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September 12, 2016

Possible Multibagger and Proxy to Indian Consumption : Olympia Industries Ltd

Olympia Industries Ltd has most of the qualities which we search in multibagger but unfortunately not have all the qualities . Not many multibagger stocks either had all the qualities in the past .
Let's evaluate of some the qualities ,which Olympia Industries Ltd has and I liked them .

Bharat Shah (Size of opportunity) : 
Interview Source :

Q: Can you elaborate on your investment philosophy? What are the key things that you look for?

Bharat Shah : The size of the opportunity is the mother lode. It is about how big something can be in the future compared to what it is now. Every business can be converted into a tangible template based on the size of the opportunity. You need to ask: What is there today? What are the gaps? How practical is the assumption that the gap will be covered? This understanding is the size of the opportunity. It is about the size of the pond not about the size of the fish. In a large pond, both, large and small fish are welcome. But if the size of the pond is small, even a large fish will not create value. Apart from the size of the opportunity, the quality of management is important. It can be assessed in terms of integrity and the ability to convert the future into a rewarding outcome. Management must be wise enough to allocate capital to deserving opportunities and return excessive capital to shareholders.

We all know there is huge size of the opportunity for Olympia Industries Ltd in e-commerce . We all just worries about low-profit margin ,competition, and liquidity available in this counter .As for me, these are not worth worries if one is long term investor in it .

Let's evaluate on required qualities which experts like Ian Cassel look into micro-cap multibaggers

Run by "intelligent fanatic"
    This is a very early stage and very very difficult to give tag of "intelligent fanatic" to any micro-cap stock management. Could we have given the intelligent fanatic tag to Symphony Management when the stock was trading at Rs 3 after BIFR or even Siddhartha Lal ten years ago ? I couldn't get more details how Olympia Industries went into BIFR in 2001 . I am going to highlight only some positives .
    Mr. Navin Kumar Pansari is a B.Com, FCA and IIM (A) . IIM Ahmedabad tag doesn't guarantee success but gives confidence that management is capable of taking company to next level .
    Navin Kumar Pansari is also Business Head(MAH) of Rashi Peripherals Pvt. Ltd. He has also contributed to Rashi's growth . It has grown consistently over the years @ CAGR of 21% . They are distribution brands comprise of World leaders like ADATA, AMD, APC, APPLE, ASUS, BOSE, DELL, ECS, FITBIT, GOOGLE, HP, HUAWEI, INTEL, LOGITECH, LENOVO, LEADTEK, MICRON, NETGEAR, NEXUS, NVIDIA, PLANTRONICS, SANDISK , TOSHIBA and WD.  They are also going distribute Apple iPhone 7 from 7 October 2016 ( )
    ANURAG NAVINKUMAR PANSARI had joined Olympia Industries Ltd but left it due to higher studies . It would be added advantage if he joins it again after completion in young industry company (e-commerce) .

Market leader and dominates the small but growing market :
    It is leading seller on Amazon India which is growing fast. However , I agree it doesn't dominate it . E-Commerce business looks very simple to enter and do it . But , believe me, it is one of the toughest business if your objective is to make some money . It is simplest if you want to grow without worrying losses . Marketplaces can afford losses but not the sellers . It is very difficult for even sellers to make the reasonable profit. There are huge attrition rates of sellers on all the Indian marketplace , may be more than 50% . It is volume game . I will cover this aspect more in business details .

Olympia Industires deals in the following products .
Baby Farlin, abracadbra, Abby Bear, Baby Memory Prints, Bum Genius Chicco, Disney, Dreambaby ,Dr. Brown's, Duck, Ergobaby, Fishe-Price, Flip, Hauck, Himalaya, Huggies, johnson & johnson, Libero, Mamy Poko, Medela, Little's, Morisons Baby Dreams, Mother Care, Munchkin, my baby, Nuby, Nahshon, Petit, Pampers, Philips Avent, Owen, Warner Bros, Piyopiyo, Pur, pigeon, Tollyjoy, Quick Dry, Tiny Love, Sunbaby Piccolo Bambino, Mother Touch, Luv-Lap, Lander, Infanto, Honey Bunny, DOY, Beebop, Barbie

