About the company: Company Name : Clean Science and Technology Ltd (CSTL) NSE Symbol : CLEAN CMP - Rs.1564 as on Sep 2, 2021.
Incorporated in 2003, Clean Science and Technology Ltd is one of the leading chemical manufacturers globally and as the name suggests its a eco-friendly manufacturer. It’s a family run business.
It manufactures functionally critical specialty chemicals such as :
Performance Chemicals - MEHQ, BHA, and AP
Pharmaceutical Intermediates - Guaiacol and DCC
FMCG Chemicals - 4-MAP and Anisole
Total - 7 products.
Company Market share in its products:
Source : RHP, Page-127
Sales and Distribution across the globe:
Page-135
Key Financials:
Page-129
Summary of Financials:
Pg-15
Product wise Revenue:
Performance chemicals – 70% of total revenues
Pharmaceutical Intermediates –17% of revenues
FMCG chemicals – 13% of revenues
Page-131
Clean Science Unique Manufacturing Process: (Vaporisation Technology - Low cost and High Margins)
First company in the world to manufacture Anisole through Vaporisation.
Source : SOIC
Conventional Manufacturing process by other companies:
Source : SOIC
Manufacturing Facilities:
Currently There are 2 facilities for the company.
Facility 1 → Kurkumbh, Pune, Maharashtra - 7 Units
Facility 2 → Kurkumbh, Pune, Maharashtra - 4 Units
All Facilities strategically located at Kurkumbh (Maharashtra) which is close proximity to the
JNPT port from where we export majority of our products.
Facility Wise product Manufacturing:
Pg-133
Additional Facilities under pipeline: (Location is same Industrial Area as mentioned above)
Facility 3 → which is proposed to be used to manufacture Anisole and certain Performance Chemicals, including MEHQ. We have recently commenced operations in one unit of Facility III.
Facility 4 → where we intend to manufacture stabilizer and other intermediates
for application in pharmaceutical, flavors and fragrance and agriculture industries.
Capacity Utilisation :
Pg-133
Various Products and its application:
Pg-126
Customers:
Our products are used as key starting level materials, as inhibitors, or as additives, by customers, for products sold in regulated markets. Key customers → Bayer AG, SRF Limited, Gennex Laboratories Limited, Nutriad International NV and Vinati Organics Limited
Products Overview:
Performance Products - 70% of Total Revenues
Monomethyl ether of hydroquinone (MEHQ)
Butylated Hydroxy Anisole (BHA)
Ascorbyl Palmitate (AP)
MEHQ:
MEHQ is an organic compound and a synthetic derivative of hydroquinone. Hydroquinone is basically an aromatic organic compound. CSTL is the only producer globally to manufacture MEHQ by the hydroxylation of anisole.
Uses : Monomers, Inks, API in the agrochemical and organic chemical manufacturing.
MEHQ is the intermediate of BHA and already company is forward integrated.
CSTL is World’s no.1 and its peers are Solvay and Camlin Fine science in No.2 and 3 globally.
Expected growth of this chemical for next 5 years globally: 5.8% CAGR
MEHQ is used as a stabilizer for acrylic acid and its salts. Global acrylic acid market exp to grow 6.6% CAGR and India Acrylic acid market exp to grow at 15.5% CAGR for the next 5 years.
Superabsorbent polymers (SAP) are commonly made from the polymerization of acrylic acid blended with sodium hydroxide - Uses : Infant diapers, feminine products and adult incontinence products
Estd 5 yrs growth of SAP globally - 5.4% CAGR
Current Demand of SAP is 100% in India and fully met by Imports and demand for SAP in India is expected to grow at about 11 - 12% between 2019 and 2025.
India Baby diapers and India Sanitary Napkin Market expected to grow 16.8% CAGR and 11.0% for the next 5 years.
BHA:
CSTL produce sulphur-free BHA when compared to its peers Solvay and Camlin Fine science.
USES: As an anti-oxidant in the food and feed industry, in animal feed and nutrition and personal care. Antioxidants are used for providing protection to essential nutrients such as vitamins, fats, and pigments from deterioration.
Indian animal feed market is poised to grow to ~$11B by 2025, growing at a CAGR of ~14%
Ascorbyl Palmitate - AP:
This chemical expected growth for next 5 years globally : 5.8% CAGR
Ascorbyl Palmitate (AP) is produced from ascorbic acid or vitamin C
Uses : Ingredient in anti-aging cosmetic products. Anti-aging products account for 17% of the total active personal care ingredients market (which is expected to grow further at a CAGR of 6.5% going forward).
Second largest producer in India
Pharmaceutical Intermediates –17% of revenues:
Guaiacol
Dicyclohexyl Carbodimide (DCC)
Guaiacol:
The global Guaiacol market is currently pegged at USD 309 million and is expected to grow at a CAGR of 1.3% from 2019 to 2025
CSTL is the third-largest producer globally and 2nd in India.
Solvay is the largest player in world
Camlin Fine Sciences is India’s the largest player
Uses : Precursor to manufacture APIs
Used in pharmaceutical industry for the production of cough syrups.
It is also used a key raw material for Vanillin, a food and flavour enhancer. Eg: Vanilla Ice-cream.
Guaiacol is used as a key starting material to produce APIs like Guaifenesin, Carvedilol, Ranolazine and Methocarbamol.
DCC:
CSTL began manufacturing DCC in 2020 and has become the largest DCC player in India and one of the largest players globally within just two years of commencing production.
CSTL manufactures sulphur-free DCC without using carbon disulphide. It acts as an anti-retroviral reagent and is primarily used in the pharmaceutical industry.
DCC is used as a key starting material for producing APIs like Valaciclovir, Amikacin and Glutathione, among others.
DCC is a powerful dehydrating agent commonly used for the preparation of amides, esters, and anhydrides. It is also used in peptide and nucleic synthesis. It is also used as a reagent in anti-retroviral drugs
Expected growth of this chemical for next 5 years globally : 4.9% CAGR
FMCG chemicals – 13% of revenues
4-Methoxy Acetophenone (4-MAP)
Anisole
4-MAP:
4-Methoxy-Acetophenone is an important spice, medicine, and makeup intermediate. 4-MAP is an aromatic chemical compound with an aroma described as sweet, fruity, nutty, and similar to vanilla. 4-MAP occasionally also has the aroma of butter or caramel.
The personal care industry in India is pegged at USD 14.3 billion, and expected to grow at a CAGR of 9.8% to reach USD 25 billion by 2025
Uses : As a cigarette additive, a fragrance, ingredient to manufacture UV Filter(most commonly used in sunscreens), and in food flavouring. It is also used as a chemical intermediate in manufacturing cosmetic additives like Avobenzone.
Expected growth for next 5 years globally : 3.6% CAGR Key Growth drivers for the next 5 years:
Anisole:
The global Anisole market was valued at USD 84.9 million in 2019 and expected to record a growth of 5.0% between 2019 and 2025. On a volume basis the demand of Anisole was around 34 KT growing at a CAGR of 4.5% – 4.8%.
Uses: Anisole is a precursor to perfumes, insect pheromones, and pharmaceuticals. Synthetic anethole is formulated from anisole. The compound is mainly made synthetically and is a precursor to other synthetic compounds.
Largest Manufacturer in world and accounting for 45% - 55% of the global capacity
Key positives:
Other companies seeing china as low cost competitor but CSTL exports 30-35% to China which proves they are the low cost producers in the world and only chemical company which exports to china.
Industry best EBITDA(55%), ROCE, ROE and margins.
Company is continuously focus and R&D with a robust R&D Team.
Company has strong relationship with customers and some customers have associated with the company for more than 10 years.
Largest producer of 4 out of 7 products globally.
Backward integrated especially the KSM(Key starting material) - Anisole is produced with vapor technology.
Key Risks:
Litigation against one of the Director - 2 criminal cases and Litigation against the company - 2 criminal cases and 1 Tax case (23.8 lacs)
Facility 4 Environment clearance will take time.
Addition of new products will affect the margins.
Exchange rate fluctuations may adversely affect our results of operations as our sales from exports and a significant portion of our expenditures are denominated in foreign currencies. Especially Phenol which is the largest contributor of Raw material cost.
Top 10 customers contribute 48% of revenues.
None of the company’s catalytic process are patented and competitors like Camlin Fine science can copy the process and capex expansion by Camlin will put margin pressure on CSTL.
Recent R&D Breakthrough on 27th August, 2021:
Continuing its pursuit of process innovation through catalytic technology, Clean
Science and Technology Limited (CSTL) is pleased to announce its foray into Hindered
Amine Light Stabilizers (HALS) series.
HALS series comprises a range of products which
find application in diverse end industries including polymerization inhibitor, water
treatment, paint industry, coatings industry etc. The estimated market size for HALS
series globally is approximately USD 1 billion. CSTL would be the first company to
develop HALS series in India.
Company has successfully developed key products in HALS series using in house R&D
capabilities, at lab and pilot scale.
The ongoing capex at Unit 3 is towards existing and new products. In Unit 3, Company
is launching first line of production dedicated towards HALS series, which is expected
to commercialize by H2 FY2023. Besides, additional production lines will also be
installed in Unit 4 for manufacturing products under HALS series.
Link - 79e5a335-7772-4156-9c99-cf4a582c0e45.pdf (959.0 KB)
Disc : Invested
Please feel free to add if I miss something.
Started in 1995 with clients such as Coca-Cola, Cellular One, Motorola, Ericsson which are facing operational challenges in India on account of limited availability of accurate maps. They obtained contracts to create digital maps that contained specific company information such as bottlers’ territories or topographic features such as high ground suitable for cell towers.
In 2004, company launched its digital map portal. Fast forward to today, company has mapped 10.5 M unique destinations, 6.4 M km of road, ~ 7500 cities at street level, 80 at address level, 3D, 2D landmarks in 86+ diff cities which is being updated Daily.
Product Offerings
1. Navigation Assistant Device
This is a navigation device embedded in dashboard of your 4W or 2W.
These are 3-5 years contracts with automotive makers.
Clients includes MG motors, Honda in 4W and Suzuki, TVS in 2W.
Company claims to have 80% market share in this segment.
They earn revenue per vehicle per year basis. Revenue will depend on no. of vehicle manufactured with MMI Navigation in a given year.
2. SaaS Products
(a) InTouch - IoT Platform & Telematics Platform
(Also, pitched as Digital Vehicle Twin)
This is cloud platform with various use cases majorly related to mobility like
Customizable Analytics Dashboard (Graphical representation of various parameter important to end user)
Live Tracking of Vehicle (includes drones), Vehicle level information - Speed, Location, Altitude , IoT GPS device status
Geo-fence Management : Geo-fencing is marking specific areas with geometrical figures (Polygon, Circle, etc) and tagging them as per business demand which will help in further location based analysis.
Company also provide bespoke solutions as per business requirements
~ 10k Downloads in Google Play store with 3.4 / 5 Rating.
Revenue Model - Subscription Based and as per Use Case
Vehicle Telematics : It includes GPS systems, onboard vehicle diagnostics, wireless telematics devices, and black box technologies to record and transmit vehicle data, such as speed, location, maintenance requirements and servicing, and cross-reference this data with the vehicle’s internal behavior.
(b) WorkMate
This Product intended to help companies with managing their field staff, location analysis for their clients, assigning tasks and generating reports related to same data
It’s also capable of working completely offline and gets automatically sync when back in internet connectivity
Display and branding is customizable to client
Clients includes PrintJet, Fullerton India, EMRI, Greenstarm SD Fine chem ltd.
~ 5k Downloads on Google Play store with 4/5 rating
Pay as you go model - revenue based on licenses per user per month.
(c) mGIS Tool
This is a visualization tool to perform analytics on geo-spatial data.
Some of the common metrics that could be tracked through this software like
Customer Location Visualization
Trade Area Analysis
Advanced Arithmetic Operations involving Elevations and Altitudes on 3D maps
Revenue Model - Subscription Based and as per Use Case
3. APIs / SDKs
API (Application Programmaing Interface) : In a nutshell, it is a piece of code that helps communication between two applications. So, if I need to insert a digital map or its related features in my personal app, I can use MapmyIndia API (Code) to get that data into my app and use it as per requirement.
SDK (Software Development Kit) : A kit or a package of tools, libraries, documentation, code samples, processes. Think of it as putting together a Squat Rack in your gym or that bed you bought from IKEA, you’ll need the base items, tools needed to put them together, assembly instructions and hence forth. An SDK might consists of several APIs and few other features around them.
All APIs / SDKs are subscription based freemium models and revenue depend on scale of client and number of transactions getting performed on application. There are several APIs / SDKs as below that company provides
Search APIs
Explore any address, location, place, Auto suggest, Nearby Places with Geo code or Reverse Geo code
Real time Map Updates, Auto Scalable, eLoc (a unique 6 char digital address of a particular house level location)
Apps includes McDonald’s, Yulu, PhonePe, Airtel
Routing and Navigation APIs / SDKs
Functions like Vehicle (Car, Bike, Truck, Pedestrian) Routing, Predictive ETA, Snap to Road, Turn-by-turn navigation, Drive range polygon (which will help in analysis of certain marked area)
Client includes MG, Mahindra, Amazon, HDFC, TVS, Suzuki
WorkMate APIs - APIs to get several data items from WorkMate App
mGIS APIs - Map and Location APIs, widgets, plugins and tools for developers to build advanced location-based applications - map visualizations in 2D/3D, Geo coding, search, routing, Geo-spatial analysis, AI-powered image analysis and more.
Global APIs - Map for 238 countries available
Personalization SDK
It helps build dynamic O2O (Online to offline) profiles for users or customers. This SDK help analyse profiles using algorithms to deliver personalized recommendations for products and services.
This also tracks buying patterns and create localised marketing campaigns
This has use cases in almost every major growing industry
4. IoT Products (Hardware Products)
IoT Products include GPS products to track vehicles, drone trackers, asset trackers. Other than that they also provide Drone cameras and various set of sensors
Map MyIndia’s Move App is used to track location, share location, Route summary and alert notifications
Some of the clients using their IoT products include Safe Express, TCS, AVIS
Industry Landscape and Competition
Regulation : Liberalization of Geo-spatial Sector
In Feb 2021, the Ministry of Science and Technology announced the deregulation of the Geo-spatial sector in India.
In the new Geo-spatial policy, there is no requirement to get approvals for the collection, preparation, storage and dissemination of Geo-spatial data and maps within India for Indian owned or controlled companies… It restricts foreign companies from doing granular level mapping - with a binding threshold of one meter in horizontal and three meter in vertical mapping making it difficult to create accurate maps for ADAS, HD, 3D, 360-degree street view, doing terrestrial survey and Indian territorial waters survey.
Since most of the foreign companies like TomTom and HERE use ADAS and HD tech for Navigation Maps, they’ll have to license the same through APIs from Indian Players.
Navigation Assistant Device and Mobility Related SaaS Products
Automobile Industry has been a major revenue contributor to map providers since last several years. This segment is consolidated among few players in particular region. MMI in India, TomTom and HERE Tech in UK and Map Box in US , has captured majority of the market.
This segment has been stagnant in last 2-3 years because of global automotive slowdown but is expected to pick back up in coming years as we are moving towards spectrum of autonomousity of vehicle, navigation system will become a integral part (both 4 and 2 wheeler).
After liberalization of Geo-spatial sector, we could see increased competition from other Indian Players getting aggressive in this space and we can also see some market share shift from foreign entities.
One of the recent news includes MG motors moved from TomTom to MMI in Aug 2021 in recently launched new models.
API / SDKs
As we discussed earlier, most of the application developers / companies prefer to include some functionalities of Location and Maps in their apps. APIs are highly preferred by companies to scale and grow their product quickly instead of re-inventing the whole wheel.
It is a fairly competitive space which leads API providers to spend on customer acquisitions through sales, getting interest of developers, free offerings upto a certain scale and at the same time, updating tech and investing in RnD.
Major competitors in this segment are Google Maps, TomTom, HERE Tech, Map Box, ESRI ArcGIS, Sales force Maps, Azure Maps, MapQuest
This segment is growing at a much faster pace, creating space for all competition to co-exist. With increasing penetration of internet and smartphones, growth will come from increasing use of location based apps, hence more transactions and increase in new applications using location based APIs.
The geo-spatial analytics space in India comprises of foreign players like ESRI, AutoDesk and Trimble. In addition to this, there are several other players like Rolta, RMSI, Infotech Enterprises.
Google : Elephant in the room
Spaces that google is present in this industry are as below :
Ad-sense - Google Maps earns majority of its revenue from Google’s Ad words and charges companies to advertise on google map app. For instance, if you search for Mumbai in Google Maps, it’ll show places, restaurants, cafe to visit.
APIs - Google Maps also provides APIs for different location based data and it’s pretty famous among developers however their prices are premium as comparison to other players and they also don’t provide HD, 3D Maps to doorstep level which might be a requirement for some e-commerce companies.
Navigation Assistant - Google stayed away from this segment until March 2017 when Google and Intel together with Volvo and Audi developed an Android Automotive Operating System (AAOS) combined with Google Automotive Services (GAS) which is a collection of applications and services like google maps, play, assistant, etc that OEMs can license and integrate into their in-vehicle infotainment systems. Volvo, Ford and GM are using AAOS with GAS.
In April 2019 Google opened up the APIs for developers to start developing applications for Android Automotive
Renault-Nissan-Mitsubishi alliance, one of the world’s top-selling automakers, has decided to go with Google’s Android operating system to run its dashboard information and entertainment features. A key reason cited previously by TomTom for Google’s contract wins was drivers’ desire to use a familiar, easy interface in their cars that is similar to the ones they are familiar with from their cell phones.
In September 2021, Honda announced that it would use Google’s Android Automotive OS in its cars starting in 2022.
Over the years, carmakers has been hesitant in giving full access of dashboard to Google due to data privacy concerns and willingness to own the branding for their dashboard. However, now with leading OEMs joining hands with google and well known superior quality product / brand of google, it will be the biggest risk for players in this segment like MMI, TomTom, HERE.
Financial Metrics
Overall Revenue Growth for company is flattish since 2018 but is expected to show high growth this year (31 % ▲ ) as per 1H22 Annualized numbers.
One of the reason for flattish performance is decline in IoT Products (GPS products) as they are mostly related to automotive industry which itself is facing strong headwinds from last few years and there is also a lot of local and foreign competition in hardware product market.
However, things get interesting when we look at segmental revenues below.
Another reason for overall revenue trend is Revenues from Automotive and Mobility (translates to Navigation Assistant, InTouch Platform and GPS products) has been declining rapidly majorly due to Slowdown in Automotive Industry. It has shown strong performance in 1H22 and expected to show high double digit growth in 2022.
Even with sharp decline in Automotive Segment, Consumer and Enterprise Segment (translates to APIs, SDKs, Customized Solutions and Analytics) is growing at rapid pace on account of exponential rise in digital economy over the globe.
Orderbook, which is projected on the basis of current orders + expected volume growth of clients for the next 3 Years and is subject to change in future based on Indutry demand, hence should be considered with pinch of salt. That being said, numbers provided for Orderbook are growing at exponential pace and should translate to high growth in Revenues, if all went well.
“70% of orderbook is based on projections of volumes from OEMs. The volume projections are based on either the projections shared by OEMs or based on the historical usage trends amongst certain other parameters. Our customers may terminate contracts before completion, negotiate adverse terms of the contract or choose not to renew contracts, which could materially adversely affect our business, financial condition and results of operations”
Margins
Variable cost in case of MMI are Software License Fee / Material Cost, Cloud Hosting Fee, Customer Customisation / Servicing.
Contribution margin has been increasing over the years mainly due to decline in Software License Fee and Customer Customization which generally relates to Automotive and Mobility Segment.
EBITDA Margins has also increased primarily because company has decreased non-permanent employees workforce and because of stable fixed cost and high contribution margin, EBITDA margins should be expected to increase in future with the rise in revenues.
Profit After Tax has also shown double digit growth because of increase in margins and one time exceptional ‘other income’ in 2021 after selling some investments / mutual funds.
Company has been surviving since two decades, on the basis of healthy cash flow generation. Due to asset light nature of business, EBITDA generally flows almost completely to Profits, CFO and Free Cash Flow. CFO in 2021 looks optically high because of changes in Financial Assets / Liabilities which will probably revert back to mean in coming years.
Growth Opportunities
Drone Industry
Drone industry is rising over the globe with the increased use cases and improved technology. Drone helps in quick field surveys, Supplying Essentials, Sensor Equipped for defense purposes, Geographic mapping, Safety Inspections,Crop monitoring, shipping and delivery.
Since GPS / GNSS (Global Navigation Satellite System) is a regulatory requirement for Drones, this could be a opportunity for MMI to strike deals at a nascent stage.
Rise in Electric Vehicles and Semi Autonomous Vehicles
As we move towards autonomous vehicle spectrum, Navigation Assistant will be required in most of the vehicles
Since, Automobile industry has seen increase in volumes, we can expect it to reflect in MMI Revenues
However, Google will remain a Challenge and need to have a keen eye how Google and other players are exploiting this market
Licensing of Maps
After the Geo-spatial liberalization in 2021, licensing of maps could appear as one of growth driver for MMI as Foreign Entities that provide HD and 3D Maps (TomTom and HERE Tech) will have to license map APIs from Indian Entities.
This could also benefit them bagging deals with potential clients
API revenue growth
Major Growth is surely expected from the APIs / SDKs which will be driven by
Increased traffic and transactions in existing clients like Paytm, PhonePe, Yulu
Addition of new clients which is expected with increased internet penetration, new start-ups and advancement of technology.
Vulnerabilities and Risks
Expansion of Google’s Android Automotive Operating System
Google is continuously finding ways to make Maps as its next billion dollar business. It was clear in 2018 when google did exponential price hike in APIs and then entered into Automotive segment .
Even though, currently main focus is in US and UK markets but it is a matter of time until google will try to capture the market in India.
Low RnD Spend
Considering its peers and being a tech company, RnD Spend is very low for MMI.
This could limit their scalability and could end up losing clients. They have also lost clients in previous years.
APIs/ SDK space is competitive.
API/ SDK segment, though highly profitable is competitive and price sensitive.
Switching Cost is moderate, Many companies have switched from using google map APIs to other providers after they’ve increased prices in 2018.
Increase of Supply
After new regulation, where Indian entities need no approvals for Map Data, new competition may arise from Indian players, hence challenging the economics of this industry
Customer Concentration
In the last three Financial Years, the number of customers that accounted for 80% of our revenue from operations were 17, 22 and 25 in Financial Years 2019, 2020 and 2021, respectively.
Though company is moving towards diversifying the revenue pool, losing key clients is a big risk to subscription revenues.
High Dependence on End User Industry
A large chunk of revenue comes from Automotive sector, hence revenues can get impacted in case of draw down in industry.
[Disclaimer: Holding a tracking position in this company. I’m not a registered Investment or Financial Advisor. Any information in this article is from personal research and is not intended as, and shall not be understood or construed as , financial advice. It’s very important to do your own analysis and reviewing the facts before making any investment based on your own personal circumstances. Kindly seek professional advice before taking investment decision.]
About the company: Company Name : Clean Science and Technology Ltd (CSTL) NSE Symbol : CLEAN CMP - Rs.1564 as on Sep 2, 2021.
Incorporated in 2003, Clean Science and Technology Ltd is one of the leading chemical manufacturers globally and as the name suggests its a eco-friendly manufacturer. It’s a family run business.
It manufactures functionally critical specialty chemicals such as :
Performance Chemicals - MEHQ, BHA, and AP
Pharmaceutical Intermediates - Guaiacol and DCC
FMCG Chemicals - 4-MAP and Anisole
Total - 7 products.
Company Market share in its products:
Source : RHP, Page-127
Sales and Distribution across the globe:
Page-135
Key Financials:
Page-129
Summary of Financials:
Pg-15
Product wise Revenue:
Performance chemicals – 70% of total revenues
Pharmaceutical Intermediates –17% of revenues
FMCG chemicals – 13% of revenues
Page-131
Clean Science Unique Manufacturing Process: (Vaporisation Technology - Low cost and High Margins)
First company in the world to manufacture Anisole through Vaporisation.
Source : SOIC
Conventional Manufacturing process by other companies:
Source : SOIC
Manufacturing Facilities:
Currently There are 2 facilities for the company.
Facility 1 → Kurkumbh, Pune, Maharashtra - 7 Units
Facility 2 → Kurkumbh, Pune, Maharashtra - 4 Units
All Facilities strategically located at Kurkumbh (Maharashtra) which is close proximity to the
JNPT port from where we export majority of our products.
Facility Wise product Manufacturing:
Pg-133
Additional Facilities under pipeline: (Location is same Industrial Area as mentioned above)
Facility 3 → which is proposed to be used to manufacture Anisole and certain Performance Chemicals, including MEHQ. We have recently commenced operations in one unit of Facility III.
Facility 4 → where we intend to manufacture stabilizer and other intermediates
for application in pharmaceutical, flavors and fragrance and agriculture industries.
Capacity Utilisation :
Pg-133
Various Products and its application:
Pg-126
Customers:
Our products are used as key starting level materials, as inhibitors, or as additives, by customers, for products sold in regulated markets. Key customers → Bayer AG, SRF Limited, Gennex Laboratories Limited, Nutriad International NV and Vinati Organics Limited
Products Overview:
Performance Products - 70% of Total Revenues
Monomethyl ether of hydroquinone (MEHQ)
Butylated Hydroxy Anisole (BHA)
Ascorbyl Palmitate (AP)
MEHQ:
MEHQ is an organic compound and a synthetic derivative of hydroquinone. Hydroquinone is basically an aromatic organic compound. CSTL is the only producer globally to manufacture MEHQ by the hydroxylation of anisole.
Uses : Monomers, Inks, API in the agrochemical and organic chemical manufacturing.
MEHQ is the intermediate of BHA and already company is forward integrated.
CSTL is World’s no.1 and its peers are Solvay and Camlin Fine science in No.2 and 3 globally.
Expected growth of this chemical for next 5 years globally: 5.8% CAGR
MEHQ is used as a stabilizer for acrylic acid and its salts. Global acrylic acid market exp to grow 6.6% CAGR and India Acrylic acid market exp to grow at 15.5% CAGR for the next 5 years.
Superabsorbent polymers (SAP) are commonly made from the polymerization of acrylic acid blended with sodium hydroxide - Uses : Infant diapers, feminine products and adult incontinence products
Estd 5 yrs growth of SAP globally - 5.4% CAGR
Current Demand of SAP is 100% in India and fully met by Imports and demand for SAP in India is expected to grow at about 11 - 12% between 2019 and 2025.
India Baby diapers and India Sanitary Napkin Market expected to grow 16.8% CAGR and 11.0% for the next 5 years.
BHA:
CSTL produce sulphur-free BHA when compared to its peers Solvay and Camlin Fine science.
USES: As an anti-oxidant in the food and feed industry, in animal feed and nutrition and personal care. Antioxidants are used for providing protection to essential nutrients such as vitamins, fats, and pigments from deterioration.
Indian animal feed market is poised to grow to ~$11B by 2025, growing at a CAGR of ~14%
Ascorbyl Palmitate - AP:
This chemical expected growth for next 5 years globally : 5.8% CAGR
Ascorbyl Palmitate (AP) is produced from ascorbic acid or vitamin C
Uses : Ingredient in anti-aging cosmetic products. Anti-aging products account for 17% of the total active personal care ingredients market (which is expected to grow further at a CAGR of 6.5% going forward).
Second largest producer in India
Pharmaceutical Intermediates –17% of revenues:
Guaiacol
Dicyclohexyl Carbodimide (DCC)
Guaiacol:
The global Guaiacol market is currently pegged at USD 309 million and is expected to grow at a CAGR of 1.3% from 2019 to 2025
CSTL is the third-largest producer globally and 2nd in India.
Solvay is the largest player in world
Camlin Fine Sciences is India’s the largest player
Uses : Precursor to manufacture APIs
Used in pharmaceutical industry for the production of cough syrups.
It is also used a key raw material for Vanillin, a food and flavour enhancer. Eg: Vanilla Ice-cream.
Guaiacol is used as a key starting material to produce APIs like Guaifenesin, Carvedilol, Ranolazine and Methocarbamol.
DCC:
CSTL began manufacturing DCC in 2020 and has become the largest DCC player in India and one of the largest players globally within just two years of commencing production.
CSTL manufactures sulphur-free DCC without using carbon disulphide. It acts as an anti-retroviral reagent and is primarily used in the pharmaceutical industry.
DCC is used as a key starting material for producing APIs like Valaciclovir, Amikacin and Glutathione, among others.
