Intrasoft technologies : Meet the most successful Stock of 2015–and why this is just a beginning!!!

Intrasoft Technologies is a high potential e-commerce company growing very fast its e- retail business through its subsidiary in Americas with some substantial technology backed supply chain edge which can’t be copied easily.


Management and promoters are new age well educated, and are among the pioneers of IT age in India. The two brothers in their mid-40s, Arvind & Sharad Kajaria, started this e commerce venture in 1997 with the famous 123greetings.com. This online card service is still among world’s top 3 e-greetings website. This company has so far survived dot com bubble of 2000, the severe recession of 2008 and has still been able to grow in fast changing ecommerce space. This testimonies management’s resilience.


- The company later forayed into online e-retail business through its 123stores.com portal and also doing marketplace based selling at big Market Places like Amazon/ Paytm/ Rakuten/ Letsbuy/ Sears/ Alibaba’s/Newegg among others. It is now among the largest seller on Amazon.

- The company is ranked 392 on the internet retailers 2015- top 500 lists. Grown from 612 and 499 in last two years. It’s also ranked 1641 in the Inc. 5000 list of the fastest growing private companies in the US.

- It has currently over 200,000 products for sale on the site sourced from over 1300 brands. Its adding at a very fast pace @10,000 new products every month in its product category. Interestingly, its top 5 product categories are not the high competition & crowded categories like Clothing, Shoes, Accessories, and Electronics etc. Rather their product categories by revenue are unconventional high margin, less competition & low brand identity items like


a-Furniture, patio, lawn and garden - 41%
b-Musical instruments and gadgets - 14%
c-Home improvements and art crafts - 13%
d-kitchen dining appliances - 10%
e-Toy games and baby products - 08%

- No wonder this wise mix of product category ensured that the company remains a profitable one, when there is a whole bunch of e-retail companies competing with each other to make higher losses. The company itself claims that they don’t ever sell on loss.

- Its probably the only company in listed space with sizeable scale in ecommerce, is profit making and dividend paying. Other fundamentals, leverage, Corporate governance are satisfactory. The company’s avg. quarterly turnover is INR. 125 Crore and annual turnover for FY16E will be close to INR 600 crores. (USD ~100M)

- Its current Mcap of only USD 100Mn against the FY16E sales of USE 100M makes it an ultra-cheap stock with good quality & huge growth potential. Compared to the Industry peers, leader like Flipkart commanding a valuation of 15bn(based on its last funding round in May’15) against a turnover of 8Bn and losses over 1Bn;


The most accurate benchmark comparison will be Infibeam, even though both operate in different markets (India vs US). Infibeam is a relatively new company recently filed for IPO raising INR 450 crore, and valuing itself at INR 5000 crore based on IPO price.

https://www.business-standard.com/a...lion-valuation-on-listing-115042300028_1.html

Infibeam - Turnover 250 crore; valuation- based on IPO price 5000 crore, loss making.

Intrasoft - Turnover 500 crore; valuation shockingly low 700 crore. Much more established, older, profit making, dividend paying. A proven story, operating in a more sophisticated high margin market (USA) and growing at a very fast pace.

- Even if ignoring everything else, and applying a valuation of only half of Infibeam, Intrasoft valuation should be easily INR 2500 crore vs current 700 crore , with highest margin of safety, based on every possible parameters applied to value other e-commerce companies.

- You simply can’t have two companies in the market – one loss making, half in size and still valued at 5000 crore , while other doing double the revenue, profit making, dividend paying, established, proven valued only at 700 crore.

- As the date of Infibeam IPO nearing , the Intrasoft will be the first to react. Off late, this industry and this company has started attracting attention of lots of savvy investors and in high momentum. Every entry of any big name will add to the conviction to this pick.

- With FDI in e-retail under discussion, and also if any FII/DII/PE eyeing to enter into a credible e-retail story in India , Intrasoft should be the first choice among the listed space being the only proven story , with sizeable size & scale and in a very high growth momentum. We are yet to see the entry of FIIs & PEs outside Flipkart, Snapdeal and Shopclue among listed space.

