They are like Amazon (aggregator minus online) in the Bihar, Jharkhand, Eastern UP. Here the customers largely are orthodox and conservative.
The advantage EMIL and Aditya Vision has is physical validation of product at the same time the variety of it by customers which works as better confidence vs online in tier 2 and later tier cities.
-Comments and corrections are welcome.
Also not a reco to buy Aditya Vision.
Disc: Invested
HDFC mutual fund bought more 95k shares @2602/-.
AVL Q2 FY24 Result and Concall highlights
With 250 Stores and if 250 Cr PAT share price with 30 PE 6250 to 60 PE 12500.
EPS at 208.
So many marquee investor buying Aditya Vision like HDFC MF, Asshish Kacholia,East lane , Envision , Sameeksha & on 29 December venerable investor Bharat Shah through Ask Investment buying 65 K shares. there would be other interested buyers as well
For reasons plz go thru attached Emkay Global report with good data points.
Disclosed= Invested since last 1-2 years and biased.
Aditya-Vision-11-12-2023-emkay.pdf (2.2 MB)
I think there is typing error in quantity. And will you please share the source of info of Ask investment buying.
Tks for pointing out typo. Its 65 K amounting to 22.5 Crores worth buying by Ask Investment managers of Bharat Shah.
can be seen in bse bulk deal data.
just want to highlight that promoters sold 1.93% of the market cap at 3350 and it rose a lot in the last 6 months also.
Any update on Q3 result declaration date?
AVL.pdf (350.1 KB)
A meeting of the Board of Directors of the Company is scheduled
on Tuesday, January 30, 2024 to consider and evaluate, inter alia, a proposal to raise funds
by issuance of equity shares or other securities including through preferential issue, qualified
institutional placement, rights issue, or through any other permissible mode or a combination
thereof, subject to such statutory/regulatory/contractual approvals as may be required,
including approval of shareholders of the Company, as applicable (the “Issue”)
AVL QIP will propel the business go debt free and help in expansion of stores, hopefully perp before coming summer season.
Hello. I have been studying the company for some time. I am reproducing my blog entry on the company here.
I am writing this post with the help of AI. So what I typically do is that first I write a couple of internal blogs. Then I ask AI to prepare a blog post out of them.
Starting today I am also going to append my internal blogs to my post. It should help readers who want more nuance. My internal blogs are primarily written for my consumption. So they may not always follow the rules of good public writing.
Introduction
Aditya Vision has carved a niche for itself by focusing on the Hindi heartland for its consumer durables business. This decision to deepen rather than widen their geographical reach reflects a clear, if conservative, strategic vision. The company’s choice to stick to its core business rather than diversify shows a commitment to solidifying its presence in a market that shows significant room for growth.
Tailwinds for Growth
Aditya Vision operates in regions where the base GDP is substantially lower than the national average. This presents an opportunity for robust growth, much like the potential seen in small-cap investments. With India’s nominal GDP growth at 15%, these economically lagging areas have the potential to outpace the national rate significantly, providing a promising backdrop for the company’s store expansion and customer base growth.
Customer Loyalty and Technological Adoption
Customers in these areas are returning for upgrades, which suggests a strong brand loyalty. For instance, a consumer who purchased a 32-inch TV five years ago might now be eyeing a 48-inch model. Moreover, the integration of technology into everyday life is creating a new market for smart consumer durables. Aditya Vision’s deep connection with its customer base could make it a preferred platform for discovering new, tech-enhanced home products.
Red Flags and Caution
However, the company’s current valuation is steep, warranting a cautious approach for potential investors. The control exerted by the founding family is also concerning, as future internal conflicts over leadership could destabilize the company’s governance. Furthermore, the threat of competition, particularly from giants like Reliance Retail, cannot be ignored.
Expansion and Operational Strategy
Aditya Vision is also strategically expanding to locations between district headquarters, utilizing data-driven decision-making to select these sites, though the specifics of their judgement metrics remain undisclosed.
Their refusal to sell private labels and the choice to operate as a platform for Original Equipment Manufacturers (OEMs) to build upon is particularly intriguing. This approach has fostered trust and allows OEMs to gain valuable insights directly from the shop floor, which is a unique selling point against larger retailers.
