VLS Finance limited (511333)

Since I’m not investing based on the discount, the NAV discount only tells me that there is some value here. As my transactions happen at the prevailing market price, it doesn’t help me make any decision here. Let me expand.

Let’s start with NAV as the starting point. Let’s make a few adjustments to factor in gains and taxes that emanate from it and some transaction costs (all at the company level, not individual level). Let’s call this Net Realizable Value (NRV). Because of the discount, the market price is always lower than the NAV and NRV. So at what price do I buy? If I just look at this one criteria (CMP<NAV/NRV) to make a decision, the only action is buy. I’m no closer to arriving at a ‘realistic’ decision of what price to buy based on the above rule.

Hence, the NAV could be called an intangible (or even an illusion). It’s not something I’m going to get in my lifetime (unless the company gets liquidated/wound up). When I sell, it would be at the prevailing market price and not at the NAV. The dividend yield important to me would be on my purchase price instead of the prevailing price or NAV.

The impact of NAV on the price isn’t direct (their correlation may seem to confuse the impact as well), but indirect (filtered through the discount and reflected in the prevailing market price). So the next element is that of a discount. There are two parts to the discount – A) underlying assets are also moving on a daily basis. B) The prevailing/historic market discount on this.

With a discount trade, one is solely relying and hoping on a set of marginal buyers willing to pay a higher price and lower the discount. (The ones that follow them may widen the discount as well). My aversion to discount related actions stems from the desire not to have the results of the investment/transaction solely dependent on prevailing market sentiment and others. Dividend is more real to me than transient market sentiment. But this doesn’t mean I completely exclude the underlying assets while thinking about valuing the company. They most definitely have a part. The question is of the weightage.

You are absolutely right when you say “Only if one believe that some day this so called intangible NAV (which i dont agree) gets converted to tangible through dividend, merger, buyback or delisting (these are ways even largecaps are valued), one should buy such deep value stocks. “. This is where my second hypothesis comes in - “Mutual fund with increasing dividends and notional margin of safety in the unlikely event of liquidation? (seems more plausible. We could have a scenario in 10-15 years where the dividends are close to Rs. 10-12. But if this isn’t the case, aren’t there better avenues to do this? Tata Investment Corporation is one such avenue).”

So if the hypothesis is discount – one would look at NAV and discount reduction/widening. If the hypothesis is mutual fund + dividends, dividends and investment track record would be the focus with some weight to these other attributes.

The day I am able to sell it at/close to NAV, I am willing to change my opinion and think about discount investing as well. Or if there’s another hypothesis with steps for valuation that would be in line with this broad approach.

Regarding valuation, the question I am now asking myself is, at what price would this be a no brainer buy.

There is a fundamental difference between VLS and companies like Bajaj and Birla, etc. They are holding companies – they allocate resources within the group, they make decisions that affect subsidiary and operating companies (look at the overlap in management). VLS is more like a mutual fund. Think of VLS as an investor like you and me. Add a company as the functional entity through which they operate. Plus significantly more AUM than me. That’s what VLS is.

I’ve written more on holding companies on my blog. Since we’re not allowed to share personal links, so not putting up a link. You could always read it there if you want.

“The only question for which no one know the answer is that “will such payouts(which exists only in the past 4 yrs) sustain in the long run or promoters have different idea”. If it sustains, the stock will be 10X in 12-15 yrs.” This statement is absolutely true. I would only add an increase in payout. It’s unfortunate they don’t have a dividend policy.

This is all my personal view. I could be completely wrong.

Of late, the stock seems to be getting a lot of coverage in Telegram groups (and hitting upper circuit). Will probably continue to track for some more time before doing anything.

