Q3 Fy 24 Concall (held in Feb 2024)

Increased revenue guidance to 69% from 60%
Organic growth will be 20-25% CAGR, Target to double the revenue in 3 yrs – 26% CAGR
Cash 1000-1050 cr
Actively looking for acquisition, typical range is 150-200 cr
Beat revenue and margin guidance given post IPO
our top 20 customers can give us $20 million each. Our 20 to 100 customers can give us 5 million and 100 to 1000 can get us a million
It is less than a percent in terms of revenue contribution from India

Disc: Invested

HDFC Bank instead of selling it assets is currently planning to increase its stakes in six other banks. Indus, Axis, Bhandan, ICICI ( ), YES, . It baffles me why is the Bank becoming a bank holding company. Do they feel other Banks can grow faster than them and hence spending money in acquiring these stakes will help them?

This contradicts management saying they can grow 20% BTW they feel ROE will come down for sure in the medium term which means EPS will slow down to 15 % to 16% growth.

I believe HDFC was merged to hide some big NPAs in its real estate book and protect the market cap of HDFC, as you know most of the management is compensated via stock as well. Need to dig in Deep.

HDFC bank’s advantage is its corporate book and its underwriting which only keeps it at the fair value of 2 times book.
Right now it is a good bet for 15 % to 17 % CAGR for the next 5 years which is not bad for big mutual funds and people who cannot find better opportunities.

Disc: Started tracker position HDFC bank will wait to pick up more when the upside is higher.Portfolio here

Why broken rice is important for alcohol companies:

Understand costing aspects:

Case 1: Revenue / Lt of Bulk alcohol: Rs 64.00
Animal feed & other products: Rs 10-12.00

Total Revenue: Rs 74 -76.00
RM cost: Broken Rice 2.2kg X 26/-: Rs 56-57.00
Gross Margin on Case 1: Rs 18-19.00
In %: ~ 24%

Case 2:

RM cost: Broken Rice 2.2kg X 20/-: Rs 44.00

On the same line, Revenue will also come down by Rs 6.00/- to 58.00/-
Now Total revenue: Rs 68-69.00
Gross Margin on this case: Rs 24-25.00
In %: ~ 35%

Hope you can understand both case scenario. Now come to full costing mechanism
Power Cost: Rs 9-10.00 per ltr
Net Margin: Case 1: Rs 9-10.00 and Case 2: Rs 13-14.00

So Net Net Rs 5-6.00 is impact on EBITDA margin, which is 7-9%.

In terms of the menu, BK has mutton which is not on KFC/McD menus. BK has created a menu at the intersection of McD and KFC – Burgers, Wraps, Nuggets, and Chicken Wings including Boneless and Grilled Chicken. (Plus a little nudge into Taco Bell territory with Veg/Chicken Tacos)

The domination of non-veg items in the menu is bound to give BK a higher per-order value and they should in fact make sure they are priced higher than McD on most items to have the premium factor, other than some value offerings which they can retain to compete for the lower-order value customers.

On the question of people preferring one brand over the other, I feel like each brand will develop its loyal customers and over time price will not be such a big factor, just as McDonald’s offerings have gone far beyond the low-price value items and into McCafe + Gourmet burgers category.

While a smaller point, I also feel McDonald’s success so far could become a positive for other brands as just being located in the same food courts/malls could see other brands gain from McD’s waiting time

Concall Highlights:

1. Market Challenges: Ethnic wear market facing slowdown due to factors like cyclone impact and reduced purchasing power in Andhra Pradesh, Telangana and Chennai due to water clogging.
2. Store Expansion: Company added 4 new stores and plans for more, indicating growth despite market challenges. In Chennai plan is to have from 2 to 20 stores. In Karnataka only have store in Bangalore. Kerala is not discovered. Andhra and Telangana can still accommodate 20 to 25 stores. 100 stores in Southern states are possible.
3. Financial Performance: Last year’s revenue was 378.6 crore with a gross margin of 39.80% and a net profit after tax (PAT) of 31.3 crore (8.28% margin).
4. Customer Base: Approximately 50% of customers are repeat buyers, highlighting brand loyalty and value proposition.
5. Gross Margins: Gross margins vary from 25% to over 60%, averaging 40%, reflecting a diverse product mix and pricing strategy.
6. Sales Growth Target: Targeting 3-4% like-to-like sales growth, indicating a focus on improving operational performance.
7. Geographic Expansion: Focus on expanding in Tamil Nadu, with plans to increase stores from 2 to 20, tapping into the lucrative silk sarees market. Additionally, potential for significant store additions in Kerala, Telangana, and Andhra Pradesh.
8. Market Dynamics: Chennai market commands a 15% premium over Hyderabad, indicating potential for higher margins.
9. Competition: Transitioning from unorganized to organized competition in Tamil Nadu, with 30% currently organized, suggesting opportunities for market share gains.
10. Market Size: Total addressable market (TAM) estimated at 50,000 crores for Tamil Nadu, indicating significant growth potential.
11. Marketing Strategy: Planning to increase marketing spend by 3-4%, suggesting a focus on brand awareness and customer acquisition.
12. Same Store Growth: Slightly negative on a blended basis, indicating the need for improved performance in existing stores.

Store expansion and revenue growth to be seen in numbers. Total Address Market is huge.
Disclosure: Invested