Westside – A cheaper version of Zara

Trent is one of the leading players in the branded retail industry in India. Trent operates 264 stores across 76 cities in India. Trent operates stores across four formats as below:

1. Westside:
Westside offers branded fashion apparel, footwear and accessories for women, men and children. Westside accounts for around 90% of Trent’s revenues. Westside owns a portfolio of exclusive and differentiated fashion brands.

Own brands are the key differentiators of the business. Own brands contribute 97% of total revenues. Globally retailers who control the entire value chain are relatively more successful. Third-party brands were successfully replaced by own brands without impact on customer experience.

Westside added 27 new stores in FY19. Property selection happens through a rigorous set of reviews.

An average size of Westside store is around 18,000 sq. ft. A new store requires total investment of ₹ 6-7 crores across capex, deposits and inventory.

ClubWest membership has more than 50 lakh memberships.

2. Zudio:
Zudio offers fashion at stunning prices for women, men and children. Zudio focuses on 100% own branded offering. It has presence through 40 standalone stores and as well as 16 Star locations. A new store requires total investment of ₹ 3-4 crores across capex, deposits and inventory. Sales per square feet for Zudio stores crossed ₹ 14,000 per sq. ft.

Zudio added 33 standalone stores in FY19. An average Zudio store size is around 6,000-8,000 sq. ft.

3. Star Bazaar:
Star is a fresh food and grocery retail chain, operating 26 supermarkets and 10 hypermarkets. Star is 50:50 JV between Trent and Tesco UK. Star made a loss of ₹ 85 Crores in FY19.

4. Landmark:
Landmark, a family entertainment concept, operates through 5 independent stores and retailed through select Westside stores.

Zara is 51:49 JV between Inditex Spain and Trent. Zara operates 22 stores in major cities.

India is at an inflection point of GDP per capita of USD 2000. Apparel consumption and revenues in various nations grew exponentially as GDP per capita crossed USD 2000.

The number of urban working women is expected to reach 6 Crores by 2025.

69% of India’s population lives in tier 2 and tier 3 cities. Tier 2 and tier 3 cities contribute 54% to the total retail consumption.

By 2020, it is expected that 120 new cities will emerge with the average household income in line with that of major metropolitan cities.

Domestic consumption has increased by 3.5x in last decade and is expected to grow to ₹ 335 lakh Crores by 2028.

Internet penetration grew from 4% to 34% between 2007 and 2017. It stood at 88% and 22% in urban and rural areas, respectively.

Retail market is expected to be around ₹ 60 lakh Crores in 2019. Fashion & lifestyle market is expected to reach around ₹ 21 lakh Crores. Apparel market stands around ₹ 4.5 Crores.

Over 95% of the Food & Retail market is unorganised.

Trent plans to open 40 Westside outlets every year and hundreds of its mass market Zudio stores across India.

Now that we’re built this capability and this model that’s working so well, it’s time to grow faster.

Trent is increasing focus on building private labels/in-house brands. Private labels have inherent advantages:
– Lower concept to customer time
– Faster execution
– Better control over quality & pricing
– Improved margins
– Differentiated & exclusive offerings

Westside is building a cheaper version of Zara. Westside continue to be a profitable concept.

– Promoter Tata Group hold 32.6% of the company
– MF hold 13.2% of the company
– FII hold 22.2% of the company
– Premji holds 2.8% of the company
– RK Damani holds 2.7% of the company
– Trent has approved issue of ₹ 950 Crores equity shares on a preferential basis to Tata Sons
– Trent is exploring options to raise additional ₹ 600 Crores in FY20

– Sales per square feet is one of the key measures which assesses retail efficiency in terms of space utilization.


Company Annual Report

Invested since 2012

Zydus Wellness: A New Chapter

Zydus Wellness completed 100% acquisition of stake in Heinz India for Rs 4,595 crore.

This includes the brands Complan, Glucon D, Nycil Talcum Powder and Sampriti Ghee, 2 large manufacturing facilities in Aligarh and Sitarganj and teams devoted to operations, research, sales, marketing and support. Heinz India also has a strong distribution network of over 800 distributors, more than 20,000 wholesalers covering 29 states.

