Fairval

Notes on Indian equities, sectors and economy

Archive for the ‘Consumer / Retail’ Category

Eastern India can be a market too?

Posted by fairval on February 2, 2014

Most consumer companies in India give the last priority to Eastern India. With good reason. South, West and North are typically far more important markets. The exact order may differ, based on consumer category. For ex, for FMCG, South is the biggest market. For organised retail as well, South has proved more receptive. For auto, North is the biggest.

For one of India’s most successful garment companies, Kewal Kiran Clothing, East it seems is the biggest market. With a market cap of Rs 1300 crore, and strong profitability, KKCL is perhaps India’s top success story in garments. (In terms of topline Raymonds, Aditya Birla may be bigger, but both have stuggled for profitability. And while Page is 5x in M cap and about 2x in P&L size, it makes innerwear).

East India is the largest market for KKCL, accounting for more than third of sales. The situation is even more surprising considering KKCL is head quartered in Mumbai. What could be the reason:  Lack of competition from foreign Jeans brands? In pharma, tiny forumation companies (even if based in Gujarat), which cant hope to compete with big guys, also concentrate on East India.

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Future Ventures IPO – DO NOT INVEST

Posted by fairval on April 27, 2011

Kishore Biyani wants to have your cake and eat it too. But if you love your money, you shouldn’t oblige him this time. This IPO is a piece of trash, avoid it. My main reason for saying this is – I don’t get the reason why this company should exist.

A bit about the business- FVL is like a PE fund, it invests in other companies, where it takes any kind of stake, even single digit. It has majority in a few companies. So far, it has invested Rs 820 crore or so of capital, now it wants to raise Rs 750 crore more. That makes it a very large PE fund. The difference from a fund is that there are no LPs, the standard 2:20 kind of commercial terms of the PE business dont apply, so issue managers can say that dont value this company as a % of AUM.

Some specific objections abt the issue:

  • They seem to be stretching their definition of business: They say they will invest in plays on consumption spends. But they also want to set up food parks. Now that is an infra play. Hard to see how that is a consumption play. By that logic u can build roads. They also want to invest in education. Umm..? Just where does the definition of consumption spends end for Future group. Next they will invest in hospitals or two wheelers. Sure education and health are part of PFCE, but then PFCE is 65% of GDP. One group certainly need not try to make a play in the entire lot (tho Tatas, Mahindras etc certainly do that)
  • Related Party Agreements:  There is some seriously objectionable stuff here. The company has agreements with other Future group companies, which get paid for various services.

For ex, Future Capital is to get upto 1% of Adjusted Networth for providing provide services like — research service and recommendations regarding Treasury Assets; support resource mobilization in any of its investee companies; advise on mergers and acquisitions; advice on suitable and efficient exits to be made by the Company from the investee companies and provide progress reports…

Similarly, there is a Mentoring Agreement with Pantaloon Retail. which can also get upto 1%. There is Master License Agreement with Future Ideas.. WHAT ROT

  • No cap on expenses: In a PE fund, there is a cap on expenses – 2%. Here there is none. More than 2% can go to group companies. And the company itself can run up other expenses. If this a fund, then shouldnt there be a cap on expenses?
  • Minority stakes are no good:  How should an investor value the several minority stakes the company has? For ex, 17% in Biba. The comany has buyback clauses for many of its minority investments, which say either an IPO in certain time frame, or buyback. But many of these companies are too small for IPOs. and they wont be able to buyback either. Then what? In investments like ACK, there is no buyback clause
  • Poor disclosure: The RHP says the company has exited 3 investments. Why? and at what price? No disclosure of whether they made a loss, which they must have. Poor, dont know how SEBI let it through. What seems like another bad error–

At one point, the RHP says: In terms of the SHA, In terms of the SHA, ITCPL is required to undertake an IPO within a period of 18 months from December 1, 2008. Both SSA and SHA would automatically terminate on the listing of shares of ITCPL. For the purposes of IPO, the Company will not be regarded as a promoter of ITCPL.Both SSA and SHA would automatically terminate on the listing of shares of ITCPL.

