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

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RPSG Ventures holds 53% in First Source solution.
For each RPSG stock you hold 14FSL stock = 373,976,673(RPSG own in FSL)/(total RPSG share =14,408,125*100/54.35)

Is this calculation correct?

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@Lynch back to the drawing board with the investment thesis.

Is this great for the Sanjiv Goenka group? Absolutely.

Is this a good as a shareholder of RPSG Ventures? Probably not.

  1. The price at nearly $1 billion puts this IPL team in the global top 50 list for the most expensive purchases. In the US, on average, sports teams have been bought between $100-500 million in hockey and baseball, and around $1-2 billion for an NBA team. In the UK, Newcastle United was the latest to be sold for $ 400 million this year. This is a club with a hundred year history, has the RPSG group overpaid for a new IPL team with no revenue / sponsorship deals at the moment?

  2. Manchester United, whose owners bought the second IPL team on offer, trade at a market cap of 20,000 Cr. They’re loss making, and are roughly priced at around 3x sales based on pre-covid financials. Even if we’re incredibly bullish on the future of the IPL, if one of the most globally recognised sports teams is worth around 20,000 Cr., 7000 Cr. is a lot to pay upfront, pricing in years of brand building and development. On top of this, you’d have the wage bill.

  3. This also means we need to revisit the investment thesis. After paying 7000 Cr., that’s as much as the holding in FSL is worth. I have to do the work to understand how long it’s expected to be loss making, and what a breakeven point would look like. Sharing a wonderful blog that’s about the finances of football teams, and the various nuances of ownership. Worth reading even if it isn’t about cricket:

https://twitter.com/SwissRamble

Disclosure: invested and confused.

Edit: two corrections, thanks @Siddhesh.K

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The math works differently as sanjeev Goenka shares in this interview.

This is about managing cashflow and planning for the money that bcci will share with the franchise owner over the next ten years

This does put the existing IPL owners associated with listed companies in a good spot

Chennai super kings - private unlisted. Shares available in private market.
United spirits - owns RCB in a subsidiary
Sunrisers - not sure how it’s held under sun tv

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Correct me If I am wrong, I had read that the 7000 cr will be paid in tranches over a specified no. of years.
I’ll try to find the source article.

CVC Capital Partners have bought the 2nd franchise & not Manchester United.

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This article itself has stated in detail about it.

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It has to be paid over 10 years.

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Here is a good article detailing the economics of IPL:

The main source of revenue is the media rights of IPL which gets distributed equally across the teams. Rest of the revenue including sponsorships is largely similar.
In case media rights get sold in Oct for USD5bn + trophy naming rights, it implies an annual pool of close to 8000Cr across 10 teams, implying almost a 800Cr revenue to each team, which should offset the 700Cr/pa price to be paid to BCCI?

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Here is the fundamental analysis on Chennai Super Kings for comparison purpose. Currently it’s shares are trading at 4274 Cr market cap.
(31,31,60,000 shares × 136.5 per share in unlisted market = 42,74,63,40,000 market cap)

Sanjiv Goenka previously owned Rising Pune Supergiants for 2yrs when CSK was banned. He has some experience in this field. But the valuation appears high when compared with CSK.

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How is this being paid for? Even if its just 700 cr to begin with, are they going to raise more debt? Or will they sell a part of FSL?

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Snippet of Sanjiv Goenka’s interview from Crickbuzz

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I think management is more comfortable to buy IPL team even with the higer price. Hence they have bought RPSG shares heavily in last few monts. Though investors are not confortable and they are selling stocks which is visable in price correction.

  • As management claim that they are getting IPL team @ 2100Cr in next 10 years. Can some one explain how this figure derived and what will be revanue for this investment? Since management has an experience in Pune IPL team, they know the businees better then us.
  • The company already has debt and they are increasing further to buy IPL team. This seems to risker and the management is taking more risk in investments(In last 1 year many acquisition).

PS: Invested but now confused with risk associated this.

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I think this is the problem with these venture companies, the promotors use them as tools to experiment or grow into new areas…the results are always confusing. I was once invested in max ventures and sold just at the wrong time after years of ownership…similarly sold RPSG just at the wrong time as well…the issue is that we would never know when this experiment, new areas, debt etc. will end…as after all, these will remain venture companies…
You may compare them with start ups but there is a stark difference…start ups are focused in their main area of competence while these venture companies have diversified areas to venture…the result is both pros & cons…start ups may either do exceedingly well or fail completely in that one area, here at least we have multiple options in plate as pros but same ever increasing multiple areas can prove to be cons as well…

The main essence which remains is “confusion”

Disc: Not invested but had I known the roadmap/vision & execution, would have loved to invest in Venture companies as feel such companies can prove really good investments if things go well with right vision & execution. Stayed away because of “confusion”. Not a buy/sell recommendation. Above views are personal and only for academic purposes.

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  • Another point to bid high price is the population in UP. It is the biggest state based on population and will generate more revenue than other teams.

    • Gujrat (51 million) - IPL team price: 5625Cr
    • UP (166 million) - IPL team price: 7000Cr
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As per the Moneycontrol article, RPSG Ventures will hold a minority stake in the team, the majority will be held by the Goenka’s in personal capacity.

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Good one Thanks!!!
Clear all questions but still don’t understand math of 2,600Cr. Please explain.

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₹2100 crores is the Net Present Value of the ₹3500 crores which has to be paid over the next 10 years.

More here - Net Present Value (NPV) Definition

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Is there any information yet on how much majority stake and investment would happen through listed RPSG ventures?

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@Chins - certainly back to the investment board.

But I will just try and add some colour on this basis what I have checked up in the meanwhile (also repeating here some data already shared above by other members):-

  1. The 7000 Cr is a headline number, and has to be paid out over a period of 10 years. Posts above have also pointed out, plus quotes in the media from Sanjiv Goenka, are pointing to a net present value of 2100-2500 Cr. That said, I have not done any calculation on this, we need to figure out the right discounting for the NPV and probably estimate the actual net present value. At 2100-2500 Cr if fair, this could be a reasonable investment, but I have a feeling the number would be higher - in case any valuation experts can help with this.

  2. On a TV interview, Sanjiv Goenka states that the outgo from the RPSG business should be ~200 Cr in year 1. Interview has several interesting details, posting it here

RP Sanjiv Goenka Group Bags Franchise For Lucknow IPL Team | Newsmaker | CNBC TV18 - YouTube

  1. The track record of CVC is quite decent with past acquisitions (F1, La Liga recently), and they have been buyers as well in this auction. Came across an interesting article on how they did very well on F1. That said, we are all aware how investments can be so different Meet the biggest winner in the history of Formula One: CVC Capital Partners | Private equity | The Guardian

  2. The Glazers are finance hawks (and I hugely dislike them as a football fan). But even they bid 4k Cr+

That said, it does bring forth our initial concerns:-

  1. This for me does seem like a ‘status’ buy, a much more adverse version of Mohun Bagan. Again does not please me at all as a shareholder.

  2. Bids by other franchisees show that they could have underbid this (even the Adani’s bid 5100 Cr for Ahmedabad!)

  3. I find it incredible that a new IPL team can sell for so much versus a premier league team like Newcastle! But again, is that present value or deal value?

The initial thesis with regard to FSL holding company discount and potential of group companies still stays, but this does bring forth serious questions for me. That said, after listening to the interview - my initial shock at the amount of the transaction has slightly subsided. But that still has to be validated.

Discl : Invested, monitoring

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