RDF and Compost cannot be growth drivers in my opinion. They form very small % of the total revenue, about 2% or thereabouts. We need to look out for the big movers like WTE plant, C&D, these have started contributing and these are large projects. Other revenue driver will be their vehicle recycling and tyre recycling projects. And any new revenue streams that they can add which is non-municipal, these will be value creators.

The stock has run in the recent past, though not very expensive, but moved ahead faster than earnings growth.

Disc: Invested

For insurance companies, as you have pointed out embedded value vs price is better indication of valuations (among others) and HDFC Life’s has been the highest among peers.

That said I have been very satisfied with the way company has been performing and as I maintained in one of my previous posts recently I believe this year stock can perform well. Recent moves in stock prices have been encouraging and purely from technical perspective counter has seen good buying and broken several important resistance levels.

Tea Estates are going through difficult time since last 15 years. Few of the issues faced by the industry include:

1. Over Supply – Supply has increased constantly while demand has increased at tepid rate, causing stagnant/declining tea prices over many years.

2. Organized to Unorganized shift – Small tea growers have increased constantly during last 15 years. From 25% during 2010, they now contribute 50% of the total supply of tea.They dont follow government regulations of paying minimum wages to labour and hence are cost competitive.

3. Political Hindrance – Major cost of tea estate is labour and governement continues to raise minimum labour price every few years, which causes increase in expense for corporate tea growers.

4. Internationally Uncompetitive – Indian Tea is not compeptitive international market, because of high cost of labour, power and irrigation. So, Indian tea cannot be sold at profit in international market.

5. Raw Material Prices – Input costs for tea production has been rising since last decade. Power, Irrigation, Pesticides and Labour all have become expensive but tea prices have remain stagnant.

All tea estate companies are in losses since last few years, which explains why they are classified as Investment Gutter in the market.

However, every commodity has its cycle and it rhymes from peak to bottom and vice versa. Tea as a commodity is essential need of humans, and it has to remain viable for producers. With current state, it looks like the entire industry will close, which offcourse is not possible.

Yes, many tea etates may close down, but eventully that will bring demand supply in balance.

Management provided guidance about asset turnover during the conference call

Pankaj Shah: Okay, got it. And sir how should one look at the asset turn, so earlier we used to get a 0.7x over a year. So does this increase with time or how should we look at?

Tarun Dua: See, it’s very, very difficult to kind of, these are all averages, in the sense that like the asset turn also relies on a number of things, the period for which the customers are using the services,so, then there is more scarcity in the market, people want like longer contract period, when there are less scarcity, then obviously people want like shorter periods, but that doesn’t mean that they are going away tomorrow, day after or next month. But they also tend to end up paying a certain percentage more for shorter periods. Now, that being said, like there is also the nature of SKUs, so for the same underlying hardware, assets, like there are a number of
ways in which the assets get monetized due to the nature of the software capabilities as well.
So over there, for each different SKU, the asset terms could vary from all the way from point
0.5 to even like 2. So what is the final blend we are able to achieve like, is again something w
can look back into the past and say that, okay this was what was achieved but, there is a lower bound for that which we can predict, which is like somewhere, anywhere between say 0.55 to 0.6. But that’s the lower bound. But, on the other hand, like there is no upper bound in a software driven cloud, like where, what sort of capability you can bring to the table to achieve like an asset turn. So normally, if you ask me, that was not how we look at our business, we look at our business as a technology business, very focused on figuring out the various industry solutions. And over there eventually like, the asset turn doesn’t matter, because it’s like, very,very capability and technology and software driven business and it’s not about being the cheapest on the market. It’s about creating enough value for the customers.