Thank you for your observations. My question is what methodologies do we use to segregate these companies say into A/b/c segments and what would average valuation discount be given, As it is personal judgement let us stick to known problem areas. Would love your arithmetic on this.
Posts in category Value Pickr
The HS Portfolio (15-01-2024)
Polycab is just the latest trigger but its beyond that as you have mentioned.
To be honest as anyone who has run a business of any size, knows exactly how books can be cooked to cover regular needs. So these things are cooked/disregarded into valuations. The problem when scale of the cooking exceeds expectations, then it causes deratings.
On second point of MNC/promoter group companies in same lines of business. You are indeed correct, another big issue in Indian Markets which will never go away.
My broader point was on how to value these gaps and have an mental arithmetic for discounting it. In other words what metrics should be used to give an x+y% valuation discount. I beleive as an CA you would be well placed to through more light into the matter.
Pitti Engineering Limited: Is it on an inflection point? (15-01-2024)
Shareholding Pattern for Q ending Dec 23
The retail holding has become less. FII and DII have increased their stake. JR Seamless Private Limited now also have 1 per cent stake. Overall the shareholding pattern seems to have become stronger. Number of shareholders is at all time high. That to me seems to indicate increased awareness and hope.
Genesys International – Product Monetisation (15-01-2024)
I am not really sure about this. We will know about it as time passes by and we have more information I guess. In the meanwhile I will try to look into it and find out more about this if possible.
Cupid Ltd – Helping the world play safe! (15-01-2024)
This question is coming up again and again – why the company needs the money. In the interview, Aditya Halwasiya mentioned that the existing cash is enough for organic expansion, while new funds would be used for acquisitions. I think going beyond that, a more pertinent point is that there is good amount of institutional interest in investing in the company. When cheap money is available in plenty, any promoter may want to take it and put it to good use, if he is ambitious enough and wants to go for aggressive growth.
In condoms, Aditya has spoken about retail expansion. Retail expansion is a very capital-intensive activity. Brand building, advertisement & promotion, deep distribution network, inventories and even getting top class talent – all of this requires investing huge amounts of cash for prolonged periods of time. People don’t think of them as investments since much of it is expensed in P&L, and hence the epithet “low margin business”. Condoms are a Rs.1500-odd crore market in the country which by itself is not large. But within that a lot of innovation and premiumization is happening. Last year, Raymond sold KS and Kamasutra brands to Godrej (GCPL). Listen to what the GCPL management has to say about the acquisition:
And this:
But going beyond condoms, Aditya Halwasiya’s comment seemed more oriented towards IVD kits and the broader medical devices business. This is a 10X bigger market and growing faster than condoms. Here, Cupid is starting from near zero, so growth can be very fast. In the interview, Aditya said Malaria, Dengue, Typhoid, Syphilis, HIV etc. all require tests to be made. Currently Cupid is manufacturing test kits for all. Though not an exact comparison, a small company called 3B Blackbio DX Ltd. which is into molecular diagnostics and biological devices such as RT-PCR tests, mutation detection kits, genetic sequencing kits and so on is trading at 9 times sales.
Beyond test kits lies the broader medical devices universe. Morepen Labs’ medical devices business grew 41 % in H1 FY24 and the company said the market itself is growing at 25 % CAGR. Morepen is into devices such as Oximeters, Glucometers, BP monitors, pregnancy kits and so on. TTK Healthcare’s medical devices division grew 23 % in H1 this year. This was on top of a 41 % growth in FY23 and 90 % growth in FY22.
And then there are exports. Aditya said they plan to participate in international tenders after getting regulatory approvals. Increasing adoption and usage of medical devices and health-tech is a secular mega trend. Besides, India currently is a huge importer of medical devices but there is a push towards import substitution and self-reliance under the broader Atma Nirbhar principles.
Coming back to condoms, the business will get a big boost if the next government brings in some form of Population Control Bill. Any such initiative may come with a complementary scheme for encouragement, popularizing, procurement & distribution, and subsidizing of condoms. ‘Mission Parivar Vikas’ was launched by the government in 2016 for increasing the access to contraceptives and family planning services in the country. It has been a low-profile scheme so far. But having focused on water, electricity, gas connection, housing etc. in its first two terms, the next term could see family planning being pushed higher up the priority list. Of course, I am speculating here – I do not know if there is any such move – but it is not impossible to imagine. May be someone in the government is already working on it, and the market has got a wind of it.
This is as far as we can see. Tripling of capacity is not the only thing that is changing at Cupid. An ambitious promoter with access to cheap money and a large opportunity size can do a lot of things. Aditya Halwasiya need not reveal all his cards at one go, there could be more up his sleeve. But so far at least, he has made all the right moves for sure.
(Disc.: Invested. Not a recommendation. Please do your own research)
Phillips Carbon Black (15-01-2024)
PCBL Q3 Results: Net profit up 52.6 percent at Rs 148 crore vs Rs 97 crore and revenue up 21.5 percent at Rs 1,656.8 crore vs Rs 1,363.3 crore, YoY. Company also declared dividend of Rs 5.5
Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains! (15-01-2024)
Small update from the ground. One positive (for UP sugar mill profits) and one negative
- Q3 results will be very good
- Actual production in KA, MH, TN is much better (than earlier inputs 260-270 LT) and likely in line with ISMA projections this year
Disc: Invested, no change in positions; but monitoring closely
Mudit’s Portfolio (Passively Active) (15-01-2024)
I had already replied at HS portfolio. Posted again here
Mudit’s Portfolio (Passively Active) (15-01-2024)
I think, you have polycab issue in mind.
As per my point of view, cash business has been a tradition for indian businesses , particularly in these segments. Even if you visit your local shops , you will find that they keep two sets of books…One for the tax purposes and one which is real, which includes cash dealings. And when a business gets listed , this habit and tradition continues. I will not take holier than thou approach. Its part and parcel of indian business operations.
I would like to give analogy of another MNC company which I held for 3 yearsand recently sold off. Abbott India ltd. Its an Indian subsidiary of Abbott. Now this MNC parent also maintains a Private Ltd subsidiary called Abbott Healthcare Pvt ltd, which is not a listed subsidiary. Now many good medicines and famous products are launched not under listed subsidiary but under unlisted pvt subsidiary, thus causing loss to the minority shareholders of Abbott India. This is also a form of theft of profit which rightly belongs to shareholders as the cash sales of polycab. But its legitimate and nobody can do anything about it as parent holds listed subsidiary very close with 75% stake. And then there are so many businesses who divert business to their private companies at the cost of listed companies. This is more of a norm and SOP. As and when our markets reacts strictly, some shareholder activism gets established , these practises will become things of the past, but its not going to happen in a hurry. In our lifetime of investing, things will continue and we should not lose sleep over it.