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.”

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

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.

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

Linkfarm. Stuff I am Reading (Week of 7/21)

Inside the Mind of Jeff Bezos

JP Associates – the road to hell is paved with good intentions

Fundamental Analysis : Book Value

Investing in the Roads Sector : Problems Remain

Farmer Protests in MP and Soya Prices

Professor Sanjay Bakshi on Killer Jeans

On Cryptocurrencies:

What is it like to lose a large number of Bitcoins?

I was wrong about Ethereum

Four things to know about Bitcoin Bubbles

Inside the Rise and Fall of Ethereum

Reflections on the Best Blockchain Tweets Ever Written

I am not worried about Bitcoin but I am losing sleep over Ethereum