The Interim Verdict
The company is innovating in its retail strategy by leveraging its geographical presence, fostering brand loyalty, and embracing technology. The concerns noted, while significant, are balanced by the company’s strategic advantages and operational savvy.
As an investor or someone keen on the intersection of macroeconomics and business analysis, Aditya Vision offers a fascinating case study. While there are risks involved, the potential for growth and the company’s unique market position suggest that this is a firm to watch in the coming years.
Disclaimer: The views expressed in this blog are personal. I may or may not hold investments in the stocks mentioned.
p.s. My internal blogs/drafts for this post are below
Sunday, 21 January 2024 at 5:32:00 PM
I have gone through a research report today on the company. I had seen a couple of management interviews some time back. So what the company does is that it retails consumer durables. But it does so in the poorest regions of the country. Most of its revenue comes from Bihar. And they have now started branching out to other states. But they are only choosing those states which match culturally and socio-economically with their Bihar customer. For example they are expanding in eastern Uttar Pradesh, Jharkhand and some parts of West Bengal etc.
Let us just first understand what makes a consumer durables retail business work. This business has low gross margins. Electronic brands spend a lot of money in doing R&D and advertising, marketing. They try their best to get top of the mind recall of the consumer. But to fulfil the order of the consumer they need a middleman in between which would be the distributor and retailer. Sure a brand can always get into retail itself. For example as Apple does with its apple stores. But brands soon realise that retailing is a different ball game. The consumer is usually expecting a retailer to carry multiple brands and SKUs. The consumer usually does not go into this durable buying process thinking only about how he wants to buy a refrigerator from one particular brand. Instead he searches online or taps his friends for references or just depends on the salesperson explaining to him what all does each brand offer. So I think for now it would be fair to say that consumer durable brands would like to stick to building products and then would depend on distributors and retailers to convince the consumer about their brand.
So we now know that a retailer is an essential part of the whole chain. Now just like any other business the retailer would like to keep his fixed costs extremely low. He knows that this is not something without which the consumer would die. This is not like cereal or water. This is a discretionary product at the end of the day. And therefore demand may be cyclical. So the retailer would like to keep his overheads to the minimum. Ideally he would therefore want to do this business online. The retailer would want that customers would visit his digital storefront and place an order and then the retailer would go to the consumer durable brand and ask them to deliver the product directly to the customer. And then the retailer would get a commission on each sale thus made. But this is not how it works on the ground. First of all, brands can set up digital storefronts on their own. They do not need a retailer to do that for them. May be amazon with all its fulfilment capabilities is a worthy digital retailer and therefore brands do use amazon. But digital is a winner takes all game. So even brands know that in the long term if most of their sales are only happening on amazon then they are exposing themselves to huge concentration risk.
Also there is a bigger reason for the relevance of offline retail stores. A consumer durable is a touch, see and feel product. You want a sense of how big a fridge or air conditioner is. And therefore you want to see in front of your eyes how does it look. And you also want a physical shop or address where you can go if the consumer durable does not work as advertised later. Evolved consumers with a lot more discretionary income may not respect this sentiment. For them buying things online is fine. They can live with the consequences of spending 15,000 on a washing machine and then it not working properly after one year. But usually people want the most bang for their buck. And therefore they would want to visit a physical store when buying a consumer durable.
So now the retailer knows that the consumer wants a physical space where he can come to buy these consumer durables. So now the retailer tries a way to figure out how to fulfil this need of the consumer. But the retailer wants a cost effective solution. And that is one differentiator for Aditya Vision. They are mostly present in non-metro areas. The commercial rental is far lower as compared to what it would be for metro centres. So if you are a retailer in a metro you figure out in your head about the rental that you are being asked to pay. Suppose you are being asked to pay 10,00,000 a month to run your shop. Now in your head you know that if you were to instead buy the shop outright with the help of bank financing, then you would be paying an EMI of about 8,00,000 and you will also end up building an appreciating asset for the long term. So you are always tempted to instead buy a property by making 20% down payment and getting the remaining financed by a bank. The problem with this approach is that 20% of the down payment has to be done by you and you are essentially blocking that money for we don’t know how long. For Aditya Vision instead it makes a lot more sense to just rent the shop since the rental is pretty low. This means that AV does not need a lot of capital to start a new shop. In fact they don’t need anything more than may be a few months rent as deposit. And then they spend about 50 lakhs on doing up the premises and then they spend about 3 crores building up their inventory. These three crores are essentially the working capital that each store requires. So this much money is always going to be tied up in the business. But that is fine. Because each store is also giving about 50 lakhs of revenue a month at the minimum with about 15% (7.5 lakhs) gross margin a month. So they know that the inventory would keep churning every six months or so.
