See the bright Sun: Aditya Vision

Aditya Vision is running on the growth story (read number of showrooms added every month) in urban, semi urban, emerging urban, good income rural area. Margins will sustain between 4% to 9%. Multi-brand Retail has its challenges.

Q2 FY 2023
Revenue increased by 42.56% YoY to Rs. 259.60 crs compared to Rs. 182.09 crs in Q2 FY 2022. PAT increased by 171.53% YoY to Rs. 11.35 crs compared to Rs. 4.18 crs in Q2 FY 2022.

H1 FY 2023
Revenue increased by 85.83% YoY to Rs. 698.11 crs compared to Rs. 375.66 crs in H1 FY 2022. PAT increased by 247.47% YoY to Rs. 37.84 crs. compared to Rs. 10.89 crs in H1FY 2022.

This strong growth reflects sustained consumer demand in our core markets, driven by increased penetration of consumer durables and supported by excellent execution from our committed team.

However, Company’s Q2 has historically remained the weakest among all quarters due to seasonal effect caused by monsoons and inauspicious periods.

Today, we stand at 91 stores versus 79 stores in FY2022. We have opened 12 new stores in this fiscal so far, and 6 more are under construction at the moment. This reflects our commitment to provide a world class shopping experience to our consumers and to deepen our retail presence in our targeted markets in Hindi heartland. Your Comparny is confident to hit a century of Store Counts in FY2023 moving closer to our goal of 150 Stores by FY2025.
Since retailing of consumer durables and electronics is a niche segment, the unique features enjoyed by your Company are provided below, which bodes well for the future of this format of retail:

  1. In all our stores, almost all the salesmen (brand promoter) are provided by the OEMs which saves on employee cost.
  2. Our retail sector is growing faster than other retail due to availability of easy finance options by way of zero cost EM offering by NBFC and Banks which is supported by OEMs.
  3. Large Appliances like TV, Fridge, AC & Washing Machine are aspirational products which require family purchase decision where the entire family visits your stores for touch and feel of the products which reduces the option of online purchases. Moreover, your Company remains highly competitive due to competitive price line and ability to instantly deliver the purchased products to customers.
  4. Consumer electronic market still remain under penetrated in India especially in Tier 3 and Tier 4 cities in Hindi Heartland where we see immense growth potential and strong demand due to massive improvement in power situation.
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Ashish Kacholia sir buys 1.4% stake in Aditya Vision in yesterday block deal.

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Management has now started more media interactions.

Disclosure: Not invested (no transactions in last-30 days)

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Promoters sold some shares.

Share holding coming down
73.68 73.68 73.68 73.72 69.88

Disclosure : No holdings

When the float is low, how will large investors like Ashish kacholia who want to own at least 30-40cr of shares get shares to own ? Only way is when promoters sell. I think one has to see who is on other side of the transaction.

Btw this is also 5 or 6th largest position for stallion pms. (probably the largest smallcap position for them)

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This is an old playbook. Promoter will gift shares or sell to big fish/institution after an euphoric bull run - Example: Cupid went up 40x between July '14 and Jan '16. Post that suddenly in Jan '17 Elara Opportunities bought a big chunk at above market valuations re-inforcing the view that there was value. It was baffling why Elara would do something like that but they sold pretty much everything within a year. Cupid wasn’t the only one that did this back in '17-'18 bull run. Its been a while and I don’t remember the others.

AVL is so similar. 100x in 2.5 yrs and then a big fish comes in to add credibility to the price. The number of shareholders in this scrip was in 2 digits for most of '20.

We don’t know what is the real acquisition price when a big fish or institution takes a large chunk in an illiquid counter. Incentives simply don’t align that way or maybe I am too skeptical.

