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December 15, 2015

Intrasoft Technologies : Temptation to book tax free profit .

                I was waiting for Dec first week from last few months so that I could sell my entire remaining holding to get tax free profit of around 8-9 times of my initial capital(brought in range of 45-52 ) invested but instead of selling I started buying back more from already booked profit , you will say we know you are Idiot but this much never thought. I had already sold my some shares when I bought Olympia Industies and TechNVision , and reduced to 40% when despite write off by the company and market price was still above 560 . This first week of December , I could have easily said Thank You very Much Intrasoft and Bye-Bye but no I didn't . Despite write-off why I still bullish on it . Initially like others I though it is very much negative but when I talk to one of the senior investors whom I interact on email said if you expecting all products from product based company are going to be commercially successfully then you are having wrong expectation . There will be some products which will not taste commercial success . He said even Google try lot of things , at different stages they stop those project only handful of projects escalates to next level . I am not sure how they write off cost of these project but they had to reflect it . But Google is Google we can't use it for comparison at all . Intrasoft explained that "When we started the e-commerce venture, we pursued 3 or 4 models at the same time because we did not know what will work out. We thought that the auction format will work out and we thought the marketplace model for itself worked out. So as we got traction on the current model we pursued the development on that and put on hold the other models. When we recently reviewed the assets under development and found them non-revenue generating we found it prudent to write them off. Anyway, since April 13 we were advised to debit all software development expenses directly to the PL account thus there has been no addition for
the past two and a half years."
It is true conservative investor don't like write off but in product based companies it is a reality unless debited in PL account . If I correctly remember then around 2008 Vakrangee has done write off of around 50 crores . But from 2008-09 level of under Rs 1 (adjusted) Vakrangee share now trading around 165 . It means whopping 165 times return in 7-8 years .

PE can be misleading : 
If two companies are trading on same PE of 100 then does it mean both are trading on same high valuation ?
Lets say I give choice of two companies to choose for investment for 5 years both trading on high PE of 100 (Ignore moat other factors for simplicity)
A . Top line Growing 50% CAGR and has NPM of 30%
PE is going to be half after 5 years due to various reason not related to company .

B. Top line Growing 50% CAGR and has NPM of 0.5%
PE is going to be half after 5 years due to various reason not related to company .

Of course you will choose A . But now if I say that A will have same NPM of 30% after 5 years but B will have NPM of 3% then ? Then , equation will be change and I will have to choose B .

Why ? 
A will give around 3.5 x return if PE drops to 50 but B will give 21x return even if PE drops to 50.
So, basically if a company which has scope for NPM expansion(generally young companies) trade on higher PE then it can be misleading and it is completely wrong to compare with others who already has good mature business with very good NPM .

When business news channel compare Intrasoft and Archies then

But ,next time if you analyse a company with high PE then apart from quality, moat , expected growth and other factors, don't forget to add the scope of NPM improvement .

Most of the Indian investors expect profit growth , high ROCE , high margin from even from young companies  . They are not at fault because unlike USA we have not seen companies growing their top line first and then focus on profitability . We all have seen young IT companies like Infosys not only growing their top line but even same time bottom line from very young age .On the other  hand we have seen Pantaloon which was expanding top line but it was funding it growth through debt or equity dilution because it had asset heavy business model .

Due diligence of reported GMV : 

Few investors might not be believe in reported numbers of Intrasoft , lets cross check reported numbers . In fact , we should always do our due diligence before buying any stock .
Ideally , I should have done lot of offline check like talked to management , employee ,vendors , courier partners , Amazon , ebay, even Intel if I am seasonal full time investor. But I am not full time investors so I don't have luxury do all these . So , I relied on online whatever information available to do cross check . Of course , it is estimates and it can't be 100% accurate but it should be accurate with error margin(contingency) of around 20-25 % .

As we know Amazon USA contributes highest GMV to Total GMV of Intrasoft . They have never disclosed GMV shares but As per my initial analysis . It should be the following  .

Amazon USA30-40%
Ebay USA25-35%
123stores.com5-8 %
Rest (Amazon Canada , Alibaba’s , New Egg ,Rakuten ( , and newly added )25-35%

Intrasoft has TTM revenue of around 497 crores out of these around 460 cr should be GMV of e-commerce division .
Now if we talk to seller on Amazon ,eBay you will come to know that actual orders are 8-12 times of feedback count .
Now look at the following feedback count of 123stores on Amazon USA .

