@hitesh2710 Sir, company is walking the talk… are you still invested in JK Bank…
Posts tagged Value Pickr
Burger King ~ Whopper of an Opportunity (21-05-2024)
Over the last 2-3 quarters, even while all domestic QSR brands have shown de-growth at the unit level, RBA has shown improvement in kpi such as SSSG, while continuing with their store expansion plans.
And thus I have recently done a deeper analysis of the business…
It seems business is at a good pivot point after 10 years of domestic operations, having built 455 restaurants over this short period. The McDonald’s franchise Westlife entered the market in 1996, almost 14 years before RBA, and has 397 restaurants in West and South India.
Improving traffic through a value strategy… The value strategy has resulted in lower AOV (Average order value) but increased SSSG (Same store sales growth) and ADS (Average daily sales).
While simultaneously increasing their gross margins… achieving through supply chain efficiency. Gross margin reached 67.7% in Q4FY24 from 66.4% the previous year, with guidance to reach 69% by FY 27. Westlife has gross margins of 70%.
EBITDA level profitability was achieved in India, but geo-politics delayed profitability in Indonesia.
Operating leverage plays out in such businesses… as marketing costs although remain stable at 5%, other fixed costs get distributed over a much larger base with scale.
Continued expansion through FY27 to meet 700 store target… to reach this, 80-85 stores per year will be opened for the next 3 years, a 16% CAGR through store addition. If SSSG recovers, top-line growth of 20-25% is achievable.
Debt… mainly for the Indonesian business, the India business has been grown by raising capital through equity. The outstanding borrowings in the books of PT Sari Burger Indonesia as of March 31, 2023 is Rs 165 cr.
Equity dilution… is present
Negative cash conversion cycle… has led to a 10x growth in cash from operating activity from March 21 to March 24, benefiting growth through internal accruals. The company also showed positive FCF in the current year (both at consolidated and standalone basis).
Indonesia business… has been the reason why the business has been given lower multiples. The company has guided that no new capital allocation will be done in the business in FY25. This should help weather the current slowdown in the country while improving unit economics, thus reducing drag at the consolidated level.
Closest competitor, Westlife… has shown operating leverage play out in the last 5 years, along with FCF generation while focusing on growth. The return matrix has also significantly improved. When compared to Westlife, while RBA was much behind in the business lifecycle, the improvement in returns appears sharper.
Beyond FY27… When store addition slows down, it could be fair to say that the company can achieve unit growth and profitability at least in line with Westlife, i.e., ADS of Rs. 155,640 (currently at Rs. 117,000) and Restaurant operating margins and Company operating margin of 22-24% and 15-17% respectively (currently at 19% and 14%).
Valuation - Available at P/S of 3x, while Jubilant, even after the de-rating trades at 5.8x, and Westlife is given a 5.5x multiple.
As the business cannot be evaluated on earnings I am taking CFO as a comparison matrix. The OCF generation of RBA and Westlife have been similar in FY24; thus the P/OCF of RBA and Westlife are coming to 16x and 38x resp. Even if West life deserve a higher multiple due to stronger brand recognition of Mc Donald’s there could be some scope for re-rating for RBA if it continues on this growth trajectory.
Branded business… have proven to be high ROE and ROCE businesses over the long term; like FMCG, branded pharma, branded hospitals, Titan, Trent, etc. by taking market share from local players. These businesses have longer gestation but led to a deep brand moat, resulting in higher returns and FCF generation.
Jubilant was the first entrant within the Indian QSR segment (1995) and we have seen that play out.
Based on the above theory and the improving financials, I believe that the business is becoming a good candidate for stock re-rating and earnings led growth if the slowdown in QSR segment eases out…
Is Suzlon a turnaround story after FY16 (21-05-2024)
Should you be Investing in Stock Market’s Favourite Stock: Suzlon!!!
