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Puravankara: Well-Run, Growing Real Estate Developer at Fraction of NAV

April 12, 2019 in Asia, Asian Investing Summit 2019, Asian Investing Summit 2019 Featured, Audio, Equities, Ideas

Rahul Saraogi of Atyant Capital Advisors presented his in-depth investment thesis on Puravankara Limited (India: PVKP) at Asian Investing Summit 2019. Rahul also provided an update on the value investment opportunity in India.

Thesis summary:

Puravankara Limited is a South & West India focused real estate developer. The company focuses on middle income and affordable housing. The buyers are the actual end users. There is a unique financing model for affordable housing, which helps this business. The Goods & Service Tax, and the Real Estate Regulation and Development Act have also helped in a big way. There is a professional management and scalable business in place, leading to robust sales and a strong launch pipeline.

The company has conservative and healthy financials, with an attractive valuation and strong future growth: Market Cap of USD 260 million, NAV of approximately USD 1 billion, P/BV of .76, and a NAV growth rate of 25%. This is an attractive investment opportunity due to the name being unresearched and unknown. The company is also the cheapest real estate developer. The valuation discount is untenable. The strong growth will force the unlocking of value, with very high asymmetry.

Read a related article by Rahul on the housing opportunity in India.

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About the instructor:

Rahul Saraogi is the founder and managing director of Atyant Capital Advisors, advisor to the Atyant Capital family of funds. In the last 18 years he has focused on the Indian markets. His mission is to consistently identify the best 10-15 investment ideas from among the thousands of publicly- traded Indian corporations. Rahul’s value-based investment philosophy stands apart due to his belief in the paramount importance of corporate governance, specifically how management operates with its minority shareholders in mind. Rahul is the author of Investing in India: A Value Investor’s Guide to the Biggest Untapped Opportunity in the World a definitive guide on navigating the Indian markets published by John Wiley & Sons.

Rahul graduated from the Wharton School of the University of Pennsylvania with a degree in Economics. Outside of Atyant, he practices Vipassana, a 2,500 year-old meditation technique that helps people see things as they really are. Rahul splits time between Chennai, India and Miami.

Shemaroo Entertainment: Niche Content Aggregator with Valuable Library

April 12, 2019 in Asia, Asian Investing Summit 2019, Audio, Equities, Ideas, Micro Cap

Rohit Chauhan presented his in-depth investment thesis on Shemaroo Entertainment (India: SHEMAROO) at Asian Investing Summit 2019.

Thesis summary:

Shemaroo Entertainment is a content aggregation company. Shemaroo sources movie titles in Hindi and regional languages in India. The company has been in this business for over 20 years, and now has a catalog of 3700+ titles. The company has performed the role of a supply aggregator from a fragmented producer base for the traditional media segment, such as cable and satellite television. The company is now positioned favorably for the digital media segment, including OTT apps, YouTube and various telecom providers. Video consumption, as part of the digital media segment, is expected to grow by 10X in 3 years. The growth will be driven by 90%+ reduction data charges and doubling of smartphone users to 500 million+ by 2020. The market continues to discount the company at 12 times earning ignoring the growth opportunities in its target markets.

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About the instructor:

Rohit Chauhan is an Engineer / MBA with 20+ years of experience in different functions in large corporations in India and abroad. Rohit was introduced to the Investment world in the mid-90s when he started managing his family’s Finances. He learnt the basics by reading financial newspapers and books, and from his mistakes in the early days. Rohit’s approach towards investing changed when he came across the book ‘The Warren Buffett Way’. He got interested in Value Investing and started reading books from legendary investors like Benjamin Graham, Philip Fisher and other greats in this field. Their teachings have formed the bedrock of his investment philosophy. Over the years, Rohit has also learnt to apply the behavioural aspects of investing to his process. Rohit has followed the ‘Value Investing’ philosophy for the last 15+ years in managing his capital.

China Jushi: Top Fiberglass Maker in Oligopolistic Global Market

April 12, 2019 in Asia, Asian Investing Summit 2019, Asian Investing Summit 2019 Featured, Audio, Equities, Ideas, Materials, Mid Cap, Transcripts

Ning Jia of Shanghai Pumeng Asset Management presented his in-depth thesis on China Jushi (China: 600176) at Asian Investing Summit 2019.