If we see last TTM feedback count is 42310 but reduce to 40000 due to seasonal effect from last month .
Now as per management Average Order Value in Q2 FY2015-16 = Rs. 3994

But, lets verify it from independent website which track and give rank to Amazon sellers .

You will notice that how fast 123store is growing in USA. They have life time rank of 372, 1 year rank of  72 and one month rank of 30 .

As per them Average sale price is $75.98  = around Rs 5000 . Management has given Rs. 3994 avg for all the e-commerce websites .
So lets assume that it is 4500 on Amazon USA .

So total GMV of Intrasoft on Amazon USA should be = 40000 * 10 * 4500 = 1800000000 = around 180 crores = Around 39% of 460 crores .

If we consider avg order at 4000 then it comes to 160 crores which is 35% of 460 crores which is also in our range .

Now , look at eBay feedback count .

If we see last TTM feedback count is around 40000 lets reduced to 38000 to seasonal effect from last month .
So, total GMV of Intrasoft on eBay USA should be = 38000 * 10 * 4000 = around 152 crores = Around 33% of 460 crores .

Their own website has around 7000 daily unique visitors(last year it was not around 2500) (source : , if order conversion rate is mere 5% then they should have daily order of 350 .

So, total GMV of Intrasoft through their direct website = 350 * 4000 * 365 = 511000000 = 51 crores = around 11 % but management always said below 8% .

So, our estimates and reported GMV are very close, not much variance .

If you seen  closely you might have noticed that it says only 581 product in stock or even if you visit it shows only 574 .
Somehow , there is some issue with Amazon USA storefront , not only for 123stores but others as well . It shows count only from few categories only .

Lets cross check it as well . Give following query to Google .

site: "sold by stores123"
site: "sold by Pharmapacks"
site: "sold by Wayfair"

stores123 gives around 48,800 results while Pharmapacks gives 40,500 . Please note Pharmapacks is second ranking seller on Amazon USA and these results are only for the listing where they are are offering top 3 offers to customer for given listing/product. So , actual listing may be 4-5 times more . Even Wayfair returns around 88,100 records which has market cap of more than Rs 24000 crores .  . We will go in detail of Wayfair in next few sections .

So, it proves that they have lot more listing than what Amazon store front URL of 123store is indicating  .

Now check on eBay it is showing more than 160000 product listing .

Now , you will get confused like me . What is this store name DynamitePrice ? I had received Intrasoft eBay store URL from them officially . But since name is something different we should cross check that as well . I didn't get DynamitePrice and 123store or  Intrasoft relation using Google search . I tried lot of things still no luck . But , then somehow I got relation hint once I found that DynamitePrice eBay store is using some image URLs of by viewing view source option(HTML).

Now, they have appointed Grant Thornton as new auditor for 123store (USA e-commerce division) .
Grant Thornton LLP is the American member firm of Grant Thornton International, the fifth largest accounting network in the world by combined fee income.[1] Grant Thornton LLP is the sixth largest U.S. accounting and advisory organization.

What I liked about management they used to upload audited result of USA subsidiary from last few years even before coming to limelight last year . It may be easy to cook book in India but in USA it is comparatively very difficult due to improved laws in recent past .
So , if they are cooking book then following parties should be involved like management , Amazon , eBay , old auditor , new auditor Grant Thornton and even Intel which holds around 12% .

It is very rare possibility. So , I don't have any doubts on reported numbers .

