I had a look at the portfolio from the attached spreadsheet. VLC Finance has holdings worth ~ Rs 800 crores. But this company is akin to a holding company. ( I am yet to look at the company’s B/S to see if they have any-other meaningful business model).
BBTC - Bombay Burmah Trading Corp. ltd) another listed holding company could be an apt comparison. BBTC has 50.75% in Britannia and 14.35% stake in Bombay Dyeing.
Britannia Stake(50.75%) is valued at 13,300 Crores, and Bombay Dyeing(14.35%) is valued at 191 crores(This is based on yesterday’s closing prices). BBTC has other assets in the form of real-estate in Mumbai and Tea and Coffee plantations. BBTC is available at a market cap of Rs. 2930 Crores. - This is roughly 1/6th of the market value of holdings.
Typically Mr. Market does not value holding companies at a higher valuation multiple.
)- This may be because, holding companies by themselves do not have any business model as such.
)- I have read somewhere that, a holding company should be valued based on the book value of the companies in it’s portfolio.
So, VLS Finance Ltd with its holdings valued at ~800 crores is available at a market cap Rs. 136 crores(again roughly 1/6th of its holdings).
78.76% of its holdings are in Relaxo Footwears. Having 80% of its portfolio in one company sounds risky to me.
To me it looks fairly valued, unless VLS has some meaningful business model other than the holdings that is covered in this thread.
What I might be missing in my above analysis:
A holding company is as good as the companies it holds. If Relaxo turns out to be a multi-bagger, VLS Finance might immensely benefit. Even then it will still be looked upon as a holding company and it will have a much lower multiple than Relaxo.
So the investor is banking on Relaxo’s stock performance here. But in this case then the question would be, then why not buy Relaxo directly from the market?
Does the company have an economic moat in the form of management’s superior investment skills. I do not know.
Experts, please correct me if you have different opinion on this or if I am missing something here.
Discl in above 3 stocks - VLS - No holdings, BBTC - No holdings, Relaxo - Invested (2.5% of my p/f).