Babyliss, Panasonic, Pemington, Philips, Wahl, Head & Shoulders, Olay ,Pantene

7UP 24 Mantra A&W Acquapanna Agnesi Agronic Trading Ambika Appalam Depot American Garden Angry Birds Angus Oneil's Appitas Pita Chips Asturiana Badia Bagrry's Banne Manar Barnier Barq's Basso Belreir Bertolli Betty Crocker Bianconi Binda Valley Blue Elephant Borges Britannia Cabonell Cadberry Capanna Ceres Chaayos Chandu Chiclets Chupa Chups Cirio Clipper Clorets Coca-Cola Colavita Colman's Comex Cornitos Costa Cuties Daawat d'Amico Dana Danesi caffe Danone Davidoff De Cecco Delicious Delverde Dentyne Divella D&A Dolce Vita Doritos Dorset Dr. Pepper Fairtrade Familia Fanta Ferrero Fever-Tree Finn Crisp Fortune Fragata Ginger Goodwyn Granini Grey Poupon Grisbi Halls Haribo Heart Beat Heinz Hellmann's Hero Hershey's @Home Chef Hewlett-Packard (HP) Huober Huober Brezel .itallo Jacker Jollypop K.C. Das Kellogg's Keya Kinh Do Kitches of India KNG Koh-Kae Kolln Kraft La Asturiana La Costena La Plant Tea Lazzaris Lazzy Leo Coffee Les Confitures a l'Ancienne Lindsay Los Chileros m&m's m&m Mars Mackays Mala's Maldon Sea Salt Maple Mapro Mariani Marmite MasterChef Bob's Red Mill Scientia Maxime Cum Virtute Trade Mark Tribe Max Foods May Sparkling Mister Potato Mlensa Mogu Mogu Sappe Mohani Tea Monin DePuis 1912 Montebovi Mooch Mimi Mrs. Crimble'S Murginns Musa Mutti Namjai Nature Valley Naturesmith Navitas Naturals NEO Nestle After Eight Nestle KitKat Nutella OLD EL PASO Old Jamaica Olicoop Olitalia OOTHU Organic Tattva Organic Traditions Organica Oriental Paper Boat Pasta Zara Peaches Pepperidge Farm Pesi Pierre Pillsbury Ponti Post Principato Pringle Pukka Pure Sure Qarshi Johar Ragu Real Thai Red Bulls Remia Roasty Tasty Rodolfi Rummo Salina Di Cervia Salsaliro Sanpelegrino Schogetten Sealect Terre de Sel Shan Shortbread House Simpkins Skippy Skittles Snaple Snyder's Solania Sonna Mera Gourpunk Spice Garden Spite St. Dalfour Starbucks Stute Sunfeast Sunkis Sunsweet Sweet Home Swiss Taihua Taj Mahal Taste Nirvana Tate & Lyle Thai Heritage Tic Tac Tiffony Tipiak Toblerone Togy Toque Toschi Fragoli Tracklements Trident Trurootes Talentino Vicenzi Wah! Luft Waterthins Weikfiels Wild Cap Doublemint Zaini Zealeo Zwan

 Borosil Pasabahce Roxx
Babolat Cosco Deuter DSC Everlast GM Hawk Ishake KingCamp Kookaburra Nike Nivia Puma Reebok Salomon Wilson
Choostix Drools Jerhigh Nootie Pedigree Petsetgo Royal Canin

Ambipur Bracketron Brica Defort Dupont Formula 1 My Shaldan Polco Q Dr. Marcus Studds Tropicool Vega
Olympia Industries Ltd is the Exclusive Distributior of Ergobaby in India
Olympia Industries Ltd is the Exclusive Distributior of Wilton in India

Asset light business model : 
        Right now It is not completely asset light business model even though last year (FY15) It was looking like one. But , It has the potential to be one of them . Right now , It is following the path of others FMFG's model like Hindustan Unilever Ltd (HUL). Both don't require to invest much in gross block (the machine and factory) but need to finance their high inventory . HUL is able to do it by high trade payable (around 5500 crores trade payable against 2752 crores inventory) . It is due their brand value, moat, and efficient systems . On the other hand, Olympia Industries Ltd has trade payable of 22.7 against inventory of 39.5 cores . This gap needs to be financed by debt and equity . Last year was bad for the company , so , the gap widened but we also should not forget their revenue also increased by 50% . Last year this gap was only 6 crores , so this year up to 9 crores should be normal . However , coming years situation is going to improve and I will not be surprised if in next 4-5 years close to zero . This is not a wild guess , but due to some of the expected changes going to happen in e-commerce Industry . But for this management need to capitalize on opportunities provided by the market .

