These are the molecules i could find through Tijori exceeds +50% of market share, and the source is DRHP of the company itself.
This seem a legit concern going ahead…, Have you came to any further conclusions on this or insights from the recent AR’s or concalls. Yet to complete few of the recent concall reports would lover to hear your insights if any. thanks.
Discl: Not invested; tracking
Came across a small ~60cr Gujarat-based company in the Gourmet Retail sector. Found the business economics quite interesting so documenting my thesis here.
Disc: This is a purely educational thread trying to document my learnings and insights into the company and is strictly NOT a recommendation in any way. In addition to the business risks, microcaps are also illiquid and volatile. Please do your own due diligence. I have positions in the stocks I discuss.
About the business: Magson is engaged in the retail and Distribution business of gourmet, frozen food, and specialty foods and currently has 26 stores selling 3000+ SKUs across 30,000 sq ft of store space.
Financials
The high gross margins of the gourmet retail segment (~30%) compared to ~15% levels of regular retail, allow for much better business economics. The firm also runs relatively small (1000-1200 sq ft stores extremely efficiently and is able to generate north of ~20K/sq ft operating out of Gujarat – something that even much larger Mumbai-focused gourmet retail chains struggle with ( Nature’s basket is at ~16K/ sq ft) – more on this later. The combination of the good utilization and high gross margins is that the business is able to clock ~7-8% EBITDA margins, which are extremely strong numbers for the retail sector.
Store growth – Management guidance of 10 stores in 18 months, capital and actions indicate more ambitious goals
Currently has 26 stores of which 16 are owned and 7 are franchised. The RHP mentions that they plan to open 10 new stores in the next 18 months, but actual plans could be a bit more ambitious.
The franchise enquiry form on their website indicates there are 15 new cities they plan to expand to.
They have also allocated ~8cr from the IPO proceeds for store inventory financing, but an individual stores requires just around 40L of inventory, thereby giving them a longer rope to grow in my view.
The franchise model allows them to grow much faster than they did in initial years, and the business has demonstrated intent to pivot strongly towards the franchise model going forward
(red-own,grey-jv, blue-franchise)
Store economics – ₹20000+ sales/sq ft; ~30% gross margins; 7%+ EBITDA margins; 3x+ Asset turns
Magson runs some of the most profitable retail stores in the country, aided by its best in class gross margins, and strong asset turns. It is interesting to note that the business fares better than busineses of much larger scale operating in strong geographies (Metros). The business has developed a much smaller standard store size (1000-1200 sq ft) vs the ~3000 sq ft of an average Nature’s basket store and appear to be placed somewhere between a 7/11 and a Nature’s basket in terms of store size as they cement their presence in West and Central India.
Franchise economics
Legacy franchise model
New franchise model
While it remains to be seen if the new franchise partners agree to the proposed brand commission fee, it would be a good source of recurring revenue if implemented.
Even if this inflow from these brand commissions are put into a dedicated
Optionalities
The business also has key optionalities in the form of “RF Gourmet”, which is the firm’s private label brand and “My Chocolate World” which is the firm’s chocolate store piloted in Udaipur. Private labels are a growing theme across Retail stores in India and the world, and aid margins as these products manufactured by a contract manufacturer typically get higher margins. The firm currently has French Fries, Fiery Fries, Chilli Garlic Potato Shots, Delhi Aloo Tikki, Veggie Burger Tikki, Chunky
Fries, Eggs and a range of Chicken Seekh Kababs under the RF Gourmet brand and is venturing into roasted makhana and healthy seeds based on their recent disclosure. Luxury and imported chocolates are also an interesting area of growth in an increasingly affluent India, which offers another (albiet untested) optionality for the business.
The business had also experimented going the B2B route briefly, supplying to DMart and Reliance Retail, but have since discontinued that, likely due to additional working capital stress that doing businesses with such larger players would entail. Given that capital will be a constraint for the business atleast until it gets more broader access to the debt markets, this looks unlikely as an optionality in the short to medium term.
Valuation
The business trades at ~60cr (~24x TTM P/E). Given the quality of the business and the growth prospects ahead, this doesn’t appear too demanding.
