This post is not buy/sell/hold advice. Please see the disclaimer at the end before reading further
With all the hype around it, the D-Mart IPO sounds like a noisy baarat plodding through Dalal Street. The promoter of D-Mart is R. K Damani, who is a stock market heavyweight. The legend goes on to say that back in 1992, R.K Damani was shorting the stocks that Harshad Mehta was buying.
R.K Damani has since done the unthinkable: quit the stocks markets and entered the gritty world of retail business. Today Damani’s Avenue Supermarts, the parent of D-Mart, runs brick and mortal retail stores selling mostly Food and Beverage categories that generates 23% ROE.
The last few months have been testing for NBFCs in general. Demonetization was a black swan event that brought fears of a repeat of the AP Crisis in 2010 that served a near death blow to Microfinance in India.
On paper, Microfinance remains a fragile business model when compared to banks and depository institutions.
Borrow -> Lend at spread of 10-15%
Deposits + Borrowings (RBI, Bonds etc.) -> Lend at net interest margins of 2-5%
Without the cushion of deposits, an MFI must disburse what it borrows, and borrow more to grow its loan book. The cost of customer acquisition for MFIs is also higher than banks.
Once dismissed as a “death trap” by Warren Buffet, Airlines saw frenzied buying in 2016. In third quarter Buffet’s Berkshire was seen accumulating stocks of not one but multiple airlines. In India, airlines listed on the exchanges saw buying by marquee institutions and funds. In 2016 the much maligned Airlines business caught the fancy of the investment community. What changed? Continue reading “Cinderella at the Ball – Are Airlines still a Value Trap?”