Is Thyrocare (TTL) a Long-Term Stock?


[Full Disclosure: Thyrocare Technologies is a part of my equity portfolio]

So, this seasons hottest IPO has already gone live on the bourse and by now it has already seen 5 trading days, and has suffered some exchange of hands. The very moment its over subscription news appeared in the market, it was certain that it will be listed at an astronomical high. And it did. And some people exited after en-cashing this initial high. The chart below depicts how investors lapped up the opportunity to make a quick buck, moment after the bourse allowed its trading.

Thyrocare - Week 1

Having passed the initial stage, now the question remains is – Is Thyrocare Technologies a long-terms stock? Does this stock have the potential to multiply your invested money? Well, lets search for these answers based on some of the qualitative facts…

  1. Business Model Study – At the core, this is a medical diagnostic company which operates in a hub & spoke model. There are several collection centers and  centrally located labs which deliver the results (digitally), eliminating the need for the labs to be present everywhere. And essentially its a plug & play model, where the company can decide to expand to as many places as possible and hence create more customers overnight. {Company has several other interests in medical manufacturing, and other services as well.}
  2. Market demand – There is only one thing which remains constant about India’s medical needs – Its an under-served market. And its under-served to an unknown extent. And the quality of available options is so unreliable and poor that anything which comes with a quality assurance is bound to generate a demand.  {The major opportunity exists in those markets where the testing labs have been mostly unorganized and the prices are arbitrary.}
  3. Peer Group – The prominent names with similar business interests (excluding the pharma companies from this group) are only a handful, like Dr Lal Path Lab, SRL Diagnostics, etc. For a market as huge as this one, existence only a few organized players leaves a massive scope for future growth.
  4. Growth Opportunities – The below image illustrates the reach of Thyrocare across India. You can notice an opportunity which exists for the company on several states like Madhya Pradesh, Gujarat, etc. And these areas for physical expansion, along with technological improvements in the existing units is where there is a clear opportunity for growth.

Thyrocare - Authorised Service Providers

Some points for speculation

I am slightly surprised at both the bulk deals which happened on the listing day. These two trading houses, probably assumed that the prices would go high, but they soon realised the market sentiment, and hence didn’t waste their time being invested into it. But my bigger worry is not that they exited only a moments later, but they exited 100% with-in a few moments. Didn’t these guys have any hope that this stock would do any better in near-term? I think someone who better understands the psychology of these traders/brokers should help me understand this case.

Thyrocare - Bulk Deals

All in all, at this point of time, I believe this is a safe stock which has a potential to deliver some serious value enhancement in the years to come.

Data Sources:

[1] MoneyControl’s Data on ThyroCare Technologies Bulk Deals

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Valuations are a theoretical exercise, always!


Sachin-Binny_Flipkart

Sachin Bansal was recently quoted saying valuations are a ‘theoretical exercise’ and not based on any transactions, and he is not worried too much about the markdowns by a few of investors. Well, Sachin is right when he says that about valuations. But I wish he had said a similar thing when investors were pushing up Flipkart’s valuations based on those theoretical estimates and assumptions.

Flipkart being the poster-boy of Indian e-Commerce, this markdown comes out heralding some harsh truths about the times we are into. And this makes it utterly important to understand what just happened and how did we reach till this stage, and then where from here?

So, the story goes something like this – Till the end of year 2015, e-commerce businesses were valued on the basis of GMVs, meaning irrespective of how much bribe you give away  to your customers in order to make them purchase, all that matters is that what was sum total of the Max Retail Price (MRP) of all the goods sold. I personally prefer calling this phenomena as – Buying your own revenue. Basically you are paying something from your pocket in the form of Discounts, Cash Backs, Promotional Offers, etc to make a customer cheaply own the product sold by you. So, the entire Indian e-Commerce was gung ho about transaction count without being realistic about the money lost to buy those transactions. And for doing such a ‘sinful’ thing, these companies were getting valued more and more.

And while all the players were busy buying their revenue (or transactions) and hence pushing their valuations up, someone somewhere was trying to do some enquiry into the valuation benchmarks across the globe, and found out some contrasting numbers, like the ones below:

  • Flipkart’s GMV was anywhere between $5 – $7 billion, meaning it’s MarketValue/GMV was somewhere around 2.2x – 3.2x for its $16 billion valuation.
  • Alibaba’s GMV for Q1 2016 was $115 billion, the annualized value for 2016 being $400 – $450 billion. Its current market cap is close to $200 billion, meaning MktCap/GMV = 0.5
  • Etsy (an online marketplace for handmade goods) total GMV in 2015 was $2.5 billion. Its currently valued at slightly less than $1 billion. MktVal/GMV = 0.4
  • Walmart’s revenues in 2015 was $480 billion. The GMV must have be higher than this considering the discounts. However, its current valuation is just higher than Alibaba at $215 billion. MktVal/GMV = ~ 0.4

Considering that Flipkart is a late stage startup, its valuation should not be more than 0.5x, or at best stretched upto 1x times the GMV.

Once anyone does this calculation, he would be of the opinion that previously some massive blunder has been made, and will immediately change his mind on the valuation numbers crowned to these e-commerce players.

And thus, the goalpost got shifted. And that is why you hear Kunal Bahl of SnapDeal suddenly talking about cutting costs and adding more categories like air-ticketing, etc. And he claims that they are redefining the m-commerce space.  The reality is however different from what Mr Bahl is trying to impose.

KunalBahl

Its no more a question of how, rather its a question of when the valuation markdown of SnapDeal and other poster boys from other niche segments will start appearing in public. And the only option these guys are left with is to exercise their options to remain attractive in the public view. Like, SnapDeal has recently made up it’s mind to buy out the distressed asset Housing.com at a throw-away price (and hence save the face of Mr Nikesh Arora and SoftBank). But will such distressed asset buy-outs really help restore or defend their valuation figures? Only the time will tell.

So who must be laughing at all these valuation shifts and distressed asset buy-out plans just to defend their valuations and ‘perceived’ market position? Probably two guys must be loving the whole situation – Amit Agarwal, the CEO of Amazon India, and Rahul Yadav, ex-CEO of Housing.com, for reasons better left unsaid 😉