That being said, this is an extremely competitive space, and the competitive pressures will be felt more strongly as the business grows into newer markets. Maintaining business discipline (margins, balance sheet discipline, asset turns) as it ventures into the franchise model full throttle and the ability to raise incremental growth capital at fair terms will be key monitorables for me.
Final fun tid-bit
This is not a part of the thesis but just a fun tid-bit! DMart, now one of the largest retail chains in India had opened its first store in Powai, just a few kms away from premier engineering institute in the country – IIT Bombay. Magson had opened its first store in Vastrapur, just a few kms away from one of the premiuer management colleges in the country – IIM Ahmedabad!
Happy weekend, please do share your views on the firm if you’ve gone through it!
I’m active on Twitter and focussed on Indian Equity Investing actively if you would be interested in following – https://twitter.com/bharatbetpf
Latest folio status:
85% increase in past 5 months since April low point!
Current folio: (sorted by “% of Total”, simplest is to focus only on the “Current return %” since the others include the historical trades since 2017, as computed by value-research folio service, best would be to focus on “Return % pa”, since time is of the essence)
| Company name | Last price | Cost per share | % of Total | Return % pa | Total Return % | Current Return % |
|---|---|---|---|---|---|---|
| Ujjivan Financial Services Ltd. | 509 | 124 | 17.7 | 158 | 309 | 311 |
| Kilpest India Ltd. | 783 | 366 | 9.9 | 69 | 114 | 114 |
| Ugro Capital Ltd. | 294 | 183 | 9.3 | 43 | 53 | 61 |
| RBL Bank Ltd. | 233 | 110 | 9.3 | 75 | 113 | 112 |
| KPI Green Energy Ltd. | 857 | 442 | 9.3 | 94 | 94 | 94 |
| Redtape Ltd. | 447 | 156 | 7.9 | – | 186 | 186 |
| Tinna Rubber And Infrastructure Ltd. | 431 | 191 | 6.4 | 267 | 127 | 125 |
| Gujarat Themis Biosyn Ltd. | 895 | 611 | 6.1 | 58 | 56 | 47 |
| Arman Financial Services Ltd. | 2286 | 2262 | 4.9 | 11 | 1 | 1 |
| Phantom Digital Effects Ltd. | 487 | 503 | 4.6 | -84 | -3 | -3 |
| Shivalik Bimetal Controls Ltd. | 549 | 196 | 4.4 | 79 | 181 | 180 |
| Caplin Point Laboratories Ltd. | 1045 | 807 | 4.0 | 79 | 30 | 29 |
| Diamines & Chemicals Ltd. | 539 | 416 | 3.5 | 157 | 54 | 29 |
| Best Agrolife Ltd. | 1161 | 1376 | 2.9 | -28 | -20 | -16 |
| Total Stocks | 100 | 29.6 | 145 |
CAGR is 30%, see the comment for the value graph related to Tinna. Value research folio fails to compute large numbers hence Redtape shows a blank.
Kilpest zooming to second largest position after one year of bare breakeven, quite similar to Ugro in this aspect.
Caplin looks to provide steady growth just like the bunch of financials and KPI green, possibly Redtape and Tinna too.
Past year graph: (courtesy zerodha)
Graph may not look at exactly ATH but this is because of bonus shares of Tinna waiting to be credited.
Nothing looks overvalued to me in the folio, mostly they appear cheap, but market sentiment may provide some volatility for fun 
PS: Maybe Redtape has boosted numbers unexpectedly since it may have gone missing 5 months ago, before relisting.
@ajayt001 @avaneesh @StonePitbull
Hello Ajay,Avneesh and Stone.
After adding few more since the small-cap blip…new PF comprises 85% smallcap 10% midcap.
PF went more than +1%, more than whatever was lost during blip is regained.
I tend to believe the speed of recovery was vengeful/faster than the speed of rise during similar blip in august-22 when electrical goods started to rise around july.
I tend to target July-24 in terms of timing to readjust/skim gains ? i am not sure if i am making any sense with this statement.
In terms of packs, Electrical capital goods have been consistent.
My query – otherthan Governemnt,PSU,Financials,Railway, Defence. are there any specific sector which has seen movememnt and if it is possible to identify such sector?
Your post is more or less aligned to the original posted by me. Nevertheless, my comments on the antithesis (refer marked in bold) is inline just to ward off concerns/worries, if any. Would not really call this as antithesis but more of risk to the business some of which is again an overlap with that in the original post.