Thesis summary:

China Jushi is the largest fiberglass manufacturer in the world. Fiberglass is an attractive segment as downstream demand grows steadily, while the combination of technological know-how, sizable initial capital outlay, and scale advantages creates high barriers to entry. The result is an oligopolistic market, with the top six players accounting for 80+% of global market share. During the past two decades, Chinese fiberglass manufacturers gradually took share as China’s comparative advantages greatly favored Chinese manufacturers. China Jushi has gradually dominated both the domestic and global markets.

Key to Jushi’s successful rise are Jushi’s cost advantage, best-in-class technology, operating efficiency, a visionary and competent leader, and a remarkable culture. From 1996 to 2017, China Jushi has compounded sales at 18% and net income at 22% annually. Gross margin has increased from 22% to 45% and net margin has increased from 12% to almost 25%. China Jushi recently traded at approximately 15x trailing earnings, slightly below the historical average. Over the next five years, China Jushi can achieve high-single-digit to low-teens sales growth and mid-to-high-teens earnings growth. Without assuming any multiple expansion, the all-in return for holding China Jushi over the next five years may be 15%-20% annually, mostly from fundamental growth.

Over the next five years, China Jushi can achieve high-single-digit to low-teens sales growth and mid-to-high-teens earnings growth. Without assuming any multiple expansion, the all-in return for holding China Jushi over the next five years may be 15%-20% annually, mostly from fundamental growth.

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About the instructor:

Ning Jia is the Chief Investment Officer of Pumeng Asset Management. Previously Ning worked for four years as an analyst covering U.S and China consumer, healthcare, financial and TMT sectors at Century Management based in Austin, Texas. Century Management was founded by Arnold Van Den Berg in 1974 and has more than 40 years of track record as an investment manager. Ning began his career as an Assurance Associate in the Financial Service Office Division focusing on hedge fund audit at Ernst and Young U.S LLP. He received his Master of Accountancy and B.B.A in Accounting both from the University of Georgia. Ning is a CFA charterholder as well as a Certified Public Accountant.

Niyogin Fintech: Technology-Driven Non-Banking Finance Company in India

April 12, 2019 in Asia, Asian Investing Summit 2019, Audio, Equities, Financials, Ideas, Micro Cap

Rajeev Mantri of Navam Capital presented his in-depth investment thesis on Niyogin Fintech (India: 538772) at Asian Investing Summit 2019.

Thesis summary:

Niyogin Fintech is a digital-first, technology-driven non-banking finance company in India focused on servicing business customers in the micro-, small- and medium-scale enterprise (MSME) sector. This sector has traditionally been credit-deprived and on the fringes of the formal economy. Due to a range of structural changes sweeping India, MSMEs are formalizing, digitizing, and entering the organized economy. As an entrepreneurial, purpose-built venture geared to address the credit needs of this sector, Niyogin is well-placed to be a high-performing lender of choice to MSMEs. The founding team’s deep expertise in financial services and emerging markets as well as a stable shareholder base are among Niyogin’s key strengths. From a recent market capitalization of approximately USD 115 million, and in light of the large market opportunity in front of Niyogin, the business is on track to multiply earnings and increase value manifold in the years to come.

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About the instructor:

Rajeev Mantri is director of private investment firm GPSK Investment Group, and executive director of Navam Capital, an India-focused venture capital firm. Prior to founding Navam Capital, Rajeev worked as a venture capitalist at New York-based Lux Capital, focusing on investments in energy, water and nanomaterials. Rajeev has contributed columns and articles on technology, investing, venture capital and political economy to The Wall Street Journal, Mint, Financial Times, The New York Times, MIT Technology Review, BioSpectrum, Roubini Global Economics and others. In August 2010, Rajeev co-founded Vyome Biosciences, a biopharmaceuticals company, and served as Vyome’s president through the company’s formative years. Rajeev graduated with a BS in materials science and engineering from Northwestern University, and an MBA from Columbia Business School, specializing in private equity and value investing.