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It is not a classic holding company as VLS finance is not controlled by promoters of Relaxo. They have stake in multiple other companies like Accelya Kale, Meghmani Organics etc

Post by Gaurav Parikh in 2015: https://www.gauravblog.com/tag/vls-finance-just-rs-36-because-of-a-colourful-past-relax-it-has-relaxo-footwears/

For last three years, there has been dividend declarations by the company. In 2020, despite Covid, the dividend was increased (which is a puzzling factor)

The stock used to be in prominence earlier due to the dispute on Sunair Hotel in Delhi. The case is still on. Part of the history is available here. -https://indiankanoon.org/doc/171037589/

As regards associate and subsidiary companies , the things to watch out for are

  1. VLS Capital. This is an associate company . Owns share in VLS finance
  2. VLS Securities - This is 100% subsidiary. Part of Relaxo holding is with them

Another interesting associate company is South East Asian Enterprises. There was a stake with VLS finance that has been sold. There is real estate in Lucknow ad Kanpur that is with South East Asian Enterprises that seems to be valuable

Another real estate stake that has disappeared from VLS annual reports is the stake of “Appu Ghar”. The same stake is not there in VLS annual reports now (may be from 2015 onwards).

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Thank you for that. Great to see someone with a significant investment coming onto the platform and sharing their views. :slight_smile:

Any idea what their investment philosophy is? There seems to be a huge churn (significant multiple of their investments. The change in accounting standards is removing this in the financials in FY20 (not sure why they historically reported it as income and expense in the first place)).

Would you know anything more about the promoters? Have you interacted with them?

Sorry for shooting so many questions, but my final question is, what is your investment hypothesis? What prompted you to buy and continue holding?

VLS certainly isn’t a holding company.

  1. On VLS 's investing philosophy - i think its primarily centered around finding undervalued bets. This has led them to make some fantastic investments like Relaxo, Meghmani . To their credit, their ability to hold on to some of them for long period of times is something to watch and learn from. If i am not wrong, they started to sell chunks of Relaxo in recent years ( if memory serves me right from 2018), they had sat over the stock since IPO days to see their investment flower like this.

They had picked up lot of gems like Sree Rayalaseema Hi-Strength Hypo Ltd (TGV group) in 2016 and exited at good profits. On the other hand, they also have a series of dud stocks like Ruchneeta textiles, JP Associates (not sure if they still hold them) and that primarily explains that finding next Relaxo is not easy for everyone !

They load on to the large caps as and when the large caps give an opportunity. Ex: they had picked up Infosys when it was going through a rough patch in terms of leadership changes.

There is something about VLS finance when it comes to spotting opportunities - To the extent that that Somesh Mehrothra wanted to acquire a steel company in 2013 time frame when steel industry was going through a rough patch !

In nutshell, very opportunist & smart set of folks who usually hop on the right train. They have managed to hold on to Relaxo since IPO days : whether that was by design or luck is hard to say.

Look at the section called “proprietary investments” on their website (https://www.vlsfinance.com/proprietary-investment/) , look at the names : Suven, Apollo hospitals, Gati, Dishman, Accelya…

  1. Regarding the huge churn that you have spoken about. This is no longer the case now. I believe that there was a practice earlier (before 2015) to keep shares of Relaxo with entities , take money against them and put the liquidity into market speculation. They had once sold 48 crores of Relaxo once to cover for losses arising out of this kind of misadventure . I think this practice is no longer going on in VLS. This is my understanding after reading their annual reports and notices to stock exchanges. I may be wrong here.

  2. Yes, since 2019 their quarterly results have been hard to decipher! One needs a CA and that too pretty experienced one to understand their quarterly results. Having said that , the right way to look at VLS is to look at the value of their investments & not quarterly results. Simply put : As long as Relaxo stays on course, VLS is safe.

  3. No i have not interacted with the promoters and know very little about them. Would request the folks in this platform to put forward their views

  4. If you read Sanjay Bakshi’s Relaxo Cinderella project, there is a very interesting Q& A at the end. In response to a question on VLS, Professor uses the words “frozen corporation” (*). That had set me thinking. Anyone who had invested in VLS finance then probably studied Relaxo share holding and tried figuring out what this company was all about. Idea was to find what can do better then Relaxo!

