Your MF portfolio looks quite good…but your stocks portfolio may give similar returns to your MF portfolio …so what is the main rationale behind your investment into stocks …
Posts in category Value Pickr
See the bright Sun: Aditya Vision (09-09-2022)
A bunch of us met AVL management few days ago. Here are the notes:
Q: What is the story of Aditya Vision?
A: Started in 1999 with 1 store. Didnt go out of patna. Condition was poor in rst of bihar. Power was bad. From 2014 we started expanding in all of bihar. Gaya/muzzafpur/darbanga was covered. Now 77 stores strong in all of bihar. Late last FY decided to mobe to jharkhand. Today 11th showroom in jharkhand, 2nd in ranchi. Jharkhand is similar in culture etc to bihar. Very comfortable. 5-6 stores are still in pipeline for jharkhand. Hope to have 100 + storerooms by end of year. Good response. Expanding rapidly. Tier 3 cities also. Misnomer was initially bihar is poor state, but contrary to that we found that lot of manufacturers can sell in bihar. Not many options to spend their money. Big manufacturers were also surprised that premium category sales are good in bihar. Another 25 years next FY: 2023. Easestern UP. Thereafter in chhattisgarh, western part of WB bordering bihar. Very asset light co. All properties are long term lease rentals. We plant to go same everywhere. Capex is nominal. 50 lakh capex: AC, false ceiling, lighting, generators. Different model of retailing: Yu are supported by the manufacturer. We ae selling their products. What will be our margin will ne initially decided before we buy product from manufacturer. They price it in a way that we are able to derive that sort of a margin. Increasing gross margin continuously for last 5 years. Purchasing power increases tremendously. Company vie with each other to have counter share in aditya vision. Manufacturer wont let their counter share decrease. Double turnover in 3 years. All manufacturer giving their own salesman to sell the product. They are called: ISD. We dont have any obsolete goods lying with us. All manufacturer responsible for their own goods. They make sure their own goods are sold before technological change they introduce. We sit on 0 level of unsaleable goods. This part of geo: lease rentals & staff costs are very low. Reliance retail has 5 stores in patna, 20 in bihar. Chroma is there in jharkhand. We share common wall with reliance digital. Dhanbad has chroma. Reason is that we are very very competitive. Manufacturers ensure that we should remain competitive since we have sizable share of turnover of manufacturer. Typically Q1 is very goood. Best. Compressor product great demand. Good margins also in Q1. Marriage season is also there in this part of india. Lagan season is there. Weddings take place in AMJ. That also contributes. Q1 has 30-32% of all our sales. Q3 is weakest among all Qs. Flooding, rains, no festivals also. Q3 becomes very good for Co due to festive. Durga puja, dhan teras, diwali, chhat puuja is there in jharkhand & bihar. 13-15% gross margin, 5-7% operating margins, Summer starts ealy these days; so a lot of sales in march. Cannot compare our last 2 years coz last 2 year Q1 was shut down.
Q: Our guidance is to double our Revenue in 3 years. Given that we are planning to roughly double store count in next 3 years & we might have 15% Same store sales growth, why is the guidance for revenue for doubling?
A:In the past we have doubled our revenue every 3 years. Want to give Conservative guidance & if possible perform better.
Q: With higher scale will our margins go up?
A: Mobile phones as a % of sales mix will go up. So the margin might go down a little bit due to that. So margin can also go down due to that. Overall guidance of maintaining 13-15% gross margin is taking that into account.
Q: What is our management strategy and do we have bandwidth to scale to 2x?
A: We rely on Technology. Software is integrated with manufacturers through APIs. Manufacturers can see inventory in each branch of Aditya vision. Just as an example of management bandwidth, Mr Bishat prabhakar has been working with us since 2005. He is a WTD (whole time director): looks after operations. Then there are Mr Tushar Jha,Ms Rashi Vardhan. We have Sales head, area manager, assistant area manager. New store opening team.
Q: What are our Competitive advantages?
A: Manufacturers cannot afford to make reliance retail or chroma cheaper than aditya vision. This makes them price their product in a way that Reliance Retail or chroma cannot become competitive with aditya vision. Just as an example:Reliance retail doesnt work on a cash & carry basis. But we work on a cash & carry basis. 2-3% cash discount, 1000 cr purchase, 30cr discount. Manufacturers have to see that we are competitive. Chroma has much more operating expenses than aditya vision. Scale drives financials. Costs are very very high for them. Still they are running in loss. Companies can give you some margin but they don’t want to disrupt the entire market.
Q: What about Competition from online businesses?
A: Some traction from online businesses in the pandemic. This part of India And even in bombay calcutta delhi most people wont buy 50k products without having some person explain to you, to check it physically. We are very much competitive. Any seller has to shell out 8-10% to the online platform. We save that margin. We are very well priced and this is the reason why.
Q: What is our Store level economics?
A: We have 4000-5000 sqft stores. All the salesmen come from manufacturers. 15 people from aditya vision. Those AVL staff will be managers, guards, store keepers. Staff costs are 1.5 to 2.5 lakh for us. Rentals are very low. Average rental is 2 lakh per store. Worst performing store gives 6 cr sales in the first full year of operation. Double in year 2. 50% jump in the year after that. Matures in 3rd full year of operation. 15% growth SSSG. Very old ones might have 10-12% for very old stores.
3.5cr of revenue to break even. 6 cr worst store does. 95% of our store became profitable in the 1st full month of operation.
Q: How will we expand into chhattisgarh, uttar pradesh while getting the same economics from the OEM side?
A: Manufacturers also see culture, we have been working with them for 10-12 years. We get the best deals because we do cash & carry business. When you are 80-90 store retail, our 0 day impact from the day material reaches our store. Material reaches store at 7-12th day. Day we receive the material we make the payment. We enjoy this very good cash discount of 2-3%.
