Arman Financial Services: thoughts on quarterly results and future direction

This post is not BUY/SELL/HOLD advice but a statement of my personal views and opinion on the latest results. I own stocks of Arman Financial Services and my views are biased.

Arman Financial Services is a Gujarat based NBFC with a presence in two-wheeler financing, microfinance & SME lending. By the name Arman Financial Services Limited “AFSL” (NSE: ARMANFIN) caters to two-wheeler finance and SME lending. By the name Namra Financial – a subsidiary of AFSL – the group caters to Micro-finance lending across Gujarat, Maharashtra, M.P, U.P and Uttarakhand.

What is my interest in the company?

  • I own 0.06% of its non-class A, public shares. No really. It is my moonshot
  • As some one who tracks the microlending sector closely, I have written about the Microfinance Sector and have been a believer that it will emerge stronger after demonetization

Investment Thesis

Continue reading “Arman Financial Services: thoughts on quarterly results and future direction”

NIFTY broke 10k; but stay calm.

Understandably, these are difficult times. The NIFTY dropped under its 200 day moving average, a key trend indicator that institutions watch and which could trigger redemptions.

On Friday’s close the NIFTY settled just two points under the psychological barrier of 10k.

Redemptions by institutions – when they come – will drag the NIFTY further, followed by a freeze in domestic SIPs. This is where your worse case scenarios play out and urge you to be the first out the door before the roof comes crashing down.

My knowledge of technical analysis is basic and on TradingView you will see people calling out bearish patterns such as Heads and Shoulders and Rising Wedges.

Volatility is high and momentum indicators show the NIFTY is oversold. I know at least one Technical wizard who is buying based on this logic. But let’s remember that this (oversold with high volatility) was the same scenario in September 2008 and the worse might yet be to come.

What’s my position? I haven’t sold a single share in the past four weeks. Continue reading “NIFTY broke 10k; but stay calm.”

The Scoop on Steel: Boom times or Value Trap?

  • In FY2019, India is predicted to replace Japan as the world’s second largest producer of steel
  • Demand will be largely driven by domestic demand, with significant constraints on domestic supply
  • Raw material cost can be upto 70% of the total cost of steel producers and is a bigger risk than a global tarrif war
  • Operating leverage will not mitigate raw material risk, price is not expected to spike and as a result realizations per tonne are not expected to change dramatically
  • Value may be found in distressed companies or leading steel makers but the rest could be value traps

Metals and mining was the best performing sector of 2017. Further upstream, carbon rod manufacturers like HEG have created enormous investor wealth. Further upstream, investors are now looking at steel companies to lead the next wave of wealth creation. Continue reading “The Scoop on Steel: Boom times or Value Trap?”

Aditya Birla Fashion and Retail – Good Brands don’t equal Good Business?

This post is not BUY/SELL/HOLD advice but a statement of my personal analysis and opinion.

  • NSE: ABFRL is one of India’s largest fashion retail companies with Madura (premium) and Pantaloon (value) house of brands.
  • ABFRL’s brands include household names that capture the entire gamut of discount and premium customers, including in-house and foreign brands such as Van Heusen, Peter England, Global Desi and Forever 21.
  • ABFRL has the ownership / perpetual license of its brands unlike competitors like Future Fashion and Retail and Shoppers Stop. Intangible Assets.
  • These intangible assets however are not translating into improved ROCE (Return on Capital Employed) and this is not a source of competitive sustainable advantage
  • We can blame the industry structure and the value conscious Indian buyer who prefers substitutes to brands when it comes to discretionary spending such as apparel. The discount disruption by online players like Myntra and Amazon has spoiled the buyer and changed industry structure.
  • We can also blame the huge debt on its books and asset-heavy (rent is 600 crore) model of its brick and mortar retail format, which leaves little in terms of EPS for stock price appreciation.
  • To give you a sense of the enormity of debt, the company reported post-merger, a Goodwill of 1795 crore (which includes Pantaloons, Madura and Forever 21) but the debt with accrued interest stood at 1881 crore.
  • Premium brands do not necessarily lend to margins – Compare ABFRL with Kewal Kiran that manufactures discount brands such as Killer Jeans. Kewal Kiran has an OPM of 15% while ABFRL with its premium brand portfolio clocks under 10%. What matters more is getting the right product-market mix and returns on operating assets.
  • Even in the same omnichannel format, COGS is 93% of sales while Future Lifestyle Retail (Central, Brand Factory etc.) manages costs more efficiently (COGS 90% of sales).

Continue reading “Aditya Birla Fashion and Retail – Good Brands don’t equal Good Business?”

How the levy of Import Duties can help MSMEs in 2018 (The less obvious reasons)

In late 2017 after a long wait green shoots have appeared in stock market earnings, giving hope that current high market valuations may finally be sustainable. The bad news is that 2018 brings with it an expectation of an increase in crude and other commodity prices key for Indian Industry.

This is very bad timing for the economy, particularly small industry which is already reeling from demonetization and GST and is very sensitive to raw material prices.

Among finished goods listed above, the Government of India has also recently imposed duties on steel and cooking oil. I am not sure if these protectionist moves can be termed as a case of central planning overreach or a timely intervention but there are both obvious and less obvious reasons to why a levy of import duties now is critical to protecting small companies. Continue reading “How the levy of Import Duties can help MSMEs in 2018 (The less obvious reasons)”

Fineotex Chemicals: Stock Market Recursion

This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further

The Indian stock market has all types of companies. The deeper you look down the spectrum of market capitalization, the stranger things you will find, growing away from the analyst spot light. Fineotex Chemicals Limited (FCL) is one such micro-cap company. With only 72 employees on its rolls in India, FCL operates in the attractive space of speciality chemicals competing with foreign MNCs that dominate the space of textile finishing. Continue reading “Fineotex Chemicals: Stock Market Recursion”

Investing in Road Infrastructure stocks? Here’s one strategy.

This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further

While the goose of private capex has been cooked, the Government of India is taking every step to boost public spending on infrastructure.  The focus is currently on roads. In 2015-16, NHAI awarded about 50 projects to build 2,624 kilometres of roads. A budget of US$22.35 billion has been set out by the Indian Government for infrastructure projects, for which highway construction will play a major part. Continue reading “Investing in Road Infrastructure stocks? Here’s one strategy.”