Valuation of Heinz India:
– Valuation of Rs 4,595 crore
– Revenue of Rs 1,150 crore
– EBITDA of Rs 225 crore
– 4x EV/Sales
– 20.4x EV/EBITDA
– 6-7% growth rate

Deal Comparison:
– This deal is inexpensive compared to GSK Cons (6x EV/Sales and 30x EV/EBITDA)
GSK is the market leader in the Rs 7,000 crore domestic health food drinks segment, with Horlicks holding a 49% market share, followed by Mondelez’s Bournvita at 11% and Complan at 7%.

Post Merger:
– Revenue will increase by 3 times to Rs 1,700 crore
– EBITDA of Rs 340 crore
– EBITDA margin 20%
– Aim to achieve double digit growth

Competitive Advantage:
– Iconic brands Complan, Glucon D and Nycil, which have a legacy of over 50 years
– Two #1 brands in the market, Glucon D and Nycil

– Health Food Drinks (HFD) segment grows at 6%, whereas some of the other Food & Beverage (F&B) category grows at 16%, Ambit Capital reported
– The slow growth is forcing incumbents to exit the segment

Fund Raising:
– Zydus issued shares on a preferential basis to True North (Rs 1,000 crore), Pioneer Investment Fund (Rs 100 crore), Cadila (Rs 1,175 crore), Zydus Family Trust (Rs 300 crore). The issue price is Rs 1,382.
– Zydus raised debt by issuing NCD for Rs 1,500 crore.

– Dr. Sharvil Patel, Chairman & CEO, is associated with the company since 1997
– Dr. Patel has doctorate for his research work in Breast Cancer at John Hopkins, Bayview Medical Centre, USA

– Promoters hold 72.5% of the company
– Matthews India Fund holds 3.8% of the company
– Reliance MF holds 3.1% of the company
– Azim Premji holds 3.5% of the company

The Promoter Group and Private PE invested Rs 2,575 crore, or at Rs 1,382 per share.

Tube Investments of India: Staying Focused…

Post restructuring, Tube Investments of India (TI) is a pure-play manufacturing company from the Murugappa Group, one of the oldest business houses of India.

The company’s business interest span across products like steel strips, tubes and tubular components, bicycles and fitness products, chains for automotive and industrial applications, metal formed parts for automotive, railways, industrial gears and automotive dies.

TI has 17 manufacturing units located close to the major manufacturing hubs with Just In Time (JIT) supply capabilities, 5 depots and 35 warehouses located across the country.

The company operates under 3 business divisions namely
1. Engineering
2. Bicycles
3. Metal Formed Products

Engineering Division:


TI manufactures high precision, safety critical CDW and ERW tubes, tubular components, large diameter tubes for hydraulic cylinders and off-road applications, and special grade Cold Rolled Steel Strips (CRSS).

– Cold Drawn Welded (CDW) Precision tubes
– ERW tubes
– Tubular components
– Cold Rolled Steel Strips (CRSS)

Comp. Advantage:
– Preferred Indian supplier and market leader in high-precision CDW tubes
– Strategic supplier for application-specific special grade CRSS
– Only manufacturer with 4 plants proximately located to customers in key geographies

TI is setting up a new plant to make precision steel tubes at Rajpura with a capacity of 11,000 tons per annum. The estimated capex is ₹ 77 cr and is likely to be commissioned by early FY19.

TI derives 45% of its revenues from this division. TI manufactured 245,000 tons of large diameter tubes in FY17. The long term average margin for the engineering division is 6,000 / ton.

Cycles Division:


TI Cycles manufactures and markets a wide range of bicycle brands, fitness equipment and accessories. The bicycle range include standard commute bicycles to premium bicycles for kids, the health conscious, the urban commute and performance cycling. TI’s brands command a leadership position in India.

TI Cycles is the 2nd largest bicycle manufacturer in India with a marke share of 36%. TI has large dealer network across India with 10,000 touch points, 3 strategically located manufacturing plants and 13 warehouses.

TI’s brands include BSA and Hercules in the standard segment and Roadeo and Montra in the premium segment.


TI Cycles launched renowned Belgian-based Ridley cycles in the price range of ₹ 25,000 to over ₹ 80,000. TI Cycles has licensing agreement with Ridley and Schwinn. TI Cycles distributes brands like Cannondale, GT and Mongoose. These premium cycles are available at ‘Track & Trail Sports’ retail outlets.


Ciclo Cafe opened at Gurugram and Hyderabad. TI’s larget state-of-the-art cycle manufacturing plant at Rajpura, Punjab commenced production.