Scalable Business model :
    This is highly scalable business model . They are right now only targeting Amazon India but they can target n numbers of marketplaces for growth. It is because the lack of finance since the current business model is not very light but in future, it can be . Secondly , It is a very tough business with high attrition rates . They first want to survive difficult patch and go for big later on .
    In cricket analogy , on a green pitch , windy environment with new ball batsman can make quick runs but chances of wicket fall is also high . So , some batsman will  utilize hard new ball for quick runs while some will play defensive by taking singles and two's and wait for right moments to hit boundaries.

High ROE :
    FY15 It has good ROE(more than 50 ROCE) but last year it got reduced. ROCE and ROE are also not correct to measure companies which recently came out from BIFR. It will be deceptive in the case of that. It is always going to be high , which is good but not true reflection since it will be deceptive.Secondary , It is not a correct indicator to judge e-commerce companies . The correct customised ratio is GMV on capital employed .It is very good for Olympia Industries Ltd.

Low debt or debt free :
    It is not debt free but comfortable debt .  

Small equity base and equity dilution : 
    Equity base is small . But , It did some equity dilution .

Little institutional ownership : 
    Leave alone institutional ownership , even 99% of retail investors were not able to buy it , if they wished also to buy when it was in "P" group . But now BSE has changed its group from "P" to "XT" . All brokerage houses should now allow it . But , unfortunately, it not an automatic process but requires some manual intervention . So , one need to raise a request to resume trading in it to one's brokerage house . Yes , once it is allowed then all others also can buy it . Recently ,  some of the brokerage houses like Edelweiss started trading in it which was not allowed when it was in "P" group . I request if your brokerage house doesn't allow to trade then please raise request even if you don't wish to buy it. It will help other holders like me .
Undervalued and Margin Of Safety : 

    At the current price of around 137 (mcap 47 crores) , it is undervalued and offers Margin of Safety, which is very rare in today's market situation . Even though P/E ratio is not a correct indicator for e-commerce companies still it is trading on very low PE of just 7.7 . One may argue with expected equity dilution mcap 47 crores is not correct market cap (or even PE 7.7) . I agree but it will be wrong to reflect whole future expected dilution in valuation . So, I assume at least 6 months take to reflect in financial(p&l) of the company. If we include even dilution of 25% of warrants ( since they have received 25% money and rest will at conversion) then as per this calculation , diluted indicative diluted mcap is 56 crores and if you consider full dilution right now then mcap is cores 82 . So , right now for me, correct mcap is 55 crores neither 46.5 crores nor 82 crores as per what money company has received.

Raamdeo Agrawal  (What makes a 100 bagger)

courtesy : Arunthestockguru

Raamdeo Agrawal said about NPM "If a stock is trading at 30X and margins are going to double, for me, it is a 15 PE stock." . This is applicable to currently scope for  margin improvement business of both Intrasoft and Olympia Industries Ltd . However , I don't want to give the full valuation of Margin expansion right now , there should be some discount because there is the difference in actual profit is coming and high probability of coming . So , If a company is growing around inflation rate and has NPM of 1% and scope of increase it to 4% and trading at PE of 80 so indicative PE is not 80/4 = 20 but it should be somewhere around 25 . But , if a company is in exponential growth phase ,and highly likely to increase NPM then this indicative PE is not 25 but should be lower.
e.g. 50% growth company then maybe around 16-17 like this . There might be arguments on indicative PE ,but one thing is sure this PE of 80 is deceptive in nature .

SoftBank CEO Masayoshi Son has amazing track records of identifying Exponential growth sector at earliest . In the early 2000s he saw e-commerce and the Internet taking off in China and purchased a stake in Alibaba, turning his $20 million investment into $60,000 million ($60 billion) today. How many times ???? whopping 3000 times .Over the past 35 years, he has made many decisions that at the time were unpopular and unorthodox but that turned out to be tremendously profitable.
After creating huge wealth in e-commerce , he is now bullish on IOT and Big data . Something is common between him and me ;) . Masayoshi Son believes we are at the inflection point when the Internet of Things (IoT) market is about to enter the exponential growth phase
Please read for more details

Writer of this post said "I am a value investor, but I’ll probably get banned from the value community for what I am about to say."
The Same thing is with me , however , I am already banned from value community . No one from value investing community dares to share my post on social media , they will also bar along with me :) . But , real reason might be I still need to improve lot on many areas .