One thing to note is - Since Dec 2017, when VLS was at 100 Rs, the stock of Relaxo is up by ~ 100- 150 % and VLS had been on downhill. Opportunity, still (?)

I had some kind of hope that one day VLS will start paying dividends and it turned out to be correct in 2016. Also, the fact that this so called “holding co” discount will (or should) narrow with time also helped me to keep faith in it.

Lastly, there was regular insider buying that used to happen in VLS in 2012,2013, 2014 etc… as long as the promoter is buying, why does one need to sell ? Makes sense ?

Frankly speaking, when they had sold a chunk of their holding to Jwalamukhi holdings in 2016, I was disappointed as Relaxo was grossly undervalued then.

(*) - Prof Bakshi had used similar words for Nalwa Sons and JSW holdings in one of his papers. I had been fortunate in picking up JSW holdings earlier and had seen the highs it made in 2007 bull run. So i thought this might be the next “JSW holdings” !

In all humbleness, please do not consider my views to be the final say on this stock. I am still learning and want to leverage this platform to learn more about the stock and investing in general.

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VLS Finance was trading at a 91% discount to value of investments as on 30 Sep, they would create the most value by selling their holdings and buying back their own shares. Last such buyback happened in 2013 but don’t know if it still makes sense after the tax introduction. VLS has been selling small parts of its Relaxo shares over the last few years. The management can create a lot of value by taking small steps. Maybe some shareholders can collaborate with management to make this happen.

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Hi I was just wondering if anyone had any views on this stock now that it has gone up so much in the last month ? My guesstimate is that it probably has a book value of at least 900rupees(as opposed to CMP of around 130 now) at this point if one includes the book value of VLS Securities as well…Clearly there are a lot of cross holdings involved with its ownership of VLS Capital ,VLS Securities and VLS Capital shares in it which is a minus…Also it is disappointing that there has been no more mentions of the real estate division that they had mentioned they were planning end of last year…But it is clear that people are starting to see the value in this company…

Their biggest holding is of course Relaxo Footwear(an expensive but very interesting and loved company) but it also has a significant holding in Meghmani Organics which is being demerged into Organics and Finechem…Before this announcement the Meghmani share moved up a lot but there is nothing to say that these 2 entities won’t go up further when they are restored to market…

I have to admit I have a large holding at much lower prices( i bought originally 7 years ago)

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I think it is a good time to re-evaluate this share. It has gone from rs 70 to a high of 265 in the last year… It is now at a price of 170 rs…I think one big reason for its continued undervaluation is that the consolidated value is not being taken into consideration. VLS Securities is a fully owned subsidiary and in my view should fully be counted…
The various financial websites have wildly different book values attributed to it….Moneycontrol is saying its book value is 629rs,Screener.in 806 rs whereas Trendyne is stating 0.5 which implies a value of 360rs!!…I did an analysis today based on last year’s annual report and I came to a value of just over 1000rs (80* percent of this value is in Relaxo Footwear but it also holds considerable mutual funds, bonds and other equities).

In my view a value of 1/6th book value is far too small for a company like this…It is often categorised as a holding company but I do not see it as that…It is not held like holding companies as a vehicle for a larger connected company. (I agree that holding Companies are not necessarily good investments because their promoters aims are NOT always for the price of the share to rise)…But this should be considered more as an investment company.

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There is a very interesting transaction that has been reported in insider deals today. Details in trendline URL here - VLS Finance Ltd. - Disclosures under Insider Trades & Substantial Acquisition of Shares and Takeovers

Promoters have finally resumed buying in VLS finance. This is after a gap of 3 years! This does signal a substantial gap between market value and inherent value!

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Is this you by any chance? coz your name matches this company’s public shareholder’s list with ~ 1.68% of the company… :no_mouth:

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Good case to understand promoter antecedents: RAJESH IDNANI v. VENUS CAPITAL MANAGEMENT INC | FindLaw

Disclosure: might invest as part of a value index strategy.