TI derives 30% of its revenues from this division. TI sold 4 mn bicycles in FY17.

Metal Formed Products Division:


TI manufactures auto and industrial chains, fine blanking components, motor castings and metal formed products for automotive, industrial and railway segments. TI has 10 manufacturing units 14 warehouses located in proximity to automotive and industrial hubs of India.

Comp. Advantage:
– Preferred supplier for manufacturing safety-critical components for automotive industry
– Market leader in automotive and industrial chains
– Preferred supplier for roll-formed doorframes
– TI’s flagship Diamond, Razor & Rombo brands are tuusted for their quality and consistency

TI derives 25% of its revenues from this division.

– Mr. Ramkumar, MD, brings in 37 years of rich experience that includes 25 years serving the company in various capacities
– Mr. Ramkumar holds an MBA from IIM, Ahmedabad.
– Mr. Vellayan Subbiah, MD, has over 23 years of experience in consulting, technology and financial services
– Mr. Subbiah holds an MBA from the Univerysity of Michigan and an engineer from IIT

– Promoters hold 49.9% of the company
– HDFC MF holds 8.1% of the company
– L&T MF holds 1.9% of the company
– Reliance MF holds 1.4% of the company
– Gagandeep Capital holds 2.2% of the company
– Shamyak Investment holds 1.3% of the company

Shanti Gears is a 70% subsidiary of TI.

At the CMP of ₹ 223, the rate of return is 9.0% based on pre-tax earnings to market cap. TI is available at .9x times of sales to market cap.

25 Jun 18
#ENAM Securities bought 11.7 lakh shares of Tube Investments for ₹26 crore, or at ₹ 222 per share.
Promoter Group Ambadi Investments sold 0.8% at ₹ 222 each in order to meet cash flow requirements.

Source: Company
Idea2Analyse: Mr. Sivanandam Balakrishnan

KSB India: A bet on rural theme

KSB Pumps, a 40.5% subsidiary of the €2.2b German company KSB AG, is the 4th largest player in the Indian industrial pumps and valves business. KSB manufactures a wide range of pumps used in the power, oil & gas and other industries. KSB has 5 plants located in Pune, Nasik and Coimbatore, with a total manufacturing capacity of 150,500 pumps and 186,000 valves and 9,200 tonnes of castings (ferrous and non-ferrous).

KSB has incurred sizeable capex in FY16 and FY17 for setting up a new manufacturing facility.

KSB derives 80% of its revenues from pump segment and remaining 20% from valves segment. Metal components and castings account for 40% of its raw material costs.

Competitive Advantage:
– Relatively strong and establshed market position
– Wide range of products spanning entire pumps and industrial valves
– Technology transfer from parent KSB AG, Germany in return for royalty
– Backward integration into castings
– Efficient working capital cycle of 60 days

– Highly sensitive to commodity prices (ferrous and non-ferrous)
– Increasing competition from established local and MNC players
– Demand cyclicality

– Promoters hold 66.4% of the company
– Reliance Capital holds 8.4% of the company
– DSPBR MF hold 2.4% of the company
– Sundaram MF holds 1.5% of the company
– Thyssenkrupp India holds 3.1% of the company

On 09 May 18, Kenneth Andrade’s firm bought 3.8 lakh shares of KSB Pumps for ₹31.5 crore, or at ₹830 per share.

ICICI Direct values KSB at 35x P/E on CY19E EPS of ₹30.7 and assign a target price of ₹1080.


SRF Limited: Amansa Capital’s big bet

SRF has 3 business verticals – Chemicals & Polymers, Technical Textiles and Packaging Films. SRF is a market leader in most of its business segments in India. SRF also commands a significant global presence in some of its businesses, with operations in India, Thailand and South Africa, and exporting to 75 countries.

SRF has 9 manufacturing plants in India and 4 overseas, has 6500 employees globally.

1) Chemicals & Polymers Business:
SRF derives 34% of its revenues from chemicals & polymers business. The chemicals & polymers business comprises of fluoro specialty, fluorochemicals and engineering plastics.

1.1) Fluoro Specialty:
SRF derives 15% of its revenues from fluoro specialty business. SRF develops and supplies complex intermediates for new molecule innovations in pharma/agrochemicals. SRF has over 25 years of experience in fluorine chemistry, is one of the leading global fluoro specialty players. Fluorine is one of the most hazardous chemicals.

Its key customers in this space include Bayer Corp, Syngenta, and Pfizer.

