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.

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

Opportunity:
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.

Moat:
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.

Investors:
– 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

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

Valuation:
trent-val

Source:
Company Annual Report

Disclosure:
Invested since 2012

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

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

Investors:
– 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.

Valuation:
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

Investors:
– 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.

 

Disclosure:
Invested

 

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

Management:
– 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

Investors:
– 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

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.

Fertilizers:
– 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

Management:
– 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

Investors:
– 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