Lets evaluate on required qualities which experts like Ian Cassel look into micro cap multibaggers Run by "intelligent fanatic" :No doubts , we don't consider Arvind Kajaria in intelligent fanatic category yet but if he continues to do what he did in last 5 years to next 4-5 years then not all but some people like me will include in this category .We should give whatever credit Arvind Kajaria and management of Intrasoft deserve . Whatever, Intrasoft did in last 5 years is simply amazing and if continue to grow at same rate for next 5 years then it will more amazing . They had revenue of around 23 cr from e-commerce (123stores) in 2010-11 but after 5 years this years they are likely to post around 720 crores from e-commerce division (considering 130% growth for two remaining quarters) . It will be around 31 times in 5 years with 99% CAGR over 5 years . If they deserved criticism for something they could have done better then also deserved appreciation for what they have done so far in e-commerce division. Market leader and dominates the small but growing market : 123stores/Intrasoft is not market leader of e-commerce but they are growing fast and may be become top 5 seller on Amazon USA in next 2-3 years . If we consider marketplace inside marketplace model then Nasadaq listed WayFair comes first then not sure but Intrasoft should be second in the world . Asset light business model : Both WayFair and 123stores has quite similar business model . They're not actually carrying much of any inventory. They're the middleman between all these independent vendors and suppliers. They're connecting them to people who are shopping online. If you're gonna sell stuff that's 1,000 lbs or 500 lbs it seems like that's the way to do it. Rather than having massive warehouse facilities where you're holding all that inventory. They directly ship from vendors .They are cash flow positive. Earlier WayFair used to have major business from third party websites but now it has 81% from own websites like, Joss & Main, AllModern, DwellStudio and Birch Lane . It still has GMV around 19% from third party websites like Amazon , eBay , even WalMart etc . But , 123stores has more than 90% business from third party websites . Even though they don't usually carry inventory but before some big festival sale they own some inventory so that they can quickly fulfill order received and avoid cancellation.As per my knowledge Even they have arrangement to return inventory if not sold . Normal days based on earlier volume , they get certain quote of a product XYZ from vendor. They add certain cost like shipping , marketplaces fees and gross profit etc .Based on this they decide price and list that item in different marketplace. Once , order received their integrated system in real time(or may few minutes time gap) inform to vendor . Now , vendor pack it and handover to courier service partner of 123store and this get delivered to customers . After few days they received payment from marketplace . They settle their due with vendor . This is normal flow but there might be some other flow like return etc . Now obliviously you will ask why Vendor will come to 123stores instead of direct listing ? Business models born because of certain needs .They can but they choose because 1) It is very difficult for small or new seller to show their listing at top . Even if it is lowest price then also it will not appear in top . Like Google, Market Place search engine has some complex formula to order listing of item for a given search.No doubt price is one parameter but there are few others as well like total number of order processed , Feedback etc . 2) They will need some technical expert to decode it . 3) In house team of technical expert will not be affordable to many vendors because of minimum wages in USA . 4) They will also need a team of non tech person for lot stuff like competitor pricing , talking to customers to address some issues , even handling marketplace communication etc .Most of the market places require that you answer an e-mail within 24 hours.The would have to hire customer support agents just to answer Amazon’s queries. 5) Remember what Achal Bakeri ("intelligent fanatic"), founder and CEO of Symphony Limited said "In an ideal world, I would outsource everything, except the bank account". Vendors try to focus on their brand, quality etc. and they just want to outsource online selling to WayFair or 123stores . Wayfair claims to have seven million products from over 7,000 suppliers so there is lot of scope for 123stores . Scalable Business model : It is highly scalable business model . In fact , they just need to clone it for new marketplace and new country. They already might have good design pattern , they just need to extend interface, start coding as per new marketplace and in few months integration ready from technical point of view . US e-commerce market is very huge if somehow the growth slowdown for them then they can enter in any other developed market . It is very huge scalable business model. You have every right to think otherwise if you have any doubts . They have not completely utilized for free leads to business to their website . So far they have only small link . There are milions of unique user visit every month . I am still clueless why US people use so much for greeting , In India we just wish on what's up . Nevertheless , if they do little redesigning with banner of 123store with attractive offer then they may get lot of free business leads . Not sure about legal aspect but they have very huge email database of , they can utilize it to send marketing message with best offer of 123stores for free business leads . High ROE : We will have to give exception on this parameter which will be compensate by high growth of more than 100% . Low debt or debt free : Company has grown topline of e-commerce division by 31 times in last 5 years but debt has been reduced from 11 crores to mere 5 crores . This was possible because of asset light and highly scalable business model . Small equity base and equity dilution : They have not diluted equity from at least last 5 years even grown so much. In fact, they do still have treasury shares around 8% which can be use for expansion. This is amazing you can fund the expansion by selling treasure share without diluting equity . Little institutional ownership : Intel venture capital has picked up 12% stake long time back not just because of expectation of long term profit but also to serve some strategic interest of parent Intel . Zero MF holding and FII just started buying in only last quarter (Sep 2015 ) . 
On other hand if you looked at WayFair then Bank of America upgraded Wayfair from a neutral rating to a buy rating and set a $45.00 target price on the stock in a research report. Citigroup Inc. lifted their target price on Wayfair from $33.00 to $45.00 and gave the stock a neutral rating in a research report . Piper Jaffray reiterated a buy rating and set a $60.00 target price on shares of Wayfair in a research report.Finally, Wells Fargo reiterated an outperform rating on shares of Wayfair in a research report.Five research analysts have rated the stock with a hold rating, nine have given a buy rating and one has given a strong buy rating to the company’s stock. The company has a consensus rating of Buy and a consensus target price of $48.31. Bye the way all are not positive on Wayfair, Whitney Tilson has short position in it . He has personally raised formaldehyde issue, stock reacted little negative but then bounce backed rapidly. Undervalued : When I first discussed Intrasoft it was hugely undervalued and was having market of just 70-75 crores . Now, it is 600 crores but at this valuation also it is undervalued . Black Friday & Cyber Monday ( 5 days period ) they have reported 160% growth . So, if we consider these remaining quarters they will show 130 growth in GMV then total revenue for year will be around 785 crores . So ,assume on safer side Rs 700 crores from e-commerce division which we will use for baseline . Now we will see magic of compounding at high rate and focus topline , topline , topline , topline ................. again topline and then profit business model which has tested success in USA but in India we not experience such success so far ( excuse me for my ignorant if any )