- The recent shareholding pattern also reveals a lot of heavy accumulation going on by strong hands. No. of retail investors gone down significantly but their holding only slightly decreased. , signifying more and more accumulation by existing retail investors. Even no. of large shareholders reduced but their holding has gone up too, indicating stock is being cornered by strong hands. (There is an entry of HNI investor Shivani T Trivedi & family , who is a large shareholder in many super successful stocks of recent times like Marico Kaya, Premier Explosives, Fulford, AlphaGeo, Indag Rubber etc.) . The floating stocks isn’t much in the market.

Future Triggers: (a) The Biggest trigger for rerating is Infibeam’s IPO. Imagine, in next 6 months, you will have Intrasoft at 700 crore and Infibeam at 5000 crore, the biggest anomaly which will definitely be corrected by the market. (b) The company is planning to add itself to two more Marketplaces in USA in next two quarters(c)The next two Qtrs, Q2 and Q3 being the festive season in America are going to report highly positive nos.(c) The company has some distant plans of a small stake sale in US or Indian markets. If that happens, the valuation it will command will be phenomenal and the share price will reflect that. (d) Other future triggers like listing of big e-com companies like Flipkart & Snapdeal which will have several re-ratings in Intrasoft.

 

Total cash flow on consolidated pl for 3 yrs is Only 19 cr and fy 14 cash flow operations is 1.8 cr and standalone revenue at 35 cr PE. Above 100 Evebita above 80 some e commerce is going here imagine the market cap is already 700 cr backed by virtually no cash flow from operations when is bubble Going to burst God only knows

 

Visitkumaresh, if you call this bubble, god knows what you will call Flipkart and Snapdeal valuation of 15Bn. And what will you say about Infibeam which is coming with an IPO valuing itself at 5000 and sales of 250 crore making losses.

The eretail industry is not a bubble, its the future. Not everything is valued based on Fundamentals and past nos. Otherwise there is nothing in Eicher and Bosch to be valued at 50000 and 75000 crores.... You can't argue with market, the market choose to give value its because these companies are future movers and shakers. And I don't see any logic in looking at standalone nos. and 2014 nos. Look at 2015 nos. in comparison to 2014, its more than 100% growth in revenue and current year growth is even faster. The 700 crore market cap is peanuts compared to what E-commerce businesses are valued at. Its the difference of opinion.... you see a bubble and I see an opportunity !! Lets see who is proved right !!

 

@abhishek1984abhishek While doing your research did you came across any risk factors that could be associated with the company ?

 

To quote George Soros , the legendary investor - "the moment I see a bubble forming up, I rush to enter into it, to add fuel to the fire. The best time to enter into an investments is at the start of the bubble "

To make your point more clear - Even if E-retail & E-commerce valuation worldwide is a bubble, [companies like Alibaba, Amazon, Ebay , FB, being valued at hundreds of billions , and Flipkart and Snapdeal valued at 15 billion ] it is just the start at least for India. Like it was for IT companies in 1999 and Real Estate-Infra companies in 2006 . Early movers are going to benefit a lot at this stage in India, when the FII/PEs are yet to put their money in Listed space. Whichever way you look at it, when Infibeam/Flipkar/Snapdeal will be listed at eye popping valuation- there will be no reason why Intrasoft's valuation will not be matched to them. Else, the FIIs/PEs who have missed out the likes of Flipkart/Snapdeal will eventually look for alternative credible e-retail story in India!! In both the cases Intrasoft will be a winner. Its upto the investor who either chose to sit at the periphery and keeping counting fundamentals or can actually take the plunge and go with the flow.
Further, after every bubble, companies with substance emerges out and get their right value back in long term. Infosys and Wipro also came out winner from IT bubble. Same way Intrasoft will also be a long term bet as so far the management is doing everything right and hopefully continues doing the same !!