Pledging Concern : Promotes have pledged shares to buy more stake . This is a similar style to Basant sir who don't hesitate to pledge share to buy more shares . This, in fact, shows the high confidence of promotes .

A blog reader Pavan has asked the following question , which is in everyone's mind and very good question .

Question ?
"do you see uniqueness in Olympia industries ..I mean even i can tie up with Amazon with some capital where i sell only quality brands or high quality non brands at zero or thin margins and i request for positive reviews as i am giving quality material at cheap price.i will think of meagre profits only after reaching considerable business how Olympia can survive..i can understand about intrasoft that thier software is strong enough to handle hell lot of business and with quality.but olympia i am not getting convinced. "

Let's do some reverse trick . We will go back in 1993 Infosys IPO . Our all the memories of excellence growth , management, and corp gov is erased . Now we replace Olympia with Infosys and will ask almost similar questions ? Why should I invest ? Who is Narayana Murthy ? Is he from crorepati business families ? Anyone can start IT business which has little or no background ?   Very less capital is required to start ? Almost guaranteed High ROCE from very early stage . IT companies have employees as assets and anyone has more money can hire employees of Infosys ? Why should I invest ? Just pass on I will invest in only strong visible moat and quality , even if It has reasonably high PE and slow growth. Both types of investors might have made money but Infosys investors might have made much more .

I am not comparing Olympia with Infosys, because neither I am feeling it will become next Infosys nor Narayana Murthy has similar company cloudtail. But , my personal opinion is when pond size is big , obviously, there will be a lot of fishes and lot of them will survive.Secondary , chances of surviving biggest fishes are high . Almost all early and big entrant of IT , made big without any visible strong moat because of large pond size but there was something like Datamatics couldn't scale up . I always like to bet where chances of losing half with very less probability when I go wrong and but If I am right then I can make at least 10x . In very worst case , I will have to sell my holding at Rs 70 for that their current GMV should be down by 60-70% (below 70 crores) with some losses and I think that is not impossible but has very low probability . But on the other hand, if they are able to scale then giving me at least 5x return in next 5 years has very high probability.

Becoming e-commerce seller is very simple and this business from outside looks very simple . But , believe me, it one of the hardest business and attrition rate among sellers is very huge . Selling on e-commerce sites has a lot of headaches , and it is not profitable for every seller . Only sellers who have volume power and some kind of moat to have high trade payable and fast inventory conversion can scale up . If you bought 50 quality products of brand A for 500 each then one big player can have same product at 470 each by buying 1000 quantity . If your break-even price is 500+X then big player's break-even price will be 500+X-30 . If both of you sells on 500+X , then you will be at break even , while the big player will make a profit of Rs 30 . You will not get favourable credit term from product company while the big player will get it . This will impact on your working capital and so obviously scalability .Top of that you will even struggle to sell on you break even price because search engine will show existing big player listing on top because of some of the hidden criteria of search engine of MarkePlace like total no of order processed ,rating , joining date ( It matters , some marketplace competitors try to spoil big sales by registering dummy sellers and creating havoc experience to buyers , by not fulfilling order , sending defective pieces , you will surprise it is high in India but It is also happens in mature market like USA  ) . If you think that first month I will sell 50 , then second month 200 and third month 500 , then for you knowledge most of the marketplaces will not allow you such fast growth . They can put cap something like 20-30 growth every month on your listings and orders if you are a new seller. Again possible reason to avoid fraud at large scale and develop relationship slowly.

If I am correct guessing then your next question will be by this logic Cluodtail(Big Player and ready to loose money) will destroy the business of Olympia and answer is simply "Yes" but not too much. Because

1) Cloudtail will have 25% cap of Amazon India sell , which not visibly implemented yet .
2) Olympia is wisely choosing some products where Cloudtail doesn't have the high presence.
3) Olympia has better ratings .
4) Somewhere down the line, even Cloudtail will have to stop making losses.
5) Amazon India invested minority shares 49% in Cloudtail which a lot of people feels the violation of FDI rule . If something adverse happens on this front , then It will be an advantage to Olympia.

To Be continue ..............