CAGRGMVPAT @ 3% NPMMcap @25 PEMcap @30 PE

They have grown by around 100% CAGR in last 5 years , currently growing at 130% CAGR but still growing at 100% CAGR in next 5 years is very very much difficult but not impossible .
So , I will again warn you 100% CAGR is best case , We will have to track it during entire holding period and take decision depend on it . This is not moat investing where we buy and forget it .Even at 30% growth in topline we can have 3 times return in 5 years . 
So during our holding period we have to closely watch growth rate and how much NPM will it achieve once business got mature .  One of the rarest of rare but still possible possibility is they never turned profitable consider that as well . It is very very low risk but still risk , can't ignore it completely .

Margin Of Safety : 
Let assume they continue to grow at 100% next year , it means GMV will be 1500 crores . Now investor says we don't want model which can work for US based investors . We want immediately profit , can't hold loss making company or high PE , it gives some non explainable feeling and we also don't have patience ( kal kisane dekha hai ?) .  Somehow , due to these type of investors management comes under pressure , they started to focus on profit . So instead of targeting 3000 crores next year they target same GMV of 1500 cores but at 4% NPM . So they can make around 60 crores since investors love profit making company that too in e-commerce they may give at least 20 to 30 PE .  Probable market cap will be in range of 1200 crores to 1800 crores in two year . Not bad from current level of 600 crores.

Another margin Of Safety comes from NASDAQ listing . Earlier some investors request about appointment of reputed auditor and NASDAQ listing . First wish has been fulfilled . As far NASDAQ listing is concern they were open if Indian market don't give comparable valuation and it adds shareholder's value . 
If NASDAQ listing happens then it can easily get 2-2.5x GMV because it is growing faster than WayFair . Some of the believer of Wayfair model who has missed the bus due to late IPO may show good interest in 123stores.
Once, they get some scale and do roadshow to existing investors of WayFair for fund raising then also they are likely to get good response .

Conclusion : It is one of rare visible opportunity with some margin of safey. 

P.S. (17 Dec 2015)

         Vakrangee investors made 165 times(sorry, by today's price 185 times) in 7-8 years after IT asset write off , it doesn't guarantee Intrasoft will also give good return despite write off . But one thing is sure market reacts badly to detox but if business is good then it may even rewards in long run .

      I have added this section since one of the blog reader Aman Vij has raised valid red point about write off.
       Now , after this I dig into write off matter of Intrasoft. I am not accounting expert but I tried my level best to understand it . However , If you have CA background you can send email to me with your unbiased analysis to .

Now a days write off means complete write off and no direct or indirect benefits to the company . But , earlier it was not the case .
Even before the IPO (2009) , Intrasoft use to write off using "Miscellaneous Expenditures Written off" . It again look like simple write off but no it means "The Expenditure having the impact on the workings of the company in subsequent years or benefit of which shall continue in one or more subsequent years is recognised as Miscellaneous Expenditure.Such Expenditure is written off in equal installment in five years starting from the year in which they have been incurred. "

It was use as account of amortization . E.g  you are working on a XYZ product in year x but that product is going to be launch in x+1 or x+5 years then this term "Miscellaneous Expenditures Written off" is used because this year this product is not going generate any revenue or no use. There might be some alternative to this approach but they followed this .