Asian Innovators: Four Potential Compounders in China, Japan, and Korea

April 12, 2019 in Asia, Asian Investing Summit 2019, Audio, Consumer Discretionary, Equities, Ideas, Information Technology, Micro Cap, Mid Cap, Small Cap

KB Kee of HERO Investment Management discussed his investment approach and presented his investment theses on TransInfo Technology (China: 002373), Beijing Thunisoft (China: 300271), Enigmo (Japan: 3665), and Minwise (Korea: 214180) at Asian Investing Summit 2019.

Thesis summaries:

TransInfo Technology is China’s #1 intelligent traffic system (ITS) innovator powered by big data analysis and artificial intelligence (AI). TransInfo has a number of patented technologies in the collection, processing and releasing traffic information. TransInfo has established a big data system platform that collects more than 10 billion GPS positioning data, average road mileage data exceeding 4.5 million kilometers every day on freight, logistics vehicles, taxis, private cars, as well as traffic data on 5.7 million heavy-duty trucks with a capacity of more than 12 tonnes nationwide (out of a total of 6 million with operating licenses). The dynamic traffic information service generated based on these data processing cover more than 200 cities across the country and more than 90% of national and provincial roads.

Some of the key metrics to look at include: FY2018 sales increased 35.22%, net profit rose 64.74%, OP margin of 13.3%, ROE (= EBIT/Equity) of 12.1%, and ROA of 7.1%. The balance sheet is relatively healthy with net cash of RMB 1.289 billion (USD 192 million) (RMB 1.866 billion gross cash, RMB 577 million gross debt which include RMB 100 million corporate bonds issued to qualified investors in December 2017), which is around 4.4% of market cap.

TransInfo announced on 30 March 2019 an estimated 1Q FY2019 profit to increase 40-60%, due to “steady and rapid growth” in the company’s smart transportation and intelligent security markets. Koon believes TransInfo can build on its growth momentum with the successful integration of Uniview to generate 30% CAGR in OP over the next 3 years from USD 143 million currently to over USD 300 million with ROE of 13-15%, and spur a upward valuation re-rating to EV/EBIT of 26-30x (“fundamental PEG ratio” of 2x for a Stage II innovator) toward a 107% rise in market cap from its present USD 3.96 billion to USD 8.2 billion, or a share price of CNY 72.4.

Beijing Thunisoft is China’s #1 software/AI leader in Smart Judicial Court, commanding over 50% share of the more than 3,500 courts in China. Thunisoft has benefited from the long-term development in national judicial reform and judicial disclosure to promote the rule of law. Thunisoft has built a cross-level, cross-regional, cross-system, cross-departmental, and cross-business big data management and service platform for the Supreme Court, making judicial proceedings more efficient. The software has gathered 140 million case data of national courts and 70 million judge document data for the People’s Court, becoming the world’s largest library of trial information resources. Customer stickiness is notable with high switching costs.

Some of the key metrics to look at include: FY2018 sales increased 15.48%, operating profit increase 28.36%, net profit rose 30.66%, profit margin of 20.1%, ROE of 12.8%, and ROA of 9.3%. The new client contract value has increased 40.39% to RMB3.966 billion (147% of FY2018 sales). The balance sheet is relatively healthy with RMB 517 million in net cash (RMB522.8m in gross cash, RMB5 million in debt) which is around 4% of market cap.

Thunisoft is one of the few Chinese companies with little or no capital allocation to “wealth management products”. Koon believes Thunisoft can build on its growth momentum to generate 25% CAGR in OP over the next 3 years, from USD 80.8 million currently to over USD158 million with ROE of 13-15%. The company has the potential for an upward valuation re-rating to EV/EBIT of 26-30x (“fundamental PEG ratio” of 2x for a Stage II innovator) toward a 80-106% rise in market cap from its present USD 2.3 billion to USD 4.1-4.7 billion, or a share price of CNY 36.5-42.2.

Enigmo operates Japan’s #1 social fashion C2C ecommerce platform BUYMA.com. Enigmo offers a unique, safe and secure shopping experience through its escrow payment system and social shopping interface that matches over 6.14 million (+23.1%) registered members (buyers) as of January 2019 (January 2014: 1.69m) with over 125,000 “personal shoppers” (“exhibitors”/ sellers) residing in 152 countries worldwide, and with more than 3.18 million items and over 10,000 registered brands at local prices. Enigmo is also expanding beyond ladies’ fashion into new categories in fashion for men (26.5% of members, 32.4% of transaction volume) and baby/kids, beauty, and interior home fashion. Active members (defined as making purchases within the past year) is around 1.1m (+13%) and ARPU is JPY 41,449 (+8.3%).

