Category: case study

I recently had the privilege to present an idea at a value investor meet in Bengaluru city. Please read the standard disclaimers that apply.

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?”

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

Soya products and the edible oils are areas I have been closely following. India imports  67% of its demand for edible oil. This is economically unsustainable due to several reasons. There are a few key factors about the industry:

• The demand for edible oils is inelastic and insulated from macroeconomic conditions as cooking is a basic need for survival.
• India has failed to be self-sufficient in edible oil production due to misaligned incentives for farmers and low agricultural efficiency, which causes Indian soya to be globally uncompetitive in prices.
• Soya has applications beyond cooking oil in cattle feed (poultry), food proteins, value added products (like soy milk).
• China is driving the global demand in soya and increase in prices of the raw material.

Continue reading “Kriti Nutrients and Sanwaria Agro: Soya and Edible Oils back in focus”

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

• Grauer and Weil is one of India’s largest companies in the Electroplating and Coatings chemicals business.
• It is a diversified conglomerate of both commodity and speciality chemicals, with interests in paints and real estate.
• The diversified businesses may be holding down growth in the core chemicals business
• Management decisions need to be closely monitored

Continue reading “Grauer and Weil: Are the Risks worth the optionality of future growth?”