CESC ventures, an interesting holding company

Cesc ventures, an interesting holding company.

Article published as on Saturday, 21^st April, 2020 at 10:30 a.m.   

Cesc ventures came to be known in its form after the demerger of CESC (Calcutta Electric Supply Corporation , record date 31/10/2018) into Cesc, Spencer retail and Cesc ventures.

It got listed around 600 INR. And went further down now towards 150 INR. 

Before starting fundamental analysis, let’s first find out what went wrong? Why it fell from 600 INR to 150 INR.

After doing my research I found something interesting.

As Cesc was a large cap category company, mutual funds were holding more than 20% stake in the company.

After demerger when Cesc ventures was listed it was categorised into small cap company.

Due to this very reason many mutual fund offloaded shares of Cesc ventures in order to comply with SEBI guidelines of fund categorisation.

So this thing makes it clear that there was no management or corporate governance issue in this company and due to SEBI laws, mutual fund had to sell shares and this caused a downside from 600 to 150.

Now as we understood why the share price tumbled one thing is clear mutual funds had to sell to comply with the rules, let’s focus on Fundamental analysis:

Share price 150 INR (approx. as on 18/4/20)

Market cap 397.67 crores 

Cesc ventures is from RP-Sanjiv Goenka group, a reputed group.

From the interviews Sanjiv goenka he looks quite an aggressive businessman, in the interviews we also come to know that they have hired professionals to run each business, which is another encouraging point.

Cesc ventures caters to IT requirements of power business of Cesc ltd .

They provide services such as 

Billing service, customer relationship service, new connection system, engineering asset management, treasury management system and performance management system.

They earned ( figures in INR crores)

EBITDA.                             74

PAT.                                    66 

Through their own IT business.

COMING TO EXCITING PART.

Cesc ventures is investing in many start-ups which can deliver high growth in value in future.

We will talk about such start-ups and its investment, going forward. 

Here is a graphical representation

First source solution - it is among top 3 pure play BPO in India. It is planning to venture into new segments like digital and automation.

Let’s start with its stake in first source solution

54.5% stake in first source solution @ 39 INR per share translates to the value of holding value of 1480 crores.

Now the interesting thing is that on 28th February it received 97 crores of rupees as dividend from first source solution.

Only taking Cesc ventures as proxy play to first source solution makes a holding company discount of 72.5%

This helps making Cesc ventures very defensive.

Moving to its FMCG business.

Indian snacking market overview

They are expanding their brand  Too yum  aggressively.

BEST thing is that they are expanding by not taking debt, but organically this is all possible due to their cash generation from other business and dividends from first source.

Why this segment excites me is because Sanjiv Goenka spoke about vision of 10,000 crores of revenue from FMCG in 5 years. 

Let’s learn about too yum- it is a brand owned by Guiltfree industries started in April 2017. And has been estimated to grow 600 crore turnover company in FY2019-20

(Actual figures may vary from these estimates)

What is exciting is that the professional management team has managed such a run rate in just 3 years. Having brand ambassador such as Virat Kohli who strictly promotes healthy snacking.

They have said to breakeven in this business around June 2020. Which is a positive sign and we may see positive EBITDA from FY21 onwards.

Looking at confidence of management and their style of expanding without taking debt is very fascinating.

(anyone who has tasted too yum products will surely agree that they produce some of the best and unique flavors in packaged snacking)

They also own 70% in apricot foods pvt ltd which is a regional player in the state of Gujarat, they can leverage this business also going forward.

Coming to another important business 

QUEST MALL (real estate business)

Located at a prime location of Kolkata, they have more than 4,15,000 sq. ft  of retail area. And capacity of 900+ car parking.

They collect rentals by leasing premises.

EBITDA              55 crores.

PAT                     20 crores.

They also have residency projects going on at Haldia.

Apart from that they also own some land bank at BKC in Mumbai.

(need to do some research on this part)

Now Quick Service Restaurants.  (QSR’s)

They own QSR through Bowlopedia restaurants India ltd

Cesc ventures owns QSR like 

Waffle wallah and Bombay toastee. 

These are currently into losses right now, they may take time to be profitable.

Lastly these are various investments by Cesc ventures through RPSG ventures.

(They have minority stake from 8%-40%)

Herbolab India- having 64.63 % stake Manufacture and sale of Ayurvedic proprietary medicines under the brand name of “Dr. Vaidya’s” has 100+ ministry of AYUSH (FDA) formulations for medicines/products.

ShopG - Operates a Social commerce platform focused on providing discounted deals to customers for FMCG products, led by influencers

M caffeine- Offers Caffeine infused personal care products selling through own website and online marketplace

The souled store -Designs, manufactures and sells licensed fan merchandise across several product categories (T-shirts, jackets, accessories, phone covers etc.

Peel-Works Private Limited - ('Peel-Works') is a technology driven Distribution Company which supplies goods (food, grocery and consumer products) to retailers and wholesalers where orders are collected through a software application.

These are very exciting investments made by Cesc ventures. They are in initial phase of growth but may grow big in future. Here Cesc ventures are trying to be venture capitalist.

Conclusion:

·        Main focus for me is that they are into fast growing FMCG business with huge visions.

·        Professional management, and their ability to build Too YUM a 600 crore brand in just a span of 3 year. And still have huge plans for its growth

.

·        

    To counter their aggressive style, we also have holdings of first source solution which is defensive and provides comfort.

·         It is trading at huge discount of 72.5% from its holding value in first source solution

·        It has investment in various high growth start-ups, for which we have to trust the judgement of the management.

(click here for the link of December 2019 presentation)

(disclaimer- one should do his/her own research before taking any call)

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