Enigmo’s revenue model charges a success-based transaction fee of 5% on the buyers and 5-7% on the sellers. Enigmo’s zero inventory-risk and capex-light business model enables the generation of EBIT margin of 40.3% (vs Etsy’s 12.3%) and positive free cashflow (FCF) margin of 49.2% with ROE (=EBIT/ Equity) of 38.9% (vs Etsy’s 18.6%) and ROA of 30% (vs Etsy’s 8.3%), and a healthy balance sheet of zero debt and net cash of JPY 6.456 billion (USD 58.4 million, or 10.8% of market cap) as of January 2019. Enigmo has not raised any cash in new shares since its 2012 listing that raised USD 3.85 million. FY01/2019 sales increased 17.6% and operating profit rose 36.1%, with operating margin 40.3%, ROE 38.9% and ROA 30%. Enigmo generates a positive FCF of JPY 2.6 billion with a FCF margin of 49.2%. Following the write-off of its entire goodwill of JPY 435 million in September 2017, Enigmo has a healthy balance sheet with zero debt and JPY 6.456 billion (USD 58.4 million) in cash as of January 2019 (10.8% of market value).

Koon believes Enigmo can build on its growth momentum to generate approximately 25% CAGR in OP over the next 3 years, from USD 19.4 million currently to over USD 38 million with ROE of 38-40%. The company has the potential for an upward valuation re-rating to EV/EBIT of 38-40x (“fundamental PEG ratio” of 1x for a Stage I innovator) toward a 166-180% rise in market cap from its present USD 542 million to USD 1.44-1.52 billion, or a share price of JPY 7,460-7,850.

Minwise is Korea’s #1 mobile security authentication services innovator. Minwise has a near-monopoly share in the secondary authentication service centered on personal information security which allowed smartphone users of all three Korean telecom firms to sign into websites free of security threats and prevent illegal logins from personal information leakage (user ID and password) and mobile phone identification theft. Minwise has patents for its original mobile security authentication technology. Minwise’s business model generates stable and recurring monthly revenue with subscribers paying a very affordable KRW 1,000 (USD 0.89) a month that is generally economic insensitive.

Minwise has also expanded from mobile security services to mobile lifestyle services such as Stock Investment Notes with 100,000 paid monthly subscriber paying KRW 10,000 per month. Minwise has transformed successfully beyond a software developer to a “publisher”, having built a business platform to attract subscribers to sign up for services of affiliate websites (e-commerce, games, portals, securities firms etc) and shares the profit with affiliates.

Minwise also commands a dominant 90% share in virtual bank account settlement, which is the second most widely used means of electronic transactions in Korea following credit/debit cards, through its 43% stake in SettleBank. Minwise’s SettleBank business is an infrastructure platform and axis of electronic finance that has very high entry barriers. Minwise achieved healthy profitability with TTM operating margin of 24.6% (3Q FY2018 25.9%), positive FCF margin 53%, with a healthy net cash balance sheet of approximately KRW 92 billion (USD 81.8 million; gross cash of KRW 94 billion with KRW 48.8 billion as restricted cash for virtual account settlement, and gross debt of KRW 2 billion), or 37.9% of market cap.

On 21 March 2019, Minwise announced its preliminary FY2018 results in which sales increased 33.3% to KRW 107,326 million, operating profit rose 21.7% to KRW 26,040 million with OP margin of 24.3%, ROE (= EBIT/Equity) 17% and ROA 11.2%. Minwise’s healthy cash flow generative capability supports a sustainable dividend payout ratio of around 23-26% since listing in 2015, or a dividend yield of around 1.24%.

Koon believes Minwise can build on its growth momentum to generate approximately 15-20% CAGR in OP over the next 3 years from the current USD 22.9 million to over USD 34.9-39.7 million, with ROE of 17-20%. The company has the potential for an upward valuation re-rating to EV/EBIT of 12.75-15x (“fundamental PEG ratio” of 0.75x for a Stage I innovator) toward a 100-169% rise in market cap from its present USD 221 million to USD 445-595 million, or a share price of KRW 42,400-56,700.

