Unlike in other fields where experience matters, in the field of investment "experience is not an asset, the future is going to be entirely different and the past can provide little clue about the future" is what I learnt from my all time favourite investment genius Mr. Chandrakant Sampat (1929-2015). He says, don't rely on the conventional education which are taught in schools, it will close your mind, limit your though process.
You can't learn valuation by reading books or listening to the lectures and valuing a company before making an investment is the most crucial part of investment. According to the authority of valuation, AswathDamodaran - Valuation is neither a science nor an art, as it is not based wholly on perception and has basis in numbers. He says that, valuation is a craft like cooking and those who need to learn valuation need to practise it often as they can. To be good at valuation, you need to be a good story teller and also a good number cruncher. So how does one go about mixing and matching narratives with numbers?
Let's start with storytelling first....
Here is a company who are leading provider of online matchmaking services in India with strong consumer brand recall (140 retail centres) addressing huge untapped market opportunity.
#1. This Company is the largest online matrimony portal in India (1.9x Revenues of Number 2 and 5.5x Revenues of No.3 – based on FY16 data).
#2. The Company is particularly strong in Southern India with a 70%+ market share. The large active user base of the Company (Company's active user base accounts for 50% of total online active users for matrimonial purposes - 3 million out of 6 million active online user) creates a network effect, difficult for competition to break.
#3. This business has a typical cashcow dynamics whereby members pay in advance leading to a negative working capital and "no capital employed" requirement in the business.
#4. Until the year 2016, the Company was not focused on profitability and was trying its hands at different verticals apart from core match-making operations. In the year 2017, the Company rationalized its operations by getting out of its non-core businesses, reduced its off-line presence and reached a scale that gave it good profitability.
#5. The Company was also embroiled in a legal case over a shareholding claim in the Company on which the Company had to incur INR 100 crs over the last 7 years. However, there has been a settlement done now and the settlement money was paid in Dec'2017.
#6. The other concern generally expressed on this Company is the risk that dating apps like Tinder pose to its business. We are of the opinion that dating and marriage are distinct domains that serve different purposes and one is not a substitute to the other.
#7. Company also has commenced allied matrimony services including providing photographers for weddings, providing directory of vendors that might be needed for weddings and providing directory of wedding venues. These businesses are still at a nascent stage and are burning some cash but opportunities exist to scale them up.
#8. For this company, we often debate whether "Google" can disrupt their offerings. Our understanding is that "Google" is a generalist and it can easily disrupt Companies acting as mere aggregators without any domain depth (like it has disrupted another Indian listed Company that provided contact details of shops/ restaurants, etc listed on the portal). However, where the depth of domain required is high, it is difficult for Google to compete with specialists (and we think that the key portals owned by this company have a high domain depth). Having said that, it is important for us to be vigilant and track changes closely.
Now, we will look into valuation (numbers) part and will see if number are mixing & matching with narrative or not?
To be Continued......To know actual valuation of this company or to know if this company is overvalued or undervalued right now, you can WhatsApp "Valuation" @+91 7558960018 or email to mail@3Ccapitals.com
Regards
CA. Binoy J. Kattadiyil
