In this briefing:
- MINT’s First Post-Acquisition Update
- Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
1. MINT’s First Post-Acquisition Update
We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:
- MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
- Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once.
- Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
- Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.
2. Polycab IPO: Largest Cables Player, Asset-Heavy Low ROE Model = Vulnerable to Govt Capex Slowdown
- Polycab India (POLY IN) is the largest wires and cables manufacturer in India almost 2x the size of its next largest competitor. It is also present in electrical consumer durables and EPC projects.
- Company’s 14% revenue Cagr over FY14-18 was aided by government’s increased capex in rural and railway electrification.
- Despite large B2B exposure, company managed to defend gross margins over FY15-18 by passing on input cost variations to its customers. Operating margins have also been steady on the back of improving margins in the key wires and cables segment.
- High B2B nature of business results in 90+days of working capital cycle. Business is capex heavy (annual run rate Rs2.4bn over FY15-18). Company has the lowest asset turnover among its listed peers. It also generates the lowest amount of free cashflows among its peers.
- Investing most of the operating cash in the business would have been great if company was generating healthy ROE. But company’s ROE is in the sub 15% range and it would fall further after the planned Rs5bn primary issue.
- The asset-heavy and low ROE model makes Polycab more dependent on earnings growth to drive stock performance. This, in turn, makes it more vulnerable to any slowdown in government capex in electrification compared to peers.
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