Consumer Analyst / Channel Surveillance Specialist, Trudence Capital Advisors

Pranav Bhavsar

Consumer Analyst / Channel Surveillance Specialist

Trudence Capital Advisors

Trudence Capital Advisors Private Limited is a SEBI-registered Research Analyst, holding SEBI registration number INH000015747. Our firm is dedicated to providing independent and unbiased research on Indian mid to large-cap companies. Trudence Capital is known for its counter-consensus views, with a focus on forensic research and on-ground primary investigations. Our research approach is thorough, involving detailed analysis of accounting practices and governance, alongside extensive channel checks.

Independent & Unbiased Research

Thematic (Sector/Industry)

<p>The objective of this insight is to reflect back on our work published on SmartKarma - to highlight what has worked for us and more importantly what has not worked and our plans to improve the same. </p>
<p>2020 is indeed special and we are unlikely to see something similar in our professional life once again. Therefore, we have made an attempt to capture our key learnings, which will also enable us to reflect back on the same at frequent intervals in time. </p>
<p>We also highlight our key themes for 2021 along with sectorial preferences where we might deploy our resources. </p>

The objective of this insight is to reflect back on our work published on SmartKarma - to highlight what has worked for us and more importantly what has not worked and our plans to improve the same. 
2020 is indeed special and we are unlikely to see something similar in our professional life once again. Therefore, we have made an attempt to capture our key learnings, which will also enable us to reflect back on the same at frequent intervals in time. 
We also highlight our key themes for 2021 along with sectorial preferences where we might deploy our resources. 

2020 Review & 2021 Key Themes | What Worked and What Has Not

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

RLX Technology Inc / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/rlx-technology-inc" target="_blank" data-smartkarma-citation="entities:31113:1" rel="noopener">RLX Technology Inc (RLX US)</a> aims to raise around US$1bn in its US listing. RLX is the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value of 48% in 2019 and 62.6% over 9M20. </p><p>RLX only sells its e-vapor products in China. As of Sep 2020, it had over 5,000 branded partner stores and sold its products in over 100,000 other retail outlets, covering over 250 cities in China.</p><p>Even though the company only started operations in 2018, it was already recording sales of around US$330m by 9M20. Margins too have been on an uptrend and operating cash flows have been robust. Moreover, the founding team and investor backing appear strong.</p><p>However, sales have mostly grown owing to rapid expansion of its distribution network. Furthermore, the brand also appears to have overseas operations but there has been no mention of that in the company’s filings, leaving one to wonder where these operations are housed and who exactly owns them.</p><p>In our previous note, links to which are below, we have spoke about various aspects of the deal. In this note, I’ll undertake a peer comparison and talk about valuation.</p><div><p>Links to our previous notes:</p></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-the-positives-fast-growth-low-penetration" target="_blank" data-smartkarma-citation="insights:46797" rel="noopener">RLX Technology Pre-IPO - The Positives - Fast Growth, Low Penetration</a> </li>
<li><a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-the-negatives-limited-track-record-and-missing-international-ops" target="_blank" data-smartkarma-citation="insights:46836" rel="noopener">RLX Technology Pre-IPO - The Negatives - Limited Track Record, and Missing International Ops</a></li>
<li><a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-rlx-store-visits-to-relx-and-its-competitors" target="_blank" rel="noopener">RLX Technology Pre-IPO (RLX): Store Visits to Relx and Its Competitors</a></li>
</ul></div>

RLX Technology Inc (RLX US) aims to raise around US$1bn in its US listing. RLX is the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value of 48% in 2019 and 62.6% over 9M20. RLX only sells its e-vapor products in China. As of Sep 2020, it had over 5,000 branded partner stores and sold its products in over 100,000 other retail outlets, covering over 250 cities in China.Even though the company only started operations in 2018, it was already recording sales of around US$330m by 9M20. Margins too have been on an uptrend and operating cash flows have been robust. Moreover, the founding team and investor backing appear strong.However, sales have mostly grown owing to rapid expansion of its distribution network. Furthermore, the brand also appears to have overseas operations but there has been no mention of that in the company’s filings, leaving one to wonder where these operations are housed and who exactly owns them.In our previous note, links to which are below, we have spoke about various aspects of the deal. In this note, I’ll undertake a peer comparison and talk about valuation.Links to our previous notes:

RLX Technology Pre-IPO - The Positives - Fast Growth, Low Penetration 
RLX Technology Pre-IPO - The Negatives - Limited Track Record, and Missing International Ops
RLX Technology Pre-IPO (RLX): Store Visits to Relx and Its Competitors


RLX Technology Pre-IPO - Peer Comparison and Valuation

<div><p><a href="https://www.smartkarma.com/entities/rlx-technology-inc" target="_blank" data-smartkarma-citation="entities:31113:1" rel="noopener">RLX Technology Inc (RLX US)</a> aims to raise around US$1bn in its US listing. RLX is the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value of 48% in 2019 and 62.6% over 9M20. </p></div><div><p>RLX only sells its e-vapor products in China. As of Sep 2020, it had over 5,000 branded partner stores and sold its products in over 100,000 other retail outlets, covering over 250 cities in China.</p></div><div>
<p>Even though the company only started operations in 2018, it was already recording sales of around US$330m by 9M20. Margins too have been on an uptrend and operating cash flows have been robust. Moreover, the founding team and investor backing appear strong.</p>
<p>However, sales have mostly grown owing to rapid expansion of its distribution network. Furthermore, the brand also appears to have overseas operations but there has been no mention of that in the company’s filings leaving one to wonder where these operations are housed and who exactly owns them.</p>
<p>In my earlier insight, <a href="https://www.smartkarma.com/insights/rlx-technology-pre-ipo-the-positives-fast-growth-low-penetration" target="_blank" rel="noopener">RLX Technology Pre-IPO - The Positives - Fast Growth, Low Penetration</a>, I spoke about the positive aspects of the company. In this insight, I'll highlight some of the not so flattering aspects. </p>
</div>