Q: Given that our revenue has seasonality, can we improve Q2 sales?
A: If it is raining the whole day, people are not going to go shopping. Streets are water logged, rains, flooding, also there are no festive seasons in Q2. Tough to do much.
Q: Did the Agniveer protests impact us in Q1FY23?
A: We were impacted by Agniveer protests in Q1. Many of our shops were shut down for safety reasons.
Q: What is our Product mix like?
A: The Highest sale comes from panel TVs: 23%. Then Air conditioners, then washing machines, 14-15% from mobile phones. Mobiles are faster moving, lower margin products for us.
Q: Do our Product mix and profitability differ by geography?
A: yes, the competitive intensity is lower in Tier 2 or 3 towns and thus they might have higher margins.
Q: What are our Corporate expenses? Could they grow sub-linearly with sales?
A: They are 10%-15% of expenses. May not grow as much as sales.
Q: How do we differentiate ourselves from Reliance Digital, Chroma?
A: We are very customer focussed. Our people are trained in classrooms. On job training for 2 months, Then only they come to new stores. We are very much customer obsessed. We have a helpline: tollfree aditya seva number. 20-22 people work in that call centre. We use ‘Capture’ CRM software. We encourage all our customers: dont worry we will facilitate the services (like servicing a faulty AC/Refrigerator). We also run a Customer loyalty program. In this industry, you cannot quote an arbitrarily lower price. OMEs dont even allow you to give gifts to customers (So as to not distort the end prices). Hence, what we do is that Every INR 10k of purchase we give a lucky coupon. We take out a draw in a big ground & stream it online. 150k people were watching it live last year. We make sure we give the customer that prize. Last year: 2 houses, 135 cars. Each branch at least 1 car. 1000 motorcycles. We also give Same day delivery. This year, 10cr will be spent on prizes.
Q: Can we change the name Aditya vision? It sounds like a spectacles company.
A: We have spent 80cr on branding. In this part of India, if anyone thinks of electronics they think of aditya vision. Why would we want to change the brand name?
Q: What is the Scope or TAM for our products?
A: Penetration is very low in this part of country. 3.8% penetration for air conditioner vs 25% for india. Refrigerator 8% in this part of country. Money is coming into their hands. But they had no options to spend it. Thinking of going to 2-3 lakh population towns with 2000 sqft store rooms in the future.
Q: Is there a problem of Crime where we operate?
A: Mostly solved. We dont find any problems at all. On a GST level, we have contributed 100 cr SGST. We get very good support from the administration.
Q: What is the % of amount through EMIs?
A; 30% sales through EMIs. 70% is full amount purchases.
Q: We did 34000 sales /sqft of retail area pre covid. Can we do 2600 cr in cy25?
A: We are working fully to achieve what you are saying. But we want to be conservative in terms of what we guide & hope to out deliver.
Mudit’s Portfolio (Passively Active) (09-09-2022)
Your portfolio looks Index fund to me, just my personal opinion however as you clearly set your return expectation of 15% with Highest safety of margin than stock selection looks excellent as all stocks have proven business model and dominating positions in their own domain. With this kind of portfolio ni need to do more research on knowing the stock as everyone knows about it which limits the upside. Average PE of your portfolio is a bit on higher side.
Mudit’s Portfolio (Passively Active) (09-09-2022)
What basis you have decided Tata Elxsi is better than LTTS? There is no comparison in Tata Elxsi and LTTS. LTTS is far bigger moat and expertise than Tata Elxsi. Only IT stock which i like is LTTS due to its niche domain and vast moat.
Nifty PE crosses 24|A statistically informed entry-exit model! (09-09-2022)
Below doc has the criteria Nifty follow to include in index.
KPI Green- Turning Sunshine Into Cashflows (09-09-2022)
this is right. the sector is growing without doubt. and is one of the fastest growing sectors. both solar and wind have huge potential in gujarat state and the target which co needs can be done in gujarat itself without venturing outside. the only caveat is execution risk which going by the track record of the co is achievable i would say. and if the co does more revenue in FY24 then the valuation can peak in that year also without waiting for FY25 to happen.
one may be concerned with increasing debt but cashflows from ops are robust and more than sufficient to take care of the debt repayments. also co is focusing on CPP segment which is asset light.
at this point its more a question of how can the co. go wrong. that is the biggest risk imo. the sector, the growth, the potential are all there.
Nifty PE crosses 24|A statistically informed entry-exit model! (09-09-2022)
There is lot of noise of non inclusion of Dmart in Nifty but it will be great if someone can educate me why Pidilite is not being in Nifty.
Tata Power Limited (09-09-2022)
https://www.youtube.com/embed/4sCUAfpjBBE
Chandra mentioned clearly they have clearly helped Tata Power to create EV charing stations in cities where Tata motors are expanding their presence into.
TATA ECOSYSTEM
Cosmo ferrites – bet on growing electronics and EV theme (09-09-2022)
yes even I am not sure of sustainability of margins as freight rates are coming down and imports are going up. Still some positive can be…
- PLI scheme giving some benefits over imports for future capacities
- China +1 for exports and Exports are also going up
- Domestic manufacturing industry as a whole growing fast with help of government
- Changed some old kiln with newer, which is helping to reduce manufacturing cost
- USA entry
- This is small scale company in large pond, can eat others’ share, but for that scale and perfect pricing is needed. (Business is never easy)
There are multiple negative points here.
What they are aiming, like 5% global market share, multiple capex are needed and capacities are needed to scale upto 10,000 to 12,000 tons/yr which is definitely not easy task.
Asset turn is almost 2 for this company, and to reach 5% share, it needs 200 cr odd capex over recent expansion. This needs long term support from government, otherwise cards can fall other way too.