While the company posts decent numbers, in the long term, I don’t think it can live up to these results. I don’t believe the company has any moat. Basically, anyone with large capital can start a renting business and provide solutions for any hardware-related issues. At least if it were the largest company in this sector, considering economies of scale, it might possess some moat. However, since it is only concentrated in Maharashtra and even within Maharashtra, there are 3-4 companies larger than this, I don’t think it has any moat.
I believe even diversifying the business to other states like Karnataka and Telangana would be difficult for them, as these states might already have established players, and increased competition will eventually lead to margin contraction.
I don’t buy this argument. Certainly, many people may not afford to buy 100 laptops at once. However, if the business is generating a 34.6% ROCE without any non-financial entry barriers, it will certainly lead to more competition.
The only way for the company to grow in the long term is by adding other related services to their clients, which the company is not interested in doing as of now. Additionally, while the company is reluctant to provide dividends, it increased salary expenses by a whopping 66% when the PBT has barely increased.
There are many opportunities available in the SME market with ROCE>24%, sales growth, and profit growth at more than 20%, along with a significant moat, all available at decent valuations. I don’t think it’s worth chasing this company.
Disc: Not Invested.
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