000 Cr by FY25.	Revenue validity FY21, valuation November 2018	714
IncNut Digital	7.7%	281 Cr.	~50 Cr.	250 Cr in FY22, 50% from SkinKraft, 500Cr from Vedix by FY26.	March 2020	16461
Dr. Vaidya’s	100%	144 Cr.	16.33 Cr.	New management	March 2020	Complete ownership
Peelworks	Unknown	255 Cr. (2020)	~50 Cr. (2019)	Unknown - Scaling to 30 cities with 100,000 retailers	Valuation as of 2020, revenue as of 2019	4134

Source for the data is www.tracxn.com which looks to have a very large coverage universe. Shares held sourced from the FY20 annual report.

With IncNut, it’s a little more complicated as they have two entities: IncNut Digital which deals with StyleCraze, and IncNut Lifestyle, which owns Vedix and SkinKraft. It’s unclear how this is structured in terms of RPSG’s ownership.

Sharing some articles on all of these brands as my sources for management commentary:

Here’s an RPSG family crossover: the founder of Dr. Vaidya’s interviewing the mCaffeine head.
https://www.listennotes.com/podcasts/direct-to-a/episode-6-tarun-sharma-ViJdr_4auUy/

On strategy/vision: Data is the centre of our vision, it is our God. If the data doesn’t support ideas that the co-founders have, we don’t implement it. Have a ten member team that looks at every single aspect of the business strategy.

We split our target audience into different brackets. Model the complete primary customer, and run targeted advertising to make sure that this person sees the product everywhere through ten different mediums, whether they’re on facebook, or instagram. We box one customer ten times rather than have ten customers buy our products once. Different strategies for different brackets.

We’ve come up with a system to quantify social media engagement, and through this have a score for each of our influencers that push the product. If content produced by one has a lower score, we spend time on this and aggresively pursue higher score advertising.

Incnut has two verticals: IncNut digital and IncNut lifestyle:

Incnut Digital is an advertising / content platform that has a reach of 50 million women monthly, I found a presentation from 2019 that describes what they do media-kit-Bridalbox Media Deck 2019.pptx (4.8 MB)
Snippet of their clients:

IncNut clients916×691 79.8 KB

Incnut Lifestyle contains brands that have SKUs such as Vedix and SkinKraft, management expects 50% of their revenues to come from SkinKraft. SkinKraft currently generates over 1,00,000 orders a month, with the average ticket price being in the range of Rs 800-Rs 1,000.

https://www.financialexpress.com/brandwagon/d2c-brand-skinkraft-to-spend-80-90-of-advertising-dollar-on-digital/2264043/

Will update the tables once I have consistent sources that pin down revenue at a particular time.

Disclosure: Invested.

Chins · June 16, 2021, 8:51am

Results out:

Some highlights:

Good numbers on revenue and EBITDA, main segment up 10.5% QoQ. However exceptional items and tax ate into this, resulting in a net loss.
From the note, it looks like they wanted to set off losses in Guiltfree against deferred tax, but couldn’t realise this in time, and paid 100Cr. as deferred tax.
The exceptional item of 100Cr. is bizarre. They entered into a deal with a mortgage company, where this mortgage company could purchase stake in a subsidiary in exchange for realised revenues. This had a buyback clause attached to it. As the valuations for the subsidiary rose, mortgage company triggered the buy-back clause, forcing RPSGVENT to pay 100 crores.
CFO up considerably for FY21, up five times over FY20. They’ve used half of this in investing activities, and looks like they’ve paid back 450 Cr. of debt.
EBITDA for FY21 up 300% over FY20, however after exceptional items and the deferred tax, this resulted in a small net loss.
Current cash on hand amounts to 160 Cr.
I’d like to understand why lease obligations ate up 10% of the CFO.

I’m only going to be tracking Guilt-Free / Dr. Vaidya’s / Quest Mall going forward since these are the only entities that are completely owned by the group. Until there’s news that RPSG is acquiring a much larger stake in the companies owned by the VC (wouldn’t rule it out by the way Dr. Vaidya’s played out), we can hit the snooze button.

maulik_dadhania · June 17, 2021, 4:01pm

I don’t find current debt in result. Does anyone have an idea?

Ashwani_Agarwal · June 18, 2021, 11:10am

Hello chins, an excellent detailed piece.

The RPSG Venture Fund -1 was a wholly owned subsidiary of RPSG Ventures according to the Annual Report of 2020.

But, in the QIVFY2021 results, they have listed the same as a Joint Venture.
http://www.rpsgventuresltd.com/uploads/results_to_stock_exchanges/Annual%20&%20Quaterly%20Results_16.06.2021.pdf
I was unaware of sale of any stake in the Venture Fund by the Company.

Any idea how much stake is now with the company in the Venture Fund?

Chins · June 18, 2021, 1:00pm

Good catch!

I didn’t notice the change at all, and thought the venture fund was a wholly owned subsidiary of Quest Properties according to the annual report.

I went back and checked, as of Q3FY21 it was listed as a wholly owned subsidiary, so the joint venture claim is new. There were no notices sent to the exchange between Jan 1^st and March 31^st regarding this.

We should have the new annual report soon and maybe that will shed more light on the issue. I’ll also reach out to the company, but I’m still waiting on a reply regarding a previous query…

Ashwani_Agarwal · July 14, 2021, 11:14am

The company has submitted it’s half yearly disclosures on the Stock Exchange today.

They have mentioned both RP-SG Ventures Advisory LLP & RP-SG Ventures Fund-I as Joint Ventures and have also mentioned that both were Subsidiary till 29-Mar-2021.

The details like who the JV is with and what is the JV Ratio and what is the consideration received for selling the stake in both of these businesses are still not available.

No disclosure was made to the stock exchanges regarding these changes.

maulik_dadhania · July 15, 2021, 9:51am

https://www.bseindia.com/corporates/shpSecurities.aspx?scripcd=542333&qtrid=110.00

Chins · July 23, 2021, 12:55pm

Annual report out:

AGM is announced for the 18th of August, and are accepting questions through email.

We have some answers to questions asked by the thread.

@Ashwani_Agarwal, on noticing the venture fund being classed a joint venture:

@nikunj_patel, on what APA services is:

According to AR20, Kolkata Games and Sports was owned by the RPSG group, so RPSG Ventures has acquired something held by the family, and we now own an ISL football team.

Will post other takeaways after going through the financials.

Ashwani_Agarwal · July 23, 2021, 1:35pm

From owning 100% in the fund to owning more than 50%.
They have subscribed to 30.1 more units of the Fund (Invested Rs. 30.10 lakhs more into the fund)
But, how much the Venture fund has been diluted is not mentioned in the report. So, now the company ownership in the Venture Fund is in the range of 50.1 to 99.9%.

Will try to mail the company questions regarding the same.