Aurion Pro Investor Day
Posts tagged Value Pickr
Ishaan’s Longterm Portfolio (20-06-2024)
This is the only post I read whenever I am in a confusion. I have managed to strike a balance between the two but I do tend to awaken the investing and saving demon inside me from time to time.
RIL: Is the ‘Reliance” on ‘Jio’ Justified? (20-06-2024)
Jio Financial wants to lend routers so that Reliance Retail’s revenue goes up
We’ve spoken about this a couple of times. If you’re a billionaire, you probably like having separate companies for separate businesses. One of your businesses might be old, boring and predictable. It’s probably what brings in a stable income every month. Another of your businesses might be batshit crazy with years to go before it sees a profit. If the wacko blows up, you don’t want the reliable uncle to go down with it.
This insulation is nice for you, and it’s nice for your investors who can pick and choose the companies they like and ditch the ones they don’t. In general, having multiple companies doing different stuff is a good thing.
Sometimes, though, these companies might intersect. If one of your companies is, say, a large retail company, and the other is a payments company, it might make sense to plug your payments company into your retail company wherever you can. That way, your payments company can get some business, and your retail company can hopefully get a discounted price. [1]
Let’s change the example. Let’s say business hasn’t been great for your retail company. Now, what if you created a new company just so that it could go and buy stuff from your retail company? That’s probably not too nice. From the Ken last week:
Reliance Industries (RIL) is back with yet another one-of-its-kind deal structuring—this time, targeting three birds with one stone.
The latest instance of the deal-structuring chops of the Mukesh Ambani-controlled oil-to-retail behemoth lies in a proposal from its youngest child, Jio Financial Services. The financial services entity wants to buy and lease customer premises equipment/devices and telecom gears, such as airfibre, phones, and laptops, worth Rs 36,000 crore (US$4.3 billion) over the two years ending March 2026.
There seems nothing exceptional about it, except that Jio Financial wants to do this big deal in-house. Its subsidiary, Jio Leasing Services, plans to buy the equipment from group company Reliance Retail and lease it to customers of Reliance Jio Infocomm, RIL’s telecommunications arm.
Mukesh Ambani owns both Reliance Industries and Jio Financial Services. [2] Jio Financial Services—which doesn’t even have a financial services business yet—has a subsidiary called Jio Leasing Services. This subsidiary, Jio Leasing, is going to buy some electronics from Reliance Retail, a subsidiary of Reliance Industries. Jio Leasing will then lease these electronics, which I guess would be stuff like routers, modems, antennas, to customers of Reliance Jio, the telecom company which like Reliance Retail is a subsidiary of Reliance Industries.
Also—Jio Leasing is going to buy ₹36,000 crore ($4.4 billion) worth of stuff?! Jio Financial, which owns Jio Leasing, is an NBFC whose primary business is supposedly to lend out money, charge an interest, get repaid. It’s not begun doing that yet, but it is spending $4.4 billion over two years to lend out some routers and modems instead? [3]
You know what? Fine. Maybe routers are going to replace fiat money very soon. And all lending and borrowing is going to be denominated in TP-Link routers. Maybe the RBI is going to ask banks to ditch their Rupee reserves and switch to routers instead.
Even so, why does Jio Financial buy those routers from Reliance Retail? Here’s the company’s rationale from its postal ballot notice asking shareholders to approve this transaction (among others): [4]
RRL [Reliance Retail] is in the business of dealing in customer premises equipment, enterprise devices and other telecom devices. RRL is able to procure these goods at competitive prices due to large volumes and RRL will be providing these devices to JLSL [Jio Leasing] at cost plus agreed margin.
Umm… Jio Financial is buying $4.4 billion worth of stuff. Sure, Reliance Retail might be able to procure these goods at competitive prices. But couldn’t Jio Financial? If I was spending $4.4 billion, I wouldn’t go to a retailer. I’d go to the manufacturers and pick the one that danced the best.
Footnotes
[1] This is happening! In addition to Jio Leasing Services buying from Reliance Retail, another subsidiary of Jio Financial—Jio Payment Solutions—is going to manage payments for Reliance Retail’s stores as well as website. In addition to, of course, buying equipment from Reliance Retail itself. It seems to me like buying from Reliance Retail is every Jio Financial subsidiary’s rite of passage.
[2] I mean, they’re both listed companies so Ambani doesn’t technically “own” them. He just owns huge chunks of both.
[3] At the end of March 2024, Jio Financial had ₹24,000 crore in total assets. How is it going to pay ₹36,000 crore to Reliance Retail? Unfortunately, they don’t tell us that. Hopefully it’s something funny so that I can write about it.
[4] Since the possible conflict of interest in transactions like this is obvious, Jio Financial has to take shareholder approval for them to go through. Considering Ambani owns nearly 50% of Jio Financial, it probably will go through.