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About the instructor:

H.E.R.O. stands for “Honorable. Exponential. Resilient. Organization” and is operationalized into a unique systematic investment process to identify the winners and capture long-term returns created by disruptive forces and innovation in an exponential world. H.E.R.O. was founded by KB as a specialist in Asian SMID-cap tech-focused stocks. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company and the chief investment officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments.

Koon Boon Kee had taught accounting at the Singapore Management University (SMU) as a full-time faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community.

Sakai Heavy Industries: Leader in Niche Market for Road Rollers

April 12, 2019 in Asia, Asian Investing Summit 2019, Asian Investing Summit 2019 Featured, Audio, Equities, Financials, Ideas, Micro Cap, Small Cap, Transcripts

Alex Kinmont of Milestone Asset Management updated his outlook for value investing in Japan and presented his investment theses on Sakai Heavy Industries (Japan: 6358), Sankyo Frontier (Japan: 9639), and Nakano (Japan: 1827) at Asian Investing Summit 2019.

Thesis summaries:

Sakai Heavy Industries is a pioneer of road rollers both in Japan and in Asia, founded in 1918 by Kinnosuke Sakai (Japan). They focus on road rollers and tar making machines in Japan and internationally. The two competitive advantages: limited market size (great for smaller businesses, as it deters new entrants), and largest market share. They have the largest share both in Japan and in ASEAN, with a domestic share of 70% and ASEAN share of 40%. The positive aspects of the business outlook: (1) current business environment is supportive for this business, (2) Japan is experiencing an explosion of maintenance and repair demand, (3) NEXCO East, Central, and West has an expressway renewal project targeted between 2014-2030, with the budget for the project approximately JPY 3,000 billion.

The company market value is calculated at JPY 10,900 billion (March 2019), with an EPV per share of JPY 5,717. The market price, as of March 2019, is JPY 2,548, providing a 55% margin of safety.

Sankyo Frontier makes and leases unit houses. Unit houses are used in light construction for multiple uses. A unit house is carried compactly folded, constructed in one day, and originally for construction sites (used to house construction workers during the time of project). They started in narrow markets, and expanded to broader options: shops, restaurants, warehouse, schools, hospitals, etc. The company has one competitor, but has a stronger production capacity, and does direct sales to general constructors (vs using agent sales). Sankyo has a 30% market share.

The stock is at a 60% discount to the theoretical value, with an EPV of 1.5x, EV/EBITDA 3.6x, and PBR of 1.3x. The value of the stock has been at a discounted value for approximately 5 years. The market cap is approximately JPY 28.7 billion. There is JPY 20 billion in unrealized value in their rental asset portfolio. The 10 year old unit houses can be sold at manufacturing costs, not depreciated book value after cleaning. The stock is severely discounted due to the following reasons: (1) conventional steel structured building market is 20x bigger, (2) a massive number of workers are retiring in the construction industry (lack of labor required in its construction technology), and (3) they can sell depreciated rental assets any time, when the user demand is lower.

Nakano is the largest maker of refrigerator showcases for 7-11. The value of the stock stems from the aging Japanese society. A majority of 7-11 clients are over the age of 50, with this segment continuing to grow. This demographic is most likely less employed and single, and therefore creating a stronger market demand for prepared foods.

The company is inexpensive with a “plain” price to book value of 1.2x, and a “plain” EV/EBITDA is 10.8x. The numbers are distorted given that the company has bought back 43.2% of shares, which currently sit in treasury. The numbers reflected on bloomberg/other sites include the treasury shares as if fully issued, which isn’t the case as it is held by the company. Adjusting for the treasury share, the EV/EBITDA is 3.25x. The stock is at a calculated 39% discount.