Suzlon has been one of the most market favourite stocks recently. The reason is that it has been showing signs of recovery or a powerful comeback. The wind energy company has been non-performing since its ATH of Rs. 350 in 2009. With a low of Rs. 1.7 in March 2020, the company is now trading at Rs. 40. The stock has been gaining momentum at the bourses and has also shown signs of healing in its balance sheet. Let’s deep dive into what exactly happened and how are the fundamentals turning out to be in the recent times to see if the stock prices will recover or not.
What is Suzlon’s business: Founded by Tulsi Tanti, who was also known as the windman of India, Suzlon started its operations in India and quickly expanded its footprint globally. Recognizing the potential of wind energy as a sustainable alternative to conventional energy sources, the company ventured into manufacturing wind turbines. Over the years, Suzlon has diversified its portfolio, offering a range of wind energy solutions, from wind turbine generators to complete wind farm projects. Today the company has a presence in 17 countries across Asia, Australia, Europe, Africa and the Americas.
Why did Suzlon’s Price Tumble: Troubles at Suzlon started brewing after it acquired German wind turbine manufacturer, RePower, in 2007 for ₹7,300 crore. The acquisition was partly financed by a debt of ₹4,000 crore. The initial plan was to utilize RePower’s approximately 300 million Euros of free cash to repay the Indian debt. However, a hurdle emerged when German banks, citing certain regulations or rules, refused to allow the funds to be transferred out of Germany. The company still weathered through and was raking in the benefits of globalisation. By FY09, the company had achieved remarkable success, boasting ₹26,000 crore in revenues and ₹1,600 crore in net profit, ranking among the top six global onshore turbine manufacturers. However, during the turbulent financial period of 2008-2009, Suzlon faced damaging allegations regarding cracks in turbine blades within some of its U.S. wind farms. Furthermore, the company’s balance sheet was weighed down by costly acquisitions, particularly RE Power. These factors led to a substantial decline in revenues, dropping to ₹9,500 crore in FY16 and plummeting further to ₹3,000 crore in FY20, accompanied by substantial losses exceeding ₹2,600 crore. Suzlon found itself restructuring its debt on five occasions during this challenging period. Its market capitalization tumbled from ₹68,000 crore in 2010 to a mere ₹8,000 crore. It also had to sell RE Power in 2015 for a billion Euros.
Fundamental Deep Dive:
P&L: The company’s revenue bottomed out in March, 2020 at 3000 cr after which the revenue has been growing but is still not as good as 2015 levels. Plus there is still volatility in the revenue numbers (in March 2023 revenue was 5970 cr which was 6581 cr in March, 2022). Coming to the PAT numbers, the volatility increases even more. The company mad a loss of 166 crores in March, 2022 even with the highest revenue in last 3 years. PAT in March, 2023 was 2900 cr which is a positive for the company. But looking at quarterly numbers of FY24, the Yearly PAT will definitely be below 1000 crores. The FY24 revenues numbers are likely to be better than FY23 but not better than FY22.
Balance Sheet: The company’s equity rose from 355 crore in 2014 to 2700 crore in 2024. With such high equity, it would be very difficult for them to report a good EPS. The debt of the company is very high which is 1.7 times of its equity. Would they be able to repay their debt? They have fixed asset base of 250 crore of land, 430 crore worth of buildings & 950 crore of plant & machinery. The question arises how much revenue they can generate out of these fixed assets.
Ratios: The ROCE of the company has been increasing but there is no reported ROE of the company. Margins have been volatile over the years. The book value of the company is just Rs. 2.5 with a P/B ratio of 15. Why would an investor want to pay such a high price for a company?
Shareholding: The promoter holding has been decreasing which is not a good sign. But there was promoter pledging which has been removed since September, 2023 which is a positive sign. FIIs have increased their stake from 5.5% in March, 2022 to 19.6% in March, 2024 whereas DIIs have reduced their stake from 13.6% to 6.3% in the same period. Retail Shareholding has decreased from 65% to 61% in the same period but the no. of retail shareholders have increased 20.71 lakhs to 43.55 lakhs which is also not a good sign.
