E Commerce Frenzindia

What is one unique thing that happened to Flipkart on February 6, 2014?

- On 6 Feb, the traffic on Flipkart was twice of what it sees on an average day. 

- On 6 Feb, the traffic on Flipkart was more than the peak traffic on Diwali

- On 6 Feb, Flipkart crashed due to this traffic

- On 6 Feb, Flipkart's page views increased by 100 per cent

- On February 6, inbound calls to Flipkart's customer support number doubled

On 6 Feb, Motorola launched its much awaited budget phone - 'Moto G' in India EXCLUSIVELY through Flipkart. And not very surprisingly 67% of that traffic was driven by a single event - the launch of Moto G. 

Why this exclusivity in the age of mass production? 

Motorola was blatantly defying the basic principles of micro economics - that increased distribution would drive more volumes which in turn would lead to economies of scale. While the second lag of relationship holds true (more volumes = less cost), Motorola dared to change the first leg of equation (more distribution channels = more volumes). Increased distribution does not necessarily mean more volumes. In this case exclusive distribution was driving more volumes. It is estimated that in the first 15 minutes only Flipkart sold 20,000 units of this model and went stock out. While strictly not comparable, but Moto G's volumes are putting several other brands to shame.

Flipkart even bettered the show with Redmi which was launched recently on Flipkart exclusively. The launch stats can be availed on the net.

Online shopping is fast catching up with Indians, thanks to several conveniences such as user reviews, comparing specs, one-month replacement and most importantly cash on delivery. No wonder this first-of-its-kind launch strategy comes from Motorola, which was still a Google owned company. Who other than the god of internet would better understand the prowess of internet exclusivity and viral marketing.

In a follow up to this article I will ponder more into the courier sector since increasing proportion of B2C volumes would now be funneled via online sales and offline distribution

Till then, happy surfing

Ankit Sanghvi

Housing Finance Companies - winds of change

Hi,

Since the formation of new government on May 16, all the sectors have touched 52 week highs (between May and October). Interestingly none of the sectors are at all time high as we speak on October 19.

Clearly the Banking Index stands out, as it has corrected the least from its 52 week high. However the index does not capture the Non-banking Finance companies, especially the housing finance companies. Please find below a similar chart for the housing finance companies.

Noticeably most of the housing finance companies have under-performed the broad banking index. They have even under-performed the mid cap index (which has fallen by only 8% from the peak). The key reason being that the RBI had recently allowed banks to raise bonds for affordable housing loans, whereby the banks are not mandated to maintain reserves for such loans. This meant the cost of funding for banks would come down. More importantly, this has brought the banks on a level-playing field with the Housing Finance Companies (since the housing finance companies never maintained the reserves).

However the investors were time & again reminded by the Housing finance companies that had other advantages over banks as well:

[1] Tangible advantages (branch network in the hinterland) and 

[2] Intangible advantages (relationship with customers, knowledge about the credit profile of these unorganized' customers). 

While the sector leader - HDFC, has always proven its might when it comes to asset quality, it will be interesting to test the claims of the other housing finance companies. My assessment is that the higher yields (generated by these Housing Finance companies because of their reach) is offset partially by the higher defaults/ credit costs (which puts to test their "understanding of clients credit-risk profile").

Lets just dig a bit into the numbers to understand what this means. Please find below a table which highlights the Yields, Gross NPAs for these companies.

Gruh Finance clearly stands out of the lot; in-spite of higher yields, the company has superior asset quality. It implies that Gruh has not just lent to the sub-prime customers; but it has gone the extra mile into the hinterland of India and chosen unique customers, who do not have bank accounts but are credit-worthy. This is the sustainable advantage that no bank will be able to challenge. 

It is also worth mentioning that, when the banks will slash their lending rates for housing finance, Gruh will be able to withstand since it has access to low cost of capital because of its track record and superior parentage.

Most importantly, unlike its Peers, Gruh does-not dilute its shareholders; it generates cash that can easily meet its growth requirement. This makes Gruh more like an FMCG company. To me, Gruh Finance is a FMCG company with the power of Leverage. Thus, like other FMCG companies, it is time that Gruh Finance starts fetching PE multiples in the range of 35x rather than 25x.

Gruh stock has recently corrected and provide an attractive opportunity to buy. Please note that CanFin Homes at 1.5x PB and 20% RoE, is another stock to analyze in spite of the run up.

I rest my case,

Cheers,

Ankit

P.S: Please note that the last para about Gruh being compared to FMCG, is ideated from the blog of Mr. PrabhakarKudva. Even though I do not know him in person, I would urge all to give due credits to the blogger, since I have just taken inspiration from a great investor and just taken the next step (by analyzing the onslaught from banks on Housing Finance Companies)

Buffett to buy newsprint?

New bottle, old wine. Well, rightly so!

Not very long before, in the year 2009, had Warren Buffett ruled out Newsprint as junk investment business citing newsprint as a dying business model and increasing substitution from internet.

Come 2012, Buffett's Berkshire decided to buy The Media General papers. To summarize what Mr. Buffett had stated - "In towns and cities where there is a strong sense of community, there is no more important institution than the local paper"

So what turned the 'boring' newsprint business into a 'glamorous' investment?

However pervasive internet may become, the local aspect of newspaper remains even in the highly developed United States. So what different is India from the US when it comes to the 'stickiness' factor of the newsprint. More-over, India is all the more divided by languages, religions and castes; thus giving an apt breeding ground for the 'localized' news content. I still believe that under this light we should re-look at our regional newsprint companies and hunt for a bargain investment!!!

Please find the link below:

http://investing.businessweek.com/research/stocks/news/article.asp?docKey=600-201205172359KRTRIB__BUSNEWS_58549_64177-1&params=timestamp%7C%7C05/17/2012%2011:59%20PM%20ET%7C%7Cheadline%7C%7CInvestor%20Buffett%20to%20'rule'%2063%20newspapers%20%5BThe%20Washington%20Times%5D%7C%7CdocSource%7C%7CKnight%20Ridder/Tribune%7C%7Cprovider%7C%7CACQUIREMEDIA&ticker=AMZN:US

Secret to wealth creation

What takes to become a billionaire?

You either create value or you identify some one who is creating value...

Well I belong to the second category...having worked in the Capital Markets for more than 4 years...I have realized that the secret to creating tremendous wealth is to simply identify the pockets of value creation

From my readings so far, I have outlined the following ways to create tremendous wealth

[1] Invest in assets (stocks, bonds, real assets) not in liabilities disguised under assets (extravagant car, gadgets)

[2] Wealth can be created by holding your investments for a longer period of time and let your money work for you

[3] Stocks, especially small companies can give phenomenal returns over a period of time...The reason being that the best or the largest only have one way...downwards...where as the sapling always has the opportunity to become a tree

[4] However the rule of probability states that only one in hundreds can become a GE, Apple, Reliance, Infosys or Sony. Thus it becomes practically difficult to analyze these investments at an earlier stage. However I believe do look out for companies which are run by promoters rather than professional or government appointed managers. Also the promoters should hold at-least 50% of the shares. Also look out for companies which care for minority shareholders. This is best reflected in sustained out-performance of their share price over the benchmark index

[5] The next step is on operational excellence. I would be really looking our for companies with improving RoE, particularly whereby the first two components of RoE (Margins x Asset turnover x Financial leverage) are improving or at-least sustainable

[6] Finally I would look out for stocks, which are trading attractively within the sector. However I would look at the sector from a global perspective, considering the fact that the globalized world gives opportunities for businesses to expand globally as well for investors to invest globally