Another way that AV keeps the running cost low is by convincing brands to put their own salespeople on the aisles of the store. Even brands would want that. Brands would want that the person who is supposed to explain the products of the brand to the consumer should be the one who really understands the different features of the product. It is very difficult for a salesperson to know very well all the features of all the SKUs in the store. So essentially AV saves on the money of hiring his own salespeople. I mean each store has about 15 employees of AV. But this is mostly maintenance staff like security guard and cleaner, etc. The smiling salesperson who meets the consumer is usually an employee of the brand whose product he is trying to push you. I am not sure how much this is in favour of the customer. But may be the customer is also smart towards this and would go to such a store and listen to pitches about different products before making up his mind.
One more way that the company is increasing its gross margins is buying in cash and carry from the brands. Cash and carry is when the retailer pays to the brand immediately on delivery of the SKUs to the retailer’s store or warehouse. Brands give 2-3% cash discount for such buyers. Now one negative of this could be that the company gets stuck with inventory which cant be sold. To solve this problem the company claims that they enter into a sell or return arrangement with the brand. Any inventory which remains unsold is liquidated at heavy discounts and these discounts are borne by the brand instead of AV. Also, if even after discounts some inventory is not sold then the same is sent back to the brand. Why would a brand allow for this? Well typically the COGS of brands is about 30%. This is my assumption. Even if you take out the 15% margin that is given to the retailer, the brand should have a gross margin of 50% on their products. So whatever comes back can may be recycled by the brand in some way. Also, the brand knows that the retailer tried to sell the product. The brand knows this because the salesperson trying to make the sale belongs to the brand. So I find it believable that they have some sort of sell or return arrangement with the brand. And therefore the company hardly has any inventory risk. They might have a cost of money risk. For example lets say they paid 100 rupees to the brand to buy a SKU and the same is not sold for 6 months Now when they send back the SKU to the brand they will get back 100 rupees. But they are the ones who will bear the opportunity cost of tying up money without any returns for those six months.
The company also understands how important is affordability to the consumer. Especially in a low income market like eastern india. Therefore the company has tied up with a lot of financiers like Bajaj Finserv who can fund the purchase of consumer durables for consumers at the point of sale. Bajaj Finserv understands this business very well and therefore they know how to underwrite. So the underwriting continues to be done by the financier. AV does not have that muscle. But they do have strong relationships with such financiers. As a result 30-40% of the sales happen with the help of point of purchase financing. I dont understand how do financiers behave when consumers don’t pay up. Do they behave in a legal and ethical manner to recover this money? But default rates are pretty low (that is why their book continues to go up) and also there are not many media stories about how lenders are being really underhanded in trying to recover their money. Therefore I am assuming the lenders have figured out good underwriting algorithms to make this business work. Traditionally the indian consumer has been so set against debt. Culturally everyone frowns upon the consumer when he mentions that he is getting any of his purchases financed. But this feeling is now colliding with the aspirations of the consumer. People want bigger TVs and they want refrigerators. Women want washing machines since most of them are now venturing out to work and make money. So in this tussle between aversion to debt and aspirations my belief is that aspirations will continue to win. So hopefully in about a few years time we would see that 70-80% of their revenue will continue to come from financing options.
This is my initial read of the company. I am learning more about them. I will write a second internal blog on them soon.
Thursday, 25 January 2024 at 10:08:28 AM
So I went ahead and read more about Aditya Vision. Their strategy going ahead seems pretty clear to me. They will continue to focus on the Hindi heartland. They have shown no vision or inclination to move to any other geography. Neither have they shown any inclination to get into another line of business. They seem content to increase their store count to sell consumer durables. Or in other words they will continue to sell electrical/electronic hardware. Ideally you would want to hear from the promoters right now that how he wants to build a global business. But on the plus side we know exactly what is in store for us for the next 2-3 years.