ANTITHESIS
Mgmt did mention in the concall that they do have flexibility to revise prices to take care of inflation. They have done so in the past too.
Operating leverage is always a double edged sword for any business. Per concall, Mgmt sees this as an opportunity and hence invested in the first quarter itself and expect contribution q3 onwards. Almost all jewellery companies have clocked healthy sales in the last few qtrs.
Don’t see this happening anywhere in near future. On the contrary, assured volume based transactions (even if not increasing qtr on qtr) makes it a repeatable business directly contributing to the bottom line (costs remaining constant).
It’s a risk and needs to be watched. But having said that, India will certainly not become a cashless economy in a fortnight. Cash is still prevalent even in developed economies as you rightly pointed out.
It is always better to have insurance to mitigate the risk to a certain extent if not to a full extent rather than not having it at all. The loss due to theft etc is still much lower than the competitor.
Since the overall cash management market is very lucrative and yielding, there is a risk of new players coming into the market, well-capitalized MNC players
This is possible. The analogy to be seen is the logistics industry – companies of the likes of TCI XPS and see how many are actually profitable. The key strength of this business is its asset light nature, the geographic coverage and the operational efficiency with which it serves the repeated transactions qtr on qtr which is not so easy to replicate at ground level in a fortnight.
I don’t think these kind of companies will exist in long term given the economy is moving into a cashless one. That’s the major risk. Any views by experts?
Hi Sidd!
Thanks for your input. It led me to re read the quarterly transcripts for Vimta Labs and I found this :
They are doing a capex of 90 Cr currently with 1x asset turnover. This along with 2% margin expansion can make things interesting. I hope this adds some more insight to your research. Do share any other thoughts you might have on this/ any other company – would love to assess.
This kind of business requires some political connection. The very nature of business is dealing with power and people with power.
Good move by IDFCF. This would certainly improve their credit card business. It appears to be a catchy incentive to low risk individuals to acquire an IDFC card and start using it. This is positive for shareholders.
Nobody plans in advance to pay interest on credit cards whether it is 34% or it be 9%. However a 9% card provides an option to delay just in case of unexpected short term cashflow problems. Bank obviously wants to attract low risk entities to apply for the 9% card. It would match individually applicable interest rates to their individual credit risk. For people who never default or have opted for automatic payment system, interest rate does not matter.
Hello Hitesh Sir,
Greetings! I deeply appreciate your selfless work here. I hope you continue guiding us for a very very long time.
My journey in stock starts in may-22 by trying to catch falling knives…my pack went -30%…made me read harder. Stumbled across doctor’s Kaveri seeds story. Thats how I found VP & your portfolio thread…I keep that news story & your PF thread bookmarked…I consider it to be the best thing happened to me in my investment journey so far.
Currently, about 90% of my investments are in small-caps, focusing on what you call “flavors of the season” such as defense, government, and electrical capital goods (with financials, materials, and industrial making up 75%, and IT at 15%). I have None in chemicals, pharma, textile, and packaging, which I tried to chase in 2H 2022.
My queries:
In terms of “flavors of the season,” how can i identify when a sector is losing its appeal or becoming more favorable, especially if I am not adept at reading charts or financials? (I am asking because I feel this is what made me stay afloat and this could be the right approach for non-number fellas like me who expect more than 20% return, I was lucky to somehow get hitched to the flavorful wagon…my pack today is +30% from -30% in May-22. I feel luck would not be always on same side)
I wish to have more clarity if the growth in the electrical capital goods sector might continue until 2025 due to India’s 2030 renewable apirations, which require more capital goods in electricals? I’ve traded with successes into HBL, Technoe, and TRIL in the past. Today I hold two of them as the top two in my portfolio.
My investment approach has been “jump on good names when market takes deeper cut “. I found myself to be adding more and more every time market dives. This approach brings me to about 35 stocks in my pack. I wish to have guidence on this and if its okay to have such nos in the pack. ?
As someone who works full-time and has limited time for in-depth research, would you recommend following ValuePickr senior members, the 52-week high thread, or the Bull Therapy thread as a suitable approach to learn and invest?
That’s all for now. I have more questions, and I would greatly appreciate your guidance. Would it be okay to come back with more questions in the future?
Thank you.