18 months ended in May 2010.

  • High Valuations paid: They seem to have paid too much for some of their investments. For ex, they have a  small stake in ACK Media, and they have invested at around Rs 100 crore valuation. Thats too much for ACK, which has abt Rs 10 crore of sales. 10x sales..

Posted in Consumer / Retail, Stock Ideas, Valuation | 1 Comment »

How food consumption changes with income

Posted by fairval on September 9, 2010

Food Consumption change with Income

Interesting chart from a Nomura report.

Shows how consumption of meat, dairy and fruits goes up sharply with income change.  Should mean good times ahead for the poultry/meat and dairy companies. Nothing is cheap in this market though.Venky has run up dramatically and quotes at 20x trailing. Hind Industries is cheap, but the financials are stretched. And the management wants to enter the power business!

Hind In

Posted in Consumer / Retail, Data | Leave a Comment »

Marico’s problem areas

Posted by fairval on July 6, 2010

Marico's Problem Areas

Couple of good exhibits from a Nomura report. The Kaya business is losing traction, amazing how hard it is to build a retail business in India. Just a year or two ago, this business was cited as one of the few retail successes. The CEO had left a few months ago as well

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HUL in retreat

Posted by fairval on June 28, 2010

HUL Market Shares

Some market share charts from a recent morgan report. HUL seems to be losing in some key markets. The stock has done well though in June, probably in anticipation of a good monsoon. HUL is perceived as the best rural demand play

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The Morons at the BSE (shud learn from MCX)

Posted by fairval on December 15, 2009

The Bombay Stock Exchange has amazing capacity to surprise. They have released their half year results today. Check this  —

BSE Financials for H1 2010

What do they tell you? To me, it seems BSE still thinks it is a technology company. When BSE lost the race to NSE in the late ’90s, it realised the need for technology, invested quite a bit in it. But the point is – all they will get by doing that is achieve parity with NSE on technology experience. That will not get them market share.

This is a year in which BSE has a new CEO –  a grad from some US B school – and markets are up, revenues are up. And what do they do? They reduce their already miniscule ad spends to almost zero. Way to go, blockheads. (tho, one must give Madhu the benefit of doubt, the kid is too new into the job, and also too wet behind his ears).

To get market share, they need to think like a marketing company. The contrast with MCX could not be more striking. MCX is promoted by a technology company. Yet, it thinks absolutely like a marketing company. It is the P&G of the exchange business.

MCX is entering the equity exchange space. B school kids readin this – watch how they market themselves.

Posted in BFSI, Consumer / Retail, Markets | 2 Comments »

US – Consumer demand rebounding

Posted by fairval on October 9, 2009

In a significant development, US same store sales (SSS) moved into positive territory in Sep09 after 12 negative months (a Thomson Reuters report). It should stay positive headign to the Christmas season, since last year it plunged at that time.
This could act as a positive for US markets, since it appears this is above market estimates. Says the report –

The Thomson Reuters Same Store Sales Index rose to an overall 0.6%, beating final expectations of -1.1%; the first positive in a year and the best showing since July 2008. Retailers were able to beat expectations, following easier year-over-year comparisons. The increase should not be read as “a return of the consumer,” but rather viewed in the context that retailers benefited from easier comparisons, a later start to the back-to-school season, and a later Labor Day holiday. Seventy-eight percent of retailers beat expectations, 4% percent met and 19% missed. The strength was driven by lower prices at value-oriented stores, such as Ross Stores, Kohl’s and Aeropostale. Accordingly, these retailers increased their earnings guidance.

September 2009 results are critical because they marked the beginning of easier year-over-year comparisons (negative SSS), and retailers are taking advantage of this by learning from their past mistakes. Retailers have been trying to avoid last year’s inventory disaster, as consumers remain frugal during the economic slowdown. Consequently, value retailers like Ross are successfully managing leaner inventories this year and expect continued growth moving forward. Ross expects “a 5% to 6% same store sales gain in October” (Source: ROST Press Release 10/08/09).