1.2) Fluorochemicals:
The fluorochemicals business derives its revenue from the sale of refrigerants, pharma grade propellants and solvents.

SRF is the domestic market leader in the fluorinated refrigerants space, exports to more than 60 countries. The refrigerant product range includes HCFC 22, HFC 134a, HFC 32 and HFC Blends such as HFC 404A, HFC 407C, HFC 410A. The business serves reputed OEMs manufacturing air-conditioners, refrigerators, chillers and automobiles. SRF sells wide range of refrigerants under the brand name FLORON®.

SRF is the only manufacturer of R134a in India and a leading supplier to automobiles and pharma companies such as Cipla and Lupin. SRF supplies R134a cans to Wal-Mart.

In 2015, SRF acquired Dupont’s Global Business of DYMEL HFC 134a Pharma. SRF developed indigenous technology for production of HFC 134a. SRF has filed 111 process patents so far.

1.3) Engineering Plastics:
SRF continues to maintain its leadership position in critical segments such as automotive and electrical by focussing on key customers and applications, leveraging existing OEM relationships.

2) Technical Textile Business:
SRF derives 39% of its revenues from technical textiles business. SRF is taking cash from this business which is not growing, and redeploys that cash into fluoro specialty business.

3) Packaging Films:
SRF derives 27% of its revenues from packaging films. It is a commodity business. SRF is one of the largest manufactures of BOPET and BOPP films and exports packaging films to around 70 countries. SRF is the lowest-cost producer in the world.

SRF has technology tie-ups with
– Dupont for HFC 143a
– Unitika and Toray for High Tenacity
– Polyamide 6 Yarn
– Toray for Polyester Tyre Cord Yarns
– ValMehler for Industrial Fabrics
– Honeywell for CFCs and HFCs
– Arkema for Chloromethanes

– Promoters hold 52% of the company
– Amansa holds 6.5% of the company
– DSP Blackrock holds 4.4% of the company

Source: Company

Big opportunity for India in specialty chemicals: Amansa Capital

The speciality chemical outsourcing industry is today where the pharma industry was 15-20 years ago.

India is very strong in chemical engineering skill set. It has a large base of chemical manufacturing. US and Europe do not want to manufacture chemicals anymore. They are outsourcing to China, but China is scaling back on chemical manufacturing because of environmental reasons. It opens up the space for India.

SRF is in the stage of transformation and it stands out in terms of their expertise in certain molecules. SRF has a long history of chemical engineering. SRF has been producing chemicals for different application for the last few decades and what they are doing very smartly now is they are taking the cash from existing business which is not growing, and redeployed that cash in high technology business.

SRF will not do commoditised business and they are reinvesting all the capital in the speciality chemicals business.

If you look at the company 5-6 years ago when the stock was not doing well the company did two things, one they used cash to buy back shares. Secondly the founder family bought stocks to increase the stake in the company and they own more than 50% of the company today. It clearly tells us they are fully aligned with minority shareholders.




Astec LifeSciences: A bet on Godrej Agrovet

On Aug 10, 2017, Godrej Agrovet bought 2.08 lakh shares of Astec at an average price of ₹556.
On Aug 11, 2017, Sundaram Mutual Fund bought 3.07 lakh shares of Astec at an average price of ₹542.

Godrej Agrovet is a game changer for Astec, has ambitious plans and this will drive growth.

Astec LifeSciences is a subsidiary of Godrej Agrovet. Astec is a producer of agrochemicals and pharmaceutical intermediates. Astec operates in the off patent proprietary segment with a focus on fungicides. Astec has over two decades of experience in the chemical industry.

Astec has three production plants and an R&D site in India. Astec has a team of scientists and chemists focused on product development and process optimization.

Astec derives 85% of its revenues from agrochemicals and 15% from pharma intermediates.

Astec manufactures fungicides with a special focus on Triazole fungicides. These products are used on paddy, fruits, vegetables, cereal, potatoes and soyabean to control various types of fungal diseases. Astec’s pharma intermediates are mainly used in the manufacture of antifungal pharma products.

Astec has 214 product registrations across 32 countries including 139 product registrations in India.

Astec derives 83% of its revenue from its top five products.

Astec’s clients includes 6 of the top 15 agrochemical companies in the world, including Syngenta, Makhteshim Agan, Nufarm, UPL and Cheminova.

Astec also offers contract manufacturing services and has excellent relationships with multinationals.