Order Book Analysis: Now, the question is why the stock price recovered till Rs. 40. One sole reason for that is the order book of the company, which stood at over 3175 megawatts by the end of Q3FY24. The Capacity at Suzlon is 4 GW but real capacity is around 3 GW (3000 MW).
Based on all these above factors, my analysis suggests that this company should definitely be avoided until and unless there is consistency in the reported numbers of the company. Investing in the company just based on order book does not make sense as the company’s execution capabilities and conversion of order book into revenue is also a big question.
What do you think about the market’s most favourite stock Suzlon? Let me know in the comments….
Happy Investing!!!
Action construction equipment ltd (21-05-2024)
Your own number of vehicle registration for Apr-23 is 699 whereas for Apr-24 is 861 which is a growth of 23% YoY. What kind of de-growth are you talking about?
Action construction equipment ltd (21-05-2024)
@ashwind - If you see volume for ACE in VAHAN for last 6 years too, in 5 out of 6 years April registrations for ACE has been significantly lower as compared to January or March of same calendar year.
I dont think it is degrowth, but kind off pattern. This April’s registration has just been 3-4% lower than Jan’24.
Akshay’s portfolio (21-05-2024)
It’s always difficult to value such firms. I am looking at the current market cap of 5k crores. I. Next 7-8 years it has a good chance of being in the range of 20-25 k crore market cap
Action construction equipment ltd (21-05-2024)
ACE declared the FY24 results today.
FY24 NP at 328 Cr vs 172Cr in FY23. EPS is Rs.27.5 Vs Rs 14.4.
Q4FY24 NP at 98 Cr vs 51.99Cr in Q4FY23.
Link: Action Construction - FY24 Results
Need to see the conference call updates from mgmt on order book. As of now, results seem to be inline, but maybe Rs.1-2 below what market was building. Company has done really well in Q4, but from VAHAN numbers we are going to see degrowth. Can mgmt assure that they do see a reliable order pipeline to compensate for reduce VAHAN numbers?
Record date of a Bonus/Dividend is on a Saturday and Ex-date is different? (21-05-2024)
I think eligible. Record date time is mandatory
Cupid Ltd – Helping the world play safe! (21-05-2024)
Bit dated but could be useful for those who think that checking management integrity is critical in investment decisions
Carysil (earlier Acrysil) – Kitchen sinks (21-05-2024)
I attended the con-call today. To me the management did not sound convincing with regards to its aspirational target of Rs. 1000 crore topline by FY25.
Key excerpts from the call,
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For softness in Indian business, the management is hoping for better macro environment to bail them out. Upcoming monsoon, abating of heatwave, govt initiatives etc. will help growth in the future. They’ve also staffed up on the B2B side (including some senior hires) to help with sales in the Indian market.
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They will continue to add distributors in the Indian market going forward as well.
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The fund raise of Rs. 150 crores will be tapped into as and when needed for growth initiatives. Nothing firmed up as of now.
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15-20% volume and value growth expected going forward. Management maintains its INR 1,000 crore topline target of FY25. However, it will come only with inorganic opportunities. Did the management ever mention this before? I don’t remember hearing this before. Without inorganic growth, the company maintains it guidance of the topline growing by 20% in FY25.
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Ebitda margins will be maintained in the range of 18-20% in FY25
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Higher other expenses in this quarter on account of, higher freight costs (1-2% additional cost), integration of United Granite (not one time in nature, all operational costs) and advertisement expenses.
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There has been no impact of the Red Sea issue on the company’s revenue. No impact expected in Q1 either.
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Receivable days have been impacted by the Red Sea issue. However it will come back to normal in the coming quarter.
Disc: Invested as a tactical 12-18 months bet. Not happy with the Q4 results or the guidance going forward. Will exit on the next bounce back (if any).