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About the instructor:

Alexander Kinmont is the CEO of Milestone Asset Management, a Tokyo-based independent asset manager. Milestone offers both long-only and long-short value strategies to institutional investors. It does not employ leverage. Milestone is focused on valuation discrepancies, not just statistically inexpensive stocks. It is guided by a value philosophy which emphasizes minimising the risk of permanent loss of capital. Prior to starting Milestone, Alex headed Japan equity strategy at Morgan Stanley MUFG in Tokyo. He began his career at Daiichi Securities in 1985. Alex graduated from the University of Oxford with a Masters Degree in Literae Humaniores (Latin and Greek Literature and Ancient History) and is fluent in Japanese.

Persistent Systems: Mid-Tier IT Services Firm at Discount

April 12, 2019 in Asia, Asian Investing Summit 2019, Audio, Equities, Ideas, Information Technology, Small Cap

Amit Chander of Baring Private Equity Partners India presented his in-depth investment thesis on Persistent Systems (India: PERSISTENT) at Asian Investing Summit 2019.

Thesis summary:

Persistent Systems is a mid-tier IT Services company. The company has a revenue of USD 471 million. The company previously outperformed market growth, and reported higher profit margins than peers. The company has a five year average ROE of 25%. To benefit from shift in technology spend towards digital (USD 180 Billion market growing at 18.5%), the company has been investing in digital through acquisitions, alliance (with IBM) and organic efforts. As of FY18, the digital segment of the business grew by 43%, with 21% of its revenues now deriving from that business. Growth has slowed in recent quarters, leading to the stock price falling 40% and valuation to 6.4x EV/EBITDA on March 2019 earnings (adjusted for USD 185 Million cash, high cash flow generated from operations, nil debt). This is a 50% discount to its peers.

The company recently announced Chris O’Connor as the new CEO. Chris is a good fit as he was Head of Sales for the Internet of Things business at IBM (forefront of Digital). The current CEO owns 30% of the company. The company also announced a buyback at INR 750 (approximately 20% premium), with the anticipation of more buybacks in the future. There is low risk in the new leadership not being effective. The five- year base case calculation with modest growth, margin and multiple assumptions (11% Revenue, 17% EBITDA growth, 8.0x EV/EBITDA) is for 2.4x money.

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About the instructor:

Amit Chander is a Partner with Baring India – a spin out from ING Barings with USD 750 Mn in assets under management. He manages investments for the firm in public and private companies across multiple sectors (Healthcare, Technology and Financial Services) and over the last 14 years has built a strong performance track record having led investments of ~USD 200 Mn with top quartile returns and outperforming sector benchmarks.

Amit’s investment approach to pick multi-bagger stocks is predicated on combining top down research in focus sectors with bottom up fundamental analyses of companies and assessment of management teams for alignment of interest with minority shareholders. Portfolios are then constructed and optimized from a risk-return perspective from pools of such companies using value investing principles. He has been able to implement this approach systematically across cycles to generate a fairly distributed performance with minimal loss ratio. Amit was profiled in 2014 as among Top 5 Rising & Successful Fund Managers by leading Indian business daily Economic Times. As company spokesperson Amit also represents the firm in industry events and is quoted in media as a subject matter expert.

In his prior roles, he worked in financial advisory and business consulting with leading Indian and multi-national companies. As a manager with the world’s fourth largest and India’s most influential credit rating and policy advisory company, CRISIL (a subsidiary of Standard & Poor’s), he was involved in advising clients on equity divestments, financial restructuring, and business strategy. Subsequently he worked with Accenture – a leading global management consulting, technology, and outsourcing services company where he assisted clients on implementing technology-led large-scale business transformations ranging from e-governance to e-commerce.

Amit is an Engineering graduate from the Indian Institute of Technology (IIT), Delhi where he received the Director’s Silver Medal for being Rank #1 in his Department; he also holds an MBA from the Indian Institute of Management (IIM), Lucknow.

Fernando Bernad sobre Cameco

April 12, 2019 in Ideas de inversión, MOI Global en Español

NOTA DEL EDITOR: Esta idea de inversión es extraída de una carta trimestral de azValor Asset Management.