Now let us just first discuss the benefits of the approach that the company is taking. The company is present in a geographical area where the base GDP today is so much lower as compared to the rest of the country. So this area has a headroom for a lot more nominal GDP growth. It is the same logic as we use for small caps vs. large caps. The nominal GDP growth of India is 15%. This company is in the poorest part of the country. Obviously the nominal GDP growth of this geographical area would be much higher than the rest of the country. So on the one side that is a good tailwind that the company has. This should keep helping us with some store growth. We will have existing customers coming back to us for upgrades. For eg someone who purchased a 32 inch TV five years back will now come back to us and ask for a 48 inch TV. At the same time we should get customers who are buying their first consumer durable. Think of a family in which someone gets employed in a formal job for the first time and therefore now decides to gift his mother a washing machine. So the state growing its nominal GDP at 20% should result in the sales of the whole consumer durables industry going up by a lot.
Another tailwind is the increased digitisation of our everyday life. With AI and consumer durables using more microchips, the compute in our every day life is going up. Think about a smart fan. Earlier we installed a fan on the roof of our place and then there was a switchboard and a regulator on the wall. Now a smart fan has all of that and in addition also allows you to set a start/stop time using your phone. So the customers which they have and who have a very good purchasing power are always looking to buy more hardware devices for their homes with compute. Think about how a delishup takes care of the cooking requirements of an individual. Aditya Vision has high brand connect with its customers. May be it will be the platform using which consumers will discover new hardware to improve their lives.
Let’s think about the red flags now. The company is already very richly valued. So I don’t think we would want to enter at the current valuation. We would wait for some external reason for the market to correct and for their share price to come down so that we can buy at a price where we feel we have some margin of safety.
The bigger red flag is the chokehold that the family has over the company. All the top management positions have been taken up by family members. They are taking a lot of money out of the company as their compensation. We will have to see how that pans out. I really worry about how the family may fight amongst themselves for control of the company once the reign of the current patriarch ends. So I will have to find out whether a successor has been anointed and whether all family members defer to that successor or not.
Another niggling worry is competition. They claim that they have been competing with Reliance Retail since 2014. But the day Reliance really decides to compete with them it should be tough for them to survive. That possibility may not happen though if Reliance decides to buy them out. But even if that happens, the promoter will only sell his stake when he gets a very rich valuation from Reliance. So we should still get a good return on the money which we would have invested into the company. The promoter has more than 60% stake in the company and would only sell even a small percentage to a strategic investor like an HDFC mutual fund. So he is guarding himself well against a hostile takeover.
One more thing that I noticed was that the company has found a new niche to expand geographically. Earlier they opened stores in district headquarters. Now they have also started opening stores located between headquarters. I think their secret sauce lies in identifying the right locations. They use a lot of external data to figure this out such as the amount of credit flow in a particular location. On top of that I am pretty sure that they have their own judgement metrics which they have not publicly disclosed.
Another thing is how they have completely refused to sell their own private label. I think this is like TSMC. OEMs trust and support the company because of the rich insights that the company allows OEMs to get. The OEMs can put their own salespeople on the shop floor. This can help the OEMs learn on the ground what the consumer likes and why. And the OEM is not worried that the retailer is building his own label on top of the OEM. So I hope that the company sticks to this line of thinking as that is the biggest USP of the company against bigger retailers like Reliance Retail.
I am tempted to think of this company as a platform. They are allowing OEMs to build on top of their physical stores. I would like to see what is the kind of platform fee that the company is collecting from OEMs. For eg for better shelf placement and so on. I am not sure they share this revenue for now but let’s still try to find it out.
Surely this is a company which will keep me interested for some time now.
3 new stores opened by AVL total count 135
Excellent write up 
. But Valuation is very high. Also in a recent interview, management is guiding for 20-25% growth as compared to earlier above 30% growth. For this valuation, market cap will be around 5600-6000 cr in Fy25. So risk reward is vey less. However, some correction should be there for entering into the stock
3 more new stores by AVL total count to 138.
AVL_1.pdf (443.6 KB)
The company aims to raise funds by issuing up to 7,90,405 equity shares to selected buyers at a price of ₹3,573.17 per share, totaling approximately ₹282.42 crore. Name of investers are
(a)SMALLCAP World Fund, INC
(b)American Funds Insurance Series Global Small Capitalization Fund
This is big. Entry of a leading FII like Capital in a small cap like AVL shud rerate the stock further.
discl invested since long
