Terrific work Rahil! Coincidentally I was also reading about this company.
Just a few tidbits from my side:
Why does this business exists?
Because maintaining hardware is headache and a non core operation for almost any firm. They provide complete solution with all logistics included. Their offering is hassle free and transparent as they include any maintenance/repair/service charge of hardware in their rental prices and large customers also get dedicated engineer from them.
How can rental business make money?
They aim for ~3% return per month on their hardware. This makes their payback period ~3 years. The accounting depreciates the hardware over 5 to 6 years but the life of a hardware goes even beyond 5 or 6 years.
New hardware is rented to tier 1 clients first for first 3 years. After that, at a lower rate, the hardware is rented to tier 2 clients like schools, call centres as long as the hardware is working.
Competition
As mentioned by Rahil bhai, Silicon Rental is not the largest player in the field. Management claimed they are among top 5 of Maharashtra (Basically 4th or 5th largest).
Does this matter?
Yes, large players have better bargaining power for supplies and decreases per machine operational cost. Larger is better. However, a large player will want to target large customer for higher margins. Too many small customers for a large player is an overhead.
Risks
There are two other risks in addition to above post.
- Hardware outlives the depreciation period. This makes it very easy to do business off the books.
- Tax litigations I found on a twitter post.
disc: Not invested, but a cheap valuation and high growth potential makes it a 2% allocation candidate.
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