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December 18, 2014

Conclusion : Intrasoft Technologies Ltd (CMP 45)

I had posted on Intrasoft Technologies Ltd here

Now posting follow up and conclusion .

Retail e-commerce market potentials : 

The Indian e-commerce(all including retail and travel) market is estimated at $11 billion. It is expected to stand at $20 billion by 2015, a compounded annual growth rate (CAGR) of 37 per cent through 2013-15, according to a recent report by Motilal Oswal Securities. The e-retail segment would be the biggest growth driver (with an expected CAGR of 60 per cent), increasing from $1.7 billion in 2013 to $7 billion in 2016, it added .
Pramod Kumar, managing director, Barclays Capital India, said, “The online retailing segment in India today accounts for a mere 0.5 per cent, compared with 8-13 per cent in developed countries. The sector is expected to grow sevenfold to $30 billion by 2020 and the number of e-shoppers could grow from 20 million to about 90 million. Clearly, India is a massive e-commerce opportunity, which cannot be ignored.”

Source : http://www.business-standard.com/article/finance/softbank-turns-largest-investor-for-indian-e-commerce-cos-114121700329_1.html


Today (18 Dec), Qatar fund invests $150 million in Flipkart . QIA is the new investor buying into Flipkart, valued at around $11 billion (more than Rs 68200 crores at conversion rate of 62) , taking it among the top five privately held technology startups in the world.

Source : http://timesofindia.indiatimes.com/business/international-business/Qatar-fund-invests-150-million-in-Flipkart/articleshow/45556408.cms

I know it it is at crazy valuations but Early investors are making huge money . It may follow "greatest fool theory" . However , They are not investing because of charity , They might have their own reasoning. All the retail e-commerce players are making huge losses but It doesn't matter for them since they are concentrating on future and trying to achieve economical scale first like Alibaba did .

SoftBank’s $20-million investment in Chinese e-commerce group Alibaba in 2000 is now worth $86 billion, following the Chinese company floating an initial public offering in the US. That is very very huge return . They had patience in early stage when Alibaba was making losses and that time Alibaba was not listed . Mr market does not give good valuation to companies which are under investment stage unless promoter has proven track records . Same times it throws opportunity to buy companies whose valuation are cheap , past is not good but future is bright . Retail e-commerce is such huge opportunity that even companies with decent management will also do reasonably good .

Conclusion :
By seeing comments , email and Market Price , I feel most of them suggested to ignore Intrasoft due to it past performance . Most of them also not realizing how big is retail e-commerce opportunity . So , I have decided to invest 2.5 percentage of my portfolio (May be risky bet) regardless of all concerns like deprecation write off, past track records  .I will allocate more money based on future fundamental changes . I am sure if company does not do any fraud and promoters have good intention for minority shareholder then I believe I will make some return in this if I can wait for long regardless of noise.Same time I will keep watch on fundamental changes and my assumptions that they will launch http://123stores.com in India. If they sell other business (websites) and just concentrate on future that is http://123stores.com (USA, Canada, India and other countries) then that will be added advantage. My logic is simple If retail e-commerce market grows like expected and stabilized(start making money) then not only Flipkart and Snapdeal is going to make money there will be few small players in retail e-commerce will also make money . Indian consumers are going to be loyal to discount and value for money and not only to big brands like FlipKart or SnapDeal . Flipkart and Snapdeal will be get listed in future once they start making money to give exit to early investors. But we don't have any other opportunity right now in listed space of retail e-commerce apart from Intrasoft technologies. Right now, I am looking like contrarian fool and alone investor .

We are shopping from USA based companies like Amazon and eBay here in India . If any of your friends and relative is in USA then please request them to buy any low price item from http://123stores.com/ for experience . Please don't buy anything which is not needed .

If you are interested in reading multiple blogs from other blogger then please open your account on http://www.feedly.com/ which I find good to read and track all blogs .