RLX Technology Inc (RLX US) aims to raise around US$1bn in its US listing. RLX is the largest branded e-vapor company in China with a market share of closed-system e-vapor products in terms of retail sales value of 48% in 2019 and 62.6% over 9M20. RLX only sells its e-vapor products in China. As of Sep 2020, it had over 5,000 branded partner stores and sold its products in over 100,000 other retail outlets, covering over 250 cities in China.
Even though the company only started operations in 2018, it was already recording sales of around US$330m by 9M20. Margins too have been on an uptrend and operating cash flows have been robust. Moreover, the founding team and investor backing appear strong.
However, sales have mostly grown owing to rapid expansion of its distribution network. Furthermore, the brand also appears to have overseas operations but there has been no mention of that in the company’s filings leaving one to wonder where these operations are housed and who exactly owns them.
In my earlier insight, RLX Technology Pre-IPO - The Positives - Fast Growth, Low Penetration, I spoke about the positive aspects of the company. In this insight, I'll highlight some of the not so flattering aspects. 


RLX Technology Pre-IPO - The Negatives - Limited Track Record, and Missing International Ops

ASA Capital Management

ASA Capital Management is a boutique Research and Investment Advisory firm focusing on primary research in India. ASA provides bespoke research services to Institutional Clients with a focus on due diligence backed with primary research, Field Trips & Channel Checks.

Equity Bottom-Up

<p>For this Insight, we interact with distributors on the ground to understand if there is any change in business fundamentals for the non-cigarette business. </p>
<p>We do not see any catalyst that changes our core thesis on <a href="https://www.smartkarma.com/entities/itc-ltd" target="_blank" data-smartkarma-citation="entities:327:1" rel="noopener">ITC Ltd (ITC IN)</a>  that is on capital allocation for the non-cigarette business. The recent run-up in share prices can be best attributed to relative cheapness than a change in business fundamentals and hence, we expect ITC to remain an underperformer. </p>

For this Insight, we interact with distributors on the ground to understand if there is any change in business fundamentals for the non-cigarette business. 
We do not see any catalyst that changes our core thesis on ITC Ltd (ITC IN)  that is on capital allocation for the non-cigarette business. The recent run-up in share prices can be best attributed to relative cheapness than a change in business fundamentals and hence, we expect ITC to remain an underperformer. 

ITC Limited (ITC IN) | Channel Interactions Suggest No Change on the Ground

Mrs Bectors Food Specialities / Equity Bottom-Up

<p>For this Insight, we interact with a leading supplier to <a href="https://www.smartkarma.com/entities/mrs-bectors-food-specialities" target="_blank" data-smartkarma-citation="entities:27872:1" rel="noopener">Mrs Bectors Food Specialities (814506Z IN)</a>  with an objective to understand possible growth concerns that may affect the company. </p>
<p><a href="https://www.smartkarma.com/entities/mrs-bectors-food-specialities" target="_blank" data-smartkarma-citation="entities:27872:1" rel="noopener">Mrs Bectors Food Specialities (814506Z IN)</a> is interestingly positioned in an industry that has a long runway but is fiercely competitive and fragmented. The competitive forces are too strong. Mrs Bectors will have to undertake substantial changes in the business operations and the company’s DNA if it aims to move into the big leagues. Investors will have to keep a close watch on execution and market share gains as primary catalysts of growth. </p>
<div class="content-highlight">
<p><em>This Insight is labelled bullish considering the large opportunity both in India and the private label export market.  </em></p>
</div>

For this Insight, we interact with a leading supplier to Mrs Bectors Food Specialities (814506Z IN)  with an objective to understand possible growth concerns that may affect the company. 
Mrs Bectors Food Specialities (814506Z IN) is interestingly positioned in an industry that has a long runway but is fiercely competitive and fragmented. The competitive forces are too strong. Mrs Bectors will have to undertake substantial changes in the business operations and the company’s DNA if it aims to move into the big leagues. Investors will have to keep a close watch on execution and market share gains as primary catalysts of growth. 

This Insight is labelled bullish considering the large opportunity both in India and the private label export market.  


Mrs Bectors Food Specialities | Supplier Interaction Suggests Growth Concerns

India

ITC Limited, a member of BAT Group of UK, is a holding company, which has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri Business, Packaged Foods & Confectionery, Branded Apparel, Greeting Cards and other FMCG products.

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ITC Ltd (ITC IN)

2020 Review & 2021 Key Themes | What Worked and What Has Not

A walk down the memory lane. What has worked, what has not, what have we learnt and how we think 2021 will pan out, this insight is our reflection...

Pranav Bhavsar

RLX Technology Pre-IPO - Peer Comparison and Valuation

RLX Technology (RLX US) aims to raise around US$1bn in its US listing. RLX is the largest branded e-vapor company in China with a market share of...

Sumeet Singh

RLX Technology Pre-IPO - The Negatives - Limited Track Record, and Missing International Ops

RLX Technology (RLX US) aims to raise around US$1bn in its US listing. RLX is the largest branded e-vapor company in China with a market share of...

Sumeet Singh

ITC Limited (ITC IN) | Channel Interactions Suggest No Change on the Ground

For this Insight, we interact with a couple of distributors to assess if there is any change in ITC's FMCG strategy on the ground.

Pranav Bhavsar

Mrs Bectors Food Specialities | Supplier Interaction Suggests Growth Concerns

For this Insight, we interact with a leading supplier to Mrs Bectors with an objective to understand possible growth concerns that may affect the...

Pranav Bhavsar

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