Astec derives close to 60% of its revenue from its top five customers.

Indian Agro-chemical Industry:
India is the fourth largest manufacturer of agro-chemicals. The Indian Agro-chemical industry is estimated to be around USD 4.3 billion.

India holds the second largest agricultural land after USA. However, 60% of total land area under agriculture (157 million hectares) has been stagnant for a while now. This implies that India needs to produce more in less area – a significant improvement in productivity is required.

India’s consumption of agro-chemicals is amongst the lowest in the world. It is measured that annual crop loss in India due to pest attacks is close to ₹50,000 Crore.

Japan’s pesticide consumption per hectare stands at 11 kgs, USA stands at 4 kgs, whereas India stands at a low of 0.58 kgs.

Contract manufacturing business holds immense promise for the Indian Agro Chemical sector. Molecules worth $5 billion will go off patent in the next 5 years.

Godrej Agrovet holds 56% of the company
Vijay Kedia holds 1% of the company
Sundaram Mutual Fund holds 1.5% of the company



Stock Picks: InterGlobe Aviation Ltd

InterGlobe Aviation Ltd (IndiGo) is the leader in the Indian domestic airlines industry with a market share of 42.6% in 2016. Indigo serves 36 destinations across India and 5 international destinations in Southeast Asia and the Middle East. The company has 109 aircrafts and employs over 12,360 professionals across regions.

Key Facts:
– Indigo adopted the most successful Low Cost Carrier (LCC) model
– 90% of its revenue comes from domestic operations
– Most profitable airline in the country. Indigo posted the highest ever annual profit of Rs. 1990 crore in FY16
– Indigo’s main competitors include Spice Jet, Go Air, Jet Airways and Air India
– All of the 100 A320 planes (narrow body) ordered in 2005 have been delivered
– Indigo ordered 180 A320neo planes in year 2011 and 250 more in 2014, the largest order among LCCs globally. The company expects to receive all 430 A320neos by 2022
– Highest load factor of 77% for the last 7 years, i.e. carries more passengers on its plane
– Its planes make more trips per day than any other airline in the country because of its best turnaround time of 30 mins
– Only airline in the world that uses step-less ramps for entry and exit in its planes – this makes it easy for customers to embark and carry their luggage which ensures on-time performance
– 42% of Indigo’s workforce comprises women and 12% of Indigo’s pilots are women

– Mr. Rakesh Gangwal, promoter of Indigo, has over 32 years of experience in the aviation industry. He has previously worked as CEO of US Airways. He has also held executive management positions at United Airlines and Air France
– Mr. Gangwal is a mechanical Engineer from IIT, Kanpur and an MBA from Wharton
– Mr. Rahul Bhatia, promoter of Indigo, has 25 years of experience in the travel industry. His understanding of the Indian travel industry and customer behaviour is unique
– Mr. Bhatia holds a degree in electrical engineering from the University of Waterloo in Ontario, Canada
– Mr. Aditya Ghosh is the president and whole time director of Indigo. He heads all operations and management of Indigo. He has been with the company since 2008
– Attrition rate is one of the lowest in the industry
– The management is good at capital allocation
– High dividend payout
– Able and good management

– Mr. Bhatia & Family holds 43% of the company
– Mr. Gangwal & Family holds 43% of the company
– FIIs hold close to 5.2% of the company
– Mutual Funds hold close to 1.8% of the company

Tata Elxsi – A bet on driverless cars

Tata Elxsi Limited (TEL) is a niche software design company. The company’s core services include Embedded Product Design (EPD), Industrial Design and Visual Computing Labs. TEL provides services to sectors such as automotive, broadcasting, communications, consumer products, defence, healthcare, media & entertainment and semiconductor. It has 4452 employees across India, USA, Europe, Japan and Malaysia.