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Ashish Kacholia or any big fish entering in a stock after it becomes 100x can just be window dressing. Promoters give their shares at very low price or sometimes for free to these big investors to make their valuations justifiable. If I am promoter of any such company which can be big multibagger in future, I will buy more instead of constant selling. I know few cases where promoters said no to big investors and instead asked them to buy from market if interested.
Just a cautionary statement from my side . I may be proved wrong.

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For a share to be a multi-bagger , at some stage it has to get recognition of institutional / HNIs in first place followed by other large parties. The retailers are always the last to join the party. Not enough liquidity in the stock and therefore to avoid a steep increase in acquistion price could be a big reason for exchange with promoters.
I could be wrong in my view here as there are multiple cases of otherwise in small caps.

Disc : Invested.

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Ashish Kacholia has not got the shares free or at throwaways prices. He has got in at Rs1466

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We should always welcome skeptical views on stock as it gives different angle and enriches our knowledge. This beautiful forum helps you to develop a 360 degree view. Going through the threads of Valuepickr is a must in my checklist before making any investment.

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Anything is possible. A discerning investor would always keep anti thesis closer than the thesis. At same time a discerning non investor would also do well to understand the buyers perspective here. Specially when buyer is running his own portfolio of 3,000 cr or so, not managing single rupee of outside funds & is a self made equity investor

Ashish sirs views on promoter selling & investor buying:

https://twitter.com/LuckyInvest_AK/status/1603216404920299520?t=_n2eBwAHQQiKbbr5simRgw&s=19

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As per AVL’s latest investor presentation, the avg bill cut is Rs 23,600 for FY22 whereas EMIL’s avg bill cut is also at similar levels (~Rs 23,000). Seems a bit odd that a Bihar focused retailer has slightly higher bill cut than an AP/TG focused retailer.

If we compare the per capita incomes of Patna and Hyderabad as these would be the biggest markets for both these companies, Patna has a per capita income of ~Rs 60k and Hyderabad is 3.5-4.0x of this number.

The logical assumption is that lower per capita incomes would result in downtrading or buying cheaper goods, unless there is a sizeable (and with enough disposable cash) non-formal economy that is contibuting to higher bill cuts for AVL.

Secondly, AVL’s gross margin is also 2 ppts higher than EMIL’s (13.8% vs 15.8%), which again feels a bit odd as you would assume that EMIL being the bigger company would be able to negotiate better rates than AVL. While, 80% of AVL’s purchases are directly from OEMs, EMIL’s RHP also mentions that a vast majority of their purchases are also from OEMs.

EMIL has a small Wholesale portion which has lower gross margins but should not impact gross margin significantly. EMIL also a decent incentive income which increases gross margin (no other operating revenue for AVL). Even after this the gross margin for AVL is higher than EMIL.

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I am trying to understand answers to questions myself. I would not be offended by questions if I were you.

On the first point - Yes, absolutely it is possible. The point is to compare the data that we do have and understand why it is so, and I do think it is importatnt to understand why avg customer spend is the same for both. I do not know the answer but it is good to know why.

On your second point, AVL’s own ppt as well as EMIL’s RHP Industry section mention a gross margin range of 12-15% so. It is possible for product mix impacts margins (I couldn’t find product mix details for AVL, if avg spend is similar possible product mix is also similar)

35% of EMIL’s revenue comes from Mobiles which is a low ticket item, thus pulling down overall ticket size. Also gross margins are the lowest in mobiles.

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Management Meet with Nuvama:
Aditya Vision_Nuvama_050123_EBR.pdf (1.3 MB)

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https://www.crisilratings.com/mnt/winshare/Ratings/RatingList/RatingDocs/AdityaVisionLimited_January%2005,%202023_RR_309479.html

Rating of AVL by crisil from BBB/positive to BBB+/Stable

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Hello everyone, sharing some insights from my recent visit to Aditya Vision stores last week in 4 different cities in Jharkhand- Jamshedpur (3), Ranchi (2), Dhanbad (2), Chas (Bokaro), covering a total of 8 stores. They have a total of 13 stores in Jharkhand currently. I had planned this trip specifically to visit the stores, understand the competition in the nearby areas, understand their operations, and the market better.