Now , problem started when after IPO money they rapidly started working on some products but that might have increased deferred revenue Expenditure , but after few years as per revised Schedule VI they no more use this term so they had to debit General Reserve Account .

    You can not have doubt on corporate governance on a Tata group company . You will better understand it from Voltas example , how that revised Schedule impacted the companies.
Voltas -Utilization of share premium a/c to adjust the deferred revenue exp- confirmed by High Court Mumbai

Intrasoft had also accumulate lot of deferred revenue exp , they had to adjust that in General Reserve Account after revised Schedule VI. Now , they have clearly indicated in last conf call this is last write off as per their review process. Let's hope for the better .

Some of the other companies used deferred revenue exp, Fixed Assets Discarded or write off are ...


 Ashok Leyland 
 Ashok Leyland Ltd has informed BSE that the Board of Directors at its meeting held today (December 10, 2002) has approved a proposal to write off against the Share Premium Account of the Company as sum not exceeding Rs 1600 million representing Deferred Revenue Expenditure (primarily related to Voluntary Retirement Scheme Payouts) and diminution in value of some investments and fixed assets.


Torrent Pharma



GMV Amazon USA Ranking :
            store123 has improved it's one month ranking today from earlier 30 to 25 ( . I believe list get updates everyday. Interestingly it might have in top 5 contributor to third party sale on Amazon USA in last one month because as per it's Average sale price is $75.98 while other having like $10 , $20 . If we multiply one month feedback and Average sale price then we may get GMV ranking based on feedback count . I am sure it will be in top 5 but I will do this exercise on spare time or weekend . 

Disclaimer :  Please treat this post as starting point of your research and not conclusion to invest in any discussed stock. As always , please take the advice of a SEBI qualified financial adviser which I am not .

SideNote/MustRead : I am not sure how much you can learn from Idiot like me but you will defiantly learn lot from Jana Vembunarayanan . Please read his valuable lecture note

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December 2, 2015

TechNvision / Solix technologies : First big player implementation deal win for Solix Enterprise Archiving Big Data Suite .

Our tiny company TechNvision/Solix technologies ( Discussed here )  with mcap of below 50 crores( and BSE believe it should not move up more than 100% in year)  has been selected by more than 1600000 crores market cap (16.30B pound or 24.67B USD ) company BAE Systems for  Enterprise Archiving . Solix badly needed first big reference customer . This is just beginning more to come .

Solix Technologies, a leading provider of Enterprise Data Management (EDM) solutions, announced today that multinational defense, security and aerospace company BAE Systems has selected the Solix Big Data Suite for enterprise archiving. BAE Systems partnered with Solix to retire its legacy applications and data, which will help the company reduce costs and meet compliance requirements.
According to Forrester, nearly 80 percent of enterprise data is unstructured, and 60 percent of this subset is stale or non-business related. Gartner recently named data growth as the top infrastructure challenge for data centers. As Forrester’s Noel Yuhanna wrote, “In the era of Big Data, archiving is a no-brainer investment.” Legacy applications require similar action--Capgemini found in its Application Landscape Report that up to 25 percent of applications in a typical enterprise computing portfolio are candidates to retire.
Archiving and/or retiring inactive data and applications into Apache Hadoop using Solix Big Data Suite allows companies to reduce the cost of enterprise data management. For enterprise-grade companies, Apache Hadoop is an ideal platform for Information Lifecycle Management (ILM).
“In a world where users produce 2.5 quintillion bytes of data every day, enterprise archiving has become a critical tool for businesses,” said Sai Gundavelli, Founder and CEO of Solix. “We welcome BAE Systems to our growing list of Solix Big Data Suite clients.”


As a side note , I request you to go through must read interview of Ian Cassel ( on . I am big fan of Ian ,  Basnat sir and professor Sanjay Bakshi .

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I am not an Investment advisor and do not provide this service via this Blog. The Blog is a personal diary and the stocks discussed on the blog represent my personal views and analysis. They are not recommendations to buy or sell stocks. I do not intend to recommend any stocks for financial or non-financial gains and may or may not be holding the stocks discussed on my blog.

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