Original Source: Jio Financial wants to lend routers so that Reliance Retail's revenue goes up
Ishaan’s Longterm Portfolio (20-06-2024)
In case, you forgot this.
Ishaan’s Longterm Portfolio (20-06-2024)
Yeah sure. So these are basically 6 Leg Option Strategies. It is completely automated. I have personally completed the Out - Sample and In - Sample Back Testing. For the last 2 years, the average return has been 2.5% on Invested Capital. I cannot share the exact details of my strategy because then I will be answerable to my clients.
But, it is an option selling strategy with a drawdown of less than 4% for the last two years. Last year in September, the options movement was really pathetic and that’s the reason behind the 4% drawdown. As far as this year goes, max Drawdown has been curtailed to 3%.
Minimum Capital Requirement is 5Lakhs. But this strategy is suitable for even bigger portfolios. Lets say you wan to invest 10 Lakhs in my Algo, I first invest that money into a Debt Fund which gives a 5-7% return annually. Then I pledge that units to get up to 80% ( 8 Lakhs ) of that fund as a trading capital. The strategy generates 25 - 28% return on this capital. So lets say I made 2 Lakh gain which is a 25% ROI, on the entire capital it is 20%. Adding the debt fund returns, it makes total ROI to 26-28%. Deducting the Brokerage and STT, etc ( 4% ) I am left with a gross return of 24%.
In this way I manage my capital. Now, the after tax profits from the Algo are invested into MF or Direct Equity depending on the Market Condition. One obvious question is, Ishaan if you can generate 25% ROI annually, why even invest in stock and MFs? Well, its an Algo and there will be times when it will Underperform. It has not till now but it might. So I have to safeguard my profits as much as possible. I have to be diversified. Although I haven’t faced huge drawdowns yet, it does not mean I won’t in the future. I have to be ready for the worst.
Hope this helps.
DIY Momentum QnA and Discussion (20-06-2024)
** I follow factor Investing Based on Z-Score:**
Why It Is Better:
- Objective Measurement: The Z-score provides a standardized way to measure how far a stock’s price is from its mean, allowing for a more objective comparison across different stocks.
- Statistical Rigor: Utilizing the Z-score incorporates statistical methods, making the investment process more data-driven and potentially reducing bias.
- Enhanced Momentum Capture: By focusing on deviations from the mean, Z-score can help identify strong momentum plays, as stocks significantly above or below their historical average may indicate strong trends.
- Risk Management: Z-scores can help identify outliers, potentially flagging extremely overbought or oversold conditions which can be useful for risk management.
Pros:
- Quantitative Approach: Reduces emotional and subjective biases in stock selection.
- Scalability: Can be easily applied to large datasets, making it suitable for institutional investors.
- Versatility: Can be used in conjunction with other factors like value, quality, or size to enhance a multi-factor investing strategy.
- Early Signal: Helps in identifying stocks that are starting to diverge from their historical performance, potentially catching trends early.
Cons:
- Over-Reliance on Historical Data: Z-score is based on historical price data, which may not always predict future performance accurately.
- Market Anomalies: Extreme market conditions can distort Z-scores, leading to false signals.
- Complexity: Requires a good understanding of statistical concepts, which might not be suitable for all investors.
- Volatility Sensitivity: Stocks with high volatility might frequently show significant Z-score deviations, potentially leading to more frequent trading and higher transaction costs.
While investing consider the following points:
- Data Sources: Reliable and consistent data sources are crucial for calculating accurate Z-scores.
- Backtesting: Share experiences and results from backtesting Z-score strategies to provide practical insights.
- Integration with Other Factors: Discuss how Z-score can be integrated with other factors like earnings growth, price-to-earnings ratio, or other momentum indicators.
- Real-World Application: Share examples of stocks that performed well using a Z-score approach and those that didn’t, to provide a balanced view.
- Continuous Monitoring: Highlight the importance of regularly updating the Z-score calculations to reflect the most recent data and maintain the strategy’s relevance.
Engaging in discussions about these points can provide a comprehensive understanding of Z-score based factor investing and its practical applications.
Ranvir’s Portfolio (20-06-2024)
No… I ve sold out
Ishaan’s Longterm Portfolio (20-06-2024)
Thanks a lot.
I always feel like I could do more, save more, etc but somehow while living my 20s exciting Life and managing expenses, the process is slow, but still consistent.