DCC is a powerful dehydrating agent commonly used for the preparation of amides, esters, and anhydrides. It is also used in peptide and nucleic synthesis. It is also used as a reagent in anti-retroviral drugs
Expected growth of this chemical for next 5 years globally : 4.9% CAGR
FMCG chemicals – 13% of revenues
4-Methoxy Acetophenone (4-MAP)
Anisole
4-MAP:
4-Methoxy-Acetophenone is an important spice, medicine, and makeup intermediate. 4-MAP is an aromatic chemical compound with an aroma described as sweet, fruity, nutty, and similar to vanilla. 4-MAP occasionally also has the aroma of butter or caramel.
The personal care industry in India is pegged at USD 14.3 billion, and expected to grow at a CAGR of 9.8% to reach USD 25 billion by 2025
Uses : As a cigarette additive, a fragrance, ingredient to manufacture UV Filter(most commonly used in sunscreens), and in food flavouring. It is also used as a chemical intermediate in manufacturing cosmetic additives like Avobenzone.
Expected growth for next 5 years globally : 3.6% CAGR Key Growth drivers for the next 5 years:
Anisole:
The global Anisole market was valued at USD 84.9 million in 2019 and expected to record a growth of 5.0% between 2019 and 2025. On a volume basis the demand of Anisole was around 34 KT growing at a CAGR of 4.5% – 4.8%.
Uses: Anisole is a precursor to perfumes, insect pheromones, and pharmaceuticals. Synthetic anethole is formulated from anisole. The compound is mainly made synthetically and is a precursor to other synthetic compounds.
Largest Manufacturer in world and accounting for 45% - 55% of the global capacity
Key positives:
Other companies seeing china as low cost competitor but CSTL exports 30-35% to China which proves they are the low cost producers in the world and only chemical company which exports to china.
Industry best EBITDA(55%), ROCE, ROE and margins.
Company is continuously focus and R&D with a robust R&D Team.
Company has strong relationship with customers and some customers have associated with the company for more than 10 years.
Largest producer of 4 out of 7 products globally.
Backward integrated especially the KSM(Key starting material) - Anisole is produced with vapor technology.
Key Risks:
Litigation against one of the Director - 2 criminal cases and Litigation against the company - 2 criminal cases and 1 Tax case (23.8 lacs)
Facility 4 Environment clearance will take time.
Addition of new products will affect the margins.
Exchange rate fluctuations may adversely affect our results of operations as our sales from exports and a significant portion of our expenditures are denominated in foreign currencies. Especially Phenol which is the largest contributor of Raw material cost.
Top 10 customers contribute 48% of revenues.
None of the company’s catalytic process are patented and competitors like Camlin Fine science can copy the process and capex expansion by Camlin will put margin pressure on CSTL.
Recent R&D Breakthrough on 27th August, 2021:
Continuing its pursuit of process innovation through catalytic technology, Clean
Science and Technology Limited (CSTL) is pleased to announce its foray into Hindered
Amine Light Stabilizers (HALS) series.
HALS series comprises a range of products which
find application in diverse end industries including polymerization inhibitor, water
treatment, paint industry, coatings industry etc. The estimated market size for HALS
series globally is approximately USD 1 billion. CSTL would be the first company to
develop HALS series in India.
Company has successfully developed key products in HALS series using in house R&D
capabilities, at lab and pilot scale.
The ongoing capex at Unit 3 is towards existing and new products. In Unit 3, Company
is launching first line of production dedicated towards HALS series, which is expected
to commercialize by H2 FY2023. Besides, additional production lines will also be
installed in Unit 4 for manufacturing products under HALS series.
Link - 79e5a335-7772-4156-9c99-cf4a582c0e45.pdf (959.0 KB)
Disc : Invested
Please feel free to add if I miss something.
With the proliferation of new users and consequent rise in flags (sometimes is subjective), here’s a small list to start with on what is actively discouraged at VP. This should aid both those who post and those flagging to keep VP a clean value-additive place for everyone.
So the keyword is non value-additive.
One or 2 liner or 1 para opinion posts/thank you posts/great job posts (once can always express through “Likes” or even message directly)
One or 2 liner or 1 para enquiry posts on topics that a simple google search will immediately point to
Targets/Price-Action posts - Why is it falling/Why is it going up/Opinions/Questions, and/or asking for reccos/entry price
(as different from industry/business-impacting data-points)
Name-calling and uncivil posts
Off-topic posts (including one off experiences with a product/service, detailed scuttlebutts at multiple stakeholders, though is encouraged)
Spam/Self-Promotional posts pointing to ones own blogs/twits/websites (everyone is encouraged though to share preferred details in their profile sections)
Newbie question posts (where someone has NOT bothered to read through earlier posts), asking same old questions that have been dealt with before, and the like
Excessive/Repetitive posts offering the same reasoning/arguments without taking the discussion forward
Direct uploads of non-public (not for free downloads) and/or proprietary (private) content
Copy/Paste of proprietary content (behind paywalls)
(small excerpts pointing to the main article may be okay, or if prior permission is obtained from author(s) for posting at VP)
This may seem like obvious Don’ts but not everyone is on the same page, especially newbies. Several folks have reached out to make this as transparent an exercise as possible, so here’s a first-cut from our first-hand experience over the last decade.
Moderation of a content-heavy forum like VP, is a huge task. And we cant thank enough the Moderators for doing what is essentially a thankless job. Moderators are human too, and errors can be made. We have acknowledged mistakes before. We iterate and learn along the way.
Thank you members for being alert and vigilant. Suggestions are welcome.
We will look to improve on this list again with your feedback and our active experience.
PS: Value-Additive posts are a no-brainer. We know it when we see it.
Something that takes the discussion forward. Data-points that connect the dots. Data-points that provide contrary facts to prevailing view/opinions, examples of our own workings, decision-making models, and the like. Something/anything that makes us better-informed on topic!
Our coverage of the midcap IT stories here at Valuepickr has missed Birlasoft, and I thought it’s time we keep a record of the investment thesis, and it’s development for posterity.
What’s the play?
Giant IT services companies like TCS and Infosys are the middlemen between customers that want to adopt modern solutions to cut costs, and pure tech companies such as Microsoft, Google, etc. that form their backbone.
We’ve seen the following trends in the last few years:
Having modern digital solutions to legacy problems are often an avenue to improve productivity and improve margins for companies. Covid has accelerated this spend, and will be a key driver of growth going forward.
Smaller IT companies have realised they can’t compete with giant incumbents and have healthy margins at the same time. The emerging solution seen across the pack is that they pick a few verticals and become the best solutions provider in their own niche.
Goal is to carve a niche in our verticals where we are better than the big players. We can’t solve every problem, but what we choose to solve, we can do much better than anyone else. - Dharmender Kapoor, interview with BQ, June 2021.
Okay, what are their verticals?
They have four main verticals. From the 2021 annual report:
Birlasoft helps customers in manufacturing to accelerate their Industry 4.0 adoption.
BFSI - to leverage open APIs and automate both front-office and back-office transformation;
Energy and Utilities - to enhance field collaboration and real-time service excellence, optimize operations and improve asset performance;
Life Sciences - to automate drug discovery and pharmacovigilance processes.
Here’s how the revenue mix has changed over the years:
Why now? What has the journey been in the last few years?
The story becomes interesting after 2015, when Birlasoft brought in Anjan Lahiri, and he worked on the company until 2019 when two things happened. They merged with KPIT Technologies and became the digital enterprise company of today, and Anjan Lahiri stepped down due to urgent personal reasons.
After this, they revamped the board, with Mr. Dharmender Kapoor taking over as MD, and in the last two years have onboarded senior talent. Their current CFO has been on the IBM senior management for 20 years, and this trend has continued if one looks at their hiring on Linkedin.
How has their business model evolved?
They’ve started focusing on their top clients and have trimmed tail accounts. Furthermore, they’ve started selling more to their top clients across their verticals. This is seen through three data points in FY21:
Lower $1 million deal wins, more $5 million deal wins.
97% of new deals are from existing clients.
Increasing TCV trend in deal wins, FY21 was their best year.
Annuity has improved from 60% in FY20 to 70% in FY21.
Deals are now multi service rather than single service. New deals don’t necessarily fall into one vertical.
They are constantly working on internal efficiency to improve operational metrics. The key metric management mentions repeatedly is the Days Sales Outstanding, and Utilisation rate:
Revenue per headcount across the quarters:
Q1FY22
Q4FY21
Q3FY21
Q2FY21
Q1FY21
Operating Profit (lakhs)
15100
15200
14400
11900
11300
Technical Employees
10445
9994
9416
8992
8865
Profit/Employee
1.44
1.52
1.52
1.32
1.27
This has been steadily improving, with a drop in the latest quarter. Management commentary on the same:
We lost $1 million of bottomline due to covid. Employees in India took leave when the second wave hit, and we didn’t dock their pay. Without this, the quarter would have been even stronger.
Accounting for this, the profit/employee for this quarter would be 1.52 as well.
The last data point is important while considering the difference in wage costs between India and the US.
From the latest earnings call on the onshore/offshore mix (paraphrased):
We usually hire locals (onshore) if there is a crunch, as the hiring lead time is a lot quicker than in India where there is a 3 month lead time. When we hire offshore, we replace onshore subcontractors. Clients are also on the same page with starting projects on site and finishing it offshore. We improve our margins, they get comfortable with deal structure.
Okay, numbers are improving. Do they have ambition?
Paraphrasing what Mr. Kapoor said in June’s interview with BloombergQuint:
By 2025, we want to have 7500 Cr. of revenues (3500 Cr. today, implies ~18% CAGR). We will do this by:
Growing top 30 accounts by > 20%;
Platform strategy: partnership with Azure / AWS to offer solutions across the value chain;
New channel for sales; good partnerships already in place.
Expecting profit CAGR to be much higher than revenue CAGR in the next 4 years. Profitability will grow. 3-4 quarters ago, this target of billion dollars was a dream. 2 quarters ago it became aspirational. Today, I’m far more optimistic and it’s looking like it can be a reality.
Absolutely no doubt that I and other top management will continue to work at Birlasoft until this goal is met. They’re motivated, excited, and handsomely incentivised to stay. We have our plans set in place for the next 3/4 years.
Financials and Cash Flows
Are currently debt free and have 1100 Cr. of cash in hand.
Risks
The vision is entirely dependent on Mr. Kapoor and his close circle. If they leave in the next few years, big questions to ask.
Dependent on their partnerships with SAP, Microsoft, AWS. Currently a Microsoft gold partner, which gives them benefits to companies searching for solutions providers.
Execution - Reliant on better deal wins and client mining to meet their 7500Cr. target.
When we acquired KPIT, used to think 75 million dollar deal wins were a great target for a quarter. Today, 200 million dollars should be the average every quarter.
However, Q1FY22’s deal wins have fallen short of their own metrics.
Their target of 1 billion dollars is a nice headline, but it implies a mid teen CAGR going forward. This is something we have heard from other midcap IT companies like FirstSource. Hence, is their target super normal?
Disclosure: Invested from lower levels, no recent transactions.
With current valuations, it’s becoming increasingly difficult to find low hanging value fruit. This post isn’t necessarily to offer a slam dunk investment opportunity, but to track a company here that may become more attractive/unattractive going forward.
Two amazing sources of information on the company:
BACKGROUND
A technical textile solutions company with humble beginnings manufacturing plastic products like HDPE/PP Fabrics & Woven Bags at Dholka (rural Ahmedabad) in 1985. Today the company employs 1700 employees and its yearly production is approx. 20,500 MTs of finished polymer based products.It’s mainly an exports company with very little domestic business.
MAIN PRODUCTS/SEGMENTS
The company is engaged in the business of technical textile, geotextile, and other allied products like manufacturing of PP/HDPE woven and non-woven fabrics and bags. Its products comprise PP Woven bags, fabric, box bag, ground cover, and lumber cover, mainly in the woven polypropylene market.
During FY2021 AGM, the management confirmed that it manufactures a building product for the US housing market in the form of Synthetic Roofing Underlayment.
If one carefully looks at the cover pages of the company’s past annual reports, for the first time in the FY2021 annual report, the management showed pictures of a house under construction with roofing underlayment and house wrap as their main products. In earlier years the company has always been showing silt fence, geotextile, and agri textile application pictures.
Below is the screenshot the latest AR cover page:
MAIN MARKETS/CUSTOMERS
SJPL is mainly an exporting company.
Almost 85% of the revenue contribution comes from the exports market.
The company doesn’t give any further breakdown of their sales.
As per our industry scuttlebutt, US is the biggest market for SJPL’s building product i.e. Synthetic Roofing Underlayment which it serves primarily through Epilay Inc and Edge Tech Partners LLC, and few much smaller players.
CURRENT MARKET/INDUSTRY TRENDS/SCUTTLEBUTT FINDINGS
Through scuttlebutt work we have confirmed that the roofing underlayment industry is going through a shift from Organic Felt (waterproofing tarp, saturated bitumen felt, asphalt felt) to Synthetic Underlayment. This migration started happening from about the 2011-12 period. Currently about 40% of the industry roofing contractors are still using the asphalt based traditional underlayment. And this shift is happening at a faster rate post COVID which is very positive for players like SJPL.
Two big problems with legacy underlayment products were 1) it was too heavy for roofers to carry to the roof 2) it was slippery as roofers laid the underlayment felt and walked on top of it to nail it down and prepare for adding the next layer on top of it. These are the two issues that were being addressed by the synthetic underlayment product for the roofing industry.
US Synthetic Underlayment market size is expected to be in the range of $1B to $1.5B. There are mainly two kinds of players in the Synthetic Underlayment roofing industry. 1) Branded full package (warranty) solution providers 2) Discretionary roofing solution providers who try to give the best solution at least possible cost, with or without warranty. Full package sellers are big branded players like GAF, Owen’s Corning, Dupont who give full warranty for all the layers of roof as a package. Generally there are 3-4 layers of roofing that goes into the making of a roof. Hence they command premium pricing. And most of them get their underlayment manufactured from India/China. Discretionary players sell only one layer in the form of synthetic underlayment.
Top 5 players command ~50% of the market and 45-50 players comprise the rest of the market. As mentioned before GAF, Owen’s Corning, Dupont are the biggest players dominating the market under full roofing package and full warranty business model.
Below table gives product specification and pricing comparison of underlayment players:
Roofing contractors compare products mainly by price and thickness; more the thickness better the protection.
GAF, Owen’s Corning (OC) and Dupont are well established players serving the US roofing industry for decades. OC is a public company while GAF most probably is a private business. GAF’s main business model is to sell underlayments as part of a full roofing package with full warranty, hence premium pricing. GAF & OC’s lifetime warranty products are not directly comparable with Epilay’s products due to different business models but we can get an idea of how big the price difference is for similar underlayment with warranty being the main differentiation.
Asphalt shingles are used in more than 80 percent of home roofing and re-roofing projects in the United States. Regardless of the type of roof, underlayment will always be needed. But this is just to give an idea of roofing type breakdown.
New construction demand annually has been around 15% of total asphalt shingle demand. Major portion of roofing demand comes from remodelling, weather events and storms. Most of the remodelling demand is likely non-cyclical. This slide indirectly confirms an industry expert’s assertion that the replacement market is the main market, and not new construction.
Miami-Dade County Data
The Miami-Dade County Product Control Approval System allows new and innovative ideas to be developed into practical, lasting and safe products. This approval process is recognized at both the national and international level. Product Control’s approval designation — Notice of Acceptance or NOA — has been recognized and accepted in Hawaii, Japan, South America, Guam and the Caribbean. The Product Control Approval System establishes a protocol to evaluate the standards of products used in construction in Miami Dade County. Miami-Dade County, with its inclusion in the High Velocity Hurricane Zone (HVHZ) has the most stringent code requirements of the Florida Building Code.
Roofing Underlayment sellers in the US need Miami Dade County NOA to be able to sell their products in the state of Florida and also in the US. There are about 36 sellers referenced in their website database who have their synthetic underlayment approved with Miami Dade County. Their products are manufactured mainly in China, India, and some in Canada.
Big companies like Dupont, Owen’s Corning, and others get their big brand underlayment products manufactured in India. Owen’s Corning in Silvassa and Dupont in Dadra. Ahmedabad/Dholka seems to be a big hub for the Polypropylene and Flexible Intermediate Bulk Container (FIBC) market. There seems to be other manufacturers in the Dholka area apart from SJPL like Veer Plastics Private Limited. [Scope for further scuttlebutt in India].
Roofing contractors are the final decision makers as to what underlayment goes into as part of the final installation of a roof depending on end customer warranty choices. Roofing contractors buy their underlayments from the distributors who ultimately stock up the products of various brands.
BULLISH VIEWPOINTS
FY2018 has been an important pivotal year for SJPL because it’s business performance has improved considerably since then. Prior to FY-2018 it’s EBITDA margin was in the range of 10%-12% which increased to 16%. Since then it’s EBITDA margins have increased above 20% for TTM ending September 2021. It’s sales have more than doubled in the last four years.
Current U.S. Housing Cycle has been going through a strong growth uptrend since 2010. About 500,000 homes were built in 2011 which has increased to about 1.3mn in 2020. Recovery since the 2008 crisis has been very smooth and consistent. Overall US construction spending has also followed a similar trajectory for both residential and non-residential segments.
US construction spending has been growing at about 4.8% CAGR in last 3 years. SJPL started selling Synthetic Roofing Underlayment from FY2018 and since then their sales are growing at about 13% CAGR. SJPL doesn’t share breakdown of their sales, however, we strongly believe that their Synthetic Underlayment segment sales is growing faster than the industry which is contributing to growth in market share.
Industry going through migration from asphalt based underlayment to synthetic underlayment. About 40% of the roofing contractors are still using asphalt based underlayment which is shifting to synthetic at a very fast rate, especially post covid.
While lot of players can and do manufacture roofing underlayment products competitively, selling in developed markets like US is tough, and totally dependent on local distribution strength/branding. Manufacturer - Distributor relationships seem deeply entrenched with very little incentive for distributors to switch vendors. SJPL’s biggest customer in the US, Epilay is growing at a fast rate and penetrating well in the US roofing market. It has a strong distribution network and sales team. It attends all major roofing exhibitions in the US, and carries out aggressive marketing campaigns and promotions for brand awareness.
Given roofing contractors are the final decision makers for what type of underlayment goes into the roofing installation - their main concern is to provide best quality at cheapest possible cost to end-customers who’s main interest is in the length of warranty they get for their roof. As seen from above pricing comparison table - Epilay provides warranty on all of its products at half the price, as compared to the full package solution brands. There’s incentive for more roofing contractors to shift towards offerings like Epilay’s which will in turn benefit SJPL.
SJPL has been a consistent performer from a business standpoint. Very impressive Sales & Profit growth over last 5 and 10 years.
Source: Screener.in
Management has guided for a 370-380Cr topline for FY2022 and decision on further CAPEX in FY22-23. SJPL did sales of 239 Cr in FY21.
Since bulk of the demand is replacement driven, new construction cycles have minimal impact on the overall demand.
Customer-driven value migration to higher-end building construction products is a distinct possibility
BEARISH VIEWPOINTS
SJPL’s current capacity may provide growth for next 1-2 years. Beyond that SJPL growth visibility is clouded as the management has not provided any timeline for new capacity expansion plans, as yet.
SJPL promoters have another unlisted entity Shakti Polyweave Pvt Ltd (SPPL) in a similar line of business with same product lines.
Unlisted entity has 1.5x the capacity as compared to the public entity. Future capex could possibly get diverted to private entity, at the expense of SJPL.
SJPL - 20,500 MTPA
SPPL - 32,000 MTPA
Typically low barriers to entry with high competition and no bargaining powers with the distributors and end customers. However, difficult to envisage main long-term customer Epilay, switching vendors.
There is very little product differentiation between the players in the industry. Everyone is making almost the same type of underlayment but packaged differently and wrapped with different warranties. It’s a commodity-plus business. However, the lowest cost producers/sellers can win market share which seems to be the case with SJPL and its customers in the last few years.
INTERESTING VIEWPOINTS
[TBD]
BARRIERS TO ENTRY
Barriers to entry for manufacturing the underlayment are low. Anyone with decent pockets can come in and set-up the manufacturing facility for synthetic underlayments. SJPL expanded its capacity from 12,000 MTPA to 20,500 MTPA in 2020-2021 at a cost of Rs. 46 Cr. SPPL recently expanded its capacity from 22,000 MTPA to 32,000 MTPA at a cost of Rs. 68.10 Cr.
Although someone with decent pockets can come in and set-up a manufacturing facility, but getting the right combination of a synthetic underlayment product and nailing down the final product can take upwards of 2-3 years. To quickly get the right product combination, it’s imperative to have people with deep polymer and polypropylene expertise.
Being able to manufacture required product isn’t enough to get one past the goalpost in developed markets. Barriers to selling the product in the US is very high. Having a recognised brand which has a wide distribution network in the US takes time, money, and consistent investment in market development. SJPL’s biggest customer in the US has got a strong brand and good sales & marketing team for pushing their products.
Synthetic underlayment products need to be approved at County and State level in many of the states of the US. Getting such approvals is a lengthy and cumbersome process as it can possibly take about 1-2 years.
BUSINESS MODEL
Business model of SJPL is very straightforward. To be the least cost producer of the synthetic underlayment and other products that it makes and enable its customers in the US to be least cost sellers for them to compete with the large brands who provide full roofing package solutions.
VALUATION MODEL
On a TTM basis, SJPL is available at ~14.5x PE given current market cap of Rs. 818 Cr.
If SJPL were to deliver a topline of 360-370cr for FY22 with current margins sustaining, it could possibly deliver a bottom line of around 65 Cr. This gives us a forward PE of 12.6x.
CORPORATE GOVERNANCE SCAN
Promoters having a private entity which runs a similar line of business is the biggest red flag for this story. Since SJPL has grown at a very consistent pace in the recent past, it gives some comfort that the management might continue to invest in both SJPL and unlisted SPPL, without prejudice to either.
Our coverage of the midcap IT stories here at Valuepickr has missed Birlasoft, and I thought it’s time we keep a record of the investment thesis, and it’s development for posterity.
What’s the play?
Giant IT services companies like TCS and Infosys are the middlemen between customers that want to adopt modern solutions to cut costs, and pure tech companies such as Microsoft, Google, etc. that form their backbone.
We’ve seen the following trends in the last few years:
Having modern digital solutions to legacy problems are often an avenue to improve productivity and improve margins for companies. Covid has accelerated this spend, and will be a key driver of growth going forward.
Smaller IT companies have realised they can’t compete with giant incumbents and have healthy margins at the same time. The emerging solution seen across the pack is that they pick a few verticals and become the best solutions provider in their own niche.
Goal is to carve a niche in our verticals where we are better than the big players. We can’t solve every problem, but what we choose to solve, we can do much better than anyone else. - Dharmender Kapoor, interview with BQ, June 2021.
Okay, what are their verticals?
They have four main verticals. From the 2021 annual report:
Birlasoft helps customers in manufacturing to accelerate their Industry 4.0 adoption.
BFSI - to leverage open APIs and automate both front-office and back-office transformation;
Energy and Utilities - to enhance field collaboration and real-time service excellence, optimize operations and improve asset performance;
Life Sciences - to automate drug discovery and pharmacovigilance processes.
Here’s how the revenue mix has changed over the years:
Why now? What has the journey been in the last few years?
The story becomes interesting after 2015, when Birlasoft brought in Anjan Lahiri, and he worked on the company until 2019 when two things happened. They merged with KPIT Technologies and became the digital enterprise company of today, and Anjan Lahiri stepped down due to urgent personal reasons.
After this, they revamped the board, with Mr. Dharmender Kapoor taking over as MD, and in the last two years have onboarded senior talent. Their current CFO has been on the IBM senior management for 20 years, and this trend has continued if one looks at their hiring on Linkedin.
How has their business model evolved?
They’ve started focusing on their top clients and have trimmed tail accounts. Furthermore, they’ve started selling more to their top clients across their verticals. This is seen through three data points in FY21:
Lower $1 million deal wins, more $5 million deal wins.
97% of new deals are from existing clients.
Increasing TCV trend in deal wins, FY21 was their best year.
Annuity has improved from 60% in FY20 to 70% in FY21.
Deals are now multi service rather than single service. New deals don’t necessarily fall into one vertical.
They are constantly working on internal efficiency to improve operational metrics. The key metric management mentions repeatedly is the Days Sales Outstanding, and Utilisation rate:
Revenue per headcount across the quarters:
Q1FY22
Q4FY21
Q3FY21
Q2FY21
Q1FY21
Operating Profit (lakhs)
15100
15200
14400
11900
11300
Technical Employees
10445
9994
9416
8992
8865
Profit/Employee
1.44
1.52
1.52
1.32
1.27
This has been steadily improving, with a drop in the latest quarter. Management commentary on the same:
We lost $1 million of bottomline due to covid. Employees in India took leave when the second wave hit, and we didn’t dock their pay. Without this, the quarter would have been even stronger.
Accounting for this, the profit/employee for this quarter would be 1.52 as well.
The last data point is important while considering the difference in wage costs between India and the US.
From the latest earnings call on the onshore/offshore mix (paraphrased):
We usually hire locals (onshore) if there is a crunch, as the hiring lead time is a lot quicker than in India where there is a 3 month lead time. When we hire offshore, we replace onshore subcontractors. Clients are also on the same page with starting projects on site and finishing it offshore. We improve our margins, they get comfortable with deal structure.
Okay, numbers are improving. Do they have ambition?
Paraphrasing what Mr. Kapoor said in June’s interview with BloombergQuint:
By 2025, we want to have 7500 Cr. of revenues (3500 Cr. today, implies ~18% CAGR). We will do this by:
Growing top 30 accounts by > 20%;
Platform strategy: partnership with Azure / AWS to offer solutions across the value chain;
New channel for sales; good partnerships already in place.
Expecting profit CAGR to be much higher than revenue CAGR in the next 4 years. Profitability will grow. 3-4 quarters ago, this target of billion dollars was a dream. 2 quarters ago it became aspirational. Today, I’m far more optimistic and it’s looking like it can be a reality.
Absolutely no doubt that I and other top management will continue to work at Birlasoft until this goal is met. They’re motivated, excited, and handsomely incentivised to stay. We have our plans set in place for the next 3/4 years.
Financials and Cash Flows
Are currently debt free and have 1100 Cr. of cash in hand.
Risks
The vision is entirely dependent on Mr. Kapoor and his close circle. If they leave in the next few years, big questions to ask.
Dependent on their partnerships with SAP, Microsoft, AWS. Currently a Microsoft gold partner, which gives them benefits to companies searching for solutions providers.
Execution - Reliant on better deal wins and client mining to meet their 7500Cr. target.
When we acquired KPIT, used to think 75 million dollar deal wins were a great target for a quarter. Today, 200 million dollars should be the average every quarter.
However, Q1FY22’s deal wins have fallen short of their own metrics.
Their target of 1 billion dollars is a nice headline, but it implies a mid teen CAGR going forward. This is something we have heard from other midcap IT companies like FirstSource. Hence, is their target super normal?
Disclosure: Invested from lower levels, no recent transactions.
With current valuations, it’s becoming increasingly difficult to find low hanging value fruit. This post isn’t necessarily to offer a slam dunk investment opportunity, but to track a company here that may become more attractive/unattractive going forward.
Two amazing sources of information on the company:
Respected Investors, My name is Raghav Agarwal and I am a final year management student. I have been reading a lot on this wonderful platform and am finally able to present everyone with my first thread on Punjab Chemicals and Crop Protection Limited. I am open to your wonderful suggestions and your subtle criticisms and I hope we can have a fruitful discussion of this excellent company on this extraordinary platform.
*Punjab Chemicals & Crop Protection Limited
Overview*
Punjab chemicals and crop protection limited (PCCPL) is an agrochemical manufacturing company based in Punjab. The company was founded in 1975 with a vision of being an integral part of the strategic supply chain both domestically and globally. It started its manufacturing facility by initially producing generic chemicals like oxalic acid. It now caters to agrochemicals, pharmaceuticals, intermediates and industrial and special chemicals and is now manufacturing various types of agrochemicals, for example, Metamitron Ethofumesate, Diflufenican, Lenacil and Cyanazine, with Metamitron and phosphorus acid being the major products.
The company owns two manufacturing units in Punjab and has leased one in Pune. The company also has a wholly-owned subsidiary in Belgium by the name of SD Agchem, which caters to the demands in the European market. Agrochemicals hold 80-85% of revenues which further breaks into 3 segments which are herbicides, contributing to 55%, fungicides contributing to 30% and insecticides contributing to 15% to the revenues. Out of these Agrochemicals, CRAMS contribute 60-65% to the revenues and this division is expected to grow 3-4x in the coming years. The pharmaceutical’s division provides Analytical reagents to pharma companies like divis labs and Laurus labs. The top five Analytical reagents contribute to 30-40 Cr.
Export- domestic sales breakup comprises 63% of the revenues generated from exports and 37% from the domestic market. The domestic market further breaks down into two parts
Agrochemicals amounting to 40% and Intermediates amounting to 60% to the domestic segment.
Location-Wise Revenue Breakup FY21
Manufacturing Units
Derabassi, Punjab
Pimpri, Pune
Lalru, Punjab
Size
24Acres
1.5 Acres
23.5 Acres
Capacity
29700MT
3347 MT
5778MT
Capacity Utilization
80%
95%
73%
Certifications
ISO:14001
FSSI
ISO:14001, ISO:9001
Divisions
Agrochemical manufacturing
Industrial Division
Agrochemical manufacturing
Revenue Contribution
60%
5-10%
30-35%
Fundamentals
The company generated consolidated revenue of 678 Cr in the FY20-21 with an EBITDA of 97Cr and an EBITDA margin of 14.3%. The net profit was aggregated to 49.1Cr with a PAT margin of 7.2%. Punjab chemicals have an excellent ROEof 40% and ROCE of 32%, which showcases the excellent returns of the company on their equity as well as their capital employed.
Q2FY21
Change%
Q2FY22
FY20
Change%
FY21
Revenue
164Cr
27%
209Cr
550
23%
678
EBITDA
23 Cr
34%
31Cr
42
131%
97
EBITDA Margin
13.8%
1%
14.8%
7.6%
6.7
14.3%
PAT
12%
6%
18%
11
345%
49
PAT Margin
7.2%
1.4%
8.6%
2%
5.2%
7.2%
Accounting Ratios
FY21
Debt/Equity
0.5
ROE
39.83%
ROCE
38%
EPS
Rs.40
P/E
30.02
Interest Converge Ratio
10.3
Current Ratio
1.19
Promoter Holding
Image derived from Company’s Annual Report FY20-21
PCCPL VS Market Indices
Image derived from Company’s Annual Report FY20-21
Industrial Outlooks:
· Anticipated growth of the industry can be from $32 bn to $49 bn between 2021-2025 and grow at a CAGR of 6.3%.
· A big opportunity is created in the agrochemicals and speciality chemicals market because of the gaps in the supply chain that have been created because of the china plus one policy. This encourages the domestic producers to gain momentum in the production cycle and gain market share. This can be a big opportunity for a company like PCCPL which has a reputation for its contract manufacturing and its customer relationships. India imports 50% of the agrochemicals and keeping these will further boost low-cost manufacturing and will make India an important part of the supply chain.
· The export around agrochemicals in India is growing at a CAGR of 12% while domestic production is growing at a CAGR of 4%.
· India’s average per hectare consumption of agrochemicals is 1/10th of USA & UK and 1/20Th of Japan and China, this suggests that India’s demand for agrochemicals can still grow multifold and create robust demand for agrochemicals in the coming years. Food production is likely to increase in the coming years to cater the demands of the on a growing population. World food production is likely to increase by 70% by 2050.
· More than 100 agrochemical patents are getting expired by 2023. This will open up opportunities for CRAMS players and contract manufacturers and generic players including Punjab chemicals to manufacture new products for the excellent existing clientage as well as new players.
Key Growth and Profitability Drivers
The company aims to achieve a revenue of 1500 Cr within the next 3 years with the help of the following factors strengthening their objectives:
· Revenue Visibility: Punjab chemicals generated an order book of more than 1500 Crores for the FY21 with a stable EBITDA Margin of 12-14%. Improvement in the margins can be driven by better procurement, better efficiencies and cost savings and the company expects EBITDA margins to grow to 18-20% in the coming years.
· The management expects 2-3x growth in revenues from top customers which are UPL and ADAMA and which account for around 60% to revenues (35% and 25% respectively)
· Nippon Kayaku: The product that is being supplied to Nippon kayaku currently generates 10-12 Cr PA, with capacity utilisation of 80% for this particular product, The company believes that this product has the potential to generate 60-70 Cr to the revenue within12-18 months.
· Contracts with Singaporean MNC- The product that the company is manufacturing for the Singaporean company generates 12-15Crs to the revenue. The company aims to double that number in 2-3 years.
· The domestic formulation business is expected to grow 3-4 years, it currently contributes up to 50Cr to the top-line.
· Punjab chemicals is looking to increase revenues from its Industrial division because of the rise in demand for Phosphoric acid in pharmaceuticals as well as food and beverages. The company is already in talks with Coco cola to export phosphoric acid to their Korean and Singaporean factories. PCCPL already caters to the domestic needs of these companies and this segment adds around 50Cr to the topline. The management aims to double the segment revenue by next year.
Capex & Debt
· The company has planned a CAPEX of 150 Cr over the next 2-3 years and is planning to do a brownfield CAPEX at Lalru land where 6 acres are unutilized and available. The Asset turns from CAPEX of 150Cr will give out 3-4x returns and the total asset block will generate 200-300 Cr in the next 2-3 years.
· Company is planning to expand its Pune facility by planning to acquire the adjoining plot, because of the rise in demand for industrial chemicals like phosphoric acid that the company is producing for MNC’s like Coca-Cola and Pepsi Co.
· The company has a debt of around 80Cr and have managed to reduce it by 13cr in the last year. The management aims to go debt free in 2 years.
Risks and Concerns & Key Monitorables
· Change in Government and Government policies: Government policies related to agriculture and any alterations in agro expenditure and incentives can directly affect the company’s order book.
· Adverse climate and weather conditions: weather conditions like rainfall and pests directly affects the revenues of the company.
· Exchange rate Fluctuations, Registration period, supply security and quality from domestic supply.
· Promoter holding is low and has decreased since the last year by 2.02% from 40.03% to 39.22%.
· Registration processes for new products and molecules take time for registration and formulation.
· 60% of the revenues are generated through the two MNC’s UPL (35%) and ADAMA which contributes 25% to the top line, having concentrated revenue generation can cause concern if any issues regarding these companies take place.
· Raw Material- Raw material contributes 60% of the expenses and vary time to time. Any changes in Raw material costing directly affects the topline as well as the bottom line of the company.
Company’s Plus points
· Excellent Clientage and Long-term contracts: Punjab Chemicals have excellent customer relations with excellent clientage which includes UPL, ADAMA, Corteva, Coco cola, Pepsi Co, Divi lab, Laurus labs, to name a few.
· PCCPL contract manufactures niche products for clients which include Nippon Soda, Nippon kayaku, Corteva, Syngeta, Bayer etc and also manufactures intermediates for Zydus, Cadila, Laurus labs, Divi labs etc.
Opportunity In The CRAMS Segment
Crams segment contributes 60% to the revenues by agrochemicals and its successful execution remains the key re-rating trigger for growth. The company has the advantage of being a go-to CRAMS player for both domestic and international companies by gaining market share as the industry expands. PCCPL is expected to use this as an opportunity to grow with the help of:
(a) concrete relationships with global agrochemical companies.
(b) expertise in the business led by an experienced management team
(c) integrating R&D team of both companies (PCCPL and the partner
company) to provide better products.
(d) renewed relationships with domestic formulators with a strong base in the domestic market;
(e) strong order book of INR15bn as of FY’21 (revenue visibility for the next 2-3 years).
The Company continues to focus on new and promising products either for CRAMS or for direct sales to improve its revenue and profitability. While they have been able to get new clients in the CRAMS business with lucrative long-term agreements signed with few MNC’s.
MY VIEWS
• The company can double its EPS from Rs 40 in FY21 to anywhere between Rs80-100 in FY22-23.
• The company can achieve a short-term target of achieving Rs 850-1000Cr Revenues in the FY22 and can double its PAT from 49.1 Cr to 100 Cr by the end of FY23.
• Punjab Chemicals and Crop protection limited is a great company with outstanding return ratios. I believe the company can achieve its revenue goal of Rs 1500Cr by FY23-24.
Our coverage of the midcap IT stories here at Valuepickr has missed Birlasoft, and I thought it’s time we keep a record of the investment thesis, and it’s development for posterity.
What’s the play?
Giant IT services companies like TCS and Infosys are the middlemen between customers that want to adopt modern solutions to cut costs, and pure tech companies such as Microsoft, Google, etc. that form their backbone.
We’ve seen the following trends in the last few years:
Having modern digital solutions to legacy problems are often an avenue to improve productivity and improve margins for companies. Covid has accelerated this spend, and will be a key driver of growth going forward.
Smaller IT companies have realised they can’t compete with giant incumbents and have healthy margins at the same time. The emerging solution seen across the pack is that they pick a few verticals and become the best solutions provider in their own niche.
Goal is to carve a niche in our verticals where we are better than the big players. We can’t solve every problem, but what we choose to solve, we can do much better than anyone else. - Dharmender Kapoor, interview with BQ, June 2021.
Okay, what are their verticals?
They have four main verticals. From the 2021 annual report:
Birlasoft helps customers in manufacturing to accelerate their Industry 4.0 adoption.
BFSI - to leverage open APIs and automate both front-office and back-office transformation;
Energy and Utilities - to enhance field collaboration and real-time service excellence, optimize operations and improve asset performance;
Life Sciences - to automate drug discovery and pharmacovigilance processes.
Here’s how the revenue mix has changed over the years:
Why now? What has the journey been in the last few years?
The story becomes interesting after 2015, when Birlasoft brought in Anjan Lahiri, and he worked on the company until 2019 when two things happened. They merged with KPIT Technologies and became the digital enterprise company of today, and Anjan Lahiri stepped down due to urgent personal reasons.
After this, they revamped the board, with Mr. Dharmender Kapoor taking over as MD, and in the last two years have onboarded senior talent. Their current CFO has been on the IBM senior management for 20 years, and this trend has continued if one looks at their hiring on Linkedin.
How has their business model evolved?
They’ve started focusing on their top clients and have trimmed tail accounts. Furthermore, they’ve started selling more to their top clients across their verticals. This is seen through three data points in FY21:
Lower $1 million deal wins, more $5 million deal wins.
97% of new deals are from existing clients.
Increasing TCV trend in deal wins, FY21 was their best year.
Annuity has improved from 60% in FY20 to 70% in FY21.
Deals are now multi service rather than single service. New deals don’t necessarily fall into one vertical.
They are constantly working on internal efficiency to improve operational metrics. The key metric management mentions repeatedly is the Days Sales Outstanding, and Utilisation rate:
Revenue per headcount across the quarters:
Q1FY22
Q4FY21
Q3FY21
Q2FY21
Q1FY21
Operating Profit (lakhs)
15100
15200
14400
11900
11300
Technical Employees
10445
9994
9416
8992
8865
Profit/Employee
1.44
1.52
1.52
1.32
1.27
This has been steadily improving, with a drop in the latest quarter. Management commentary on the same:
We lost $1 million of bottomline due to covid. Employees in India took leave when the second wave hit, and we didn’t dock their pay. Without this, the quarter would have been even stronger.
Accounting for this, the profit/employee for this quarter would be 1.52 as well.
The last data point is important while considering the difference in wage costs between India and the US.
From the latest earnings call on the onshore/offshore mix (paraphrased):
We usually hire locals (onshore) if there is a crunch, as the hiring lead time is a lot quicker than in India where there is a 3 month lead time. When we hire offshore, we replace onshore subcontractors. Clients are also on the same page with starting projects on site and finishing it offshore. We improve our margins, they get comfortable with deal structure.
Okay, numbers are improving. Do they have ambition?
Paraphrasing what Mr. Kapoor said in June’s interview with BloombergQuint:
By 2025, we want to have 7500 Cr. of revenues (3500 Cr. today, implies ~18% CAGR). We will do this by:
Growing top 30 accounts by > 20%;
Platform strategy: partnership with Azure / AWS to offer solutions across the value chain;
New channel for sales; good partnerships already in place.
Expecting profit CAGR to be much higher than revenue CAGR in the next 4 years. Profitability will grow. 3-4 quarters ago, this target of billion dollars was a dream. 2 quarters ago it became aspirational. Today, I’m far more optimistic and it’s looking like it can be a reality.
Absolutely no doubt that I and other top management will continue to work at Birlasoft until this goal is met. They’re motivated, excited, and handsomely incentivised to stay. We have our plans set in place for the next 3/4 years.
Financials and Cash Flows
Are currently debt free and have 1100 Cr. of cash in hand.
Risks
The vision is entirely dependent on Mr. Kapoor and his close circle. If they leave in the next few years, big questions to ask.
Dependent on their partnerships with SAP, Microsoft, AWS. Currently a Microsoft gold partner, which gives them benefits to companies searching for solutions providers.
Execution - Reliant on better deal wins and client mining to meet their 7500Cr. target.
When we acquired KPIT, used to think 75 million dollar deal wins were a great target for a quarter. Today, 200 million dollars should be the average every quarter.
However, Q1FY22’s deal wins have fallen short of their own metrics.
Their target of 1 billion dollars is a nice headline, but it implies a mid teen CAGR going forward. This is something we have heard from other midcap IT companies like FirstSource. Hence, is their target super normal?
Disclosure: Invested from lower levels, no recent transactions.
With current valuations, it’s becoming increasingly difficult to find low hanging value fruit. This post isn’t necessarily to offer a slam dunk investment opportunity, but to track a company here that may become more attractive/unattractive going forward.
Two amazing sources of information on the company:
Respected Investors, My name is Raghav Agarwal and I am a final year management student. I have been reading a lot on this wonderful platform and am finally able to present everyone with my first thread on Punjab Chemicals and Crop Protection Limited. I am open to your wonderful suggestions and your subtle criticisms and I hope we can have a fruitful discussion of this excellent company on this extraordinary platform.
*Punjab Chemicals & Crop Protection Limited
Overview*
Punjab chemicals and crop protection limited (PCCPL) is an agrochemical manufacturing company based in Punjab. The company was founded in 1975 with a vision of being an integral part of the strategic supply chain both domestically and globally. It started its manufacturing facility by initially producing generic chemicals like oxalic acid. It now caters to agrochemicals, pharmaceuticals, intermediates and industrial and special chemicals and is now manufacturing various types of agrochemicals, for example, Metamitron Ethofumesate, Diflufenican, Lenacil and Cyanazine, with Metamitron and phosphorus acid being the major products.
The company owns two manufacturing units in Punjab and has leased one in Pune. The company also has a wholly-owned subsidiary in Belgium by the name of SD Agchem, which caters to the demands in the European market. Agrochemicals hold 80-85% of revenues which further breaks into 3 segments which are herbicides, contributing to 55%, fungicides contributing to 30% and insecticides contributing to 15% to the revenues. Out of these Agrochemicals, CRAMS contribute 60-65% to the revenues and this division is expected to grow 3-4x in the coming years. The pharmaceutical’s division provides Analytical reagents to pharma companies like divis labs and Laurus labs. The top five Analytical reagents contribute to 30-40 Cr.
Export- domestic sales breakup comprises 63% of the revenues generated from exports and 37% from the domestic market. The domestic market further breaks down into two parts
Agrochemicals amounting to 40% and Intermediates amounting to 60% to the domestic segment.
Location-Wise Revenue Breakup FY21
Manufacturing Units
Derabassi, Punjab
Pimpri, Pune
Lalru, Punjab
Size
24Acres
1.5 Acres
23.5 Acres
Capacity
29700MT
3347 MT
5778MT
Capacity Utilization
80%
95%
73%
Certifications
ISO:14001
FSSI
ISO:14001, ISO:9001
Divisions
Agrochemical manufacturing
Industrial Division
Agrochemical manufacturing
Revenue Contribution
60%
5-10%
30-35%
Fundamentals
The company generated consolidated revenue of 678 Cr in the FY20-21 with an EBITDA of 97Cr and an EBITDA margin of 14.3%. The net profit was aggregated to 49.1Cr with a PAT margin of 7.2%. Punjab chemicals have an excellent ROEof 40% and ROCE of 32%, which showcases the excellent returns of the company on their equity as well as their capital employed.
Q2FY21
Change%
Q2FY22
FY20
Change%
FY21
Revenue
164Cr
27%
209Cr
550
23%
678
EBITDA
23 Cr
34%
31Cr
42
131%
97
EBITDA Margin
13.8%
1%
14.8%
7.6%
6.7
14.3%
PAT
12%
6%
18%
11
345%
49
PAT Margin
7.2%
1.4%
8.6%
2%
5.2%
7.2%
Accounting Ratios
FY21
Debt/Equity
0.5
ROE
39.83%
ROCE
38%
EPS
Rs.40
P/E
30.02
Interest Converge Ratio
10.3
Current Ratio
1.19
Promoter Holding
Image derived from Company’s Annual Report FY20-21
PCCPL VS Market Indices
Image derived from Company’s Annual Report FY20-21
Industrial Outlooks:
· Anticipated growth of the industry can be from $32 bn to $49 bn between 2021-2025 and grow at a CAGR of 6.3%.
· A big opportunity is created in the agrochemicals and speciality chemicals market because of the gaps in the supply chain that have been created because of the china plus one policy. This encourages the domestic producers to gain momentum in the production cycle and gain market share. This can be a big opportunity for a company like PCCPL which has a reputation for its contract manufacturing and its customer relationships. India imports 50% of the agrochemicals and keeping these will further boost low-cost manufacturing and will make India an important part of the supply chain.
· The export around agrochemicals in India is growing at a CAGR of 12% while domestic production is growing at a CAGR of 4%.
· India’s average per hectare consumption of agrochemicals is 1/10th of USA & UK and 1/20Th of Japan and China, this suggests that India’s demand for agrochemicals can still grow multifold and create robust demand for agrochemicals in the coming years. Food production is likely to increase in the coming years to cater the demands of the on a growing population. World food production is likely to increase by 70% by 2050.
· More than 100 agrochemical patents are getting expired by 2023. This will open up opportunities for CRAMS players and contract manufacturers and generic players including Punjab chemicals to manufacture new products for the excellent existing clientage as well as new players.
Key Growth and Profitability Drivers
The company aims to achieve a revenue of 1500 Cr within the next 3 years with the help of the following factors strengthening their objectives:
· Revenue Visibility: Punjab chemicals generated an order book of more than 1500 Crores for the FY21 with a stable EBITDA Margin of 12-14%. Improvement in the margins can be driven by better procurement, better efficiencies and cost savings and the company expects EBITDA margins to grow to 18-20% in the coming years.
· The management expects 2-3x growth in revenues from top customers which are UPL and ADAMA and which account for around 60% to revenues (35% and 25% respectively)
· Nippon Kayaku: The product that is being supplied to Nippon kayaku currently generates 10-12 Cr PA, with capacity utilisation of 80% for this particular product, The company believes that this product has the potential to generate 60-70 Cr to the revenue within12-18 months.
· Contracts with Singaporean MNC- The product that the company is manufacturing for the Singaporean company generates 12-15Crs to the revenue. The company aims to double that number in 2-3 years.
· The domestic formulation business is expected to grow 3-4 years, it currently contributes up to 50Cr to the top-line.
· Punjab chemicals is looking to increase revenues from its Industrial division because of the rise in demand for Phosphoric acid in pharmaceuticals as well as food and beverages. The company is already in talks with Coco cola to export phosphoric acid to their Korean and Singaporean factories. PCCPL already caters to the domestic needs of these companies and this segment adds around 50Cr to the topline. The management aims to double the segment revenue by next year.
Capex & Debt
· The company has planned a CAPEX of 150 Cr over the next 2-3 years and is planning to do a brownfield CAPEX at Lalru land where 6 acres are unutilized and available. The Asset turns from CAPEX of 150Cr will give out 3-4x returns and the total asset block will generate 200-300 Cr in the next 2-3 years.
· Company is planning to expand its Pune facility by planning to acquire the adjoining plot, because of the rise in demand for industrial chemicals like phosphoric acid that the company is producing for MNC’s like Coca-Cola and Pepsi Co.
· The company has a debt of around 80Cr and have managed to reduce it by 13cr in the last year. The management aims to go debt free in 2 years.
Risks and Concerns & Key Monitorables
· Change in Government and Government policies: Government policies related to agriculture and any alterations in agro expenditure and incentives can directly affect the company’s order book.
· Adverse climate and weather conditions: weather conditions like rainfall and pests directly affects the revenues of the company.
· Exchange rate Fluctuations, Registration period, supply security and quality from domestic supply.
· Promoter holding is low and has decreased since the last year by 2.02% from 40.03% to 39.22%.
· Registration processes for new products and molecules take time for registration and formulation.
· 60% of the revenues are generated through the two MNC’s UPL (35%) and ADAMA which contributes 25% to the top line, having concentrated revenue generation can cause concern if any issues regarding these companies take place.
· Raw Material- Raw material contributes 60% of the expenses and vary time to time. Any changes in Raw material costing directly affects the topline as well as the bottom line of the company.
Company’s Plus points
· Excellent Clientage and Long-term contracts: Punjab Chemicals have excellent customer relations with excellent clientage which includes UPL, ADAMA, Corteva, Coco cola, Pepsi Co, Divi lab, Laurus labs, to name a few.
· PCCPL contract manufactures niche products for clients which include Nippon Soda, Nippon kayaku, Corteva, Syngeta, Bayer etc and also manufactures intermediates for Zydus, Cadila, Laurus labs, Divi labs etc.
Opportunity In The CRAMS Segment
Crams segment contributes 60% to the revenues by agrochemicals and its successful execution remains the key re-rating trigger for growth. The company has the advantage of being a go-to CRAMS player for both domestic and international companies by gaining market share as the industry expands. PCCPL is expected to use this as an opportunity to grow with the help of:
(a) concrete relationships with global agrochemical companies.
(b) expertise in the business led by an experienced management team
(c) integrating R&D team of both companies (PCCPL and the partner
company) to provide better products.
(d) renewed relationships with domestic formulators with a strong base in the domestic market;
(e) strong order book of INR15bn as of FY’21 (revenue visibility for the next 2-3 years).
The Company continues to focus on new and promising products either for CRAMS or for direct sales to improve its revenue and profitability. While they have been able to get new clients in the CRAMS business with lucrative long-term agreements signed with few MNC’s.
MY VIEWS
• The company can double its EPS from Rs 40 in FY21 to anywhere between Rs80-100 in FY22-23.
• The company can achieve a short-term target of achieving Rs 850-1000Cr Revenues in the FY22 and can double its PAT from 49.1 Cr to 100 Cr by the end of FY23.
• Punjab Chemicals and Crop protection limited is a great company with outstanding return ratios. I believe the company can achieve its revenue goal of Rs 1500Cr by FY23-24.
I’m not a fan of IPOs at all, and most of them last year have priced in years of growth. Keeping this in mind, I initially approached Krsnaa with a negative bias. This thread is a story of why I changed my mind, and why I believe Krsnaa deserves the attention of investors on the forum.
Summary of Investment Opportunity
A company that has scaled tremendously in the last decade.
A bet on rural healthcare, built out of a differentiated business model.
A valuation gap between peers, and operating leverage to come.
Least exposure to one off covid revenues in the industry (covered in the thread)
Krsnaa’s Scale and Model
This is a company that has over 1800 diagnostic centers in India, spread across 14 states. What surprises me the most, is that it’s only ten years old. Founded in 2011, they managed to scale operations from two radiology centers in 2011 to over 1800 today.
How did they do this? While competitors worked to build standalone diagnostic centers in tier 1 cities, Krsnaa focused on winning tenders for the government’s private-public partnerships.
The second thing to note alongside scale, is that Krsnaa is the one of the cheapest providers of diagnostic tests:
The Public Private Partnership Model
Vijaya Diagnostics’ DRHP tells us that urban diagnostic centers account for 76% of India’s diagnostic revenue, while rural centers form 24% of the revenue. The reasons are fairly intuitive:
Mostly government hospitals in rural areas that have basic facilities.
Rural patients often travel to tier 1/2 cities in order to take a diagnostic test.
The government, in a bid to solve this problem, set up the PPP model. Here, they invite private players to set up the same urban MRI/X-ray machines in rural government hospitals. To make the offer attractive, they provide free space in the hospital, and utilities like water/electricity varying contract to contract. The private companies need to set up the room to standards, and bear the cost of equipment and staff.
1. Features of a PPP tender
Tenders are published on the government website, there is a minimum threshold of size and experience companies need to have in order to be eligible.
After inviting bids and a technical evaluation, the lowest cost offer for prices of various radiology / pathology tests wins the bid.
Prices are locked in, winning bids cannot change the prices of tests offered at will.
The tender is awarded for 7-10 years.
Now, Krsnaa has won 80% of the tenders they’ve bid for. They’ve explained that this is usually because smaller regional players offer to take up the tender for one or two hospitals, they sweep entire states at a time. Secondly, they’re the lowest cost offer on the table.
1.1 If Krsnaa don’t control how much they charge for tests, how are they competitive?
This is a concern I had while reading through the PPP tender documents. If Krsnaa wins a tender by setting test costs at 2000 rupees, it cannot increase prices above this should raw material costs go up, staff costs, etc. This takes away from their ability to respond to changing macro cycles.
However, PPP tenders have annual price increases of 3-7% written in the contract. Is this too little? Krsnaa’s management answers a definite no, and argues that it’s industry leading:
1.2 How is Krsnaa is able to price tests this low and still deliver high EBITDA margins?
Rural centers are often difficult areas to send qualified doctors / staff to, and this has been a barrier for a long time. Krsnaa has got around this by having all of their doctors in Pune, and having rural centers send the scans through the internet to their hub.
Secondly, they have a relationship with their equipment suppliers (Wipro GE and Fujifilm), and are able to get these at a discount to peers. This allows them to place competitive bids in the PPP tenders, and saving on rent improves the margins.
Key takeaway: A large part of Krsnaa’s revenues is secured in ten year contracts under the PPP model.
Investment Pointer 1: Krsnaa stands to benefit from increasing spend by the government on rural healthcare
Market opportunity on the PPP model alone is estimated to be 13,500 Cr. by 2023, growing at around 15% CAGR from FY21 numbers. Krsnaa’s current revenues are 400 Cr. in FY21, which showcases the opportunity size.
Government is cognizant of this gap and is trying to bridge it via the PPP model.
Peers and Business Aspects
According to Krsnaa’s DRHP, it has grown at 47%, mostly on the back of adding hundreds of new centers.
While Covid was a one off for test providers, the core business has been outperforming in H1FY22.
Outlook and Valuation
Investment Pointer 2: Significant operating leverage may play out
Krsnaa tells us that they have a huge headroom for tests:
With less than 40% utilisation (industry standard is 60-70%), Krsnaa stands to benefit from increased uptick of patients taking their tests. Management expects to improve this every quarter going forward.
Krsnaa has recently been awarded a tender in Punjab for a number of centers. This is currently live in Q4FY22 and will add on to the capacity available.
Management has alluded to FY23 sales being between 600-700 Cr. This clocks in to around 25-30% topline growth. With better utilisation of centers, margins should steadily improve, aided by the annual price increases.
This means that Krsnaa is between 3-3.54x FY23 sales. Peers are trading at obscenely rich valuations for similar margin profiles.
Company
Price to FY21 Sales
Dr. Lal Pathlabs
14.87
Metropolis
12.8
Vijaya Diagnostic
13.81
Krsnaa
5.37
Risks
The lack of flexibility to increase test costs may hurt them in a high inflation environment.
Capacity utilisation may never hit 60%.
Receivable days are between 60-90 to get money from the government. They may not pay up
Counter argument: they have not had a single bad debt/missed payment in the last decade.
Rural India may continue to prefer going to urban centers over government hospitals.
Diagnostic companies may see a de-rating post covid, and evaluating fair valuations may be tricky.
To do:
Detailed information on management.
Information on the landscape between radiology and pathology.
Information on the convertible preference shares that have hit FY20 and squared off in FY21.
Disclosure: Invested in Krsnaa Diagnostics. All views may be biased. I am not a SEBI registered advisor. Please do your own due dilligence.
Intro: Nazara was started in 1999 by Nitish Mittersain while he was still in college. He doesnt have any meaningful interest in any other business. He is still involved in the business along with the CEO Manish Agarwal who has been with the company since 2015
I have highlighted my commentary in italics. Some of it is just opinion
In order to understand Nazara its essential that one understands the gaming industry and its potential in India. So in this post you ll read about the gaming industry as much as the business verticals of Nazara
Below chart illustrates the size of the gaming industry
Globally, Mobile gaming is growing faster than console / pc gaming and also forms the largest chunk in terms of revenues. Half of the global population now owns a smartphone, which makes for a massive market of potential mobile gamers; and, unlike PC and console gaming it’s a lot more affordable. It is expected that the number of mobile gamers will continue to grow faster than PC and console gamers as global smartphone penetration increases, and more of those smartphone owners become casual gamers.
The story isn’t very different at home either. Not only is mobile gaming largest in terms of revnue and the fastest growing segment in idnia as compared to PC and Console gaming. This segment was valued at USD 1.2 billion in 2020 and is expected to reach a value of USD 3.1 billion by 2023, growing at a CAGR of 39.6% during this period as compared to the growth rates in China and the US, which stood at 14.6% and 12.2% respectively
Changing Landscape
Increase in numbers of gamers due to cheap data & growing mobile penetration
Demographic shift (average age of Indian gamer is 24 years old vs 31 & 32 years in USA and china respectively)
Teenagers playing video games in todays India are likely to continue gaming in their 30s.Gaming is not something most people start at the age of 30
Increased disposable income along with habit formation(The average annual spend on gaming per individual in India is USD 23, while in USA and China that stands at USD 113 and USD 115 respectively)
A lot of 20 year olds are willing to pay for gaming as they see it as another form of entertainment and are likely to spend more as they older
Local games are going mainstream (games like ludo king carrom teen patti have become very popular specially during the lockdown )
Social Gaming : Large online Communities are formed around certain popular games. Once a community reaches a critical mass it tends to grow organically (for a game publisher this means new users with minimal Cost of acquisition)
Free to play games: Not too long ago most games were played on PC or Console(XBOX,Playstation,etc) Not everyone could afford it.Today you can play for free and that to anywhere anytime on your phone
Whats an In-App Purchasing(IAP) Model? Historically most free mobile Games used to generate revenue via in-game advertisements (ad banner, video ad between 2 levels etc) but this has completely changed in today’s landscape where most free games come with the option to make in-app-purchases. Users can play for free but they have to pay for certain features / items (extra lives, weapons, maps,collectibles, bonus levels etc).These features wont be available to a basic user or if available it ll require a lot of time to procure. In india the mix is still skewed towards advertising model but that’s changing. Globally Some of the most popular games by revenue such as Dota, Fortnite, PubG, are free-to-play.Once a game is launched, incremental costs for content updates are low, meaning incremental revenues from in-app purchases can have a disproportionate effect on the bottomline
Not all gamers are same. There are about 380 million gamers In India. 90% of them do not pay. Even among the ones who pay for in app purchases, most of the revenues come from a small cohort of gamers. The ones willing to pay are unlikely to play 20 different games. They have a tendency to spend long hours playing a select few games. If you are a game publisher who wants to drive revenues through In-App Purchases you want these serious gamers. They can be very loyal. They wanna be part of social gaming community and they dont mind spending. In the Indian context think of what PUBG has been able to establish Pure advertising model works better with casual gamers . Such kind of games don’t live long becausse they are usually very easy and without a little challenge people eventually get bored. However most developers who make such mobile games are aware of it.It still works because its not very expensive making a basic mobile game.
Freemium(free-to-play) games110 mn+ installs across Cricket (WCC1, WCC2, WCC3, Big Bash League, Rivals, Battle of Chepauk), Carrom and TT
WCC is the world’s largest cricket simulation game franchise on mobile.Its also the most downloaded cricked game.( Acquired 52.38% stake in Dec-2017)
Its played for ~47 minutes / day by ~13.25 Mn monthly active users. (The average time on a casual game is just 15 min)
The Game has a very strong following among those who love virtual sports simulation . It gets over 120,000 downloads every day organically without any marketing spends
As you can see the Daily average users(DAU) is stable with a few spikes seen during IPL . The growth is going to come from in app purchases in WCC3. Currently the conversion is at 0.12% . They expect this number to reach 1.0% by FY25. (In app revenues grew by 75% YoY in Q1FY22).
As per management Revenues here were flattish for FY21 because they switched to an IAP model from Advertising model and EBIDTA dipped because of content cost for latest game title WCC3
Sports game titles generally have a longer shelf life. The best example of this is a game franchise called FIFA by EA sports. Even though there have been a lot video games on football over the years FIFA is the one with a cult following.Something like that is happening here.
ESPORTS is video gaming at a competitive level. Millions of viewer watch this around the world just like any other sporting event.The prize money in some of these tournament goes into million of dollars. Its so mainstream now that Its already a part of Asian games 2022 and There’s talks about including eSports in the Olympic Games.
Its a billion dollar market growing at 16.15% CAGR and China is the largest esports market in the world. However the eSports market in India is expected to grow faster than china at a CAGR of 25.1% for the next couple of years.
The eSports ecosystem consists of game publishers, gamers, Media & OTT platforms (Twitch, YouTube, etc.), and eSports companies
eSports companies (Nodwin, Jetsynthesys, Gaming Monk, Gamerji, e-war etc) are the ones that host regular events and tournaments where professional players compete for large prize pool. They provide infrastructure , manage online registrations, provide administrative support and contribute to prize pool. Game publishers are their partners in this. Game Publishers are the ones that provide game titles.For game publishers esports is like a marketing tool. More tournaments means more visibility and more fan engagement. Some game publishers have their own Esports unit. Then u have your professional Gamers who are often part of a Team just like in cricket. Some professional gamers are nothing short of celebrities in the gaming world. Streaming live for hours, these gamers get millions of views on YouTube. Then u have media and OTT platforms who showcase these events .(YouTube,Twitch,Facebook gaming,Hotstar etc). Just like in any other sport Media and OTT companies pay for media rights to broadcast/stream. Now as the popularity of eSports grows, more media companies will want a piece of the action and these media rights will keep getting more expensive. Globally there are tournaments that are filling stadiums bigger than our cricket stadiums. Also as viewership of Esports increase in India , more sponsors will want in. All of this is still at a very nascent stage , with a growing number of casual gamers turning professional, increasing sponsorship from brands and a steady increase in the number of tournaments and cash prize pools.
Nodwin Gaming is the Only company in India to have rights over professional eSports tournament IP’s & content IP’s across regional, national and international eSports.Some IPs are 100% owned by Nodwin while others are shared with game publishers.( Acquired 54% stake in Jan-18)
It has a market share of about 70-80%(measured in terms of the total prize pool)
Its a pioneer and it has strong relationships with global gaming publishers and platforms.It has exclusive partnerships with the biggest names in the industry and manages gaming events such as the ESL India Premiership, KO Fight Nights, etc…
Media rights licensing contributed 49% of Nodwin revenue in Q1FY22 and 55% in FY21.Game publishers formed around 30% and Sponsors 15%
*One of the games which really drove esports popularity in India was PUBG which got *banned last year( Anti-China sentiment). The game is back with a new name and its original korean game publisher Krafton. Recently Krafton invested Rs. 164 crore for ~15% Stake in Nodwin. The influx of funds will be used for the development of esports in three regions – South Asia, Middle East and Africa. Currently there are no offline events because of restriction due to covid but whenever its allowed we can expect Nodwin to host the official event.
It also hosts tournaments for WCC(now sport simulation games based on football or basket ball or cricket form a very small part of esports globally. most of it is games like PUBG DOTA CS etc however sports simulation games is gaining traction and in a country like India where cricket is like a religion i see a strong possibility of a cricket simulation game ,playing a key role in introducing a lot of first viewers to esports and once ppl watch it doesnt feel so weird to them and they actually enjoy it. and more viewership means more sponsors, more game publishers and more money)
ESPORTS MEDIASportskeeda ia leading sport and eSports news destination website with content across WWE, eSports, cricket, soccer and basketball . (Acquired 63.9% stake in June’19. ) It’s the argest eSports news destination in India.
Content on Sportskeeda is primarily sourced from freelance sports journalists in India and overseas.
Sportskeeda generates revenues by displaying advertisements on its website, which are sourced through leading ad-networks and programmatic-demand-channels. (programmatic revenues means that you have an inventory on your platform, you connect it to the various ad networks which see fitment of their advertisers and the users which you have as a publisher on your platform, and they serve ads)
Q1 FY22: 60.54 million MAUs and 121.44 million visits per month
GAMIFIED EARLY LEARNING tries to bring various elements of game play to the learning landscape to make it more entertaining and engaging. USA is the largest contributor to this market and is expected to reach a size of USD 12.6 billion by 2023, growing at a rate of 47% CAGR. The current size of this market in US alone, is more than 2x of Indias entire gaming industry. The Size of opportunity is huge and its at a very nascent stage globally. So far schools in India have not completely adopted the concept of gamification of education as they feel it takes out the seriousness from education
Kiddopia is one of the most popular apps in gamified early learning in USA(Acquired 50.91% Stake in Oct-19) The content for Kiddopia is designed in-house in india while focusing on basic Math, ,Spelling, Colour, Basic Games in alignment with Pre-School and Kindergarten. It caters primarily to children aged between two to 7 years.
There is an initial trial period of seven days, following which one can opt for a monthly or annual subscription plan. Yearly is priced at 59.99 USD. Monthly subscription rates have recently been revised to 7.99 USD from the earlier 6.99 USD per month.so that’s a 15% jump, benefit of which will be seen in the coming months.
It gets 89% revenues from US but its share in US is just 4-5%. Its already active in UK, Australia, Germany, Spain,. Company claims that Right now they are still tinkering in those markets trying to get the find the optimum CAC
Very good trial to activation conversion ratio of 70%. Monthly churn is in a low range between 4% - 7%
When Nazara acquired Kiddopia in 2019 the subscriber base consisted of 115k paying subscribers. That has grown to 320k paying subscribers as of June 2021.This is a 25% increase as compared to June 2020 (257,413). However, compared to March 2021 (340,482) we have seen a 5% decline. That’s due to the impact of Apple’s privacy policy. Apple sometime back launched a new feature because of which now one needs explicit consent to track users on other apps/websites .The result has been that it has reduced the data on the users. User identification for targeted advertising is not possible like it used to be. Kidoppia gets more than 90% users from Ios but this not just a kiddopia problem alone .Their competitors have the same problem. The company believes the majority of this impact has been absorbed.
Although the revenue traction would continue to remain robust one shouldnt expect ebidta margins to go up because they will continue to invest to get higher market share
I would like to see if this growth sustains once preschools re-open .
REAL MONEY AND SKILL GAMING are games were players have a chance to win money based on outcomes of skill or chance. Games such as Dream 11,Online Poker, Rummy, ludo, have gained significant traction in the Indian market in the recent years. Real money skill gaming contributes 80% of the mobile gaming market
Between 2018 and 2020, Online Fantasy Sports (OFS) revenue registered a 9.4x growth. While cricket remains the favourite sport, Indians have started following football, kabaddi, basketball, hockey etc . 50% traffic is from Tier 2 and Tier 3 cities
However this category is fraught with statutory risk and there have been instances of multiple states banning all forms of online real money gaming. Gambling is a state subject in India . Real money gaming Is gambling if the outcome is based on chance. More skill, less chance is legal. Now what is skill and what is chance is subjective and that’s where the whole debate is.
Then theres the issue of taxation. Currently GST is paid on platform fees but there is talk of imposing GST on prize money. Govt has formed a committee to resolve these issues but there isn’t much clarity yet
HALAPLAY is a sports fantasy app where users can form their own teams (cricket,football) and bet real money.( Acquired in Mar’19 -64.7% Stake) They charge a 6-7% Platform Fee based on the total gaming transaction of the user.So as the number of users increase, the prize pools get bigger and so does Halaplay revenues. (It also has Qunami which is a trivia game but I don’t have info on it worth sharing)
Now this segment is just 3% of revenues but they do plan to take this up to 8% of revenues. (Now the problem with that is that nazara as a company looks for profitable growth in all their business vertical. at a an ebidta level but this whole real money skill gaming space is seeing a lot of companies getting massive funding from PE funds.and these companies dont care abt profitable growth right now. so how do u compete with them?).
Nazara feels this segment is very large but they want to avoid huge cash burn for user acquisition till theres some clarity on these statutory issues .Its currently loss making. They have indicated that they might do an acquisition here at some stage.
TELCO SUBSCRIPTION Business is Nazara’s legacy business. Its primarily focused on offering a catalogue of Android and HTML5 games to mass mobile internet users and first-time mobile gamers in emerging markets including India, South Asia, Africa and Middle East. They enter into revenue sharing arrangements with telecom operators.
1,000+ games offerings to mobile users in 58 countries through 52 telecom operators (Revenue from this section contributed 97.91% of revenue from operations as of FY2017 from 113 telecom operators situated in 61 countries).
They are typically offered in a bouquet format, through periodic subscriptions or on a downloadable basis. India business took a big hit once Jio came out with bundled offers
This business has been on a decline for the last 4 years. When u have so many free games why will anyone pay for a game which is inferior in content, So I feel these revenues are expected to decline even though management has guided for flattish revenues. Management is still hopeful and trying to revive this segment. Recently they acquired rights to distribute a library of premium Disney and Star Wars games
Below is segmental break up from DRHP.Looking at consolidated financials doesnt make sense because of acquisitions
RISKS
Real money games are subject to regulatory risks
eSports business revenues gets most of its revenues from a few customers and a few games. If some other game gets banned like PUBG did then it can effect revenues
CAC may go up for Kiddopia due to Apples privacy update. This is a key monitorable and one will have to see how the company fairs in coming quarters
Highly competitive industry with low barriers to entry
THE FRIENDS OF NAZARA network and some thoughts . Gaming is not a winner-take-all business. Every game has a shelf life.Its Best to look at games as movies. An investment in Nazara is essentially a bet on the management being able to capture the opportunities that this fast moving industry presents. Thats finding good acquisition targets and then scaling them like they have done so far. Their various segments - world cup cricket, kiddopia,halaplay,nodwin gaming,sportskeeda have all been acquired in the last 2-4 years. Nazara has a majority stake in all of them but the day to day operations are still run by the original founders of these firms.Now typically you might see this as a bad thing but gaming is a very dynamic and fast moving world where you can get disrupted faster than you can think. A game is popular today and tomorrow its gone. So the idea is to spread your risks by diversifying. This is what the company calls FRIENDS OF NAZARA where they acquire a majority controlling stake in companies where the founders are still interested in running the business. (Companies acquired must have already a proven business model). For the founders of these acquired firms they see understand how nazara can help them scale up their business which is something the management has demonstrated. Plus they too realise how risky gaming is and are happy to take a stake in nazara instead.That way even they de-risk their portfolio. And while doing all of this Nazara will avoid cash burn which is how they have operated so far
Now Real money skill gaming is where the money is in the near term but in the long term this kind of growth has a ceiling.This segment is not inclusive. What I mean by that is not everyone wants to do real money gaming. Plus in my opinion its more fun watching someone play a cricket simulation game than watch someone play rummy, teen patti or fantasy sports. As the Indian market matures you will see IAP model dominating and advertising taking a backseat just like it is globally. When game publishers see that money flowing, they will want to promote their own games via esports.OTT platforms will want the media rights due to increased viewership and just like Ipl, these rights will keep getting more expensive. If this actually plays out them it could be huge for Nazara.
If you wanna value NAzara it cant be a multiple of earnings or EBIDTA because they have clearly stated that they will plough back whatever they make into the business while staying EBDITA positive. In my opinion its best to look at Ev/Sales
Disc: 1% of holding (Will keep adding at regular intervals)
Book "100 BAGGERS "By CRISTOPHER MAYER
(Book based on Retrospective study)
-Summary by Dr Pragnesh shah
(MD gynec ,laparoscopic surgeon)
Motera ,Ahmedabad
…
ESSENTIAL PRINCIPLES FOR 100 BAGGERS
…
1…CONSISTENT HIGH ROE/ROCE
=The most important principle
=. It’s so important it’s worth repeating again: you need a business with a high return on capital with the ability to reinvest and earn that high return on capital for years and years.
=Everything else is ancillary to this principle.
==Consider a business with $100 invested in it. Say it earns a 20 percent return on its capital in one year. A 20 percent return implies $20 in earnings. But the key to a really great idea would be a business that could then take that $20 and reinvest it alongside the original $100 and earn a 20 percent return again and again and again.
=Charlie Munger, vice chairman of Berkshire Hathaway said, Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount.
Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.
=It’s not the ROE only factor because high-ROE companies can still be lousy investments .
…
2…REINVESTMENT+CONSISTENT HIGH ROE/,ROCE
=I would instead emphasize looking for high returns on capital and the ability to reinvest and produce high returns for years and years
=However, we should prefer a company that can reinvest all of its earnings at a high clip. If it pays a dividend, that’s less capital
that it has to reinvest. And that reduces the rate of return
=Consistent ROE shows management’s skill to reinvest as explained below
Say we have a business with $100 million in equity, and we make a $20
million profit. That’s a 20 percent ROE. There is no dividend. If we took that $20 million at the end of the year and just put it in the bank, we’d earn, say, 2 percent interest on that money. But the rest of the business would
continue to earn a 20 percent ROE.
“That 20 percent ROE will actually come down to about 17 percent in
the first year and then 15 percent as the cash earning a 2 percent return
blends in with the business earning a 20 percent return,”
=“So when you see a company that has an ROE of 20 percent year after year, somebody is taking the profit at the end of the year and recycling back in the business so that ROE can stay right where it is.”
=A lot of people don’t appreciate how important the ability to reinvest
those profits and earn a high ROE is.
=Jason told me when he talks to
management, this is the main thing he wants to talk about: How are you
investing the cash the business generates
=The ROE doesn’t have to be a straight line. Jason used the example
of Schlumberger, an oil-and-gas-services firm. He’ll use what he calls “through-the-cycle ROE.” If in an off year ROE is 10 percent, and in a good
year it’s 30 percent, then that counts as a 20 percent average.
“I’m comfortable buying that kind of stock,” Jason said,
…
3…DONT FOCUS FOR SMALL GAINS
ONLY FOCUS FOR 100 BAGGERS
=. You have to Look for multibaggers only (Dont focus momentum stocks for small gain)
=So, rule number one for finding 100-baggers is that you have to look for them—and that means you don’t bother playing the game for eighths and quarters, as the saying goes.
=Don’t waste limited mental bandwidth on stocks that might pay a good yield or that might rise 30 percent or 50 percent.
=You only have so much time and so many resources to devote to stock research. Focus your efforts on the big game: The elephants.The100-baggers.
…
4…GROWTH, GROWTH AND MORE GROWTH
=Sales>10%…pat>20%…
=TOPLINE>10%
=If you have a company with
tons of cash flow but top-line [sales] growth is 5% or less, the stock doesn’t go anywhere,” he said.
= Jason is reluctant to buy a high-ROE company where the top line isn’t
at least 10 percent. But when he finds a good one, he bets big.
= If a company generates a lot of extra sales by cutting its prices and driving down its return on equity, that may not be the kind of growth you’re looking for
…
5…SHORT TERM EARNING FLUCTUATIONS V/S LONG TERM EARNING POWER
=Know business and differentiate short term earning fluctuation from earning power.
=You may miss 100 baggers if u dislike short term fluctuation with intact fundaments
=Don’t get lost following earnings per share on a quarterly basis. Even
one year may not be long enough to judge. It is more important to think
about earnings power. A company can report a fall in earnings, but its
longer-term earnings power could be unaffected
=EARNING POWER reflects the ability of the stock to earn above-average rates of return on capital at above-average growth rates. It’s essentially a longer-term assessment of competitive strengths.
=Failure to distinguish between short term earnings fluctuations
and basic changes in earnings power accounts for much over trading, [and]
many lost opportunities to make 100 for one in the stock market.”
=So, how do you separate the ephemeral(short term) earnings setback from the real thing? Well, there is no substitute for knowing the business you’ve invested in. If you don’t understand what you own, it’s impossible to make a wise choice
=That fundament hasn’t changed. All that’s changed is a temporary dip in earnings because of a cyclical change in fortunes in its customer base. There is no new competitive threat. There was no management change. There is no new regulation or other factor that might change this business in any significant way.
=This is the kind of thinking I do. As you can tell, you can only do this if
you know the business well. Spend less time reading economic forecasters and stock market prognosticators, and spend more time on understanding what you own. If you’re not willing to do it, then you’re not going to net a 100-bagger or anything close to it.
…
6…LOWER MULTIPLE PREFERRED
=You shouldn’t go dumpster(rubbish container) diving if you want
to turn up 100-baggers.
=Great stocks have a ready fan club, and many will spend most of their time near their 52-week highs, as you’d expect.
= It is rare to get a truly great business at dirt-cheap prices.
= If you spend your time trolling stocks with price–earnings ratios of five or trading at deep discounts to book value or the like, you’re hunting in the wrong fields—at least as far as 100-baggers go.
=I say lower multiples “preferred” because you can’t draw hard rules
about any of this stuff. There are times when even 50 times earnings is a bargain. You have to balance the price you pay against other factors.
=One way to look at it is by using something called the PEG ratio,”
Goodman suggests. “The PEG ratio is simply the (P/E Ratio)/(Annual
EPS Growth Rate). If earnings grow 20%, for example, then a P/E of 20 is
justified. Anything too far above 1x could be too expensive.”
=Dont overpay for growth
=It might seem with 100-baggers that you don’t have to worry about the price you pay. But a simple mental experiment shows this isn’t quite right.
=Truly big return comes when
you have both earnings growth and a rising multiple. Ideally, you’d have
both working for you.I call these two factors—growth in earnings and a higher multiple on those earnings—the “twin engines” of 100-baggers
…
7…MOATS
=In the overwhelming number of cases, a company needs to do something well for a very long time if it is to become a 100-bagger.
=So, what signs can we look for in a business that it has what it takes
to run for 20 years?
This gets us to the topic of moats
=A moat is what protects a business from its competitors.
= company with a moat
can sustain high returns for longer than one without.
A…You have a strong brand
B…Technology moat
C…low cost production
D…You enjoy network effects.
E…It costs a lot to switch
F…Entry barrier
G…Biggest company in small market
=Look for financial statements. Specifically, the higher the gross margin relative to the competitiors, the better.
=Moat, even a narrow moat, is a necessity for 100 baggers
…
8…SMALLER COMPANIES PREFERRED(<7000 cr)
=The median sales of 100 baggers companies @ $170 million(1200cr)
=On the other hand, you shouldn’t assume you need to dive into microcaps and buy 25-cent stocks.
It is not like you have to search microcaps for 100 baggers
=As a general rule, I suggest focusing on companies with market caps
of less than $1 billion
(<7000cr mcap).
=Not a necessity (remember, smaller companies “preferred”), but staying below such a deck will make for a more fruitful search than staying above it.
=Small companies can grow to 10 times or 20 times and still be small. They can even become 100-baggers
…
9…MANAGEMENT
=“In the ultimate analysis, it is the management alone which is the 100x
alchemist,” they concluded. “And it is to those who have mastered the art
of evaluating the alchemist that the stock market rewards with gold.”
= Investing with top entrepreneurs and owner-operators
gives you a big edge. And when you mix that talent with the other elements, you are on your way to big returns, if not 100-baggerdom
…
10…OWNER OPERATORS PREFERRED
=You invest your money in the same securities the people who control the business own. What’s good for them is good for you. And vice versa
=I say the best thing to do is invest with management teams that own a lot of stock.
=People with their own wealth
at risk make better decisions as a group than those who are hired guns. The end result is that shareholders do better with these owner-operated firms
…
11…GO BEYOND NUMBERS
=Early on, I relied on reported numbers and I screened for statistical cheapness. I’d look for low P/E stocks, for example.Everyone can see these numbers. Yet, these methods can still work well.
=Over time, however, I’ve learned that knowing what the numbers
don’t show is worth more than any statistic.
=. I want to find that something else is going on in the business that makes it attractive.
=I talk to a lot of people in the course of a year—investors, executives,
analysts and economists.
= Ideas can come from anywhere. But my best ideas often come from people.
=Hidden stories exist. And there is a person, somewhere, who knows that story.
=Make an effort to find those people and their stories
…
12…BUY BORING STOCKS
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story. So boring stocks sell at a discount. Buy enough of them
…
13…AVOID HOT SECTORS
=Avoid the hot sectors of whatever market you’re in.
= . That’s where promoters and shysters go because
that’s where they can get the biggest bang for the buck. The sector is rife
with fraud.
…
14…DO ENOUGH RESEARCH
…When someone tells me they can’t find anything worth
buying in this market, they are just not looking hard enough. With 10,000 securities today, even one-half of 1 percent is 50 names. Kind of makes
you think, doesn’t it?
…
15…SIMPLEST IS BEST
The best ideas are often the simplest.
=The price of a stock varies inversely with the thickness of its research file. The fattest files are found in stocks that are the most troublesome and will decline the furthest. The thinnest files are reserved for those that appreciate the most
=Peter Lynch comes to mind: “Never invest in any idea you can’t illustrate with a crayon
…
16…DIVIDENDS
= When a company pays a dividend, it has that much less capital to reinvest. Instead, you
have it in your pocket—after paying taxes. Ideally, you want to find a
company that can reinvest those dollars at a high rate of ROE . You wind up with
a bigger pile at the end of the day and pay less in taxes
=If the company had paid dividends, the story would be quite different.
Say it paid out one-third of its earnings. It would then take 15 years to quadruple its capital, not 10. And in 33 years, it would be up 23-fold,
instead of being a 100-bagger.
=Obviously,” Phelps concludes, “dividends are an expensive luxury for
an investor seeking maximum growth. If you must have income, don’t expect your financial doctor to match the capital gains that might have been
obtainable without dividends. When you buy a cow to milk, don’t plan to
race her against your neighbor’s horse.”
…
17…BUYBACK
=When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look. You may have found a candidate for a 100-bagger
=In a slow- to no-growth
economy, this tactic is becoming a more important driver of earnings-per share growth.
=Buyback criteria
A…Company should have available funds—cash plus sensible borrowing capacity—beyond the near-term needs of the business and
B…second, finds its stock selling
in the market below its intrinsic value, conservatively calculated.
…
18…DIVERSIFICATION
=Whatever study u have done, sometime luck may be against you
=So diversify in 10 to 20 stocks
…
19…HOLD STOCK FOR LONG TERM
=To net a 100-bagger, you need to hang onto a quality stock for a number of years
= A more likely journey will take 20–25 years for 100 baggers
=If you buy a stock that returns about 20 percent annually for 25 years,
you’ll get your 100-bagger. But if you sell in year 20, you’ll get “only”
about 40 to 1—before taxes. The last five years will more than double your
overall return (assuming the annual return is constant). So, you must wait.
This is not to discourage you. You can earn great returns in less than
20 years. But I want to get you to think big.
…
20…BUY BUT DONT FORGET
=Phleps do not recommend putting them away and forgetting them
=Peter lynch also recommends holding stocks until fundaments deteriorate
=Check your investment thesis at regular interval
=What if you don’t get a hundredfold return? The point of Phelps’s brilliant teaching method is to focus your attention on the power of compounding until fundaments are intact. After all, even if you catch part of a 100-bagger, the returns could fund a retirement.
…
21…EVERYMAN’S APPROACH
=JUST HOLD ON GOOD QUALITY STOCKS IS EVERYMAN’S REPLICABLE APPROACH .
=Very few people are successful traders while there is long list of successful investors
=In the markets, you can find all kinds of crazy success stories, such as
the improbable traders of Market Wizards fame—including Jim Rogers,
Paul Tudor Jones and Michael Steinhardt—. These never interested me, for many reasons, but one big reason is they struck me as freakish. The gains were enormous, but the process was not replicable—certainly not by the everyman.
=You’ve also seen how ordinary people can achieve the lofty returns
of 100-bagger dom by simply holding onto good stocks. You don’t have to have an MBA or work at a hedge fund.
=It seems so simple, but few actually ever achieve it by holding for years
=To make money in stocks you must have
…“the vision to see them,
…the courage to buy them and
…the patience to hold them.”
… According to Phelps, “patience is the rarest of the three.
…
22…COFFEE CAN PORTFOLIO
=You take some portion of your money and create a “coffee-can portfolio.” What you put in it, you commit to holding for 10 years. That’s it. At the end of 10 years, you see what you have. Coffee-can experience
says you will have found at least one big winner in there.
=Of course, investing in the buy-and-hold manner means sometimes you will be hit with a nasty loss.
=But that is why you own a portfolio of stocks. To me, investing in stocks is interesting only because you can make so much on a single stock
=Coffee-can theory says you’ll have done better this way than if you had tried to more actively manage your stocks.
=Knowing this, you need to find a way to defeat your own worst instincts—the impatience, the need for “action,” the powerful feeling that
you need to “do something.” To defeat this baleful tendency, I offer you the coffee can as a crutch.
=I’m a big fan of the coffee-can approach
…
23…YOU SHOULD BE RELUCTANT SELLER
=If you are hunting for 100-baggers, you must learn to sit on your ass.
Buy right and sit tight.
So when to sell
In his book Common Stocks and Uncommon Profits, Phil Fisher had a
chapter called “When to Sell.”
…If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
=But even Fisher allows thrre and only three reasons to sell:
A…You’ve made a mistake in original purchase
B…The stock no longer meets your investment criteria(change in fundaments)
C…Better opportunity
… Switching is treacherous .
Every stock that’s moving looks better than the one you’re thinking of selling. And there are always stocks that are moving.
…Investors too bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes
them to make a lot of trades and never enjoy truly mammoth returns
=So in summary
“If you’ve done the job right
and bought a stock only after careful study, then you should be a reluctant seller”.
…
24…DONT SELL WHEN
=STOCK IS TOO HIGH OR HIGH PE
=STOCK HAS FALLEN
=STOCK IS GOING NO WEHERE
(Stock price is not indication for reason to sell)
A…STOCK IS TOO HIGH OR HIGH PE
=During periods of rapid share price appreciation, stock prices
can reach lofty P/E ratios. This shouldn’t necessarily discourage one from continuing to hold the stock.
B…STOCK HAS FALLEN
=Monster Beverage became a 100-bagger in 10 years,
…I count at least 10 different occasions where it fell more than 25 percent during that run.
… In three separate months, it lost
more than 40 percent of its value.
… Yet if you focused on the business—and not the stock price—you would never have sold. And if you put $10,000 in that stock, you would have $1 million at the end of 10 years
C…STOCK IS GOING NO WEHERE
=Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years but still delivered the big 100 to 1
…
25…TIMING MARKET
=Mr. Lynch has taught us - ‘’Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves
=Phelps also stands against market timing. He told me about how
he predicted various bear markets in his career. “Yet I would have been
much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”
=Because of his bearishness, he missed opportunities that went on to deliver 100 to 1. “Bear market smoke gets in one’s eyes,” he said, and it
blinds us to buying opportunities if we are too intent on market timing
…
26…DIGEST VOLATILITY
(UPS N DOWNS)
=The biggest hurdle to making 100 times your money in a stock—or even just tripling it—may be the ability to stomach the ups and downs and hold on.
=The problem isn’t only that we’re impatient. It’s that the ride is not
often easy
=Netflix, which has been a 60-bagger since 2002, lost 25 percent of its value in a single day—four times! On its worst day, it fell 41 percent. And there was a four-month stretch where it dropped 80 percent
= Apple from its IPO in 1980 through 2012 was a 225-bagger.
But . . .
Those who held on had to suffer through a peak-to-trough loss of 80
percent—twice! The big move from 2008 came after a 60 percent drawdown. And there were several 40 percent drops. Many big winners suffered similar awful losses along the way
…
27…DONT GET BORED
=People often do dumb things with their portfolio just because they’re
bored. They feel they have to do something
=Why do people buy and sell stocks so frequently? Why can’t they just
buy a stock and hold it for at least a couple of years? (Most don’t.) Why
can’t people follow the more time-tested ways to wealth?
BECAUSE PEOPLE GET BORED
=People get bored
holding the same stock for a long time—especially if it doesn’t do much.
…They see other shiny stocks zipping by them, and they can’t stand it. So they chase whatever is moving and get into trouble.
=Wanger used to say, investors
tend to like to “buy more lobsters as the price goes up.” Weird, since you
probably don’t exhibit this behavior elsewhere. You usually look for a deal when it comes to gasoline or washing machines or cars. And you don’t sell your house or golf clubs or sneakers because someone offers less than what you paid
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story.
=So boring stocks sell at a discount. Buy enough of them
…
28…DONT CHASE RETURNS
=Don’t try to chase returns, because
doing so will cost you a lot of money over time
=There really isn’t anything intelligent to say about returns over months or year
=Besides, who cares about one year?
…You have to play the long game.
…There are approaches and investors who have beaten the market by a solid margin over time.
…The thing is, they seldom beat the market consistently
=The best investors lag the market 30–40 percent of the time
=None in the superstar investor group always beat the S&P 500 probably because no
one thought that was the primary objective.”
=As I say, there are ways to beat the market over time. But none of
these approaches always beats the market.
…Even the best lag it, and often.
=As an individual, though, you have a great advantage in that you can ignore the benchmark chasing.
=Keep that in mind before you reshuffle your portfolio after looking at year-end results. Don’t chase returns! And don’t measure yourself against the S&P 500 or any other benchmark. Just focus on trying to buy right and hold on
=Invest like a Dealmaker.
=Most people chase returns.
…As an example,
consider one of my favorite studies of all time, by Dalbar. It showed that
the average mutual fund earned a return of 13.8 percent per year over the length of the study. Yet the average investor in those funds earned just 7 percent. Why?
=Because they took their money out after funds did poorly and put it
back in after they had done well. Investors were constantly chasing returns
…
29…DON’T GET SNOOKERED:
AVOID SCAMS
A…MANAGEMENT
=Reading conference-call transcripts is better than listening to them(visiting them).
=In summary, it is “best to keep management at a distance.
B…On Boards
=Boards are supposed to represent shareholders, but they don’t. As Block said, there is a symbiotic relationship with CEOs. Board members often
view their directorship as a perk, not a responsibility. Insurance and other
protections insulate boards from liability.
=Moreover, board investigations into misdeeds are unreliable. When
boards have to investigate something, it’s like asking them to admit their own incompetence, Block said. You can’t rely on them.
C…Lawyers
Lawyers “make it difficult for investors to make good decisions.” They represent the interests of their clients—the people who pay them—not investors.
“‘Prestigious’ law firms are a surprisingly effective fig leaf,” Block said.
They are great at writing indecipherable prose. And the attorney–client
privilege “hides innumerable acts of corporate wrongdoing.”
D…Auditors
“Auditors are completely misunderstood,” Block said. Again, they represent the interest of their clients—the people who pay them. I’m reminded of the old saying “Whose bread I eat, his song I sing.”
Block talked about how it is a profession that rewards failure. Negative audits often lead to lifetime employment because the firm is fearful of being sued and wants the auditor around to help get it out of any messes.
Further, Block said, accounting is “a profession fighting against
accountability and transparency. They [the big auditing firms] fight disclosures repeatedly. They do not want to provide investors with a better window into audits
E…Investment Banks
=Obviously, the investment banks have an incentive to sell financial products—stocks, bonds, and so on. They are not looking out for your interest.
=If you don’t know this by now, here it is: don’t look to research put out
by investment banks or brokerage houses as a source of advice on where you should invest.
F…Market-Research Firms
This one was interesting because you often see “market research” quoted
from the likes of Frost & Sullivan and iResearch. Block said companies
hire these firms and often give them the research to get the report they
want. Market research is there to add legitimacy to management’s claims.
It’s not to help you make a good decision.
Distrust market research. Look for more objective sources of information, such as actual sales data and trends.
…
30…DO IGNORE FORECASTERS
=One large study covered nearly 95,000 consensus estimates from more than two decades. It found the average estimate was off by more than 40 percent
=David Dreman writes about this in his book Contrarian Investment
Strategies. Digging deeper, he finds the analysts made consistent errors in one direction: they were too optimistic
=So if you put the two together, you quickly come to realize the odds of
you owning a stock that doesn’t suffer a negative earnings surprise is pretty small.
=Many people spend a great deal of time trying to guess where the
economy or the stock market is going. And yet, there are countless studies that show the folly of such forecasting
=They have missed every recession
in the last four decades
…
31…IGNORE MACRO
=There is a world of noise out there. The financial media is particularly
bad. Every day, something important happens, or so they would have
you believe.
-They narrate every twist in the market.
-They cover every Fed meeting.
-They document the endless stream of economic data and reports.
-They give a platform for an unending parade of pundits.
-Everybody wants to try to call the market, or
-They predict where interest rates will go or
-They predict the price of oil or whatever.
=My own study of 100-baggers shows what a pathetic waste of time this all is. It’s a great distraction in your hunt for 100-baggers.
…
32… MARKET CRASH-HUGE OPPORTUNITY
=2008 like disasters create “easier” opportunities to make hundredfold returns
…
MY JOURNEY
I have started my investment journey in 2017 bull run.I have paid my tution fees by learning from my initial losses. Then i started reading books .I am deeply inspired by two books
1…One up on wall street by peter lynch
2…100 baggers by Cristopher mayer
=One up on wall strret is very popular while 100 baggers is still less known to people.
=This book inspires us to invest for very long duration like 20 to 25 yrs and find out 100 baggers( repeat 100 baggers Not 10-20 baggers).
=In today’s era,where young people hardly stay invested for 6 months ,20-25 yrs investment in same stock is next to impossible for most of people.
=IF WE FOLLOW THESE PRINCIPLES AND STAY INVESTED FOR ATLEAST 5-10 YEARS, IT WILL MAKE GREAT RETURN
=At last, i am also very new to market with 4 yrs experience and trying to follow these principles.
Immense gratitude for all of you on creating such a high quality community engaging in conversations that matter and impact the outcome of an invetsment idea rather than doing an academic discussion and creating hypothesis. I have been a long time reader of this wonderful forum and silently absorbing all the knowledge and methods of research, i have achieved some degree of understanding to share my thoughts and engage in meaningful conversations. Just like most of us, i started small with mutual fund, then scaled up to deploy significant part of my savings into it; then moving to direct investments slowly and steadily to building a portfolio of meaningful size and expecting financial non reliance on my day job by 2026
There is only one piece of advice i would give to young people entering their earning years, even if you are deeply interested in investing and have confidence of making it big in life through investment, pls treat your jobs with equal importance and try to grow in them and endevaour to increase your earnings potential, it will not only help you with good capital to work with but also deter you from taking huge risks.
I tested many investment philosophy and more or less figured out what works with my thought process and with what i can peacefully sleep at night. I invest largely in mid and small caps. The portfolio is into 2 sub category:
1) Long term compounders
Companies with good visibility of future earnings and comparatively lesser volatility with expected returns of 18-20%.
Investing framework is high quality earning ( high roce, stable margins etc.) with reasonable growth and valuation, long seemingly secular growth trends in industry with tailwinds.
2) Emerging Ideas
These are few bets where the return expectations are multifold with high degree of risk and volatility, hence expectation is to filter ideas which have potential for 25% CAGR in next 4-5 years
Investment philosphy is large outsized outcomes through large capex, new product line, margin expansion, deep value, special situation etc. Looking for topline growth X margin expansion X valuation rerating
Tracking Positions
These are companies where either i have done the research but waiting for valuation to correct or any specific trigger or waiting for performance improvement visibility.
My asset allocation is 55-65% in equity, 25-30% in fixed income and remaining in cash depending on market cycle and valuation of companies i hold or intend to buy.
Below is my current portfolio, it has undergone significant change in last 2 years.
LTI : 11%
Laurus : 6%
Metropolis : 7%
Affle : 8%
Route : 7%
Prince Pipes : 7%
Intellect Design : 6%
Mastek : 6%
Saregama : 5%
Tips : 6%
Neogen : 10%
Infobeans : 10%
Arvind Fashion : 9%
Allocation is basis current value, some have increased multiple times from buying price. Invested part of allocation into Equitas holding and intend to buy more post Q3 result if all seems in line.
Reading more on Rategain and Nykaa. Positive on MMI and Data Pattern, but limited information available, will wait for few quarter results, concalls and research analyst reports to have sufficient data points.
Below is a list of people i would like to thank on Vpickr for showing the light and maybe meet some day to personally thank @Tar : Concentrated bets on high conviction @sahil_vi : Research and some more research @Worldlywiseinvestors : Crazy dedication for SOIC @Vivek_6954 : Your journey and thankfully its documentation is such an inspiration and a guide book
My Favs & Inspiration
Fav Podcast: https://www.youtube.com/c/TheInvestorsPodcastNetwork
Fav Indian Investor : Sumeet Nagar (Malabar), Sunil Singhania (Abakkus) & Neil Bahal (Negen)
Fav International Investor : Howard Marks
Fav Teacher : Mohnish Pabrai & Richard Feynman
Life Guide : Warren Buffet
Inspiration : Nikola Tesla & Dr. APJ Kalam
Book "100 BAGGERS "By CRISTOPHER MAYER
(Book based on Retrospective study)
-Summary by Dr Pragnesh shah
(MD gynec ,laparoscopic surgeon)
Motera ,Ahmedabad
…
ESSENTIAL PRINCIPLES FOR 100 BAGGERS
…
1…CONSISTENT HIGH ROE/ROCE
=The most important principle
=. It’s so important it’s worth repeating again: you need a business with a high return on capital with the ability to reinvest and earn that high return on capital for years and years.
=Everything else is ancillary to this principle.
==Consider a business with $100 invested in it. Say it earns a 20 percent return on its capital in one year. A 20 percent return implies $20 in earnings. But the key to a really great idea would be a business that could then take that $20 and reinvest it alongside the original $100 and earn a 20 percent return again and again and again.
=Charlie Munger, vice chairman of Berkshire Hathaway said, Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount.
Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.
=It’s not the ROE only factor because high-ROE companies can still be lousy investments .
…
2…REINVESTMENT+CONSISTENT HIGH ROE/,ROCE
=I would instead emphasize looking for high returns on capital and the ability to reinvest and produce high returns for years and years
=However, we should prefer a company that can reinvest all of its earnings at a high clip. If it pays a dividend, that’s less capital
that it has to reinvest. And that reduces the rate of return
=Consistent ROE shows management’s skill to reinvest as explained below
Say we have a business with $100 million in equity, and we make a $20
million profit. That’s a 20 percent ROE. There is no dividend. If we took that $20 million at the end of the year and just put it in the bank, we’d earn, say, 2 percent interest on that money. But the rest of the business would
continue to earn a 20 percent ROE.
“That 20 percent ROE will actually come down to about 17 percent in
the first year and then 15 percent as the cash earning a 2 percent return
blends in with the business earning a 20 percent return,”
=“So when you see a company that has an ROE of 20 percent year after year, somebody is taking the profit at the end of the year and recycling back in the business so that ROE can stay right where it is.”
=A lot of people don’t appreciate how important the ability to reinvest
those profits and earn a high ROE is.
=Jason told me when he talks to
management, this is the main thing he wants to talk about: How are you
investing the cash the business generates
=The ROE doesn’t have to be a straight line. Jason used the example
of Schlumberger, an oil-and-gas-services firm. He’ll use what he calls “through-the-cycle ROE.” If in an off year ROE is 10 percent, and in a good
year it’s 30 percent, then that counts as a 20 percent average.
“I’m comfortable buying that kind of stock,” Jason said,
…
3…DONT FOCUS FOR SMALL GAINS
ONLY FOCUS FOR 100 BAGGERS
=. You have to Look for multibaggers only (Dont focus momentum stocks for small gain)
=So, rule number one for finding 100-baggers is that you have to look for them—and that means you don’t bother playing the game for eighths and quarters, as the saying goes.
=Don’t waste limited mental bandwidth on stocks that might pay a good yield or that might rise 30 percent or 50 percent.
=You only have so much time and so many resources to devote to stock research. Focus your efforts on the big game: The elephants.The100-baggers.
…
4…GROWTH, GROWTH AND MORE GROWTH
=Sales>10%…pat>20%…
=TOPLINE>10%
=If you have a company with
tons of cash flow but top-line [sales] growth is 5% or less, the stock doesn’t go anywhere,” he said.
= Jason is reluctant to buy a high-ROE company where the top line isn’t
at least 10 percent. But when he finds a good one, he bets big.
= If a company generates a lot of extra sales by cutting its prices and driving down its return on equity, that may not be the kind of growth you’re looking for
…
5…SHORT TERM EARNING FLUCTUATIONS V/S LONG TERM EARNING POWER
=Know business and differentiate short term earning fluctuation from earning power.
=You may miss 100 baggers if u dislike short term fluctuation with intact fundaments
=Don’t get lost following earnings per share on a quarterly basis. Even
one year may not be long enough to judge. It is more important to think
about earnings power. A company can report a fall in earnings, but its
longer-term earnings power could be unaffected
=EARNING POWER reflects the ability of the stock to earn above-average rates of return on capital at above-average growth rates. It’s essentially a longer-term assessment of competitive strengths.
=Failure to distinguish between short term earnings fluctuations
and basic changes in earnings power accounts for much over trading, [and]
many lost opportunities to make 100 for one in the stock market.”
=So, how do you separate the ephemeral(short term) earnings setback from the real thing? Well, there is no substitute for knowing the business you’ve invested in. If you don’t understand what you own, it’s impossible to make a wise choice
=That fundament hasn’t changed. All that’s changed is a temporary dip in earnings because of a cyclical change in fortunes in its customer base. There is no new competitive threat. There was no management change. There is no new regulation or other factor that might change this business in any significant way.
=This is the kind of thinking I do. As you can tell, you can only do this if
you know the business well. Spend less time reading economic forecasters and stock market prognosticators, and spend more time on understanding what you own. If you’re not willing to do it, then you’re not going to net a 100-bagger or anything close to it.
…
6…LOWER MULTIPLE PREFERRED
=You shouldn’t go dumpster(rubbish container) diving if you want
to turn up 100-baggers.
=Great stocks have a ready fan club, and many will spend most of their time near their 52-week highs, as you’d expect.
= It is rare to get a truly great business at dirt-cheap prices.
= If you spend your time trolling stocks with price–earnings ratios of five or trading at deep discounts to book value or the like, you’re hunting in the wrong fields—at least as far as 100-baggers go.
=I say lower multiples “preferred” because you can’t draw hard rules
about any of this stuff. There are times when even 50 times earnings is a bargain. You have to balance the price you pay against other factors.
=One way to look at it is by using something called the PEG ratio,”
Goodman suggests. “The PEG ratio is simply the (P/E Ratio)/(Annual
EPS Growth Rate). If earnings grow 20%, for example, then a P/E of 20 is
justified. Anything too far above 1x could be too expensive.”
=Dont overpay for growth
=It might seem with 100-baggers that you don’t have to worry about the price you pay. But a simple mental experiment shows this isn’t quite right.
=Truly big return comes when
you have both earnings growth and a rising multiple. Ideally, you’d have
both working for you.I call these two factors—growth in earnings and a higher multiple on those earnings—the “twin engines” of 100-baggers
…
7…MOATS
=In the overwhelming number of cases, a company needs to do something well for a very long time if it is to become a 100-bagger.
=So, what signs can we look for in a business that it has what it takes
to run for 20 years?
This gets us to the topic of moats
=A moat is what protects a business from its competitors.
= company with a moat
can sustain high returns for longer than one without.
A…You have a strong brand
B…Technology moat
C…low cost production
D…You enjoy network effects.
E…It costs a lot to switch
F…Entry barrier
G…Biggest company in small market
=Look for financial statements. Specifically, the higher the gross margin relative to the competitiors, the better.
=Moat, even a narrow moat, is a necessity for 100 baggers
…
8…SMALLER COMPANIES PREFERRED(<7000 cr)
=The median sales of 100 baggers companies @ $170 million(1200cr)
=On the other hand, you shouldn’t assume you need to dive into microcaps and buy 25-cent stocks.
It is not like you have to search microcaps for 100 baggers
=As a general rule, I suggest focusing on companies with market caps
of less than $1 billion
(<7000cr mcap).
=Not a necessity (remember, smaller companies “preferred”), but staying below such a deck will make for a more fruitful search than staying above it.
=Small companies can grow to 10 times or 20 times and still be small. They can even become 100-baggers
…
9…MANAGEMENT
=“In the ultimate analysis, it is the management alone which is the 100x
alchemist,” they concluded. “And it is to those who have mastered the art
of evaluating the alchemist that the stock market rewards with gold.”
= Investing with top entrepreneurs and owner-operators
gives you a big edge. And when you mix that talent with the other elements, you are on your way to big returns, if not 100-baggerdom
…
10…OWNER OPERATORS PREFERRED
=You invest your money in the same securities the people who control the business own. What’s good for them is good for you. And vice versa
=I say the best thing to do is invest with management teams that own a lot of stock.
=People with their own wealth
at risk make better decisions as a group than those who are hired guns. The end result is that shareholders do better with these owner-operated firms
…
11…GO BEYOND NUMBERS
=Early on, I relied on reported numbers and I screened for statistical cheapness. I’d look for low P/E stocks, for example.Everyone can see these numbers. Yet, these methods can still work well.
=Over time, however, I’ve learned that knowing what the numbers
don’t show is worth more than any statistic.
=. I want to find that something else is going on in the business that makes it attractive.
=I talk to a lot of people in the course of a year—investors, executives,
analysts and economists.
= Ideas can come from anywhere. But my best ideas often come from people.
=Hidden stories exist. And there is a person, somewhere, who knows that story.
=Make an effort to find those people and their stories
…
12…BUY BORING STOCKS
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story. So boring stocks sell at a discount. Buy enough of them
…
13…AVOID HOT SECTORS
=Avoid the hot sectors of whatever market you’re in.
= . That’s where promoters and shysters go because
that’s where they can get the biggest bang for the buck. The sector is rife
with fraud.
…
14…DO ENOUGH RESEARCH
…When someone tells me they can’t find anything worth
buying in this market, they are just not looking hard enough. With 10,000 securities today, even one-half of 1 percent is 50 names. Kind of makes
you think, doesn’t it?
…
15…SIMPLEST IS BEST
The best ideas are often the simplest.
=The price of a stock varies inversely with the thickness of its research file. The fattest files are found in stocks that are the most troublesome and will decline the furthest. The thinnest files are reserved for those that appreciate the most
=Peter Lynch comes to mind: “Never invest in any idea you can’t illustrate with a crayon
…
16…DIVIDENDS
= When a company pays a dividend, it has that much less capital to reinvest. Instead, you
have it in your pocket—after paying taxes. Ideally, you want to find a
company that can reinvest those dollars at a high rate of ROE . You wind up with
a bigger pile at the end of the day and pay less in taxes
=If the company had paid dividends, the story would be quite different.
Say it paid out one-third of its earnings. It would then take 15 years to quadruple its capital, not 10. And in 33 years, it would be up 23-fold,
instead of being a 100-bagger.
=Obviously,” Phelps concludes, “dividends are an expensive luxury for
an investor seeking maximum growth. If you must have income, don’t expect your financial doctor to match the capital gains that might have been
obtainable without dividends. When you buy a cow to milk, don’t plan to
race her against your neighbor’s horse.”
…
17…BUYBACK
=When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look. You may have found a candidate for a 100-bagger
=In a slow- to no-growth
economy, this tactic is becoming a more important driver of earnings-per share growth.
=Buyback criteria
A…Company should have available funds—cash plus sensible borrowing capacity—beyond the near-term needs of the business and
B…second, finds its stock selling
in the market below its intrinsic value, conservatively calculated.
…
18…DIVERSIFICATION
=Whatever study u have done, sometime luck may be against you
=So diversify in 10 to 20 stocks
…
19…HOLD STOCK FOR LONG TERM
=To net a 100-bagger, you need to hang onto a quality stock for a number of years
= A more likely journey will take 20–25 years for 100 baggers
=If you buy a stock that returns about 20 percent annually for 25 years,
you’ll get your 100-bagger. But if you sell in year 20, you’ll get “only”
about 40 to 1—before taxes. The last five years will more than double your
overall return (assuming the annual return is constant). So, you must wait.
This is not to discourage you. You can earn great returns in less than
20 years. But I want to get you to think big.
…
20…BUY BUT DONT FORGET
=Phleps do not recommend putting them away and forgetting them
=Peter lynch also recommends holding stocks until fundaments deteriorate
=Check your investment thesis at regular interval
=What if you don’t get a hundredfold return? The point of Phelps’s brilliant teaching method is to focus your attention on the power of compounding until fundaments are intact. After all, even if you catch part of a 100-bagger, the returns could fund a retirement.
…
21…EVERYMAN’S APPROACH
=JUST HOLD ON GOOD QUALITY STOCKS IS EVERYMAN’S REPLICABLE APPROACH .
=Very few people are successful traders while there is long list of successful investors
=In the markets, you can find all kinds of crazy success stories, such as
the improbable traders of Market Wizards fame—including Jim Rogers,
Paul Tudor Jones and Michael Steinhardt—. These never interested me, for many reasons, but one big reason is they struck me as freakish. The gains were enormous, but the process was not replicable—certainly not by the everyman.
=You’ve also seen how ordinary people can achieve the lofty returns
of 100-bagger dom by simply holding onto good stocks. You don’t have to have an MBA or work at a hedge fund.
=It seems so simple, but few actually ever achieve it by holding for years
=To make money in stocks you must have
…“the vision to see them,
…the courage to buy them and
…the patience to hold them.”
… According to Phelps, “patience is the rarest of the three.
…
22…COFFEE CAN PORTFOLIO
=You take some portion of your money and create a “coffee-can portfolio.” What you put in it, you commit to holding for 10 years. That’s it. At the end of 10 years, you see what you have. Coffee-can experience
says you will have found at least one big winner in there.
=Of course, investing in the buy-and-hold manner means sometimes you will be hit with a nasty loss.
=But that is why you own a portfolio of stocks. To me, investing in stocks is interesting only because you can make so much on a single stock
=Coffee-can theory says you’ll have done better this way than if you had tried to more actively manage your stocks.
=Knowing this, you need to find a way to defeat your own worst instincts—the impatience, the need for “action,” the powerful feeling that
you need to “do something.” To defeat this baleful tendency, I offer you the coffee can as a crutch.
=I’m a big fan of the coffee-can approach
…
23…YOU SHOULD BE RELUCTANT SELLER
=If you are hunting for 100-baggers, you must learn to sit on your ass.
Buy right and sit tight.
So when to sell
In his book Common Stocks and Uncommon Profits, Phil Fisher had a
chapter called “When to Sell.”
…If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
=But even Fisher allows thrre and only three reasons to sell:
A…You’ve made a mistake in original purchase
B…The stock no longer meets your investment criteria(change in fundaments)
C…Better opportunity
… Switching is treacherous .
Every stock that’s moving looks better than the one you’re thinking of selling. And there are always stocks that are moving.
…Investors too bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes
them to make a lot of trades and never enjoy truly mammoth returns
=So in summary
“If you’ve done the job right
and bought a stock only after careful study, then you should be a reluctant seller”.
…
24…DONT SELL WHEN
=STOCK IS TOO HIGH OR HIGH PE
=STOCK HAS FALLEN
=STOCK IS GOING NO WEHERE
(Stock price is not indication for reason to sell)
A…STOCK IS TOO HIGH OR HIGH PE
=During periods of rapid share price appreciation, stock prices
can reach lofty P/E ratios. This shouldn’t necessarily discourage one from continuing to hold the stock.
B…STOCK HAS FALLEN
=Monster Beverage became a 100-bagger in 10 years,
…I count at least 10 different occasions where it fell more than 25 percent during that run.
… In three separate months, it lost
more than 40 percent of its value.
… Yet if you focused on the business—and not the stock price—you would never have sold. And if you put $10,000 in that stock, you would have $1 million at the end of 10 years
C…STOCK IS GOING NO WEHERE
=Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years but still delivered the big 100 to 1
…
25…TIMING MARKET
=Mr. Lynch has taught us - ‘’Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves
=Phelps also stands against market timing. He told me about how
he predicted various bear markets in his career. “Yet I would have been
much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”
=Because of his bearishness, he missed opportunities that went on to deliver 100 to 1. “Bear market smoke gets in one’s eyes,” he said, and it
blinds us to buying opportunities if we are too intent on market timing
…
26…DIGEST VOLATILITY
(UPS N DOWNS)
=The biggest hurdle to making 100 times your money in a stock—or even just tripling it—may be the ability to stomach the ups and downs and hold on.
=The problem isn’t only that we’re impatient. It’s that the ride is not
often easy
=Netflix, which has been a 60-bagger since 2002, lost 25 percent of its value in a single day—four times! On its worst day, it fell 41 percent. And there was a four-month stretch where it dropped 80 percent
= Apple from its IPO in 1980 through 2012 was a 225-bagger.
But . . .
Those who held on had to suffer through a peak-to-trough loss of 80
percent—twice! The big move from 2008 came after a 60 percent drawdown. And there were several 40 percent drops. Many big winners suffered similar awful losses along the way
…
27…DONT GET BORED
=People often do dumb things with their portfolio just because they’re
bored. They feel they have to do something
=Why do people buy and sell stocks so frequently? Why can’t they just
buy a stock and hold it for at least a couple of years? (Most don’t.) Why
can’t people follow the more time-tested ways to wealth?
BECAUSE PEOPLE GET BORED
=People get bored
holding the same stock for a long time—especially if it doesn’t do much.
…They see other shiny stocks zipping by them, and they can’t stand it. So they chase whatever is moving and get into trouble.
=Wanger used to say, investors
tend to like to “buy more lobsters as the price goes up.” Weird, since you
probably don’t exhibit this behavior elsewhere. You usually look for a deal when it comes to gasoline or washing machines or cars. And you don’t sell your house or golf clubs or sneakers because someone offers less than what you paid
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story.
=So boring stocks sell at a discount. Buy enough of them
…
28…DONT CHASE RETURNS
=Don’t try to chase returns, because
doing so will cost you a lot of money over time
=There really isn’t anything intelligent to say about returns over months or year
=Besides, who cares about one year?
…You have to play the long game.
…There are approaches and investors who have beaten the market by a solid margin over time.
…The thing is, they seldom beat the market consistently
=The best investors lag the market 30–40 percent of the time
=None in the superstar investor group always beat the S&P 500 probably because no
one thought that was the primary objective.”
=As I say, there are ways to beat the market over time. But none of
these approaches always beats the market.
…Even the best lag it, and often.
=As an individual, though, you have a great advantage in that you can ignore the benchmark chasing.
=Keep that in mind before you reshuffle your portfolio after looking at year-end results. Don’t chase returns! And don’t measure yourself against the S&P 500 or any other benchmark. Just focus on trying to buy right and hold on
=Invest like a Dealmaker.
=Most people chase returns.
…As an example,
consider one of my favorite studies of all time, by Dalbar. It showed that
the average mutual fund earned a return of 13.8 percent per year over the length of the study. Yet the average investor in those funds earned just 7 percent. Why?
=Because they took their money out after funds did poorly and put it
back in after they had done well. Investors were constantly chasing returns
…
29…DON’T GET SNOOKERED:
AVOID SCAMS
A…MANAGEMENT
=Reading conference-call transcripts is better than listening to them(visiting them).
=In summary, it is “best to keep management at a distance.
B…On Boards
=Boards are supposed to represent shareholders, but they don’t. As Block said, there is a symbiotic relationship with CEOs. Board members often
view their directorship as a perk, not a responsibility. Insurance and other
protections insulate boards from liability.
=Moreover, board investigations into misdeeds are unreliable. When
boards have to investigate something, it’s like asking them to admit their own incompetence, Block said. You can’t rely on them.
C…Lawyers
Lawyers “make it difficult for investors to make good decisions.” They represent the interests of their clients—the people who pay them—not investors.
“‘Prestigious’ law firms are a surprisingly effective fig leaf,” Block said.
They are great at writing indecipherable prose. And the attorney–client
privilege “hides innumerable acts of corporate wrongdoing.”
D…Auditors
“Auditors are completely misunderstood,” Block said. Again, they represent the interest of their clients—the people who pay them. I’m reminded of the old saying “Whose bread I eat, his song I sing.”
Block talked about how it is a profession that rewards failure. Negative audits often lead to lifetime employment because the firm is fearful of being sued and wants the auditor around to help get it out of any messes.
Further, Block said, accounting is “a profession fighting against
accountability and transparency. They [the big auditing firms] fight disclosures repeatedly. They do not want to provide investors with a better window into audits
E…Investment Banks
=Obviously, the investment banks have an incentive to sell financial products—stocks, bonds, and so on. They are not looking out for your interest.
=If you don’t know this by now, here it is: don’t look to research put out
by investment banks or brokerage houses as a source of advice on where you should invest.
F…Market-Research Firms
This one was interesting because you often see “market research” quoted
from the likes of Frost & Sullivan and iResearch. Block said companies
hire these firms and often give them the research to get the report they
want. Market research is there to add legitimacy to management’s claims.
It’s not to help you make a good decision.
Distrust market research. Look for more objective sources of information, such as actual sales data and trends.
…
30…DO IGNORE FORECASTERS
=One large study covered nearly 95,000 consensus estimates from more than two decades. It found the average estimate was off by more than 40 percent
=David Dreman writes about this in his book Contrarian Investment
Strategies. Digging deeper, he finds the analysts made consistent errors in one direction: they were too optimistic
=So if you put the two together, you quickly come to realize the odds of
you owning a stock that doesn’t suffer a negative earnings surprise is pretty small.
=Many people spend a great deal of time trying to guess where the
economy or the stock market is going. And yet, there are countless studies that show the folly of such forecasting
=They have missed every recession
in the last four decades
…
31…IGNORE MACRO
=There is a world of noise out there. The financial media is particularly
bad. Every day, something important happens, or so they would have
you believe.
-They narrate every twist in the market.
-They cover every Fed meeting.
-They document the endless stream of economic data and reports.
-They give a platform for an unending parade of pundits.
-Everybody wants to try to call the market, or
-They predict where interest rates will go or
-They predict the price of oil or whatever.
=My own study of 100-baggers shows what a pathetic waste of time this all is. It’s a great distraction in your hunt for 100-baggers.
…
32… MARKET CRASH-HUGE OPPORTUNITY
=2008 like disasters create “easier” opportunities to make hundredfold returns
…
MY JOURNEY
I have started my investment journey in 2017 bull run.I have paid my tution fees by learning from my initial losses. Then i started reading books .I am deeply inspired by two books
1…One up on wall street by peter lynch
2…100 baggers by Cristopher mayer
=One up on wall strret is very popular while 100 baggers is still less known to people.
=This book inspires us to invest for very long duration like 20 to 25 yrs and find out 100 baggers( repeat 100 baggers Not 10-20 baggers).
=In today’s era,where young people hardly stay invested for 6 months ,20-25 yrs investment in same stock is next to impossible for most of people.
=IF WE FOLLOW THESE PRINCIPLES AND STAY INVESTED FOR ATLEAST 5-10 YEARS, IT WILL MAKE GREAT RETURN
=At last, i am also very new to market with 4 yrs experience and trying to follow these principles.
Intro: Nazara was started in 1999 by Nitish Mittersain while he was still in college. He doesnt have any meaningful interest in any other business. He is still involved in the business along with the CEO Manish Agarwal who has been with the company since 2015
I have highlighted my commentary in italics. Some of it is just opinion
In order to understand Nazara its essential that one understands the gaming industry and its potential in India. So in this post you ll read about the gaming industry as much as the business verticals of Nazara
Below chart illustrates the size of the gaming industry
Globally, Mobile gaming is growing faster than console / pc gaming and also forms the largest chunk in terms of revenues. Half of the global population now owns a smartphone, which makes for a massive market of potential mobile gamers; and, unlike PC and console gaming it’s a lot more affordable. It is expected that the number of mobile gamers will continue to grow faster than PC and console gamers as global smartphone penetration increases, and more of those smartphone owners become casual gamers.
The story isn’t very different at home either. Not only is mobile gaming largest in terms of revnue and the fastest growing segment in idnia as compared to PC and Console gaming. This segment was valued at USD 1.2 billion in 2020 and is expected to reach a value of USD 3.1 billion by 2023, growing at a CAGR of 39.6% during this period as compared to the growth rates in China and the US, which stood at 14.6% and 12.2% respectively
Changing Landscape
Increase in numbers of gamers due to cheap data & growing mobile penetration
Demographic shift (average age of Indian gamer is 24 years old vs 31 & 32 years in USA and china respectively)
Teenagers playing video games in todays India are likely to continue gaming in their 30s.Gaming is not something most people start at the age of 30
Increased disposable income along with habit formation(The average annual spend on gaming per individual in India is USD 23, while in USA and China that stands at USD 113 and USD 115 respectively)
A lot of 20 year olds are willing to pay for gaming as they see it as another form of entertainment and are likely to spend more as they older
Local games are going mainstream (games like ludo king carrom teen patti have become very popular specially during the lockdown )
Social Gaming : Large online Communities are formed around certain popular games. Once a community reaches a critical mass it tends to grow organically (for a game publisher this means new users with minimal Cost of acquisition)
Free to play games: Not too long ago most games were played on PC or Console(XBOX,Playstation,etc) Not everyone could afford it.Today you can play for free and that to anywhere anytime on your phone
Whats an In-App Purchasing(IAP) Model? Historically most free mobile Games used to generate revenue via in-game advertisements (ad banner, video ad between 2 levels etc) but this has completely changed in today’s landscape where most free games come with the option to make in-app-purchases. Users can play for free but they have to pay for certain features / items (extra lives, weapons, maps,collectibles, bonus levels etc).These features wont be available to a basic user or if available it ll require a lot of time to procure. In india the mix is still skewed towards advertising model but that’s changing. Globally Some of the most popular games by revenue such as Dota, Fortnite, PubG, are free-to-play.Once a game is launched, incremental costs for content updates are low, meaning incremental revenues from in-app purchases can have a disproportionate effect on the bottomline
Not all gamers are same. There are about 380 million gamers In India. 90% of them do not pay. Even among the ones who pay for in app purchases, most of the revenues come from a small cohort of gamers. The ones willing to pay are unlikely to play 20 different games. They have a tendency to spend long hours playing a select few games. If you are a game publisher who wants to drive revenues through In-App Purchases you want these serious gamers. They can be very loyal. They wanna be part of social gaming community and they dont mind spending. In the Indian context think of what PUBG has been able to establish Pure advertising model works better with casual gamers . Such kind of games don’t live long becausse they are usually very easy and without a little challenge people eventually get bored. However most developers who make such mobile games are aware of it.It still works because its not very expensive making a basic mobile game.
Freemium(free-to-play) games110 mn+ installs across Cricket (WCC1, WCC2, WCC3, Big Bash League, Rivals, Battle of Chepauk), Carrom and TT
WCC is the world’s largest cricket simulation game franchise on mobile.Its also the most downloaded cricked game.( Acquired 52.38% stake in Dec-2017)
Its played for ~47 minutes / day by ~13.25 Mn monthly active users. (The average time on a casual game is just 15 min)
The Game has a very strong following among those who love virtual sports simulation . It gets over 120,000 downloads every day organically without any marketing spends
As you can see the Daily average users(DAU) is stable with a few spikes seen during IPL . The growth is going to come from in app purchases in WCC3. Currently the conversion is at 0.12% . They expect this number to reach 1.0% by FY25. (In app revenues grew by 75% YoY in Q1FY22).
As per management Revenues here were flattish for FY21 because they switched to an IAP model from Advertising model and EBIDTA dipped because of content cost for latest game title WCC3
Sports game titles generally have a longer shelf life. The best example of this is a game franchise called FIFA by EA sports. Even though there have been a lot video games on football over the years FIFA is the one with a cult following.Something like that is happening here.
ESPORTS is video gaming at a competitive level. Millions of viewer watch this around the world just like any other sporting event.The prize money in some of these tournament goes into million of dollars. Its so mainstream now that Its already a part of Asian games 2022 and There’s talks about including eSports in the Olympic Games.
Its a billion dollar market growing at 16.15% CAGR and China is the largest esports market in the world. However the eSports market in India is expected to grow faster than china at a CAGR of 25.1% for the next couple of years.
The eSports ecosystem consists of game publishers, gamers, Media & OTT platforms (Twitch, YouTube, etc.), and eSports companies
eSports companies (Nodwin, Jetsynthesys, Gaming Monk, Gamerji, e-war etc) are the ones that host regular events and tournaments where professional players compete for large prize pool. They provide infrastructure , manage online registrations, provide administrative support and contribute to prize pool. Game publishers are their partners in this. Game Publishers are the ones that provide game titles.For game publishers esports is like a marketing tool. More tournaments means more visibility and more fan engagement. Some game publishers have their own Esports unit. Then u have your professional Gamers who are often part of a Team just like in cricket. Some professional gamers are nothing short of celebrities in the gaming world. Streaming live for hours, these gamers get millions of views on YouTube. Then u have media and OTT platforms who showcase these events .(YouTube,Twitch,Facebook gaming,Hotstar etc). Just like in any other sport Media and OTT companies pay for media rights to broadcast/stream. Now as the popularity of eSports grows, more media companies will want a piece of the action and these media rights will keep getting more expensive. Globally there are tournaments that are filling stadiums bigger than our cricket stadiums. Also as viewership of Esports increase in India , more sponsors will want in. All of this is still at a very nascent stage , with a growing number of casual gamers turning professional, increasing sponsorship from brands and a steady increase in the number of tournaments and cash prize pools.
Nodwin Gaming is the Only company in India to have rights over professional eSports tournament IP’s & content IP’s across regional, national and international eSports.Some IPs are 100% owned by Nodwin while others are shared with game publishers.( Acquired 54% stake in Jan-18)
It has a market share of about 70-80%(measured in terms of the total prize pool)
Its a pioneer and it has strong relationships with global gaming publishers and platforms.It has exclusive partnerships with the biggest names in the industry and manages gaming events such as the ESL India Premiership, KO Fight Nights, etc…
Media rights licensing contributed 49% of Nodwin revenue in Q1FY22 and 55% in FY21.Game publishers formed around 30% and Sponsors 15%
*One of the games which really drove esports popularity in India was PUBG which got *banned last year( Anti-China sentiment). The game is back with a new name and its original korean game publisher Krafton. Recently Krafton invested Rs. 164 crore for ~15% Stake in Nodwin. The influx of funds will be used for the development of esports in three regions – South Asia, Middle East and Africa. Currently there are no offline events because of restriction due to covid but whenever its allowed we can expect Nodwin to host the official event.
It also hosts tournaments for WCC(now sport simulation games based on football or basket ball or cricket form a very small part of esports globally. most of it is games like PUBG DOTA CS etc however sports simulation games is gaining traction and in a country like India where cricket is like a religion i see a strong possibility of a cricket simulation game ,playing a key role in introducing a lot of first viewers to esports and once ppl watch it doesnt feel so weird to them and they actually enjoy it. and more viewership means more sponsors, more game publishers and more money)
ESPORTS MEDIASportskeeda ia leading sport and eSports news destination website with content across WWE, eSports, cricket, soccer and basketball . (Acquired 63.9% stake in June’19. ) It’s the argest eSports news destination in India.
Content on Sportskeeda is primarily sourced from freelance sports journalists in India and overseas.
Sportskeeda generates revenues by displaying advertisements on its website, which are sourced through leading ad-networks and programmatic-demand-channels. (programmatic revenues means that you have an inventory on your platform, you connect it to the various ad networks which see fitment of their advertisers and the users which you have as a publisher on your platform, and they serve ads)
Q1 FY22: 60.54 million MAUs and 121.44 million visits per month
GAMIFIED EARLY LEARNING tries to bring various elements of game play to the learning landscape to make it more entertaining and engaging. USA is the largest contributor to this market and is expected to reach a size of USD 12.6 billion by 2023, growing at a rate of 47% CAGR. The current size of this market in US alone, is more than 2x of Indias entire gaming industry. The Size of opportunity is huge and its at a very nascent stage globally. So far schools in India have not completely adopted the concept of gamification of education as they feel it takes out the seriousness from education
Kiddopia is one of the most popular apps in gamified early learning in USA(Acquired 50.91% Stake in Oct-19) The content for Kiddopia is designed in-house in india while focusing on basic Math, ,Spelling, Colour, Basic Games in alignment with Pre-School and Kindergarten. It caters primarily to children aged between two to 7 years.
There is an initial trial period of seven days, following which one can opt for a monthly or annual subscription plan. Yearly is priced at 59.99 USD. Monthly subscription rates have recently been revised to 7.99 USD from the earlier 6.99 USD per month.so that’s a 15% jump, benefit of which will be seen in the coming months.
It gets 89% revenues from US but its share in US is just 4-5%. Its already active in UK, Australia, Germany, Spain,. Company claims that Right now they are still tinkering in those markets trying to get the find the optimum CAC
Very good trial to activation conversion ratio of 70%. Monthly churn is in a low range between 4% - 7%
When Nazara acquired Kiddopia in 2019 the subscriber base consisted of 115k paying subscribers. That has grown to 320k paying subscribers as of June 2021.This is a 25% increase as compared to June 2020 (257,413). However, compared to March 2021 (340,482) we have seen a 5% decline. That’s due to the impact of Apple’s privacy policy. Apple sometime back launched a new feature because of which now one needs explicit consent to track users on other apps/websites .The result has been that it has reduced the data on the users. User identification for targeted advertising is not possible like it used to be. Kidoppia gets more than 90% users from Ios but this not just a kiddopia problem alone .Their competitors have the same problem. The company believes the majority of this impact has been absorbed.
Although the revenue traction would continue to remain robust one shouldnt expect ebidta margins to go up because they will continue to invest to get higher market share
I would like to see if this growth sustains once preschools re-open .
REAL MONEY AND SKILL GAMING are games were players have a chance to win money based on outcomes of skill or chance. Games such as Dream 11,Online Poker, Rummy, ludo, have gained significant traction in the Indian market in the recent years. Real money skill gaming contributes 80% of the mobile gaming market
Between 2018 and 2020, Online Fantasy Sports (OFS) revenue registered a 9.4x growth. While cricket remains the favourite sport, Indians have started following football, kabaddi, basketball, hockey etc . 50% traffic is from Tier 2 and Tier 3 cities
However this category is fraught with statutory risk and there have been instances of multiple states banning all forms of online real money gaming. Gambling is a state subject in India . Real money gaming Is gambling if the outcome is based on chance. More skill, less chance is legal. Now what is skill and what is chance is subjective and that’s where the whole debate is.
Then theres the issue of taxation. Currently GST is paid on platform fees but there is talk of imposing GST on prize money. Govt has formed a committee to resolve these issues but there isn’t much clarity yet
HALAPLAY is a sports fantasy app where users can form their own teams (cricket,football) and bet real money.( Acquired in Mar’19 -64.7% Stake) They charge a 6-7% Platform Fee based on the total gaming transaction of the user.So as the number of users increase, the prize pools get bigger and so does Halaplay revenues. (It also has Qunami which is a trivia game but I don’t have info on it worth sharing)
Now this segment is just 3% of revenues but they do plan to take this up to 8% of revenues. (Now the problem with that is that nazara as a company looks for profitable growth in all their business vertical. at a an ebidta level but this whole real money skill gaming space is seeing a lot of companies getting massive funding from PE funds.and these companies dont care abt profitable growth right now. so how do u compete with them?).
Nazara feels this segment is very large but they want to avoid huge cash burn for user acquisition till theres some clarity on these statutory issues .Its currently loss making. They have indicated that they might do an acquisition here at some stage.
TELCO SUBSCRIPTION Business is Nazara’s legacy business. Its primarily focused on offering a catalogue of Android and HTML5 games to mass mobile internet users and first-time mobile gamers in emerging markets including India, South Asia, Africa and Middle East. They enter into revenue sharing arrangements with telecom operators.
1,000+ games offerings to mobile users in 58 countries through 52 telecom operators (Revenue from this section contributed 97.91% of revenue from operations as of FY2017 from 113 telecom operators situated in 61 countries).
They are typically offered in a bouquet format, through periodic subscriptions or on a downloadable basis. India business took a big hit once Jio came out with bundled offers
This business has been on a decline for the last 4 years. When u have so many free games why will anyone pay for a game which is inferior in content, So I feel these revenues are expected to decline even though management has guided for flattish revenues. Management is still hopeful and trying to revive this segment. Recently they acquired rights to distribute a library of premium Disney and Star Wars games
Below is segmental break up from DRHP.Looking at consolidated financials doesnt make sense because of acquisitions
RISKS
Real money games are subject to regulatory risks
eSports business revenues gets most of its revenues from a few customers and a few games. If some other game gets banned like PUBG did then it can effect revenues
CAC may go up for Kiddopia due to Apples privacy update. This is a key monitorable and one will have to see how the company fairs in coming quarters
Highly competitive industry with low barriers to entry
THE FRIENDS OF NAZARA network and some thoughts . Gaming is not a winner-take-all business. Every game has a shelf life.Its Best to look at games as movies. An investment in Nazara is essentially a bet on the management being able to capture the opportunities that this fast moving industry presents. Thats finding good acquisition targets and then scaling them like they have done so far. Their various segments - world cup cricket, kiddopia,halaplay,nodwin gaming,sportskeeda have all been acquired in the last 2-4 years. Nazara has a majority stake in all of them but the day to day operations are still run by the original founders of these firms.Now typically you might see this as a bad thing but gaming is a very dynamic and fast moving world where you can get disrupted faster than you can think. A game is popular today and tomorrow its gone. So the idea is to spread your risks by diversifying. This is what the company calls FRIENDS OF NAZARA where they acquire a majority controlling stake in companies where the founders are still interested in running the business. (Companies acquired must have already a proven business model). For the founders of these acquired firms they see understand how nazara can help them scale up their business which is something the management has demonstrated. Plus they too realise how risky gaming is and are happy to take a stake in nazara instead.That way even they de-risk their portfolio. And while doing all of this Nazara will avoid cash burn which is how they have operated so far
Now Real money skill gaming is where the money is in the near term but in the long term this kind of growth has a ceiling.This segment is not inclusive. What I mean by that is not everyone wants to do real money gaming. Plus in my opinion its more fun watching someone play a cricket simulation game than watch someone play rummy, teen patti or fantasy sports. As the Indian market matures you will see IAP model dominating and advertising taking a backseat just like it is globally. When game publishers see that money flowing, they will want to promote their own games via esports.OTT platforms will want the media rights due to increased viewership and just like Ipl, these rights will keep getting more expensive. If this actually plays out them it could be huge for Nazara.
If you wanna value NAzara it cant be a multiple of earnings or EBIDTA because they have clearly stated that they will plough back whatever they make into the business while staying EBDITA positive. In my opinion its best to look at Ev/Sales
Disc: 1% of holding (Will keep adding at regular intervals)
Book "100 BAGGERS "By CRISTOPHER MAYER
(Book based on Retrospective study)
-Summary by Dr Pragnesh shah
(MD gynec ,laparoscopic surgeon)
Motera ,Ahmedabad
…
ESSENTIAL PRINCIPLES FOR 100 BAGGERS
…
1…CONSISTENT HIGH ROE/ROCE
=The most important principle
=. It’s so important it’s worth repeating again: you need a business with a high return on capital with the ability to reinvest and earn that high return on capital for years and years.
=Everything else is ancillary to this principle.
==Consider a business with $100 invested in it. Say it earns a 20 percent return on its capital in one year. A 20 percent return implies $20 in earnings. But the key to a really great idea would be a business that could then take that $20 and reinvest it alongside the original $100 and earn a 20 percent return again and again and again.
=Charlie Munger, vice chairman of Berkshire Hathaway said, Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount.
Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.
=It’s not the ROE only factor because high-ROE companies can still be lousy investments .
…
2…REINVESTMENT+CONSISTENT HIGH ROE/,ROCE
=I would instead emphasize looking for high returns on capital and the ability to reinvest and produce high returns for years and years
=However, we should prefer a company that can reinvest all of its earnings at a high clip. If it pays a dividend, that’s less capital
that it has to reinvest. And that reduces the rate of return
=Consistent ROE shows management’s skill to reinvest as explained below
Say we have a business with $100 million in equity, and we make a $20
million profit. That’s a 20 percent ROE. There is no dividend. If we took that $20 million at the end of the year and just put it in the bank, we’d earn, say, 2 percent interest on that money. But the rest of the business would
continue to earn a 20 percent ROE.
“That 20 percent ROE will actually come down to about 17 percent in
the first year and then 15 percent as the cash earning a 2 percent return
blends in with the business earning a 20 percent return,”
=“So when you see a company that has an ROE of 20 percent year after year, somebody is taking the profit at the end of the year and recycling back in the business so that ROE can stay right where it is.”
=A lot of people don’t appreciate how important the ability to reinvest
those profits and earn a high ROE is.
=Jason told me when he talks to
management, this is the main thing he wants to talk about: How are you
investing the cash the business generates
=The ROE doesn’t have to be a straight line. Jason used the example
of Schlumberger, an oil-and-gas-services firm. He’ll use what he calls “through-the-cycle ROE.” If in an off year ROE is 10 percent, and in a good
year it’s 30 percent, then that counts as a 20 percent average.
“I’m comfortable buying that kind of stock,” Jason said,
…
3…DONT FOCUS FOR SMALL GAINS
ONLY FOCUS FOR 100 BAGGERS
=. You have to Look for multibaggers only (Dont focus momentum stocks for small gain)
=So, rule number one for finding 100-baggers is that you have to look for them—and that means you don’t bother playing the game for eighths and quarters, as the saying goes.
=Don’t waste limited mental bandwidth on stocks that might pay a good yield or that might rise 30 percent or 50 percent.
=You only have so much time and so many resources to devote to stock research. Focus your efforts on the big game: The elephants.The100-baggers.
…
4…GROWTH, GROWTH AND MORE GROWTH
=Sales>10%…pat>20%…
=TOPLINE>10%
=If you have a company with
tons of cash flow but top-line [sales] growth is 5% or less, the stock doesn’t go anywhere,” he said.
= Jason is reluctant to buy a high-ROE company where the top line isn’t
at least 10 percent. But when he finds a good one, he bets big.
= If a company generates a lot of extra sales by cutting its prices and driving down its return on equity, that may not be the kind of growth you’re looking for
…
5…SHORT TERM EARNING FLUCTUATIONS V/S LONG TERM EARNING POWER
=Know business and differentiate short term earning fluctuation from earning power.
=You may miss 100 baggers if u dislike short term fluctuation with intact fundaments
=Don’t get lost following earnings per share on a quarterly basis. Even
one year may not be long enough to judge. It is more important to think
about earnings power. A company can report a fall in earnings, but its
longer-term earnings power could be unaffected
=EARNING POWER reflects the ability of the stock to earn above-average rates of return on capital at above-average growth rates. It’s essentially a longer-term assessment of competitive strengths.
=Failure to distinguish between short term earnings fluctuations
and basic changes in earnings power accounts for much over trading, [and]
many lost opportunities to make 100 for one in the stock market.”
=So, how do you separate the ephemeral(short term) earnings setback from the real thing? Well, there is no substitute for knowing the business you’ve invested in. If you don’t understand what you own, it’s impossible to make a wise choice
=That fundament hasn’t changed. All that’s changed is a temporary dip in earnings because of a cyclical change in fortunes in its customer base. There is no new competitive threat. There was no management change. There is no new regulation or other factor that might change this business in any significant way.
=This is the kind of thinking I do. As you can tell, you can only do this if
you know the business well. Spend less time reading economic forecasters and stock market prognosticators, and spend more time on understanding what you own. If you’re not willing to do it, then you’re not going to net a 100-bagger or anything close to it.
…
6…LOWER MULTIPLE PREFERRED
=You shouldn’t go dumpster(rubbish container) diving if you want
to turn up 100-baggers.
=Great stocks have a ready fan club, and many will spend most of their time near their 52-week highs, as you’d expect.
= It is rare to get a truly great business at dirt-cheap prices.
= If you spend your time trolling stocks with price–earnings ratios of five or trading at deep discounts to book value or the like, you’re hunting in the wrong fields—at least as far as 100-baggers go.
=I say lower multiples “preferred” because you can’t draw hard rules
about any of this stuff. There are times when even 50 times earnings is a bargain. You have to balance the price you pay against other factors.
=One way to look at it is by using something called the PEG ratio,”
Goodman suggests. “The PEG ratio is simply the (P/E Ratio)/(Annual
EPS Growth Rate). If earnings grow 20%, for example, then a P/E of 20 is
justified. Anything too far above 1x could be too expensive.”
=Dont overpay for growth
=It might seem with 100-baggers that you don’t have to worry about the price you pay. But a simple mental experiment shows this isn’t quite right.
=Truly big return comes when
you have both earnings growth and a rising multiple. Ideally, you’d have
both working for you.I call these two factors—growth in earnings and a higher multiple on those earnings—the “twin engines” of 100-baggers
…
7…MOATS
=In the overwhelming number of cases, a company needs to do something well for a very long time if it is to become a 100-bagger.
=So, what signs can we look for in a business that it has what it takes
to run for 20 years?
This gets us to the topic of moats
=A moat is what protects a business from its competitors.
= company with a moat
can sustain high returns for longer than one without.
A…You have a strong brand
B…Technology moat
C…low cost production
D…You enjoy network effects.
E…It costs a lot to switch
F…Entry barrier
G…Biggest company in small market
=Look for financial statements. Specifically, the higher the gross margin relative to the competitiors, the better.
=Moat, even a narrow moat, is a necessity for 100 baggers
…
8…SMALLER COMPANIES PREFERRED(<7000 cr)
=The median sales of 100 baggers companies @ $170 million(1200cr)
=On the other hand, you shouldn’t assume you need to dive into microcaps and buy 25-cent stocks.
It is not like you have to search microcaps for 100 baggers
=As a general rule, I suggest focusing on companies with market caps
of less than $1 billion
(<7000cr mcap).
=Not a necessity (remember, smaller companies “preferred”), but staying below such a deck will make for a more fruitful search than staying above it.
=Small companies can grow to 10 times or 20 times and still be small. They can even become 100-baggers
…
9…MANAGEMENT
=“In the ultimate analysis, it is the management alone which is the 100x
alchemist,” they concluded. “And it is to those who have mastered the art
of evaluating the alchemist that the stock market rewards with gold.”
= Investing with top entrepreneurs and owner-operators
gives you a big edge. And when you mix that talent with the other elements, you are on your way to big returns, if not 100-baggerdom
…
10…OWNER OPERATORS PREFERRED
=You invest your money in the same securities the people who control the business own. What’s good for them is good for you. And vice versa
=I say the best thing to do is invest with management teams that own a lot of stock.
=People with their own wealth
at risk make better decisions as a group than those who are hired guns. The end result is that shareholders do better with these owner-operated firms
…
11…GO BEYOND NUMBERS
=Early on, I relied on reported numbers and I screened for statistical cheapness. I’d look for low P/E stocks, for example.Everyone can see these numbers. Yet, these methods can still work well.
=Over time, however, I’ve learned that knowing what the numbers
don’t show is worth more than any statistic.
=. I want to find that something else is going on in the business that makes it attractive.
=I talk to a lot of people in the course of a year—investors, executives,
analysts and economists.
= Ideas can come from anywhere. But my best ideas often come from people.
=Hidden stories exist. And there is a person, somewhere, who knows that story.
=Make an effort to find those people and their stories
…
12…BUY BORING STOCKS
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story. So boring stocks sell at a discount. Buy enough of them
…
13…AVOID HOT SECTORS
=Avoid the hot sectors of whatever market you’re in.
= . That’s where promoters and shysters go because
that’s where they can get the biggest bang for the buck. The sector is rife
with fraud.
…
14…DO ENOUGH RESEARCH
…When someone tells me they can’t find anything worth
buying in this market, they are just not looking hard enough. With 10,000 securities today, even one-half of 1 percent is 50 names. Kind of makes
you think, doesn’t it?
…
15…SIMPLEST IS BEST
The best ideas are often the simplest.
=The price of a stock varies inversely with the thickness of its research file. The fattest files are found in stocks that are the most troublesome and will decline the furthest. The thinnest files are reserved for those that appreciate the most
=Peter Lynch comes to mind: “Never invest in any idea you can’t illustrate with a crayon
…
16…DIVIDENDS
= When a company pays a dividend, it has that much less capital to reinvest. Instead, you
have it in your pocket—after paying taxes. Ideally, you want to find a
company that can reinvest those dollars at a high rate of ROE . You wind up with
a bigger pile at the end of the day and pay less in taxes
=If the company had paid dividends, the story would be quite different.
Say it paid out one-third of its earnings. It would then take 15 years to quadruple its capital, not 10. And in 33 years, it would be up 23-fold,
instead of being a 100-bagger.
=Obviously,” Phelps concludes, “dividends are an expensive luxury for
an investor seeking maximum growth. If you must have income, don’t expect your financial doctor to match the capital gains that might have been
obtainable without dividends. When you buy a cow to milk, don’t plan to
race her against your neighbor’s horse.”
…
17…BUYBACK
=When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look. You may have found a candidate for a 100-bagger
=In a slow- to no-growth
economy, this tactic is becoming a more important driver of earnings-per share growth.
=Buyback criteria
A…Company should have available funds—cash plus sensible borrowing capacity—beyond the near-term needs of the business and
B…second, finds its stock selling
in the market below its intrinsic value, conservatively calculated.
…
18…DIVERSIFICATION
=Whatever study u have done, sometime luck may be against you
=So diversify in 10 to 20 stocks
…
19…HOLD STOCK FOR LONG TERM
=To net a 100-bagger, you need to hang onto a quality stock for a number of years
= A more likely journey will take 20–25 years for 100 baggers
=If you buy a stock that returns about 20 percent annually for 25 years,
you’ll get your 100-bagger. But if you sell in year 20, you’ll get “only”
about 40 to 1—before taxes. The last five years will more than double your
overall return (assuming the annual return is constant). So, you must wait.
This is not to discourage you. You can earn great returns in less than
20 years. But I want to get you to think big.
…
20…BUY BUT DONT FORGET
=Phleps do not recommend putting them away and forgetting them
=Peter lynch also recommends holding stocks until fundaments deteriorate
=Check your investment thesis at regular interval
=What if you don’t get a hundredfold return? The point of Phelps’s brilliant teaching method is to focus your attention on the power of compounding until fundaments are intact. After all, even if you catch part of a 100-bagger, the returns could fund a retirement.
…
21…EVERYMAN’S APPROACH
=JUST HOLD ON GOOD QUALITY STOCKS IS EVERYMAN’S REPLICABLE APPROACH .
=Very few people are successful traders while there is long list of successful investors
=In the markets, you can find all kinds of crazy success stories, such as
the improbable traders of Market Wizards fame—including Jim Rogers,
Paul Tudor Jones and Michael Steinhardt—. These never interested me, for many reasons, but one big reason is they struck me as freakish. The gains were enormous, but the process was not replicable—certainly not by the everyman.
=You’ve also seen how ordinary people can achieve the lofty returns
of 100-bagger dom by simply holding onto good stocks. You don’t have to have an MBA or work at a hedge fund.
=It seems so simple, but few actually ever achieve it by holding for years
=To make money in stocks you must have
…“the vision to see them,
…the courage to buy them and
…the patience to hold them.”
… According to Phelps, “patience is the rarest of the three.
…
22…COFFEE CAN PORTFOLIO
=You take some portion of your money and create a “coffee-can portfolio.” What you put in it, you commit to holding for 10 years. That’s it. At the end of 10 years, you see what you have. Coffee-can experience
says you will have found at least one big winner in there.
=Of course, investing in the buy-and-hold manner means sometimes you will be hit with a nasty loss.
=But that is why you own a portfolio of stocks. To me, investing in stocks is interesting only because you can make so much on a single stock
=Coffee-can theory says you’ll have done better this way than if you had tried to more actively manage your stocks.
=Knowing this, you need to find a way to defeat your own worst instincts—the impatience, the need for “action,” the powerful feeling that
you need to “do something.” To defeat this baleful tendency, I offer you the coffee can as a crutch.
=I’m a big fan of the coffee-can approach
…
23…YOU SHOULD BE RELUCTANT SELLER
=If you are hunting for 100-baggers, you must learn to sit on your ass.
Buy right and sit tight.
So when to sell
In his book Common Stocks and Uncommon Profits, Phil Fisher had a
chapter called “When to Sell.”
…If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
=But even Fisher allows thrre and only three reasons to sell:
A…You’ve made a mistake in original purchase
B…The stock no longer meets your investment criteria(change in fundaments)
C…Better opportunity
… Switching is treacherous .
Every stock that’s moving looks better than the one you’re thinking of selling. And there are always stocks that are moving.
…Investors too bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes
them to make a lot of trades and never enjoy truly mammoth returns
=So in summary
“If you’ve done the job right
and bought a stock only after careful study, then you should be a reluctant seller”.
…
24…DONT SELL WHEN
=STOCK IS TOO HIGH OR HIGH PE
=STOCK HAS FALLEN
=STOCK IS GOING NO WEHERE
(Stock price is not indication for reason to sell)
A…STOCK IS TOO HIGH OR HIGH PE
=During periods of rapid share price appreciation, stock prices
can reach lofty P/E ratios. This shouldn’t necessarily discourage one from continuing to hold the stock.
B…STOCK HAS FALLEN
=Monster Beverage became a 100-bagger in 10 years,
…I count at least 10 different occasions where it fell more than 25 percent during that run.
… In three separate months, it lost
more than 40 percent of its value.
… Yet if you focused on the business—and not the stock price—you would never have sold. And if you put $10,000 in that stock, you would have $1 million at the end of 10 years
C…STOCK IS GOING NO WEHERE
=Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years but still delivered the big 100 to 1
…
25…TIMING MARKET
=Mr. Lynch has taught us - ‘’Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves
=Phelps also stands against market timing. He told me about how
he predicted various bear markets in his career. “Yet I would have been
much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”
=Because of his bearishness, he missed opportunities that went on to deliver 100 to 1. “Bear market smoke gets in one’s eyes,” he said, and it
blinds us to buying opportunities if we are too intent on market timing
…
26…DIGEST VOLATILITY
(UPS N DOWNS)
=The biggest hurdle to making 100 times your money in a stock—or even just tripling it—may be the ability to stomach the ups and downs and hold on.
=The problem isn’t only that we’re impatient. It’s that the ride is not
often easy
=Netflix, which has been a 60-bagger since 2002, lost 25 percent of its value in a single day—four times! On its worst day, it fell 41 percent. And there was a four-month stretch where it dropped 80 percent
= Apple from its IPO in 1980 through 2012 was a 225-bagger.
But . . .
Those who held on had to suffer through a peak-to-trough loss of 80
percent—twice! The big move from 2008 came after a 60 percent drawdown. And there were several 40 percent drops. Many big winners suffered similar awful losses along the way
…
27…DONT GET BORED
=People often do dumb things with their portfolio just because they’re
bored. They feel they have to do something
=Why do people buy and sell stocks so frequently? Why can’t they just
buy a stock and hold it for at least a couple of years? (Most don’t.) Why
can’t people follow the more time-tested ways to wealth?
BECAUSE PEOPLE GET BORED
=People get bored
holding the same stock for a long time—especially if it doesn’t do much.
…They see other shiny stocks zipping by them, and they can’t stand it. So they chase whatever is moving and get into trouble.
=Wanger used to say, investors
tend to like to “buy more lobsters as the price goes up.” Weird, since you
probably don’t exhibit this behavior elsewhere. You usually look for a deal when it comes to gasoline or washing machines or cars. And you don’t sell your house or golf clubs or sneakers because someone offers less than what you paid
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story.
=So boring stocks sell at a discount. Buy enough of them
…
28…DONT CHASE RETURNS
=Don’t try to chase returns, because
doing so will cost you a lot of money over time
=There really isn’t anything intelligent to say about returns over months or year
=Besides, who cares about one year?
…You have to play the long game.
…There are approaches and investors who have beaten the market by a solid margin over time.
…The thing is, they seldom beat the market consistently
=The best investors lag the market 30–40 percent of the time
=None in the superstar investor group always beat the S&P 500 probably because no
one thought that was the primary objective.”
=As I say, there are ways to beat the market over time. But none of
these approaches always beats the market.
…Even the best lag it, and often.
=As an individual, though, you have a great advantage in that you can ignore the benchmark chasing.
=Keep that in mind before you reshuffle your portfolio after looking at year-end results. Don’t chase returns! And don’t measure yourself against the S&P 500 or any other benchmark. Just focus on trying to buy right and hold on
=Invest like a Dealmaker.
=Most people chase returns.
…As an example,
consider one of my favorite studies of all time, by Dalbar. It showed that
the average mutual fund earned a return of 13.8 percent per year over the length of the study. Yet the average investor in those funds earned just 7 percent. Why?
=Because they took their money out after funds did poorly and put it
back in after they had done well. Investors were constantly chasing returns
…
29…DON’T GET SNOOKERED:
AVOID SCAMS
A…MANAGEMENT
=Reading conference-call transcripts is better than listening to them(visiting them).
=In summary, it is “best to keep management at a distance.
B…On Boards
=Boards are supposed to represent shareholders, but they don’t. As Block said, there is a symbiotic relationship with CEOs. Board members often
view their directorship as a perk, not a responsibility. Insurance and other
protections insulate boards from liability.
=Moreover, board investigations into misdeeds are unreliable. When
boards have to investigate something, it’s like asking them to admit their own incompetence, Block said. You can’t rely on them.
C…Lawyers
Lawyers “make it difficult for investors to make good decisions.” They represent the interests of their clients—the people who pay them—not investors.
“‘Prestigious’ law firms are a surprisingly effective fig leaf,” Block said.
They are great at writing indecipherable prose. And the attorney–client
privilege “hides innumerable acts of corporate wrongdoing.”
D…Auditors
“Auditors are completely misunderstood,” Block said. Again, they represent the interest of their clients—the people who pay them. I’m reminded of the old saying “Whose bread I eat, his song I sing.”
Block talked about how it is a profession that rewards failure. Negative audits often lead to lifetime employment because the firm is fearful of being sued and wants the auditor around to help get it out of any messes.
Further, Block said, accounting is “a profession fighting against
accountability and transparency. They [the big auditing firms] fight disclosures repeatedly. They do not want to provide investors with a better window into audits
E…Investment Banks
=Obviously, the investment banks have an incentive to sell financial products—stocks, bonds, and so on. They are not looking out for your interest.
=If you don’t know this by now, here it is: don’t look to research put out
by investment banks or brokerage houses as a source of advice on where you should invest.
F…Market-Research Firms
This one was interesting because you often see “market research” quoted
from the likes of Frost & Sullivan and iResearch. Block said companies
hire these firms and often give them the research to get the report they
want. Market research is there to add legitimacy to management’s claims.
It’s not to help you make a good decision.
Distrust market research. Look for more objective sources of information, such as actual sales data and trends.
…
30…DO IGNORE FORECASTERS
=One large study covered nearly 95,000 consensus estimates from more than two decades. It found the average estimate was off by more than 40 percent
=David Dreman writes about this in his book Contrarian Investment
Strategies. Digging deeper, he finds the analysts made consistent errors in one direction: they were too optimistic
=So if you put the two together, you quickly come to realize the odds of
you owning a stock that doesn’t suffer a negative earnings surprise is pretty small.
=Many people spend a great deal of time trying to guess where the
economy or the stock market is going. And yet, there are countless studies that show the folly of such forecasting
=They have missed every recession
in the last four decades
…
31…IGNORE MACRO
=There is a world of noise out there. The financial media is particularly
bad. Every day, something important happens, or so they would have
you believe.
-They narrate every twist in the market.
-They cover every Fed meeting.
-They document the endless stream of economic data and reports.
-They give a platform for an unending parade of pundits.
-Everybody wants to try to call the market, or
-They predict where interest rates will go or
-They predict the price of oil or whatever.
=My own study of 100-baggers shows what a pathetic waste of time this all is. It’s a great distraction in your hunt for 100-baggers.
…
32… MARKET CRASH-HUGE OPPORTUNITY
=2008 like disasters create “easier” opportunities to make hundredfold returns
…
MY JOURNEY
I have started my investment journey in 2017 bull run.I have paid my tution fees by learning from my initial losses. Then i started reading books .I am deeply inspired by two books
1…One up on wall street by peter lynch
2…100 baggers by Cristopher mayer
=One up on wall strret is very popular while 100 baggers is still less known to people.
=This book inspires us to invest for very long duration like 20 to 25 yrs and find out 100 baggers( repeat 100 baggers Not 10-20 baggers).
=In today’s era,where young people hardly stay invested for 6 months ,20-25 yrs investment in same stock is next to impossible for most of people.
=IF WE FOLLOW THESE PRINCIPLES AND STAY INVESTED FOR ATLEAST 5-10 YEARS, IT WILL MAKE GREAT RETURN
=At last, i am also very new to market with 4 yrs experience and trying to follow these principles.
Intro: Nazara was started in 1999 by Nitish Mittersain while he was still in college. He doesnt have any meaningful interest in any other business. He is still involved in the business along with the CEO Manish Agarwal who has been with the company since 2015
I have highlighted my commentary in italics. Some of it is just opinion
In order to understand Nazara its essential that one understands the gaming industry and its potential in India. So in this post you ll read about the gaming industry as much as the business verticals of Nazara
Below chart illustrates the size of the gaming industry
Globally, Mobile gaming is growing faster than console / pc gaming and also forms the largest chunk in terms of revenues. Half of the global population now owns a smartphone, which makes for a massive market of potential mobile gamers; and, unlike PC and console gaming it’s a lot more affordable. It is expected that the number of mobile gamers will continue to grow faster than PC and console gamers as global smartphone penetration increases, and more of those smartphone owners become casual gamers.
The story isn’t very different at home either. Not only is mobile gaming largest in terms of revnue and the fastest growing segment in idnia as compared to PC and Console gaming. This segment was valued at USD 1.2 billion in 2020 and is expected to reach a value of USD 3.1 billion by 2023, growing at a CAGR of 39.6% during this period as compared to the growth rates in China and the US, which stood at 14.6% and 12.2% respectively
Changing Landscape
Increase in numbers of gamers due to cheap data & growing mobile penetration
Demographic shift (average age of Indian gamer is 24 years old vs 31 & 32 years in USA and china respectively)
Teenagers playing video games in todays India are likely to continue gaming in their 30s.Gaming is not something most people start at the age of 30
Increased disposable income along with habit formation(The average annual spend on gaming per individual in India is USD 23, while in USA and China that stands at USD 113 and USD 115 respectively)
A lot of 20 year olds are willing to pay for gaming as they see it as another form of entertainment and are likely to spend more as they older
Local games are going mainstream (games like ludo king carrom teen patti have become very popular specially during the lockdown )
Social Gaming : Large online Communities are formed around certain popular games. Once a community reaches a critical mass it tends to grow organically (for a game publisher this means new users with minimal Cost of acquisition)
Free to play games: Not too long ago most games were played on PC or Console(XBOX,Playstation,etc) Not everyone could afford it.Today you can play for free and that to anywhere anytime on your phone
Whats an In-App Purchasing(IAP) Model? Historically most free mobile Games used to generate revenue via in-game advertisements (ad banner, video ad between 2 levels etc) but this has completely changed in today’s landscape where most free games come with the option to make in-app-purchases. Users can play for free but they have to pay for certain features / items (extra lives, weapons, maps,collectibles, bonus levels etc).These features wont be available to a basic user or if available it ll require a lot of time to procure. In india the mix is still skewed towards advertising model but that’s changing. Globally Some of the most popular games by revenue such as Dota, Fortnite, PubG, are free-to-play.Once a game is launched, incremental costs for content updates are low, meaning incremental revenues from in-app purchases can have a disproportionate effect on the bottomline
Not all gamers are same. There are about 380 million gamers In India. 90% of them do not pay. Even among the ones who pay for in app purchases, most of the revenues come from a small cohort of gamers. The ones willing to pay are unlikely to play 20 different games. They have a tendency to spend long hours playing a select few games. If you are a game publisher who wants to drive revenues through In-App Purchases you want these serious gamers. They can be very loyal. They wanna be part of social gaming community and they dont mind spending. In the Indian context think of what PUBG has been able to establish Pure advertising model works better with casual gamers . Such kind of games don’t live long becausse they are usually very easy and without a little challenge people eventually get bored. However most developers who make such mobile games are aware of it.It still works because its not very expensive making a basic mobile game.
Freemium(free-to-play) games110 mn+ installs across Cricket (WCC1, WCC2, WCC3, Big Bash League, Rivals, Battle of Chepauk), Carrom and TT
WCC is the world’s largest cricket simulation game franchise on mobile.Its also the most downloaded cricked game.( Acquired 52.38% stake in Dec-2017)
Its played for ~47 minutes / day by ~13.25 Mn monthly active users. (The average time on a casual game is just 15 min)
The Game has a very strong following among those who love virtual sports simulation . It gets over 120,000 downloads every day organically without any marketing spends
As you can see the Daily average users(DAU) is stable with a few spikes seen during IPL . The growth is going to come from in app purchases in WCC3. Currently the conversion is at 0.12% . They expect this number to reach 1.0% by FY25. (In app revenues grew by 75% YoY in Q1FY22).
As per management Revenues here were flattish for FY21 because they switched to an IAP model from Advertising model and EBIDTA dipped because of content cost for latest game title WCC3
Sports game titles generally have a longer shelf life. The best example of this is a game franchise called FIFA by EA sports. Even though there have been a lot video games on football over the years FIFA is the one with a cult following.Something like that is happening here.
ESPORTS is video gaming at a competitive level. Millions of viewer watch this around the world just like any other sporting event.The prize money in some of these tournament goes into million of dollars. Its so mainstream now that Its already a part of Asian games 2022 and There’s talks about including eSports in the Olympic Games.
Its a billion dollar market growing at 16.15% CAGR and China is the largest esports market in the world. However the eSports market in India is expected to grow faster than china at a CAGR of 25.1% for the next couple of years.
The eSports ecosystem consists of game publishers, gamers, Media & OTT platforms (Twitch, YouTube, etc.), and eSports companies
eSports companies (Nodwin, Jetsynthesys, Gaming Monk, Gamerji, e-war etc) are the ones that host regular events and tournaments where professional players compete for large prize pool. They provide infrastructure , manage online registrations, provide administrative support and contribute to prize pool. Game publishers are their partners in this. Game Publishers are the ones that provide game titles.For game publishers esports is like a marketing tool. More tournaments means more visibility and more fan engagement. Some game publishers have their own Esports unit. Then u have your professional Gamers who are often part of a Team just like in cricket. Some professional gamers are nothing short of celebrities in the gaming world. Streaming live for hours, these gamers get millions of views on YouTube. Then u have media and OTT platforms who showcase these events .(YouTube,Twitch,Facebook gaming,Hotstar etc). Just like in any other sport Media and OTT companies pay for media rights to broadcast/stream. Now as the popularity of eSports grows, more media companies will want a piece of the action and these media rights will keep getting more expensive. Globally there are tournaments that are filling stadiums bigger than our cricket stadiums. Also as viewership of Esports increase in India , more sponsors will want in. All of this is still at a very nascent stage , with a growing number of casual gamers turning professional, increasing sponsorship from brands and a steady increase in the number of tournaments and cash prize pools.
Nodwin Gaming is the Only company in India to have rights over professional eSports tournament IP’s & content IP’s across regional, national and international eSports.Some IPs are 100% owned by Nodwin while others are shared with game publishers.( Acquired 54% stake in Jan-18)
It has a market share of about 70-80%(measured in terms of the total prize pool)
Its a pioneer and it has strong relationships with global gaming publishers and platforms.It has exclusive partnerships with the biggest names in the industry and manages gaming events such as the ESL India Premiership, KO Fight Nights, etc…
Media rights licensing contributed 49% of Nodwin revenue in Q1FY22 and 55% in FY21.Game publishers formed around 30% and Sponsors 15%
*One of the games which really drove esports popularity in India was PUBG which got *banned last year( Anti-China sentiment). The game is back with a new name and its original korean game publisher Krafton. Recently Krafton invested Rs. 164 crore for ~15% Stake in Nodwin. The influx of funds will be used for the development of esports in three regions – South Asia, Middle East and Africa. Currently there are no offline events because of restriction due to covid but whenever its allowed we can expect Nodwin to host the official event.
It also hosts tournaments for WCC(now sport simulation games based on football or basket ball or cricket form a very small part of esports globally. most of it is games like PUBG DOTA CS etc however sports simulation games is gaining traction and in a country like India where cricket is like a religion i see a strong possibility of a cricket simulation game ,playing a key role in introducing a lot of first viewers to esports and once ppl watch it doesnt feel so weird to them and they actually enjoy it. and more viewership means more sponsors, more game publishers and more money)
ESPORTS MEDIASportskeeda ia leading sport and eSports news destination website with content across WWE, eSports, cricket, soccer and basketball . (Acquired 63.9% stake in June’19. ) It’s the argest eSports news destination in India.
Content on Sportskeeda is primarily sourced from freelance sports journalists in India and overseas.
Sportskeeda generates revenues by displaying advertisements on its website, which are sourced through leading ad-networks and programmatic-demand-channels. (programmatic revenues means that you have an inventory on your platform, you connect it to the various ad networks which see fitment of their advertisers and the users which you have as a publisher on your platform, and they serve ads)
Q1 FY22: 60.54 million MAUs and 121.44 million visits per month
GAMIFIED EARLY LEARNING tries to bring various elements of game play to the learning landscape to make it more entertaining and engaging. USA is the largest contributor to this market and is expected to reach a size of USD 12.6 billion by 2023, growing at a rate of 47% CAGR. The current size of this market in US alone, is more than 2x of Indias entire gaming industry. The Size of opportunity is huge and its at a very nascent stage globally. So far schools in India have not completely adopted the concept of gamification of education as they feel it takes out the seriousness from education
Kiddopia is one of the most popular apps in gamified early learning in USA(Acquired 50.91% Stake in Oct-19) The content for Kiddopia is designed in-house in india while focusing on basic Math, ,Spelling, Colour, Basic Games in alignment with Pre-School and Kindergarten. It caters primarily to children aged between two to 7 years.
There is an initial trial period of seven days, following which one can opt for a monthly or annual subscription plan. Yearly is priced at 59.99 USD. Monthly subscription rates have recently been revised to 7.99 USD from the earlier 6.99 USD per month.so that’s a 15% jump, benefit of which will be seen in the coming months.
It gets 89% revenues from US but its share in US is just 4-5%. Its already active in UK, Australia, Germany, Spain,. Company claims that Right now they are still tinkering in those markets trying to get the find the optimum CAC
Very good trial to activation conversion ratio of 70%. Monthly churn is in a low range between 4% - 7%
When Nazara acquired Kiddopia in 2019 the subscriber base consisted of 115k paying subscribers. That has grown to 320k paying subscribers as of June 2021.This is a 25% increase as compared to June 2020 (257,413). However, compared to March 2021 (340,482) we have seen a 5% decline. That’s due to the impact of Apple’s privacy policy. Apple sometime back launched a new feature because of which now one needs explicit consent to track users on other apps/websites .The result has been that it has reduced the data on the users. User identification for targeted advertising is not possible like it used to be. Kidoppia gets more than 90% users from Ios but this not just a kiddopia problem alone .Their competitors have the same problem. The company believes the majority of this impact has been absorbed.
Although the revenue traction would continue to remain robust one shouldnt expect ebidta margins to go up because they will continue to invest to get higher market share
I would like to see if this growth sustains once preschools re-open .
REAL MONEY AND SKILL GAMING are games were players have a chance to win money based on outcomes of skill or chance. Games such as Dream 11,Online Poker, Rummy, ludo, have gained significant traction in the Indian market in the recent years. Real money skill gaming contributes 80% of the mobile gaming market
Between 2018 and 2020, Online Fantasy Sports (OFS) revenue registered a 9.4x growth. While cricket remains the favourite sport, Indians have started following football, kabaddi, basketball, hockey etc . 50% traffic is from Tier 2 and Tier 3 cities
However this category is fraught with statutory risk and there have been instances of multiple states banning all forms of online real money gaming. Gambling is a state subject in India . Real money gaming Is gambling if the outcome is based on chance. More skill, less chance is legal. Now what is skill and what is chance is subjective and that’s where the whole debate is.
Then theres the issue of taxation. Currently GST is paid on platform fees but there is talk of imposing GST on prize money. Govt has formed a committee to resolve these issues but there isn’t much clarity yet
HALAPLAY is a sports fantasy app where users can form their own teams (cricket,football) and bet real money.( Acquired in Mar’19 -64.7% Stake) They charge a 6-7% Platform Fee based on the total gaming transaction of the user.So as the number of users increase, the prize pools get bigger and so does Halaplay revenues. (It also has Qunami which is a trivia game but I don’t have info on it worth sharing)
Now this segment is just 3% of revenues but they do plan to take this up to 8% of revenues. (Now the problem with that is that nazara as a company looks for profitable growth in all their business vertical. at a an ebidta level but this whole real money skill gaming space is seeing a lot of companies getting massive funding from PE funds.and these companies dont care abt profitable growth right now. so how do u compete with them?).
Nazara feels this segment is very large but they want to avoid huge cash burn for user acquisition till theres some clarity on these statutory issues .Its currently loss making. They have indicated that they might do an acquisition here at some stage.
TELCO SUBSCRIPTION Business is Nazara’s legacy business. Its primarily focused on offering a catalogue of Android and HTML5 games to mass mobile internet users and first-time mobile gamers in emerging markets including India, South Asia, Africa and Middle East. They enter into revenue sharing arrangements with telecom operators.
1,000+ games offerings to mobile users in 58 countries through 52 telecom operators (Revenue from this section contributed 97.91% of revenue from operations as of FY2017 from 113 telecom operators situated in 61 countries).