Except for one store in Jamshedpur where I met Jamshedpur’s Area Sales Manager (who looks after all the 3 stores in Jamshedpur), I visited all these stores initially as a customer and the sales staff had no clue why I was there. This ensured that I did not get any special treatment.

TL;DR-

  • Great store location and aesthetics. Wide display of products with a well trained sales team and experienced Store Managers.
  • Reliance Digital and Croma are there only in Jamshedpur, Dhanbad, Ranchi, and Bokaro. Each district/area has local competition and AVL has significant advantages over the local competition. Those advantages are- price, staff, display, offers, and service. AVL has a huge buying advantage over the local competition.
  • The same products which are sold in the Metros are being sold in Tier 3 and Tier 4 cities, and mostly at higher prices (due to lesser competition). AVL is absolutely winning the game where there is no large competition like Reliance or Croma.
    • Till the company sticks to the current model where they open stores in cities which have ridiculously cheap rent and employee cost, they should do well.
  • AVL has much better operating metrics in smaller cities like Daltonganj, Giridih, Hazaribagh, etc as compared to Jamshedpur, Ranchi, and Dhanbad.
  • Looks like most of the stores in Jharkhand will cross 10cr in the very first year of operations. The management works with a minimum expectation of 6cr. Most of the stores in Jharkhand are highly profitable from year 1.
  • AVL has stores in the top 10 districts of Jharkhand population wise in its first year of operations. I think they have good visibility of 30+ stores in Jharkhand.
  • Company is setting ambitious targets for the stores which sometimes lead to no incentives for the AVL store level staff but they seem very motivated and feel this is temporary and see good growth ahead.

Here is the detailed version-

Location: All the stores were in the major market of that particular area/region. All stores were on the main road with a large storefront and impossible to miss if you were passing by. Apart from one store, there was enough area to park the vehicle within a 100 metres of distance.

Store Aesthetics- All the stores look exactly the same and are very well maintained. All the stores are less than a year old and they looked very fresh. The stores were neat and clean. Average store size is 4500-5500 sq ft with one store in Dhanbad being more than 7000 sq ft.

  • This is an advantage when we compare to 10-30 year old local competitors operating in the area with much smaller store size, very poor aesthetics, and worn down fixtures in the stores.

Store Display- The display at the stores was unmatched. It was at par with Reliance Digital. The local competition stands no chance when it comes to display of product categories and availability of brands. AVL focuses on 4 main product categories- TV, Fridge, AC, and Washing Machine. These take up 80-85% of the retail space with a small Aditya Vision Zip space for IT products and a small area for small appliances.

  • This ensures that staff training can be done in a way where they are able to sell all the 4 main product categories to one customer (lesser number of staff required).
  • They cover top 5-6 brands in the 4 main product categories and have at least 2 displays for those 5 brands. Most of the local competition has only 2-3 brands with not enough display. They would ask me to visit their own store in a different location if I inquired about a different brand.

Staff quality and conduct- I was pleasantly surprised with the staff’s quality and conduct. They were well groomed and courteous. They explained in detail about the features and helped me compare different brands. They would proudly talk about Aditya Vision and how the service, price, and other perks (like Buy & Win), are much better than any other store in the town.

  • Staff salaries are very competitive and they mainly earn from the incentives. It is very clear for them- jaha sales zyada hum vaha kaam karna pasand karenge (we want to work with the store which can do higher sales as we will get higher incentives)

My major takeaways about the operations and competition-

  • On an average, each store has 10-12 Aditya Vision employees. One Store Manager (SM), 3 Assistant SMs, 3 Floor Managers, 2 Cashiers, a few sales and utility staff.