Som Distilleries and Breweries (20-06-2024)
actually i was following the company and seeing results but through the valuepickr i noticed that on concall the promoters are not giving any clarify on tax rate of the company and they are just passing the questions from audience lukkily not invested and this child labour issue came up how simply they are giving clarrify on issue saying that ita there associated company never invest such companies
GEM Enviro Management Limited (SME) : EPR Play (20-06-2024)
Investment Analysis: GEM Enviro Management Limited
About Us
GEM Enviro Management Limited (“GEM”), established in 2013, specializes in the collection and recycling of all kinds of packaging waste, including plastic waste. Over the years, the company has diversified its services to include the implementation of Plastic Extended Producer Responsibility (EPR) Programs for various organizations. This has become the company’s largest business vertical, contributing 82.41% of the revenue in the fiscal year 2022-2023. Collection and recycling of industrial plastic waste contributed 17.42% of the revenue, while sales and marketing of recycled products contributed 0.18% of the revenue during the same period.
According to the management, GEM is debt-free, operating on an asset-light business model, and is an emerging leader in the PWM segment. The company holds a market share of around 21-25% among unlisted peers and is the most preferred service provider for over 200 renowned industry players.
Services Provided
- EPR consultancy and fulfillment for Plastic Waste
- Collection and recycling of Industrial Plastic Waste
- Sales and Marketing of recycled products
- ESG Consulting and BRSR (Business Responsibility and Sustainability Reporting)
Understanding Extended Producer Responsibility (EPR)
Extended Producer Responsibility (EPR) was introduced into the Plastic Waste Management Rules in 2016. EPR mandates producers to manage the disposal of their products once consumers deem them no longer useful. Producers must facilitate a reverse collection mechanism and recycling of post-consumer waste equivalent to the amount they produce.
The EPR target is calculated based on the average amount of plastic a producer has placed on the market in the last two consecutive years. EPR is brand-neutral, allowing producers to collect and recycle plastic from any brand to meet their targets.
The 2022 EPR notification requires polluters to fulfill their EPR targets only for the specific category of plastic they release into the market. Additionally, a plastic credit system has been introduced, allowing polluters to sell excess recycled plastic credits to others who need to meet their EPR mandates.
GEM Enviro acts as a Producer Responsibility Organisation (PRO), helping producers meet their EPR obligations by managing the logistics and documentation required for compliance reporting. They play a crucial role in the ecosystem by providing collection, recycling, and compliance services, thereby contributing to a sustainable environment.
How are EPR credits generated?
Financial Performance
In the fiscal year ending March 31, 2023, GEM Enviro Management Limited saw a revenue increase of 30.05% and a profit after tax (PAT) rise of 34.43% compared to the previous year.
Promoter Group and Management
The majority ownership of GEM is held by Dinesh Pareekh and his family, who are also promoters of BLP Equity Research. The management team is professional, with Mr. Sachin (Founder and CEO) and several other members being alumni of IIM Calcutta.
Growth Prospects
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GEM is expanding its existing EPR credits business and entering new areas such as E-waste and tyre recycling.
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If an existing client grows 15-20% then they can also grow their volume by the same 15-20%
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The company aims to target an additional 1000 customers to serve their plastic waste management needs.
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As the economy grows, more companies will fall under EPR mandates, expanding GEM’s potential customer base.
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The company is also venturing into the international plastic credits business.
Reason for long Working Capital cycle
GEM has 51 employees on its payroll. The company’s long working capital cycle is due to the extensive documentation required for compliance, leading to delays in payment approvals. As the EPR concept becomes more common, approval times are expected to decrease. For FY 2023, GEM had receivables worth ₹24 crore.
From RHP:
Due to strict documentation and compliance requirements, Debtors’ level is very high in our business. The holding levels of trade receivables were 184 days, 201 days, 185 days and 258 days for FY 2020-21, 2021- 22, FY 2022-23 and the period ended December 31, 2023, respectively. The debtors’ level again rose to 258 days by 31st December 2023 due to the digitization of the issuance process of EPR credits by CPCB, which is yet to stabilise so customers are holding the payments. We, however, expect that debtors’ level will normalize in the current FY so our Company considers the holding levels to be of 210 days for FY 2024-25.
Reasons for Investing
- Excellent PAT margins, sales growth, ROE, and ROCE
- Asset-light business model oriented as a service-based company
- Professional management team
- High growth potential by expanding into other verticals like E-waste and tyre recycling
- Minimal capex required for expansion
- The huge and rapidly growing EPR market size offers growth potential.
Risks
- Frequent changes in government regulations can introduce complexity and cost.
- Potential offer for sale (OFS) by existing promoters.
- Long working capital cycle, expected to improve in the next two years.
- High trade receivables.
- Rent paid to Dinesh and Sangeeta Parekh as the registered office is located on their property.
- Top 5 customers contribute to 40% of the revenue.
GEM Enviro Management Limited presents a promising investment opportunity due to its strong market position, professional management, and high growth potential in the EPR segment. However, investors should consider the risks associated with regulatory changes and the company’s high trade receivables.
Valuations: At the upper price band of 75 the company, will have a P/E of 15.
Disclosure: The Company is going to list on 26 June
Sources:
Management Interview: