Thursday, June 15, 2017

IST Ltd - Value Buy?

IST Ltd is an automotive parts supplier started in 1977. It supplies parts to many companies in and outside of India. Company also has a subsidiary Gurgaon Infospace which has set up an IT SEZ and most of the revenue of the company comes from the subsidiary.

The average ROCE of the company over the last 10 years is 23% while it is at 31% for the last 3 years. The company's main business of auto parts is not making any money. The biggest income is rent received from IT companies in their SEZ. Based on the latest financial results, the company has non-current assets worth INR 354 Crore, the net current assets are around INR 33 Crore and fixed assets are worth INR 139 Crore. So the company can be easily liquidated for INR 500 Crore+.

The biggest revenue source of the company is rent(lease) from SEZ to the tune of INR 75 Crore while the expenses are nil so all of this goes to the bottom line of the company. The company is getting some tax benefits so not paying full 35%+ taxes.

The promoters hold 74.99% in the company but not paying any dividends.

At the current market price of INR 1105, the company's total valuation is INR 650 Crore. The book value of the company is around INR 762 and the EPS is INR 140 so P/E is less than 8. Except for the lack of dividend, the company doesn't look very expensive.

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Saturday, June 10, 2017

UFO Moviez - Value buy?

UFO Moviez is India's largest digital cinema distribution network distributing movies through satellites and is also an in-cinema advertising platform.

The average ROCE of the company over the last 3 years is around 15% while RoE is 13%. As per the latest financial results here, the net current assets of the company stood at INR 125 Crore at the end of FY17. The company has fixed assets of INR 258 Crore and there is a goodwill on consolidation of INR 183 Crore. The company has large depreciation resulting in very high cash flow averaging INR 120 Crore per year in the last three years.

The company's latest presentation gives idea about the business model of the company. The company earns income from two main sources, telecast of movies through satellites and displaying ads during the intermission and at the start of movies in theatres. The company now distributes movies to more than 5000 digital screens in India and totally 6000+ screens in the world. The company's in-cinema advertising is being used in more than 3700+ screens. The average income from ad has increased from INR 1464 per second per screen in 2013 to 1732 per second per screen in 2017 and the average ad time has gone up from 2:46 minutes to 4:34 minutes. The company recently signed a contract to show ads on 300 screens of United Media Works. Recent Demonetisation took a big toll on the growth of the company and GST also might be a dampener for people to go for movies as taxes are going to increase.

The promoters hold around 28% shares and holding has decreased by a small percentage lately. The promoters seem shareholder friendly as dividend payout is around 45% for recent year (INR 10 for EPS of INR 22).

At the current market price of INR 380, the market cap of the company is around INR 1050 Crore which is less than 9 times its operating cash flow of last three years. The company's IPO came out in 2015 at INR 625 but all the money went to existing investors at that time. The business is very new but over time as number of multiplexes grow and they upgrade their technologies, chances are that this business will grow. So the stock is not a value buy but more a future play.
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Saturday, February 18, 2017

Age of Capital Destruction - Dance like it is 1999 in India?

This is a post not related to investing or stocks but more about the bubble going on in the startup world in India. I will talk about some companies but there is no offence intended towards them. Everyday you see bigger and bigger numbers coming up for investments in startups in India. The article Indian Startup Funding Report mentions that there were 815 deals with $3.5 B invested in first 9 months of 2016 compared to 639 deals with $7.3 B invested in same period in 2015. This shows that the amount has come down but the deals have increased. I don't have the financials of most of the companies but let's look at some numbers. The following figure shows the bleeding consumer startups in India.

Of all the companies, the only one that is profitable is BookMyShow. All the others are making losses. There are some publicly listed companies such as Infibeam, which are in e-commerce space and are profitable now and investing in right companies such as its recent investment in payment gateway, ccAvenue.

Now let's look at the recent investments made by BookMyShow:
Feb 2015 - BookMyShow acquires Eventifier for $2 M
Mar 2016 - BookMyShow acquires FanTain Sports
Jan 2017 - BookMyShow acquires MastiTickets
Feb 2017 - BookMyShow acquires 75% in TownScript

Now I don't have financials and acquisition numbers for all but the company which owns Eventifier, Spacebound Web Labs Private Limited, was founded by three people in 2013
Jazeel Ferry
Saud Bakhar
Nazim Zeeshan

The article about acquisition mentions UBM Tech, Clinton Foundation and Nasa as clients of Eventifier. If you search google for "Spacebound Web Labs Private Limited", you come across their 2016 financial results on Reliance Industries website (RIL owns Network 18, which owns majority stake in BookMyShow which owns Eventifier). The profit-loss account is as below in the above result:

With such large clients, the revenue of the company in 2015 was INR 711,721. Yes you read that right, it is not USD, it is INR. So the company earned $11K kind of revenue from Clinton Foundation and NASA, that is 2 years in operation since company was founded in 2013.

Let's look at the expenses which are INR 11,828,771. Yes you read that right, it is $170K out of which almost INR 4,562,981 went for paying 8 employees their wages (including founders). There were some extraordinary legal expenses due to merger in that year but even in FY16, numbers haven't improved much (revenue has gone down rather).

The second company Fantain Sports' financials are available here. It's balance sheet shows that the company's subscribed capital was INR 28 lakh till 2015 but it has increased to 2 Cr 10 lakh in 2016. The company's revenue increased from INR 10.28 lakh in 2015 to INR 41.19 lakh in 2016. At the same time total expenses rose from INR 22 lakh in 2015 to INR 1.01 Crore in 2016 resulting in losses for both the years. The financials of this looks better than that of Eventifier.

Apart from tax credits, I am not sure what benefits BookMyShow is going to get. This clearly shows 2015 was a scary year for startup investments in India. Similar stories would appear 5-7 years down the line when people would talk about large scale capital destruction that happened during these years. Please make sure you protect your capital rather then getting any return on your capital.

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