They are typically offered in a bouquet format, through periodic subscriptions or on a downloadable basis. India business took a big hit once Jio came out with bundled offers
This business has been on a decline for the last 4 years. When u have so many free games why will anyone pay for a game which is inferior in content, So I feel these revenues are expected to decline even though management has guided for flattish revenues. Management is still hopeful and trying to revive this segment. Recently they acquired rights to distribute a library of premium Disney and Star Wars games
Below is segmental break up from DRHP.Looking at consolidated financials doesnt make sense because of acquisitions
RISKS
Real money games are subject to regulatory risks
eSports business revenues gets most of its revenues from a few customers and a few games. If some other game gets banned like PUBG did then it can effect revenues
CAC may go up for Kiddopia due to Apples privacy update. This is a key monitorable and one will have to see how the company fairs in coming quarters
Highly competitive industry with low barriers to entry
THE FRIENDS OF NAZARA network and some thoughts . Gaming is not a winner-take-all business. Every game has a shelf life.Its Best to look at games as movies. An investment in Nazara is essentially a bet on the management being able to capture the opportunities that this fast moving industry presents. Thats finding good acquisition targets and then scaling them like they have done so far. Their various segments - world cup cricket, kiddopia,halaplay,nodwin gaming,sportskeeda have all been acquired in the last 2-4 years. Nazara has a majority stake in all of them but the day to day operations are still run by the original founders of these firms.Now typically you might see this as a bad thing but gaming is a very dynamic and fast moving world where you can get disrupted faster than you can think. A game is popular today and tomorrow its gone. So the idea is to spread your risks by diversifying. This is what the company calls FRIENDS OF NAZARA where they acquire a majority controlling stake in companies where the founders are still interested in running the business. (Companies acquired must have already a proven business model). For the founders of these acquired firms they see understand how nazara can help them scale up their business which is something the management has demonstrated. Plus they too realise how risky gaming is and are happy to take a stake in nazara instead.That way even they de-risk their portfolio. And while doing all of this Nazara will avoid cash burn which is how they have operated so far
Now Real money skill gaming is where the money is in the near term but in the long term this kind of growth has a ceiling.This segment is not inclusive. What I mean by that is not everyone wants to do real money gaming. Plus in my opinion its more fun watching someone play a cricket simulation game than watch someone play rummy, teen patti or fantasy sports. As the Indian market matures you will see IAP model dominating and advertising taking a backseat just like it is globally. When game publishers see that money flowing, they will want to promote their own games via esports.OTT platforms will want the media rights due to increased viewership and just like Ipl, these rights will keep getting more expensive. If this actually plays out them it could be huge for Nazara.
If you wanna value NAzara it cant be a multiple of earnings or EBIDTA because they have clearly stated that they will plough back whatever they make into the business while staying EBDITA positive. In my opinion its best to look at Ev/Sales
Disc: 1% of holding (Will keep adding at regular intervals)
Book "100 BAGGERS "By CRISTOPHER MAYER
(Book based on Retrospective study)
-Summary by Dr Pragnesh shah
(MD gynec ,laparoscopic surgeon)
Motera ,Ahmedabad
…
ESSENTIAL PRINCIPLES FOR 100 BAGGERS
…
1…CONSISTENT HIGH ROE/ROCE
=The most important principle
=. It’s so important it’s worth repeating again: you need a business with a high return on capital with the ability to reinvest and earn that high return on capital for years and years.
=Everything else is ancillary to this principle.
==Consider a business with $100 invested in it. Say it earns a 20 percent return on its capital in one year. A 20 percent return implies $20 in earnings. But the key to a really great idea would be a business that could then take that $20 and reinvest it alongside the original $100 and earn a 20 percent return again and again and again.
=Charlie Munger, vice chairman of Berkshire Hathaway said, Over the long term, it’s hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount.
Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.
=It’s not the ROE only factor because high-ROE companies can still be lousy investments .
…
2…REINVESTMENT+CONSISTENT HIGH ROE/,ROCE
=I would instead emphasize looking for high returns on capital and the ability to reinvest and produce high returns for years and years
=However, we should prefer a company that can reinvest all of its earnings at a high clip. If it pays a dividend, that’s less capital
that it has to reinvest. And that reduces the rate of return
=Consistent ROE shows management’s skill to reinvest as explained below
Say we have a business with $100 million in equity, and we make a $20
million profit. That’s a 20 percent ROE. There is no dividend. If we took that $20 million at the end of the year and just put it in the bank, we’d earn, say, 2 percent interest on that money. But the rest of the business would
continue to earn a 20 percent ROE.
“That 20 percent ROE will actually come down to about 17 percent in
the first year and then 15 percent as the cash earning a 2 percent return
blends in with the business earning a 20 percent return,”
=“So when you see a company that has an ROE of 20 percent year after year, somebody is taking the profit at the end of the year and recycling back in the business so that ROE can stay right where it is.”
=A lot of people don’t appreciate how important the ability to reinvest
those profits and earn a high ROE is.
=Jason told me when he talks to
management, this is the main thing he wants to talk about: How are you
investing the cash the business generates
=The ROE doesn’t have to be a straight line. Jason used the example
of Schlumberger, an oil-and-gas-services firm. He’ll use what he calls “through-the-cycle ROE.” If in an off year ROE is 10 percent, and in a good
year it’s 30 percent, then that counts as a 20 percent average.
“I’m comfortable buying that kind of stock,” Jason said,
…
3…DONT FOCUS FOR SMALL GAINS
ONLY FOCUS FOR 100 BAGGERS
=. You have to Look for multibaggers only (Dont focus momentum stocks for small gain)
=So, rule number one for finding 100-baggers is that you have to look for them—and that means you don’t bother playing the game for eighths and quarters, as the saying goes.
=Don’t waste limited mental bandwidth on stocks that might pay a good yield or that might rise 30 percent or 50 percent.
=You only have so much time and so many resources to devote to stock research. Focus your efforts on the big game: The elephants.The100-baggers.
…
4…GROWTH, GROWTH AND MORE GROWTH
=Sales>10%…pat>20%…
=TOPLINE>10%
=If you have a company with
tons of cash flow but top-line [sales] growth is 5% or less, the stock doesn’t go anywhere,” he said.
= Jason is reluctant to buy a high-ROE company where the top line isn’t
at least 10 percent. But when he finds a good one, he bets big.
= If a company generates a lot of extra sales by cutting its prices and driving down its return on equity, that may not be the kind of growth you’re looking for
…
5…SHORT TERM EARNING FLUCTUATIONS V/S LONG TERM EARNING POWER
=Know business and differentiate short term earning fluctuation from earning power.
=You may miss 100 baggers if u dislike short term fluctuation with intact fundaments
=Don’t get lost following earnings per share on a quarterly basis. Even
one year may not be long enough to judge. It is more important to think
about earnings power. A company can report a fall in earnings, but its
longer-term earnings power could be unaffected
=EARNING POWER reflects the ability of the stock to earn above-average rates of return on capital at above-average growth rates. It’s essentially a longer-term assessment of competitive strengths.
=Failure to distinguish between short term earnings fluctuations
and basic changes in earnings power accounts for much over trading, [and]
many lost opportunities to make 100 for one in the stock market.”
=So, how do you separate the ephemeral(short term) earnings setback from the real thing? Well, there is no substitute for knowing the business you’ve invested in. If you don’t understand what you own, it’s impossible to make a wise choice
=That fundament hasn’t changed. All that’s changed is a temporary dip in earnings because of a cyclical change in fortunes in its customer base. There is no new competitive threat. There was no management change. There is no new regulation or other factor that might change this business in any significant way.
=This is the kind of thinking I do. As you can tell, you can only do this if
you know the business well. Spend less time reading economic forecasters and stock market prognosticators, and spend more time on understanding what you own. If you’re not willing to do it, then you’re not going to net a 100-bagger or anything close to it.
…
6…LOWER MULTIPLE PREFERRED
=You shouldn’t go dumpster(rubbish container) diving if you want
to turn up 100-baggers.
=Great stocks have a ready fan club, and many will spend most of their time near their 52-week highs, as you’d expect.
= It is rare to get a truly great business at dirt-cheap prices.
= If you spend your time trolling stocks with price–earnings ratios of five or trading at deep discounts to book value or the like, you’re hunting in the wrong fields—at least as far as 100-baggers go.
=I say lower multiples “preferred” because you can’t draw hard rules
about any of this stuff. There are times when even 50 times earnings is a bargain. You have to balance the price you pay against other factors.
=One way to look at it is by using something called the PEG ratio,”
Goodman suggests. “The PEG ratio is simply the (P/E Ratio)/(Annual
EPS Growth Rate). If earnings grow 20%, for example, then a P/E of 20 is
justified. Anything too far above 1x could be too expensive.”
=Dont overpay for growth
=It might seem with 100-baggers that you don’t have to worry about the price you pay. But a simple mental experiment shows this isn’t quite right.
=Truly big return comes when
you have both earnings growth and a rising multiple. Ideally, you’d have
both working for you.I call these two factors—growth in earnings and a higher multiple on those earnings—the “twin engines” of 100-baggers
…
7…MOATS
=In the overwhelming number of cases, a company needs to do something well for a very long time if it is to become a 100-bagger.
=So, what signs can we look for in a business that it has what it takes
to run for 20 years?
This gets us to the topic of moats
=A moat is what protects a business from its competitors.
= company with a moat
can sustain high returns for longer than one without.
A…You have a strong brand
B…Technology moat
C…low cost production
D…You enjoy network effects.
E…It costs a lot to switch
F…Entry barrier
G…Biggest company in small market
=Look for financial statements. Specifically, the higher the gross margin relative to the competitiors, the better.
=Moat, even a narrow moat, is a necessity for 100 baggers
…
8…SMALLER COMPANIES PREFERRED(<7000 cr)
=The median sales of 100 baggers companies @ $170 million(1200cr)
=On the other hand, you shouldn’t assume you need to dive into microcaps and buy 25-cent stocks.
It is not like you have to search microcaps for 100 baggers
=As a general rule, I suggest focusing on companies with market caps
of less than $1 billion
(<7000cr mcap).
=Not a necessity (remember, smaller companies “preferred”), but staying below such a deck will make for a more fruitful search than staying above it.
=Small companies can grow to 10 times or 20 times and still be small. They can even become 100-baggers
…
9…MANAGEMENT
=“In the ultimate analysis, it is the management alone which is the 100x
alchemist,” they concluded. “And it is to those who have mastered the art
of evaluating the alchemist that the stock market rewards with gold.”
= Investing with top entrepreneurs and owner-operators
gives you a big edge. And when you mix that talent with the other elements, you are on your way to big returns, if not 100-baggerdom
…
10…OWNER OPERATORS PREFERRED
=You invest your money in the same securities the people who control the business own. What’s good for them is good for you. And vice versa
=I say the best thing to do is invest with management teams that own a lot of stock.
=People with their own wealth
at risk make better decisions as a group than those who are hired guns. The end result is that shareholders do better with these owner-operated firms
…
11…GO BEYOND NUMBERS
=Early on, I relied on reported numbers and I screened for statistical cheapness. I’d look for low P/E stocks, for example.Everyone can see these numbers. Yet, these methods can still work well.
=Over time, however, I’ve learned that knowing what the numbers
don’t show is worth more than any statistic.
=. I want to find that something else is going on in the business that makes it attractive.
=I talk to a lot of people in the course of a year—investors, executives,
analysts and economists.
= Ideas can come from anywhere. But my best ideas often come from people.
=Hidden stories exist. And there is a person, somewhere, who knows that story.
=Make an effort to find those people and their stories
…
12…BUY BORING STOCKS
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story. So boring stocks sell at a discount. Buy enough of them
…
13…AVOID HOT SECTORS
=Avoid the hot sectors of whatever market you’re in.
= . That’s where promoters and shysters go because
that’s where they can get the biggest bang for the buck. The sector is rife
with fraud.
…
14…DO ENOUGH RESEARCH
…When someone tells me they can’t find anything worth
buying in this market, they are just not looking hard enough. With 10,000 securities today, even one-half of 1 percent is 50 names. Kind of makes
you think, doesn’t it?
…
15…SIMPLEST IS BEST
The best ideas are often the simplest.
=The price of a stock varies inversely with the thickness of its research file. The fattest files are found in stocks that are the most troublesome and will decline the furthest. The thinnest files are reserved for those that appreciate the most
=Peter Lynch comes to mind: “Never invest in any idea you can’t illustrate with a crayon
…
16…DIVIDENDS
= When a company pays a dividend, it has that much less capital to reinvest. Instead, you
have it in your pocket—after paying taxes. Ideally, you want to find a
company that can reinvest those dollars at a high rate of ROE . You wind up with
a bigger pile at the end of the day and pay less in taxes
=If the company had paid dividends, the story would be quite different.
Say it paid out one-third of its earnings. It would then take 15 years to quadruple its capital, not 10. And in 33 years, it would be up 23-fold,
instead of being a 100-bagger.
=Obviously,” Phelps concludes, “dividends are an expensive luxury for
an investor seeking maximum growth. If you must have income, don’t expect your financial doctor to match the capital gains that might have been
obtainable without dividends. When you buy a cow to milk, don’t plan to
race her against your neighbor’s horse.”
…
17…BUYBACK
=When you find a company that drives its shares outstanding lower over time and seems to have a knack for buying at good prices, you should take a deeper look. You may have found a candidate for a 100-bagger
=In a slow- to no-growth
economy, this tactic is becoming a more important driver of earnings-per share growth.
=Buyback criteria
A…Company should have available funds—cash plus sensible borrowing capacity—beyond the near-term needs of the business and
B…second, finds its stock selling
in the market below its intrinsic value, conservatively calculated.
…
18…DIVERSIFICATION
=Whatever study u have done, sometime luck may be against you
=So diversify in 10 to 20 stocks
…
19…HOLD STOCK FOR LONG TERM
=To net a 100-bagger, you need to hang onto a quality stock for a number of years
= A more likely journey will take 20–25 years for 100 baggers
=If you buy a stock that returns about 20 percent annually for 25 years,
you’ll get your 100-bagger. But if you sell in year 20, you’ll get “only”
about 40 to 1—before taxes. The last five years will more than double your
overall return (assuming the annual return is constant). So, you must wait.
This is not to discourage you. You can earn great returns in less than
20 years. But I want to get you to think big.
…
20…BUY BUT DONT FORGET
=Phleps do not recommend putting them away and forgetting them
=Peter lynch also recommends holding stocks until fundaments deteriorate
=Check your investment thesis at regular interval
=What if you don’t get a hundredfold return? The point of Phelps’s brilliant teaching method is to focus your attention on the power of compounding until fundaments are intact. After all, even if you catch part of a 100-bagger, the returns could fund a retirement.
…
21…EVERYMAN’S APPROACH
=JUST HOLD ON GOOD QUALITY STOCKS IS EVERYMAN’S REPLICABLE APPROACH .
=Very few people are successful traders while there is long list of successful investors
=In the markets, you can find all kinds of crazy success stories, such as
the improbable traders of Market Wizards fame—including Jim Rogers,
Paul Tudor Jones and Michael Steinhardt—. These never interested me, for many reasons, but one big reason is they struck me as freakish. The gains were enormous, but the process was not replicable—certainly not by the everyman.
=You’ve also seen how ordinary people can achieve the lofty returns
of 100-bagger dom by simply holding onto good stocks. You don’t have to have an MBA or work at a hedge fund.
=It seems so simple, but few actually ever achieve it by holding for years
=To make money in stocks you must have
…“the vision to see them,
…the courage to buy them and
…the patience to hold them.”
… According to Phelps, “patience is the rarest of the three.
…
22…COFFEE CAN PORTFOLIO
=You take some portion of your money and create a “coffee-can portfolio.” What you put in it, you commit to holding for 10 years. That’s it. At the end of 10 years, you see what you have. Coffee-can experience
says you will have found at least one big winner in there.
=Of course, investing in the buy-and-hold manner means sometimes you will be hit with a nasty loss.
=But that is why you own a portfolio of stocks. To me, investing in stocks is interesting only because you can make so much on a single stock
=Coffee-can theory says you’ll have done better this way than if you had tried to more actively manage your stocks.
=Knowing this, you need to find a way to defeat your own worst instincts—the impatience, the need for “action,” the powerful feeling that
you need to “do something.” To defeat this baleful tendency, I offer you the coffee can as a crutch.
=I’m a big fan of the coffee-can approach
…
23…YOU SHOULD BE RELUCTANT SELLER
=If you are hunting for 100-baggers, you must learn to sit on your ass.
Buy right and sit tight.
So when to sell
In his book Common Stocks and Uncommon Profits, Phil Fisher had a
chapter called “When to Sell.”
…If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
=But even Fisher allows thrre and only three reasons to sell:
A…You’ve made a mistake in original purchase
B…The stock no longer meets your investment criteria(change in fundaments)
C…Better opportunity
… Switching is treacherous .
Every stock that’s moving looks better than the one you’re thinking of selling. And there are always stocks that are moving.
…Investors too bite on what’s moving and can’t sit on a stock that isn’t going anywhere. They also lose patience with one that is moving against them. This causes
them to make a lot of trades and never enjoy truly mammoth returns
=So in summary
“If you’ve done the job right
and bought a stock only after careful study, then you should be a reluctant seller”.
…
24…DONT SELL WHEN
=STOCK IS TOO HIGH OR HIGH PE
=STOCK HAS FALLEN
=STOCK IS GOING NO WEHERE
(Stock price is not indication for reason to sell)
A…STOCK IS TOO HIGH OR HIGH PE
=During periods of rapid share price appreciation, stock prices
can reach lofty P/E ratios. This shouldn’t necessarily discourage one from continuing to hold the stock.
B…STOCK HAS FALLEN
=Monster Beverage became a 100-bagger in 10 years,
…I count at least 10 different occasions where it fell more than 25 percent during that run.
… In three separate months, it lost
more than 40 percent of its value.
… Yet if you focused on the business—and not the stock price—you would never have sold. And if you put $10,000 in that stock, you would have $1 million at the end of 10 years
C…STOCK IS GOING NO WEHERE
=Sometimes stocks take a long time to get going. Phelps had plenty of examples of stocks that went nowhere (or down) for years but still delivered the big 100 to 1
…
25…TIMING MARKET
=Mr. Lynch has taught us - ‘’Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves
=Phelps also stands against market timing. He told me about how
he predicted various bear markets in his career. “Yet I would have been
much better off if instead of correctly forecasting a bear market, I had focused my attention through the decline on finding stocks that would turn $10,000 into a million dollars.”
=Because of his bearishness, he missed opportunities that went on to deliver 100 to 1. “Bear market smoke gets in one’s eyes,” he said, and it
blinds us to buying opportunities if we are too intent on market timing
…
26…DIGEST VOLATILITY
(UPS N DOWNS)
=The biggest hurdle to making 100 times your money in a stock—or even just tripling it—may be the ability to stomach the ups and downs and hold on.
=The problem isn’t only that we’re impatient. It’s that the ride is not
often easy
=Netflix, which has been a 60-bagger since 2002, lost 25 percent of its value in a single day—four times! On its worst day, it fell 41 percent. And there was a four-month stretch where it dropped 80 percent
= Apple from its IPO in 1980 through 2012 was a 225-bagger.
But . . .
Those who held on had to suffer through a peak-to-trough loss of 80
percent—twice! The big move from 2008 came after a 60 percent drawdown. And there were several 40 percent drops. Many big winners suffered similar awful losses along the way
…
27…DONT GET BORED
=People often do dumb things with their portfolio just because they’re
bored. They feel they have to do something
=Why do people buy and sell stocks so frequently? Why can’t they just
buy a stock and hold it for at least a couple of years? (Most don’t.) Why
can’t people follow the more time-tested ways to wealth?
BECAUSE PEOPLE GET BORED
=People get bored
holding the same stock for a long time—especially if it doesn’t do much.
…They see other shiny stocks zipping by them, and they can’t stand it. So they chase whatever is moving and get into trouble.
=Wanger used to say, investors
tend to like to “buy more lobsters as the price goes up.” Weird, since you
probably don’t exhibit this behavior elsewhere. You usually look for a deal when it comes to gasoline or washing machines or cars. And you don’t sell your house or golf clubs or sneakers because someone offers less than what you paid
=Usually the market pays
what you might call an entertainment tax, a premium, for stocks with an
exciting story.
=So boring stocks sell at a discount. Buy enough of them
…
28…DONT CHASE RETURNS
=Don’t try to chase returns, because
doing so will cost you a lot of money over time
=There really isn’t anything intelligent to say about returns over months or year
=Besides, who cares about one year?
…You have to play the long game.
…There are approaches and investors who have beaten the market by a solid margin over time.
…The thing is, they seldom beat the market consistently
=The best investors lag the market 30–40 percent of the time
=None in the superstar investor group always beat the S&P 500 probably because no
one thought that was the primary objective.”
=As I say, there are ways to beat the market over time. But none of
these approaches always beats the market.
…Even the best lag it, and often.
=As an individual, though, you have a great advantage in that you can ignore the benchmark chasing.
=Keep that in mind before you reshuffle your portfolio after looking at year-end results. Don’t chase returns! And don’t measure yourself against the S&P 500 or any other benchmark. Just focus on trying to buy right and hold on
=Invest like a Dealmaker.
=Most people chase returns.
…As an example,
consider one of my favorite studies of all time, by Dalbar. It showed that
the average mutual fund earned a return of 13.8 percent per year over the length of the study. Yet the average investor in those funds earned just 7 percent. Why?
=Because they took their money out after funds did poorly and put it
back in after they had done well. Investors were constantly chasing returns
…
29…DON’T GET SNOOKERED:
AVOID SCAMS
A…MANAGEMENT
=Reading conference-call transcripts is better than listening to them(visiting them).
=In summary, it is “best to keep management at a distance.
B…On Boards
=Boards are supposed to represent shareholders, but they don’t. As Block said, there is a symbiotic relationship with CEOs. Board members often
view their directorship as a perk, not a responsibility. Insurance and other
protections insulate boards from liability.
=Moreover, board investigations into misdeeds are unreliable. When
boards have to investigate something, it’s like asking them to admit their own incompetence, Block said. You can’t rely on them.
C…Lawyers
Lawyers “make it difficult for investors to make good decisions.” They represent the interests of their clients—the people who pay them—not investors.
“‘Prestigious’ law firms are a surprisingly effective fig leaf,” Block said.
They are great at writing indecipherable prose. And the attorney–client
privilege “hides innumerable acts of corporate wrongdoing.”
D…Auditors
“Auditors are completely misunderstood,” Block said. Again, they represent the interest of their clients—the people who pay them. I’m reminded of the old saying “Whose bread I eat, his song I sing.”
Block talked about how it is a profession that rewards failure. Negative audits often lead to lifetime employment because the firm is fearful of being sued and wants the auditor around to help get it out of any messes.
Further, Block said, accounting is “a profession fighting against
accountability and transparency. They [the big auditing firms] fight disclosures repeatedly. They do not want to provide investors with a better window into audits
E…Investment Banks
=Obviously, the investment banks have an incentive to sell financial products—stocks, bonds, and so on. They are not looking out for your interest.
=If you don’t know this by now, here it is: don’t look to research put out
by investment banks or brokerage houses as a source of advice on where you should invest.
F…Market-Research Firms
This one was interesting because you often see “market research” quoted
from the likes of Frost & Sullivan and iResearch. Block said companies
hire these firms and often give them the research to get the report they
want. Market research is there to add legitimacy to management’s claims.
It’s not to help you make a good decision.
Distrust market research. Look for more objective sources of information, such as actual sales data and trends.
…
30…DO IGNORE FORECASTERS
=One large study covered nearly 95,000 consensus estimates from more than two decades. It found the average estimate was off by more than 40 percent
=David Dreman writes about this in his book Contrarian Investment
Strategies. Digging deeper, he finds the analysts made consistent errors in one direction: they were too optimistic
=So if you put the two together, you quickly come to realize the odds of
you owning a stock that doesn’t suffer a negative earnings surprise is pretty small.
=Many people spend a great deal of time trying to guess where the
economy or the stock market is going. And yet, there are countless studies that show the folly of such forecasting
=They have missed every recession
in the last four decades
…
31…IGNORE MACRO
=There is a world of noise out there. The financial media is particularly
bad. Every day, something important happens, or so they would have
you believe.
-They narrate every twist in the market.
-They cover every Fed meeting.
-They document the endless stream of economic data and reports.
-They give a platform for an unending parade of pundits.
-Everybody wants to try to call the market, or
-They predict where interest rates will go or
-They predict the price of oil or whatever.
=My own study of 100-baggers shows what a pathetic waste of time this all is. It’s a great distraction in your hunt for 100-baggers.
…
32… MARKET CRASH-HUGE OPPORTUNITY
=2008 like disasters create “easier” opportunities to make hundredfold returns
…
MY JOURNEY
I have started my investment journey in 2017 bull run.I have paid my tution fees by learning from my initial losses. Then i started reading books .I am deeply inspired by two books
1…One up on wall street by peter lynch
2…100 baggers by Cristopher mayer
=One up on wall strret is very popular while 100 baggers is still less known to people.
=This book inspires us to invest for very long duration like 20 to 25 yrs and find out 100 baggers( repeat 100 baggers Not 10-20 baggers).
=In today’s era,where young people hardly stay invested for 6 months ,20-25 yrs investment in same stock is next to impossible for most of people.
=IF WE FOLLOW THESE PRINCIPLES AND STAY INVESTED FOR ATLEAST 5-10 YEARS, IT WILL MAKE GREAT RETURN
=At last, i am also very new to market with 4 yrs experience and trying to follow these principles.
Satia Industries Limited (SIL), is one of the largest Agro and Wood based paper manufacturers in India. SIL was incorporated by Dr. Ajay Satia in 1980 and commenced its operations in 1984 with a small capacity of 4,850 tonne per year to 255,500 MTPA by the end of FY22.
Main Products/Segments
Main Products/Segments
The company is mainly into paper and packaging products, recently they forayed into producing food packaging products; working in collaboration with American company Zume.
Product Portfolio : Snow white , Super Snow white, Ultra White, Ultra Print, Coloured Paper, Cover Paper, Photo Copier, Ledger, Ultra Shine, Natural Shades, Paper Cups, Food Packaging Products & Wood based cutlery
The picture says it all, along with traditional paper products they are venturing into products that are catering to food industry, products that replace single use plastic items like plastic bag, coffee cups , cup lids , takeaway food containers that are produced by using biomass. This is the future growth lever for SIL.
Here is the latest statement from the company
SIL has entered in a formal association with Zume, a US-based global brand in sourcing of packaging products used for meal boxes, beverages and Face Masks, etc
Current Paper Industry Structure in India / World
Capital Intensive Business
All these days industry is struggling due to cheap paper / pulp imports from China and ASAN. Now China banned waste import into the country hence the cost of pulp production has become expensive. At the same time many European countries are now using their waste for captive consumption.
There is huge push by the governments in the western world on the business to use more recycled material. On 1 January 2021, the European Union introduced a levy on non-recycled plastic packaging waste. The levy will be charged to EU Member States at €800 per tonne with revenue generated contributing towards post-pandemic recovery.
Here are the latest M&A in Europe to push more into Circular Economy.
India’s central government announced the ban in August this year, following its 2019 resolution to address plastic pollution in the country. The ban on most single-use plastics will take effect from July 1, 2022
India - Industry is a fragmented market, less than 10% is with the branded players.
GST and Pandemic hit very hard the fragmented market. Many small players to survive hence the share is now going towards organized players.
Many PSUs are also shutdown. (Two recently in Assam). There are many shutdown / stopped production due to shortage of coal or high coal prices.
Satia Key Strengths
Technical Collaborations with Zume USA (Who are supplying technical know how on biomass based paper pulp - food packaging products )
Processing Stages
ESG
Capacities / Order Book
Total Installed Capacity as of today - 255,000 ( 700 Tons a Day , this includes a new capacity PM4 that has come online on 7th Feb 22 with 1 Lakh Ton Per Annum, this capacity is fully booked for the month of February )
Started commercial production from cutlery machine having an installed capacity of 5 metric
ton per day. (Waiting for the approvals for the concerned authorities , might be Zume’s requirements)
BENEFITS:
• Multiple washing stages on a single drum
• Compact design • Extremely high washing effi ciency
• Extremely energy effi cient
• Fractionated fi ltrates to conserve water
• Retains fi ber qualities: less fi ber damage when no mechanical pressing
• Fast start-up and high availability
• Production throughput up to 6,250 t/d in a single unit
Process Efficiencies achieved due to this : Due to this multiple stages are combined into one, that releases space occupied by two steps “ the wood line bleaching “ and washing that has been emptied. This space is now used to produced additional 50-100 ton pulp.
Rice straw is used as biomass for this boiler (earlier Husk is used which has now become expensive at 7,000 rupees per ton , now along with Husk Setia is using Rice Straw, which is burned by farmers , the coast of this is 2,000 rupees per ton ) , planning to setup two more boilers next year
Allimand Paper Machine (Best in Class )
The below technology is used by other companies like west coat papers (Satia can explore this as well )