– TEL works with 10 OEM’s and 25 Tier-1 suppliers in the auto segment
– TEL’s top automotive clients include Ford, Jaguar Land Rover, Isuzu, Nissan, Tata Motors, Mahindra, Continental, Bosch, Lear, Visteon, Delphi and Magna
– TEL’s top broadcasting clients include Comcast, Time Warner Cable, Sky and BT
– TEL works with top 2 set-top box companies and top 3 MSO’s in the broadcasting segment
– TEL’s top device clients include ST Micro and Entropic

– Mr. Ganapathy Subramaniam, Chairman of TEL, has over 30 years of experience in the IT industry
– Mr. Ganapathy is also the head of TCS Financial Solutions, a strategic business unit of TCS
– Mr. Madhukar Dev, MD & CEO of TEL, has over 26 years of experience in the IT industry
– Mr. Madhukar holds an MBA from IIM Bangalore
– Attrition rate is one of the moderate in the industry
– The management is very good at capital allocation
– Good dividend payout
– Able and honest management

– Promoters hold 44.6% of the company
– Mutual Funds hold close to 1.9% of the company
– Wasatch Small Cap Fund holds 1% of the company
– Macquarie Fund holds 1% of the company
– LIC holds 1.2% of the company

Stock Picks: Astral Poly Technik Ltd

Astral Poly Technik Ltd (APTL) is engaged in manufacturing CPVC (Chlorinated polyvinyl chloride) and PVC pipes/plumping systems for residential and industrial applications. APTL was established in 1999 to manufacture plumbing and drainage systems in India. It has 3 manufacturing plants at Santej, Dholka and Hosur.

Key Facts:
– Organized players accounting for 65% of the piping market. Astral is the second largest organized player
– Astral earns 41% of its revenue from CPVC pipes, 33% from PVC pipes and 26% from Adhesives
– Astral has a total pipe manufacturing capacity of 127,762 tonnes (capacity utilisation is 68%)
– Astral is setting up a new pipe manufacturing plant in Ghiloth, Rajasthan
– Astral acquired two adhesive and sealants manufacturing companies UK-based Seal It Services and Resinova Chemie
– Salman Khan has been the brand ambassador for Astral

– Top industrial clients include Reliance Industries, L&T, Adani, Grasim, NTPC, JSW Steel, Essar Steel and Cadila
– Top corporate clients include TCS, Wipro, Indian Oil and Sundaram Finance
– Key clients in the real estate space include Lodha, Hiranandani, Sobha, Tata Housing, Ajmera, and Kalpataru
– Key clients in the Hotels space include Marriott, Hyatt, Taj, ITC, Trident, Holiday Inn, Le Roral Meridien, The Imperial, and The Courtyard

– Sandeep Engineer is the Managing Director of Astral. Under his leadership, Astral’s market cap grew from $10 million to $1 billion in the last 7 years
– Sandeep has been praised by distributors for his humility and humbleness
– Sandeep has received EY Entrepreneur of The Year award
– Sandeep has received ET Inspiring Business Leader award
– India’s most trusted pipe brand by TRA
– Expanded its distribution network and product range
– Able and good management

– Promoters hold 59% of the company
– Mutual Funds hold close to 5.6% of the company
– Setadview Capital holds 3.9% of the company
– ABG capital holds 2.8% of the company
– Treeline Asia Fund holds 3% of the company

Diageo India: The largest spirits company in India

United Spirits Ltd (USL), a group company of Britan’s Diageo Plc, is the largest Indian spirits company involved in the manufacture, sale and distribution of beverage alcohol. USL produces and sells around 120 million cases of Scotch whisky, IMFL whisky, brandy, rum, vodka, gin and wine. It has 88 manufacturing facilities across 23 states in India.

Key Facts:
– USL is the market leader in the spirits category with 40% market share
– Diageo is the global giant in beverage alcohol
– USL’s portfolio includes brands such as McDowell’s No.1, Royal Challenge, Signature and Antiquity
– USL imports, manufactures and sells Diageo’s iconic brands such as Johnnie Walker, VAT 69, Black & White, Smirnoff and Ciroc in India
– USL enjoys strong brands across categories and price points
– USL operates in three segments such as popular, prestige & above and super premium
– The popular segment includes brands like McDowell’s Brandy and Rum, Bagpiper, Old Tavern and Director’s Special Whiskey
– The prestige & above segment includes brands like McDowell’s No.1 Whisky, Royal Challenge, Signature, Antiquity and Black Dog
– The super premium segment includes brands like Johnnie Walker, VAT 69, Black & White and Smirnoff
– 49% of its revenue comes from popular segment, and the remaining 51% comes from prestige and super premium
– USL has 4 brands that sell more than 10 million cases annually
– USL has 14 brands that sell more than a million cases each year
– USL’s top 21 brands have grown at a CAGR of 8% in the past 5 years
– USL exports its brands to 37 countries across the globe
– USL has a strong distribution network of 81,000 outlets across India
– USL is a major contributor to state excise revenues with a contribution of over Rs 35,000 crores annually
– South India prefers Brandy & Rum whereas North India prefers Whisky
– USL is moving towards a franchise based model similar to Pernod Ricard (PR)
– USL is focusing on more profitable premium and super premium segment