 P.S. (on 25 Dec 2014)

Magic of Compounding :  Why Venture Capitalist are investing in loss making companies ? Because , they are have their own assumptions and firmly believe in power of Compounding . I tried number crunching and Magic of Compounding on Intrasoft and numbers were unbelievable . So, I initially thought I am not going put these numbers since I will be look stupid and I did similar exercise for Indsil but those variable never turned positive so I sold recently my entire holding in Indsil . I have changed my style of investing from 2013 and moved towards growth . I feel little better investor If I see my portfolio, most of those stocks I have not disclosed here , frankly most of successful stock ideas are borrowed one from others (No intention to return them back:))  . Nevertheless , I collected some courage and put the magic of compounding on Intrasoft even though I will look stupid but I am not alone some Venture Capitalist are also looking similar:) .

Intrasoft Technologies's 123Stores can earn revenue/profit in future from Transaction Fees , payment Gateway fees(net off paying to actual gateway charges) ,  Vendor Subscription monthly fees , Advertising (like AdWords ,AdSense) , Other Affiliate marketing, From Channel Partner ( sending email to their register customers of channel partner like insurance company) and shipping charges (net off paying to courier companies).

Whenever , these e-commerce companies will chase profit instead of GMV (GROSS MERCHANDISE VALUE) then they can earn profit margin of 7-12% (not more than that) on GMV .

Let's assume Intrasoft Technologies's 123Stores will earn only 5% (worst case scenario) net profit margin once e-commerce stabilized and concentrating on profit .

123Stores reported record sales over the long holiday weekend from Thanksgiving Day through Cyber Monday of over $2 million, a 243% percent increase over last year .I can trust number of 123Stores because they are showing audited numbers with annual report of subsidiary in USA. These numbers are audited by ZBS Group, LLP . New York .Click here
 If they start their operations in Canada and India then this growth may be increase further but assume for margin of safety that they just grows by 55% against current 200% plus compounding .

So there 4 assumption in the my following calculation
1. I can hold it from 4 year to 10 years provided that I do not smell something wrong/fraud .
2. NP margin of only 5% of sales /GMV
3. Sales /GMV growth of 55% compounding for first 4 year then 30% for next 3 years then 15% for 8 to 10th years period.
4. Equity dilutions of 20% for 4 years period , 30% for 7 years and 40% 10 years period.


Now , lets consider 3 periods when they will profitable either in 4 years or  7 years or 10 years . I can hold these share long term at least for this period as long as my assumptions on track . I will have to take call if assumptions get off-track depend on circumstances .

This year they will show at least 270 crores of sales ( last 4 trailing quarters already 220 crores ) we will start from that .



Try : http://www.moneycontrol.com/personal-finance/tools/magic-of-compounding-tool.html





4 Years
7 years
10 years
GMV/Sales
1558 (55% compounding)
3422 (30% compounding from 5th year to 7th year)
5204(15% compounding from 8th year to 10th year)
Profit@5%
77.9
171.1
260.2
Mcap @ 10 PE (Cr.)
779
1711
2600
Share price @ 20% Equity Dilution
Rs 423


Share price @ 30% Equity Dilution

813

Share price @ 40% Equity Dilution


1059
Mcap @ 15 PE (Cr.)
1168.5
2566
3900
Share price @ 20% Equity Dilution (15 PE)
634.5


Share price @ 30% Equity Dilution (15 PE)

1393

Share price @ 40% Equity Dilution(15 PE)


1588


Numbers look unbelievable , This stock price for me can be achieve if 4 assumptions remain on track which I don't think unreasonable either . Is 5% NPM is unreasonable ? Is 55% CAGR in sales for first 4  years is  unreasonable for sun rising e-commerce sector ? Is equity dilutions unreasonable ? For me , answer is not unreasonable .

Another import point , Intrasoft Technologies Ltd should not be get delisted .

We can get good return in any growing quality stocks but we can get impressive return /multibagger if we are early investor and market has not discovered potential of that stock .Right now , so far only Venture Capitalist Intel has invested in it. If Intrasoft Technologies get some other investors(or even some good stock picker investors/brokerage houses) then It will start getting valuations based on sales, first 1x then 1.5x like that .Journey has just started let's see where it take us , hope not backward at least .