Posted in Consumer / Retail, Global Economy | Leave a Comment »

Bharti has lower retail ambitions

Posted by fairval on February 20, 2007

The investment plans Bharti group has announced for retail look far more modest than other leading players. Check this.

They plan to invest $2-2.5 billion in Bharti Retail by 2015. The investment will include hypermarkets, supermarkets and other formats. Bharti Retail will employ close to 60,000 people.

There may be more investment elsewhere as Rajan Mittal said this was only for setting up front-end stores. He said the company had a separate investment plan for real estate, which would be announced shortly after deciding on the model to be adopted.

These are far far more modest numbers. Reliance for example wants to invet $5-6 bn, and employ maybe 1 mn people by 2012 or so. AVBirla group was talked about $3-4bn investment. Pantaloon will perhaps do as much

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Essar in Telecom Retail – Inflated nos?

Posted by fairval on February 17, 2007

Essar Group said it is planning to invest around Rs 1,320 crore ($250-300 million) to set up a network of retail showrooms across the country. The investments will be over a three year period to set up around 4,000-5,000 mobile showrooms. Essar said it expects revenues of Rs 4,395 crore ($1 billion) by 2010.

Mobile telephony retail is an interested area. A few other people have plans for large national chains. But none have talked about the large nos Essar has. Essar seems to have taken a leaf out the the Reliance book. It is no secret that the Ruias have the Ambanis as some kind of role model. But so far, other than the Hutch jackpot, they have little to show.

Lets check the numbers above. Rs 1300 crore for 4000 outlets means around Rs 30 lakh per outlet. So does this mean Essar is planning to own all outlets (not the real estate, but the business itself)? That is rare. For a business like this, one would imagine franchisee route would be the way to go. In a large format like a hypermarket or even a departmental store, franchising wouldnt work, becos you need tight control on product delivery. Not so necessary in other formats. Reliance aims to own all its supermarkets, but that is not necessary. You could do a supermarket chain the franchisee route.

Also, projected revenues could be what – around 15% or more market share? That is ambitious too. Since everyone will sell mobile phones – the service provider, the hypermarket, the durable chains will sell mobiles too. Not to mention the grey market.

Posted in Consumer / Retail, Telecom | 1 Comment »

Pharma wins over FMCG in battle of laggards

Posted by fairval on February 5, 2007

FMCG and pharma have both been major laggards in this rally. Over last 12 months endign Jan 31, 2007, the FMCG sector is up 8%, while pharma sector is up 16%. Both have vastly underperformed the Sensex, which is up 42%.

So, these sectors which are basically items of everyday use, arent exciting investors so much. Markets are clearly hooked to growth stories, and at the moment, neither of these are growth stories.

However, it is interesting to note that within the two, pharma has still outperformed. This is despite the fact that pharma companies operate in a far more competitive environment than FMCG. What explains this?

The reason for pharma’s outperformance may lie in the way leading companies are conducting their business. Leading companies, mostly Indian, are strongly focussed on R&D now. They have also been very aggressive lately in adding new skills to their portfolio. Example: CRAMs, a new area which are come along in last 2 years or so, where many companies have built aggressively. Nicholas Piramal for example has done atleast 2 significant acquisitions to build capabilities and scale for CRAMs.

Pharma companies have also been very aggressive in market entry strategies, whether by acquiring abroad, or by tying with MNCs to enable them access in local markets.

In other words, pharma companies seem to be far more nimble, aggressive, and risk taking at this point. Pharma business is more risky too, compared to FMCG. But dont risk and reward go together? so long as management is atleast trying the right moves. In FMCG, managements seem to be far more risk averse, in particular in HLL, where they seems to be suffering a serious loss of entreprenerial drive.

Posted in Consumer / Retail, Pharma and Lifesciences | Leave a Comment »