Marval Capital Ltd. , which is Ben Watsa’s India investment fund has increased stakes in SHANKARA and now owns 350k shares (1.44% of the company). Note: Ben Watsa is the son of Prem Watsa - the Canadian Billionaire investor and owner of Fairfax Financial.
The company looks interesting at these price levels: if it executes similiar to management guidance and successfully de-merges the Retail part of the business, it seems like a decent amount of upside. If they manage to scale across the country, revenues could easily grow 2~3x in the next few years. Margins should also improve with scale, as many expenses (like HQ expenses, Tech systems and eCom website) do not increase with more stores.
However, there are a few risks to monitor:
- Increasing competition from chains like Ikea , @home by Nilkamal
- More shift to online purchases , where Shankara doesn’t have significant market share compared to IndiaMART and others
- More direct purchases from building product OEMs (e.g. Kohler sells in BuildPro stores , but also has their own website : https://shopkohler.in/)
- The management is still guiding toward opening stores across the country , but not sure whether they would be equally successful in places like Mumbai where there are many entrenched players. Even if they are able to enter these cities, the ROCE might not meet management’s mark of 20%+
After going through this whole thread and their regulatory filings, I’m still not clear who are Shankara’s “core” customer group. Have they mentioned anytime in the past, how much of their sales go to different customer segments like individual homeowners, building contractors, sub-distributors, property developers etc.?
Disc: have just started a small tracking position and will monitor the next few quarters to decide on further investments
Thanks,
Sharad
OpenSourceInvestor @ Substack
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