Made
a small entry in TVS Electronics Ltd around 43.50. i remember when i picked
Gati/TCI and other logistic companies 2 years back focusing on coming demand
from E-commerce sector when nobody was aware of it. It worked great and all of
these turned multibaggers. stock market is all about seeing in the future; that
too ahead of others.
Now
I am focusing on outsourcing of warranty and after sales services sector. There
are crores of Laptops and smart phones in india and number is rising fast. Companies
need to invest big in setting dedicated Warranty services units. But they
can save huge money by outsourcing these services to third party service
providers like Logistics. So I feel this can be a big business in india.
I
bought smartlink sometimes back around 50 on the same theme although it has a
great name in networking solutions and other IT hardware products.It is now around
94/- and with one good quarter can touch
150 as it is having 113/- cash per share in its books as a result of sale of
its Digilink brand few years back. It is investing big in setting up
distribution channels for its IT and networking products under the brand names
of Digisol, Digilite and Warranty service business under Digicare.
Now
I find another one..TVS electronics Ltd which is a leader in Dot Matrix
printers in india the demand for which is on a decline. So it has set its eye
on retail sector and established a great brand in Point of sale devices like
cash registers, Scanners, POS terminals,
displays and POS systems etc with the brand name INDIPos. One can see
these in all retail chains across india and demand of these will only rise with
the growth in organized retail. Even small stores are investing in these due to
huge savings in time and ease.
TVS-E
has a great name in warranty services business in india and it is the
authorized partner in india with Xiaomi. This is the business which along with
retail POS products will change the fortune of this company.
It
achieved turnover of 270 cr in 2014-15, however raw material costs are good at
102 cr which means it is manufacturing significant amount of products in its
own units. Interest cost at 7 cr for a debt of around 57 cr is high but with
proper planning this can be taken care of as it is working capital debt.
Inventory, debtors all looks under control. Profit margins are not that great
because of scale of operation and high interest costs which is eating away 90%
of operating profits. But all these constraints represent prospects for high
growth. I did not get much time for further study into its products and
financials…will post second post on it with greater details.
I
strongly feel that this sector will see huge growth. But invest with caution as
it should be treated as risky although it is from the house of TVS. I always
prefer risky stocks from good promoters like we did for NIIT. It is already
trading near 50/- after we picked it up at 37/- as market is realizing the strength
of its focus on changing its business model with more focus on corporate
learning and skill development.
CMP is around 44/-
CMP is around 44/-
(Views are personal and should not be taken as a recommendation for buying or selling a stock. Stock markets are inherently risky so kindly do your Due Diligence before investing)
Hi Gurpreet ,
ReplyDeleteWhen I have purchased products from Best buy and Circuit city in the past or even Target/Walmart , I always prefer to buy the warranty for costly products .The only reason is Genuine service and return back guarantee with no questions asked. However , in our country will the people would like to spent on warranty as companies start saying hidden rules which are not visible to human eye in the last minute. I am pretty sure u have considered all these and would like to hear ur point of you.
In Boston , walmart went into losses because of the 90 days return concept for electronics. Of course as per survey they ended up because of the no. of immigrants taken advantage of that. Do u think such business can survive here?
Dear Sir,
ReplyDeleteI am yet to post full analysis on this topic. I am yet to cover the topic and prospectus of extended warranty services business in india. However even if we leave it out, the scope for outsourcing of inbuilt product warranty business is huge.
There is no denying that good after sales service plays a great role in brand building because most of our IT/Mobile Phones product companies do not do the major manufacturing. So products more or less are same. Hence good after sales support can be one of the defining differential if not the most.
HCL care is also providing chip level repair services in india for major global IT player. India rode the BOP bandwagon only on the strength of its cheap cost...the same thing can happen in warranty part also. Because a dedicated warranty and after sale support service unit may not provide cost benefits...so outsourcing of these will be a better option.
I'll cover the extended warranty business scope in india in the next post. Your review and inputs are most welcome.
Regards
Thanks Gurpreet for your analysis.
ReplyDeleteHow does Coromandel International look to you? It seems too be going downhill for quite sometime now. Thanks! Sujeet
Dear Sir,
DeleteThis year too Govt has not raised the prices of Urea...although it is not a bad one for Coromandel since it will get the balance after subsidized price from the govt itself...however it does raise the working capital requirments.
But i'll hold it for couple of years more because i think india need to correct its fertilizer imbalance if it wants to save its agriculture. Falling Gas prices may prompt more investments in urea sector as india still imports big quantity of urea.
There will be a consolidation in indian fertilizer sector in the near future with inefficient players will leave the field for bigger players like coromandel.
It is at the lowest point as far as the price is concerned...so just keep holding it.
Regards
Thanks Dear
ReplyDelete