    • Each store has 10-12 ISDs. ISDs are appointed by respective Brands like Samsung, LG, etc and are on the payroll of those particular brands.
    • ISDs earn incentives on sales from their own brands. I was surprised how well ISDs also spoke about Aditya Vision and one would have to ask them if they were AVL staff of ISDs.
    • Aditya Vision staff earn incentives on quarter targets set by the management.
  • All the Store Managers have been working in the industry for more than 8-10 years with huge experience in sales. They were mostly hired from Reliance Digital stores or from local competitors. Most of the Assistant Store Managers were young and have been promoted from Sales Associate position at competition outlets.

  • Reliance Digital and Croma have stores only in Jamshedpur, Ranchi, Bokaro, and Dhanbad. The other districts and areas don’t offer them the volumes currently they look for given their opex.

    • AVL sales staff guaranteed me a price match to Reliance Digital and Croma prices.
  • Each district/city has its own local competition. For example the largest local player in Jamshedpur is National Electronics with 4 stores in Jamshedpur and 1 in Ranchi. Ranchi has Bharat Electronics. Similarly, Ramsons and Parikh Sales have stores in Dhanbad and Chas (Bokaro). Local players cover a maximum of one or two nearby districts/areas with maximun store count of 3-5 stores overall.

  • These local competitors are themselves distributors of particular brands. For example, Parikh sales is a distributor of Sony and would offer good prices on Sony TVs and would have a wide range of displays of Sony TVs but would fail to compete in price and display with AVL on other brands. For Ramsons (another store) to sell Sony TV in Dhanbad or Chas, they would have to buy from Parikh Sales and would not make the distributor margin. Compare this to AVL who is directly buying from the brands.

    • AVL has a huge buying advantage in that sense. They get better deals and get better prices from OEMs.
  • Tier 3 and Tier 4 cities are buying the same model of TV, Fridge, Washing Machine, etc that are sold in the Metros. In fact, the selling price of products is higher in these areas compared to Metros (lower competition) while the major costs (rent & employee) are significantly lower.

  • AVL has stores in the top 10 districts of Jharkhand population wise in its first year of operations. I think they have good visibility of 30+ stores in Jharkhand.

  • Since I was there as a customer and I did not purchase anything, they would ask for my number to contact later. This was done by other stores as well but AVL also sent me a whatsapp message indicating that I had visited their store and had inquired about TVs.

Other qualitative insights after speaking to employees-

  • AVL employees are getting feedback that ISDs in nearby stores want to relocate if an AVL store has opened near them as AVL is taking away sales and market share. ISDs incentives on sales are higher than their base salaries.
  • Inventory Management- The sales staff pitch for products/brands that have a high inventory. This is how they deal with ageing inventory. Once a product has crossed the 60 day mark at the warehouse, they put it on high alert and efforts are made to sell that product quickly. The staff is so well trained that they will sell one product over the other.
  • They use sophisticated software to track inventory at the store and company level.
  • Company’s USP according to the employees-
    • Price Match Guarantee- Company guarantees that they will either match the price whatever their competition is quoting or after buying a product, if a customer gets a better deal in the next 7 days then they will refund the excess amount.
      • I noticed that a lot of stores told me “we offer the lowest price in the area.” The way this works is that the brands set a Minimum Operating Price (MOP), below which it is not easy for any store to go. The brand allows discounts up to a certain limit. However, if a store is not buying directly from the brand then it is very difficult to make money at MOP. Given AVL is doing uniform buying for 90+ stores, it gives them a significant buying advantage.
    • Customer care and service- They claim that they are the only company with a Toll Free number which has a team of 50+ members which help with any customer query
    • Same day delivery & Installation- Most of the local competition can only give same day delivery but due to AVL’s relationship with brands, they can also offer same day installation as well
    • Buy & Win- AVL does a lottery every year at the end of year. They give 1 coupon on every 10K worth of purchases. This year they will give away 1001 bikes, 151 cars, and 3 homes (Ranchi, Patna, Varanasi).
      • Yes, they will enter UP in CY23.
    • Display & Stock availability- This just sets them apart from local competition and they spoil the customer for choices.

