Investment Thesis:
There are four segments:
Financial Services
Travel and Related
Resort and Vacation ownership
DIGI Photo
Let us take the simple ones 1) Resorts and 2) DIGI Photo which are similar to any
Sidecar investing: Sterling Resorts which feels has turned the corner with an EBIT margin of 32% and a revenue of Rs.100crs+. Similar to Quess Corp investment by Thomas Cook India; demerger candidate? Next steps would be to understand how it compares with Mahindra Holidays(MH). The data sets are quite patchy and inconsistent disclosure. However, Occupancy rates have gone up from 40% at 3Q 21 to 73% at 1Q23 and ARR from 4524 to 6904 for a similar period. The Member additions and Cumulative Member outstanding data lacks the MH granularity.
DIGI Photo:
Simple business with a very high ROIC. Net capital employed in the business at Rs.218crs with an annualized EBIT of Rs.40crs giving a yield of 18% and not all business are up and running as yet. Therefore interesting road map. The digitization and analytics usage can move the yield up. Will it continue to generate incremental returns? Management needs to explain this well to investors.
Financial services: I guess they are developing a wider moat with time. Competing with cashless tools is something they are shaping well. Again Management should it dwell on the competitive position would help investors.
Travel and related business: My sense this remains an enigma for any investor (atleast for me it is). It has inbound/outbound/SOTC/TCI/DMS. It has products and geographical and seasonal spread. They need to possibly create an 3d matrix to explain it once for all how the seasons play out in each geography. What are the drivers in each product and each geography; what is the footfall/subscriber (equivalent) ARPU equivalent or travel spend by each customer/family or group. How does the contribution margin play out - what are the fixed costs and variable costs? All in all a black box which acts as a gravity for the stock price.
Control: Fairfax Holding a la Prem Watsa company so Governance is all clear
Support from shareholders is solid. They should explain why did the SH put in 425+ crs in the business in 2021?
Capital Allocation: Managment has failed to articulate this in any presentation. It almost feels that they dodge this question on con calls.
Cash flows/cash trapped: Quite a few questions: With the number of subsidiaries that the company has - where does the cash sit ? Is it at Top co? Is there any trapped cash? Is all the Rs.850crs of cash available for distribution or paying towards the Debt of Rs.370crs? Would the surplus cash be used to buyback? Or is there a dividend distribution? What is the dividend distribution policy?
Management:
- Stuck around from some time and particularly turned the business during and post COVID.
- Cost Leadership under demonstration
- Understands the business intricacies and complexity
- IMHO takes does not take the pain to demystify the business complex nature for the Investor. The Con calls are not data supported. A similar business of CAMS brings in Business Heads taking through their Verticals in detail and keep answering the questions supported by Data.
- They brought in Accenture for cost rationalisation. There is very little information to understand on the deliverables of Accenture.
The Company disclosures or lack of acts as a gravity to the price. The business lost around Rs.680 crs (gross EBIT) over the last 9 Qtrs and has the ability to generate an EBIT of Rs.500crs in one stable year i.e. pre-covid status. And most of it is FCF given there is little Capex in the business and going by what Managment says the Costs are going to down to 63% of pre-Covid levels.
My brief attempt to simplify the business and lay out questions which I could answer.
Disclosure: Invested
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