* * *

 Nuestra labor consiste en un análisis riguroso y objetivo de los datos que, a veces, nos conducen a desarbolar NARRATIVAS FALSAS fuertemente instaladas en la opinión dominante. La tendencia a abrazar narrativas falaces es una poderosa trampa de comportamiento, de corte cognitivo, que se da con más o menos frecuencia. Aunque existen muchos, para ilustrar el poder de esta trampa de comportamiento piénsese en el experimento de Tversky y Kahneman (1983) sobre “la cajera Linda”: A un grupo de universitarios se les presentó a Linda con la siguiente descripción; 31 años, extrovertida, brillante, licenciada en Filosofía y comprometida con causas de discriminación social. Y se les preguntó lo siguiente; ¿Cuál de los siguientes enunciados es más probable? 1. Linda trabaja en la caja de una oficina bancaria, o 2. Linda trabaja en la caja de una oficina bancaria y ha participado en manifestaciones feministas. Pues bien, una clara mayoría de los participantes en el experimento contestaron que el enunciado 2 era más probable que el 1, lo que es un evidente error cognitivo (es muy sencillo entender que la probabilidad de que dos hechos ocurran al mismo tiempo es siempre igual o menor que la de que suceda uno solo) causado por el seductor poder de una “bonita historia”. Es decir, tendemos a elaborar rápidamente una representación mental de la realidad tomando atajos en nuestros prejuicios y heurísticas en detrimento del análisis objetivo y sesudo de los datos, proceso más exigente y lento.

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Eicher Motors: Owner-Operated Motorcycle Maker with Growth

April 12, 2019 in Asia, Asian Investing Summit 2019, Asian Investing Summit 2019 Featured, Audio, Equities, Ideas, Mid Cap, Transcripts

Soumil Zaveri of DMZ Partners presented his in-depth investment thesis on Eicher Motors (India: EICHERMOT) at Asian Investing Summit 2019.

Thesis summary:

Eicher is the parent company of Royal Enfield, a global leader in the middleweight motorcycles segment, with the vast majority of business originating in India. The company has focused on distinctive motorcycles since 1901 and is the oldest motorcycle brand in continuous production.

The Royal Enfield business has had a robust scale-up, from 50,000 units (2010) to approximately 820,000 motorcycles in FY2018. This has been supported by continued premiumization in India’s motorcycle market (approximately 12.6 million units sold in FY18) as consumers upgrade from value-based, mileage-centric, and commute-focused products to more powerful motorbikes, which make riding more involved and leisure-based. Royal Enfield has dominant mindshare in this domain, with a long-standing focus on long-format rides and rider events and communities. Given the evocative and aspirational nature of the brand among the young and the growing middle class, and a pan-India store presence (875+ dealers), the business has a long growth runway.

To put the company’s size in perspective, it is interesting that commuter bike manufacturer Hero MotoCorp crossed the threshold of million two-wheelers sold in 1994 and sold more than 7.5 million units in FY2018. The Indian economy and consumption levels have come a long way since then. Royal Enfield appears likely to sell a multiple of the bikes it sells today a decade from now by mapping the upgrade preferences of Indian consumers, supported by rising discretionary spending and urbanization.

In addition to the domestic opportunity, Royal Enfield has the potential to emerge as one of India’s few home-grown brands to find success in global, “India-like” markets, with a deepening business presence in Latin America and Southeast Asia and a brand-accretive presence in developed markets like the UK and the US.

The business is run by a passionate and disciplined owner-operator, Siddhartha Lal, who displays immense clarity on the path ahead and remains acutely aware of curating the brand and retaining bandwidth where it is most required.

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About the instructor:

Soumil Zaveri moved to the US in 2005 to study Economics and Biology at Duke University. He had the good fortune of being taught by phenomenal professors including Dr. Emma Rasiel. In the summer of junior year, He interned with Goldman, Sachs & Co. in New York on the healthcare team within the Research division. He was extended a full time offer and joined the banking team there after graduation. Given the magnitude of changes affecting the western economies, the resilience of Asian ones and his desire to be back home, after a few years in New York, he moved back to Mumbai to start his own investment firm, and to work directly on allocating personal and family capital. He founded DMZ Partners in early 2011 with his father, Sanjay who has played a key role in shaping his investment philosophy. DMZ Partners has recently transitioned from allocating only family capital to a SEBI Registered Portfolio Manager. Soumil & Sanjay intend to cautiously curate their investor base to ensure that their investors’ philosophies and expectations are well aligned over the long-term.

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