If you are interested in reading multiple blogs  from bloggers (including stupid like me) then please open your account on http://www.feedly.com/ which I find good to read and track all the blogs .

This will be last post for this year . So ,wish you very happy and prosperous new year 2015 . I hope your compounding m/c for other investments continue with same or higher speed .





12 comments:

  1. I agree with you that Indian e-retail has tremendous potential...but not every company can capitalize on the opportunity. Take the case of rediff.com, I believe it was in online shopping even before flipkart..but still it is no where and the shopping experience is quite bad in rediff.com...similarly there are other sites like infibeam.com ...they are much behing customer service of flipkart,myntra or amazon...so if 123store becomes another rediff.com, then can't expect much...they may be able to take a cut out of the overall online industry...but to sustain it needs to have very good customer care...probabaly a management rejig might help as well..

    ReplyDelete
    Replies
    1. Hi Blogu Veerudu, First of all thanks for expressing your view and visiting my blog .

      You may be right but I can not skip this opportunity because failure of other companies . Rediff has not done anything good from last few years . Last year it has revenue of $16.12 Millions (around Rs 100 crores) while Intrasfot already passed that mark and have 220 cr from last 4 quarters ( while rediff trading at mcap of $55.45M (around 350 crores)). What I see they have scaled up from 30cr in FY10 to around 300 cr this year . I can't doubt managements ability to scale up further.They may or may not scale up from 300 to 3000 cr . We will need to closely watch it .Apart from http://123stores.com/ , They do also have unique shop in shop format where they can utilizes brilliant cust care services of Amazon and after few days even Alibaba. Believe me, if it is managed by already proven brilliant management like HDFC , Piramal then it could have been traded at minimum 7-8x to sales. If unknown management does good job then we get significant higher return as compared to known management. Current mcap is too low compared to potentials .

      Delete
    2. I see now it is trading at Rs 80. Before that also it reached at similar price and then went back to Rs 50. So, my question is - should I invest now or it is at high price now. Should I wait for correction! Any strategy?

      Delete
    3. One think is sure It will not come back to previous level . Big investors are chasing it now . Already , weaker hands got out of this stock and replaced with strong hands . You through any quantity market is ready to absorbed it .Secondary , retail portion is very low in shareholding pattern they have already sold based on previous pattern (dooodh ka jala chach bhi phoonk phoonk kar pita hai.....) . I am not technical analysts ( not even research analyst as per SEBI )I may be wrong in my analysis but my experience in market tells me based on last few weeks volume and % delivery volume data .

      Delete
    4. Thanks for your reply. I will keep this in radar. In few months I also plan to put some money here.

      Delete

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    page, I honestly appreciate your technique of writing a blog.

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    ReplyDelete
  3. Dear Sir, I am new visitor to your blog. I am astonished to see the bull run in Intrasoft Technologies in the last one and half month. I salute your stock picking ability. It is real service to small investor. I could not see any of your recent posts.

    ReplyDelete
    Replies
    1. Thanks Rajendiran A ,
      I never thought it will run so fast else I could have sold my house,other assets and bought Intrasoft's shares in truck load :) . Nevertheless , I have increased my holding by another 2% in my portfolio but due to recent run in this counter it is not just 2.5 +2 = 4.5% . It is much more now . I am not full time investor so I don't get enough time to write frequently .I almost come out of my retirement when I saw opportunity at compelling valuation and put my analysis on it. However , I will try to put my analysis of recent quarterly result .

      Delete
    2. Thank you for your reply,Sir. I will be following you closely.

      Delete
    3. Excellent Analysis & good Timing . I had through my sources inquired for the stake pledged with Kotak Bank it was some investor who had pledged with the bank now he stock is not pledged.

      Delete
  4. Respected Sir ,
    Deserve the Salute !>
    Regards
    Mahesh Vakharia

    ReplyDelete
  5. Sir whats your view on V2 Retail, vidhi dyestuff and rajoo eng. for long term......we need your valuable comment.

    ReplyDelete

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