 

Stockguru, to highlight the major risk factors and my view of the same are below :

1) If the overall valuation of E-commerce/etailing companies goes out of favor - This looks unlikely at least at this stage
2) The company majorly sells at Amazon/Ebay/Buy.com etc. marketplaces - If these marketplaces change their policy of allowing third party seller , that is always a risk. - This too is unlikely in near future
3) Currency Risk - Rupee becoming stronger - Again unlikely in near term
4) Competition - Since the company is operating in America, the competition from all over the place is there for market place sells at America affecting margins - This will work in favor of Intrasoft because Intrasoft is already a leader in marketplace selling being participant on maximum no. of marketplaces and all major marketplaces ( marketplaces are like Amazon, Ebay, Rakuten, Letsbuy, Alibaba etc.). Other competitors are not even at half of the marketplaces.Also, they are adding their products & brands very fast. All this ensures that Intrasoft's turnover is always high and its leadership position remains intact. This works as a virtuous cycle for them since in this industry to keep relevant to your vendors & logistics partner , you have to give them high volume, and in return you get better and cheaper prices from vendors & logistics suppliers and in turn with cheaper prices your products are listed on top for each search by customer and by default you end up getting largest orders. This way its adverse to smaller players and in favour of Intrasoft. As in long term these smaller players will either be out of the business or will consolidate.
5) Management risk - So far there is nothing negative or positive in particular known about management so this risk remains neutral. However the comforting fact is, the management are educated relatively young and they know that they will command more premium valuation if they keep their acts honest, instead of taking a chance with the credibility & reputation of the company.

 

It is always nice to see big numbers in profit loss statement but where is the cash flow for past years the company has generated meagre operating cash flow and as regards the corporate governance it is already a known news that they have be cited for various governance issues We can go on on about this but bottom line it is clear cut high risk investment to be even considered by retail investors like us

 

@abhishek1984abhishek
What is your view on the competition that the company would be facing from other internet retailers. As you mentioned earlier that it ranks 392 on the top 500 firms in US there are still around that many retailers ahead of it. Even if it faces a direct competition from 10% of the firms (30 firms roughly) that are above it do you think the company would be able to have the profit margins. In my personal understanding whenever you have a products making high margins, competition is bound to come to eat your pie. Also I am unaware of the profit margins right now, it would be helpful if you could tell me what are the profit margins of the company.
I am honestly intrigued by the ecommerce space. So far in Indian Ecommerce sector Amazon and flipkart were able to expand by giving heavy discounts funded by the investors money which hit the brick and mortar stores hard. But any reasonable economist would tell you that in the long term it is not sustainable. What are your views on that.

 

operator driven stock. stay away from such manipulated stocks...

 

Stockguru, this industry is a very competitive one. Mainly because of entry barrier into e-retail on marketplaces ( like Amazon etc. ) is very easy, It is the survival which is most difficult part. Currently Intrasoft is operating on as low as 1.5% to 2% margin. As you said, even if there are 30 retailers directly competing with its, its always the retailer with top listing (once a customer makes a search for a particular product) who takes away the maximum orders. This top listing is given to the retailer who offers most competitive price& delivery terms. Intrasoft is able to deliver competitive pricing because its listed on many market places so its volumes are large due to which it gets favorable terms from vendors & logistics partners and Intrasoft is able to pass this volume discount to customers and remain among the top searches for its product categories. Further, their IT infrastructure is built in such a way that they don't stock much inventory, any customers order to Stores123 on Amazon simultaneous goes to the vendor/stockists of that product and to logistics partners and instantly the customer's order is fulfilled withing single day. This is possible because of the significant IT infrastructure base developed by the company and can't be replicated easily. This is why they are currently only focusing on increasing the turnover & size. Profitablity will come once other competitor will find the business unviable and start exiting in long term. You can personally get in touch with me so that i can share with you the voice clips of discussions with management and other researches and market studies etc.

 

Praisesingh, can you please share which corporate governance issue you are talking about or what is the known news or governance flip outs. I would definitely be interested in knowing the same because I am not aware of any such corp. governance issue. Else, if it was just a loose statement without any base, request you to avoid such statements and contribute constructively to the forum instead of creating baseless rumors.

 

Ghanshyam, I don't understand what do you mean by operators driven. Stocks like Infosys and Dr. Reddy's and even Eicher & Page industries too are operator driven for that matter. In this market there are all types of participants. That doesn't make a company a good or bad investment. !! Its because of these half baked misconceptions only many people tend to miss good opportunities at early stages.
Let me be clear that I am not an operator here and have posted it for my conviction, and to bring more awareness about this stock. People are free to take their own call.