Generally, the management’s expectation of a new store is to do around 6-7cr sales in the first year, after speaking to the store managers, it seems like most of the stores in Jharkhand will cross 10cr sales in the first year. This helps with the higher rent cost in Jharkhand and ensures that the stores are highly profitable from the very first year.

A few things that the employees and store managers were unhappy with-

  • The company is setting very high targets for AVL staff due to which they sometimes don’t get their quarterly incentives. This shows that the company is ambitious. Most of the SMs saw this as a challenge and realised that given the growth ahead, this is temporary.
  • While negotiating with a customer, the sales staff need to go to the Assistant SMs or to the Store Manager to get the Minimum Operating Price (MOP) for a product. Which is to say that what is the best deal a customer can get from the sales staff. If a customer is persistent or a different store offers a lower price, the company still has some leeway to lower the price but that authority lies with Area Sales Managers or with someone in the management team.
    • A lot of staff felt like it would be better if they had access to the MOP then it helps with dealing with the customer much better. The SMs felt that there could be a better way to get to know the MOP since right now it comes in the pdf form and it is difficult to find the particular model in a long list.

Overall, I feel that the company has cracked the code for electronics retailing in Tier 3 & Tier 4 cities. They have been highly successful in Bihar and they are able to replicate this in Jharkhand. They will enter Uttar Pradesh in 2023 (MUCH BIGGER MARKET). As long as they stick to the format of opening 4000-5000 sq ft stores, focus on the 4 major product categories; TV, Fridge, AC, Washing Machine, in areas where there is a lot of buying power but only local competition, they should do really well.

Here are some pictures that I took during my visit-










Disc: Invested (no transactions in the last 30 days).

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Dec 22 SHP

Neither Ashish Kacholia’s name nor Himalaya Finance name appear in Dec 22 SHP.

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3QFY23
Operational Revenue increased by 21% YoY to Rs 317.9Crs.
PAT increased by 21% YoY to Rs 19.5Crs.
9MFY23
Operational Revenue increased by 59.1% YoY to Rs 1,015.9 Crs
PAT increased by 111.9% YoY to Rs 57.4 Crs

Commenting on the performance for Q3 FY23, Mr. Yashovardhan Sinha, Chairman and Managing Director, Aditya Vision, said:
“Your company finished Q3 with a growth of 21% in revenues and a growth of 21% in profits. For the 9M period, net revenue grew by 59% and profits have grown by 112%. We believe our core markets have continued to grow ahead of the consumer durables industry in the country. This strong growth reflects sustained consumer demand, driven by increased penetration of consumer durables and supported by excellent execution from our committed team.

We have opened our 96th store, taking the store addition in FY23 to 17 as on date on a base of 79 stores in FY 22. This strong store addition reflects our continued commitment to provide a world class shopping experience to our consumers and to deepen our retail presence in our target markets of the Hindi heartland. We have so far opened 14 stores in Jharkhand in 11 major districts. By Q3 FY 2023, Jharkhand stores have started contributing 10% to our revenues. After a successful debut in Jharkhand, we are in the process of expanding our presence into targeted areas of Uttar Pradesh. I am excited to share with you that we have started our Uttar Pradesh expansion program sooner than initially planned and have already finalized few locations in Uttar Pradesh, moving closer to our goal of opening 150 Stores by FY 2025 following a Hindi heartland specific cluster-based expansion strategy. While we are expanding into newer geographies of Jharkhand & Uttar Pradesh, we are also opening 2000 – 3000 sq feet stores in Bihar in big sub divisional towns between districts. These stores will further fortify our leadership position in Bihar and brings us closer to our valued customers. These stores operate on an expense light model which will further contribute to the profitability of your company.

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