– Mr. Anand Kripalu, MD & CEO of USL, has a Bachelor’s degree from IIT, Chennai and an MBA from IIM, Kolkata, and has completed the Advanced Management Program from Wharton Business School. He was formerly president of Mondelez and MD of Cadbury India. He worked at HUL for 22 years. Mr. Anand is leading USL’s transformational journey
– Mr. Mahendra Kumar Sharma, Chairman of USL, has completed the Advanced Management Program at the Harvard Business School. He worked at HUL for 33 years. He is on the board of reputed companies such as Wipro, Asian Paints, Blue Star and ICICI Bank also member of the Executive Board of the Indian School of Business
– Diageo is bringing in better processes, better control and better corporate governance
– Able and honest management

– Diageo Plc holds close to 55% of the company
– FIIs hold close to 23.7% of the company
– Mutual Funds hold close to 5.3% of the company

Stock Picks: Coromandel International

Coromandel International (CRIN), is the second largest fertilizer company in India. The company’s business segments include Fertilizers, Specialty Nutrients, Crop Protection and Retail. It has 3900 employees across India. It is part of the Rs 30,000 crore Murugappa Group.

– CRIN earns 84% of its revenues and 64% of its EBITDA from fertilizer (subsidy) business
– CRIN is a Leader in Single Super Phosphate (SSP) with 13.5% market share
– CRIN manufactures complex fertilizers containing all three major plant nutrients: NPK (Nitrogen, Phosphorous and Potassium)
– CRIN manufactures and markets 3.2m tons of fertilizers under brand name GROMOR
– The company has 13 marketing offices and 7000 dealers across India
– CRIN derives 84% of its revenues from subsidy business and 16% of its revenues from non-subsidy business in FY16
– CRIN is selling its products across India, Latin America, Africa, China, South East Asia and Middle East

Specialty Nutrients, Crop Protection and Retail:
– CRIN earns 16% of its revenues and 36% of its EBITDA from Specialty Nutrients and Crop Protection (non-subsidy) business
– Its non-subsidy EBITDA has increased from 23% in FY09 to 36% in FY16
– CRIN is a Major Player in Crop Protection post acquisition of FICOM, Pasura Bio Tech and Sabero
– CRIN is serving more than 22 lakh farmers through 800 retail outlets in Andhra and Karnataka

– Mr. A Vellayan, Chairman of CRIN, has over 25 years of experience in the same business. He holds an MBA from University of Warwick, UK. He is the member of board of governors of Doon School
– Mr. V Ravichandran, Vice Chairman of CRIN, has over 25 years of experience in the same business. He holds an MBA from IIM, Ahmedabad
– Able and honest management

– Promoters hold 62% of the company
– Mutual Funds hold close to 5.6% of the company.
– ICICI Prudential Life holds 5.2% of the company

Stock Picks: Wipro Ltd

Wipro is the 4th largest IT Services company in India. It has 170,000 employees in 55 countries with revenues of $7.3 billion in FY16.

Key Facts:
– Wipro’s revenue has grown from $2.6 billion in FY07 to $7.3 billion in FY16 at a CAGR of 12%
– Diversified business portfolio, with no vertical contributing more than 27%
– 52% of its revenue comes from the Americas, 25% from Europe and remaining from other regions
– Wipro has taken initiatives to enter the market of future disruptive technologies including Digital, Analytics and Cloud

– Top 10 clients accounted for 20% of its total business
– 9 clients in the $100-million category
– 18 clients in the $75-million category
– 33 clients in the $50-million category

– Able and trustworthy management
– Chairman, Azim Premji is India’s richest tech tycoon. Under his leadership, Wipro’s revenue grew from $2 million to $7 billion in FY16. Asia’s most generous person who has given away shares worth $4.4 billion
– Consistent dividend payout

Opportunity Size:
– India is the world’s largest outsourcing destination for the IT industry, accounting for approximately 67% of the total $110 billion market
– The IT offshoring market is expected to grow at a CAGR of 14% for the next 9 years
– The IT offshoring market is expected to triple from $110 billion to $350 billion by FY 2025
– Revenues from Digital technologies are expected to represent 23% and 38% share of the total revenues by 2020 and 2025