To be become better investor you need to understand that business . If you study that business then you will understand it but if you do that business then you understand all the pain point and business much better . I have my holding in two e-commerce companies . So, I needed to understand it . So , instead of just reading about it , we ( my wife is proprietor) became a seller on two e-commerce marketplaces in Indian, more than 6 months ago . I am doing some profitable business (not scalable :) ) , but the objective is not to make small profit but learn it .

Next article we will decode e-commerce business and a huge opportunity for Olympia and ISFT like companies. It is up to them to exploit it , we can only do most possible guess . We also address pledging of shares .

I was ready to pay some amount , but fortunately,  Vishal sir made it free ;) . Take most of this learning opportunity from successful investors of not only India but the world .

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 . 

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  1. Hello,
    Thanks for the new recommendation.
    What is holding period for Olympia Ind. & target price ?


    1. Hi Nilesh ,
      Thanks for visiting my blog . I will sell if management do something seriously silly or no growth and deteriorating financial condition . But , one happy scenario for sell would be portfolio imbalance .

  2. Hello,
    Can u please put some light on Rainbow papers stock, it had been declared sick unit.
    The stock is at all time low.
    Thanks in advance.



  3. Hi,

    Thank you for this detail article.
    Agree that pond is big but I am concerned about brand visibility. When people buy products then do they think about who the seller! They think more of Amazon, Flipkart, etc.
    So, without brand visibility, anyone can come with cheaper service and replace it. Amazon may see if he is going to benefit or not above thinking about sellers profitability.


    1. Hi Satya ,
      Thanks for visiting my blog . You will surprise but answer for brand visibility is up to some extend "yes" , and it going to improve from current status . I am going to cover this aspect in next article . But , let me brief you on the current scenario .

      The buyer first chooses product brand and then MarkePlace depend on pricing . If the prices are similar at two marketplaces , then buyer choose his preferred one marketplace , that is the brand value of that marketplace . Almost 100% buyers will do this .
      Now , if buyers preferred marketplace price is little more than other then still 30-40% buyers will choose preferred marketplace.
      If the difference is much more than comfort level then almost all 95-98% will ditch even preferred marketplace .

      The third level brand is a seller , which 85% of Indians buyer right not even aware .They think MarketPlaces is itself seller . Don't check the track record of the seller , and most of the fraud (like duplicate items, late delivery ) happens . But there are already 15-20% buyers who check track records of sellers and take a decision , and ready to pay a little premium to reputed seller.But slowly this awareness among buyers is increasing .Most of this buyers , once satisfied gives repeat order for frequently consumable items . They don't easily change even seller if there is some price difference .
      One of my friends recently bought HP laptop around 25000 thousand from eBay .He reviewed the track record of the eBay sellers and paid around Rs 500 extra to top rated "Top-rated seller" seller on eBay with around 99% positive feedback . Hope most of us will do the same thing .

  4. Thanks for the reply.
    I agree with the point that brand visibility of the seller is increasing. But I feel it is very low at this time. Olympia only sell on Amazon is another risk.
    I also track it but could not decide about it. Just 1-2 months I was going to buy it but left. I coultd have benefited boz of you irrespective of what Olympia do in future. :)


  5. For all the above reasons for Olympia, I think Divyashakti granite also qualify.
    Request you to comment on that.


  6. Excellent Analysis.

    I was going through the Annual Reports of Olympia Industries, I found that the company has entered into numerous sourcing agreements with Tirupati Biz Link LLP where Mr. Navin Kumar Pansari is a partner. This information is available in the “ANNEXURE IV, FORM NO. AOC -2 “(Related Party Transactions) in the Annual Reports.

    Don’t you see an issue with the governance? Please let me know your thoughts.

    1. Thanks Hari for visiting and commenting on my blog .
      I agree there are related party transactions (around 6 crores) . However , It is only 3% of total revenue . Tirupati Biz Link LLP is wholesaler and Olympia purchased some items from them . Corp Gov improves when quality seekers enter in any stock because they keep management at their toe . I don't think it is big risk, If you see almost all stocks including quality names has some related part transactions. It is not strong enough reason to sell for me but If you feel it is very important criteria for you and significant risk then you can ignore this stock idea . Obviously , my analysis of Olympia might have suffered from ownership bias .

  7. Nice article and very well explained.

  8. now (july 2017) that the warrants have been converted to equity at INR 45 do you still feel the same about olympia industries?



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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