@dkirand

trade payables have increased by a whopping Rs. 110 Cr. but then it could be a reclassification issue - given other current liabilities have shrunk massively. so, my guess is not that.

Provisions have jumped up 100% from 9 Cr. to 22 Cr. - so that could flow into write-offs assuming that this is on their inventory or hits on products they shipped already. that's an worrisome sign IMHO.

I hold ramco from 150 levels - the key determinant would be how well they do in the US market where they are up against the large guys in this industry - workday, oracle. while they have the advantage of a india developed product, the customer friendliness remains to be seen. Operating leverage is massive in this business and this can go to about 25 % EBITDA at a teen growth. So, if they can do about Rs. 400 Cr. by FY 17 and do a 25 % margin, EBITDA should be about Rs 100 Cr. - so at this level, it looks fairly valued.

I am not sure about the objective of the Buyback announced by the Management few days back. The

At the buyback price of 270 for 52.26 Lakhs shares, the outflow is Rs. 141 Crores.

I could think of the following reasons for the management to go in for the buy back:

The Management thinks that the share is undervalued in the market, and would like to bring up the market price to a fair value. (or)

The promoters need funds for meeting some personal commitments / investments. (or)

The company does not need any additional funds for expansion. Hence, by returning the idle funds to the share holders, RoE can be improved. (or)

The Promoters intend to participate in the buyback as well implies they want to take out the cash from the company. I believe the risks mentioned in my previous post seems to be realizing since management themselves don't feel the room to expand or increase operational efficiencies.

Discl. Tracking position

They have entered the baby-care market now with acquisition of more OTC brands :

http://www.livemint.com/Companies/nywQbFoVjj2vHId9gLRFoJ/Piramal-Enterprises-acquires-baby-care-brand-Littles.html

I managed to attend conf call and below are my notes. My objective is to learn more about the business model. Disc: I hold a tracking position (2% of my PF).

Added result update presentation Q2 FY16 link
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/F38F8553_E867_4CF1_ABCB_D94584393C80_200608.pdf

Ethos: H1
41 stores: 8 summit stores, 3 duty free stores, 27 Ethos format stores, rest 3 could not capture ?
2 new stores in Mumbai:

• Mumbai international airport domestic terminal
• Taj GVK hotel

Store at Ambience mall gurgaon – very good performance.
Same store sales growth 18%.
56% increase in online leads generation.
Expenses reduced from 13.5% to 12.6%.

Advertisement / Branding initiatives: half page ads in few newspapers
Trust campaign: increase consumer awareness, receiving positive feedback.
Brand recall of Ethos is strong now as compared to last 2 years.

Inventory carrying
H1 FY16: 8.6 months
H1 FY15: 9.3 months

New initiative:
Special section in shoppers stop for premium watches. Trial basis in Mumbai and Hyderabad. This is in line with global trend of premium watch location in departmental stores

Parent business:
1. How things are shaping up next 12-18 months ?
⦁ Expect to grow 10-12% per year
⦁ Hit a bit of speed breaker due to global soft conditions
⦁ Now an indicator of strength
⦁ Domestic demand turning up
⦁ Revival expected from Q4
⦁ 10-12% growth on watch components side

Precision business:
a. Electronics & Electricals
b. Aerospace & Defense – expect to improve
c. Auto
Expect growth from 25crs to 100 crs over next 3-4 years. Average growth 30% with earnings lumpiness.
Growth much better. Aggressive plans Precision stamp -> Precision moulding.
Capital raise 30 crs – funds for expansion. Capital expenditure – engineering side.
Land in aerospace development park in Bengalore. Some capex has already started.

Ethos business:
25% growth. Offline and online combination – depends on effective logistics
Next trigger: GST
Expand portfolio of brands and products
320 employee strength in Ethos.
Trend more on digital media.
Absolute spend -> advertisement / marketing 2.2% of Ethos sales.
Same store sales growth 1Q 16%, 2Q 19% 1H 18%.
Margin contraction: overall market business has been soft.
Overall 1H better than previous year.
EBITDA margins 5% last year to 8-10% next 3-4 years

Ethos Market Analysis:
Market growth single digit, we are growing 25%. Some competitors are bleeding and we are gaining market share. Online business share set to improve.
Number of leads are increasing.
High focus on leads conversion improvement.
Capex plan 25 crs next year. KDDL will invest more in Ethos. Will strengthen equity holding in Ethos.
Pressure point on the margins – due to higher discounts offered. Increase in discount 1% lead to drop in EBITDA margin by 1.2%. Higher than budgeted consumer discounts. 1% higher than what was budgeted.
Number of watch specialists 25
Implementing a program of watch specialists: deputing then to physical stores.
Visits to website: 17 lakhs as compared to 14 lakhs last year
Leads 33000, little bit lower than last year. Focusing on quality of leads.
Conversion rate 8.1% this year as compared to 4.5 % last year. Q3 seeing a big peak.
Club Ethos membership 99800

Service & Repair watch vertical (important vertical)
Online and integrate. Looking for robust platform.
Over next 4-5 years span, premium & luxury watches 30crs a year. Plan to capture 1/3rd of this.
Packaging business – assessing whether to continue or not

ROE estimates:
a. Ethos (KDDL retail business) next 3-4 years > 20%
b. KDDL manufacturing business – already > 20%

Do customers research before buying a watch ?
- Yes if it is expensive. Active dialogue with our information centre (> 30 people)

Rationalizing brands, how do we add a new brand ?
- Check high leads. People are enquiring. Global trend.
Luxury value – making brands rare – corporate strategy. Reduce point of sales.

Top 50% online sales (10-12 brands)
Visit website: watch articles and blog
Pushing brand knowledge
Brands are embracing more online presence