– Highly competitive and rapidly changing industry
– Top line growth is not improving
– The business model of IT is changing very rapidly. Artificial Intelligence, Robotics, Cloud Services are reducing the head count of employees around the globe
– 28% of Wipro’s revenue comes from Infrastructure service and 9.8% revenue comes from BPO services. These 2 service lines are at high risk due to the recent disruption from Cloud Services, Automation and Robotics

– LIC owns 2.3% of the company
– JP Morgan Chase owns 2% of the company
– Mutual Funds own close to 1.9% of the company

At current price of Rs 479, the rate of return is 10% based on pre-tax earnings to market cap with dividend yield of 1.5% and $4.8 billion in cash. The RoE and RoCE is more than 17% for the past 10 years. Wipro is trading at a historic low P/E of 13.3x as on Sep 16, 2016.

Detailed Analysis:
1. Is the business simple and understandable?
Yes. Wipro provides application development and maintenance services to global clients. The services are provided on a time and material (T&M) or fixed-price basis. 56% of Wipro’s revenues comes from fixed price model. The revenue growth is linked to increase in number of employees. It is a very linear model. Increasing the number of clients and projects can boost the revenue of the company.

2. Does the company have a consistent operating history?
Yes. The company has been consistently increasing its revenue for the last 25 years.

3. Does the business have a sustainable competitive advantage?
Long-standing customers are reluctant to switch IT vendors due to high switching costs. Wipro has taken initiatives to take advantage of the disruption technologies like Digital, Analytics and Cloud. Wipro has strategic alliance with market leaders like Amazon, Salesforce, SAP and IBM to position itself in the digital technologies.

4. How good is management at allocating capital?
Very Good. The return on capital is more than 17% for the past 10 years.

5. What are the risks?
The risks are highlighted above under section ‘Risks’.

6. Does the business operate in a good or bad industry?
Most companies rely on IT applications to efficiently run their business operations. IT services companies help these businesses maintain and improve the availability of IT.

7. Does the company earn high profit margin?
Yes. The profit margin of Wipro is 20% for the past 15 years.

8. Does the company generate strong free cash flow?
Yes. The company has generated Rs 8000 crore of free cash in FY16.

9. Can you sensibly estimate future earnings for next five years?
Since the IT business model is changing, it would be difficult to estimate future earnings. We believe that the top 4 IT players are in a position to take advantage of the future disruption technologies like Digital, Analytics and Cloud.

10. What is the reasonable buy price?
Check the reasonable price under section ‘Valuation’

MyValuePicks is not a registered investment advisor or broker. Readers are advised that the material contained herein should be used solely for informational purposes. MyValuePicks does not accept responsibility for consequences of financial decisions taken by users on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.

Stock Picks: Mindtree

Mindtree is a mid-size IT services company.

– Focus on large clients and increase revenue from each client
– Focus on building long-lasting relationships with major clients
– Focus on 4 key business segments
– 35% of its revenue comes from digital business
– Growth from its top clients is one of the best in the industry

– Top 10 clients accounted for 46% of its total business
– 6 clients in the $25-million category
– 15 clients in the $10-million category
– Microsoft is one of its top clients
– Key clients in the digital space include Microsoft, Unilever and P&G
– Key clients in the Salesforce space include Nike, Honeywell and Cargill

– Trustworthy and reliable management
– Growth rate is better than industry average
– 5x return in the last 5 years
– Exited mobile handset business (wrong bet)

– Employee friendly company
– Attrition rate is one of the lowest in the industry

– UK based Bluefin Solutions, specializes in SAP HANA
– US based Relational Solutions, an analytics provider, primarily for consumer goods
– US based Magnet 360, a Salesforce consulting partner
– India based Aztecsoft, a product engineering business

– Indian IT is at an inflection point
– Highly commoditized industry
– Highly competitive market
– Industry growth is slowing down

At current price of Rs 565, the rate of return is 8.4% based on pre-tax earnings to market cap and the dividend yield is 2.8%.



10-Year Analysis:
MyValuePicks is not a registered investment advisor or broker. Readers are advised that the material contained herein should be used solely for informational purposes. MyValuePicks does not accept responsibility for consequences of financial decisions taken by users on the basis of information provided herein. The aim is to provide a reasonably accurate picture of financial and related opportunities based on information available with us.