Value Migration or Growth Story
I Feel Happy to write this blog after a long time, its been an exciting last 6 months at Stallion Asset where we met over 100+ managements and its always good to get a feel of the onground Situation.
After meeting a lot of managements its very clear to us that India is not exactly in a strong growth path but it’s a story of value migration. This theme has played out in the last 4-5 years and we are fairly confident that it will play out well in the next 4-5 years.
The SME’s we met are under major stress and the migration toward a new India has been very painful, but every disruption creates a trend (opportunity).
We see the Following Trends
1) Unorganized to Organized
2) Government to Private
3) Small Companies to Big Companies.
Data Says India is Value Migration Story rather than a Growth.
Private Banks V/S Public Sector Bank/Insurance Companies – History is Proof that Government companies are the worse entrepreneurs. When government gave permission for private airlines to do business in India, market share of Indian Airlines (Air India Now) came down from 100% to 13.5% now in last 15-20 years. With Privatization of Telecom in 1999, the then Market leaders i.e. BSNL and MTNL have gone down to less than 10% today.
Similarly it won’t be different this time when the Shift happens from inefficient PSU banks to Private banks. The total Credit Growth in India has fallen to less than 6% this year as 70% of the Market i.e. the PSU Banks are struggling whereas 30% of the Market i.e. Private Sector Banks are growing at 20-25%. A 6% Growth is definitely not a Sign of a Growing Economy.
The Same Trend is visible in Insurance companies who have taken taken share away from PSU’s after private companies were allowed to function 17 years ago. The Market Share of Private Non Life Insurance companies stands at 48% in FY2018.
Aviation – The number of Passengers flying broadly annually in domestic airplanes have increased from 6.5 Crores in 2014 to 13 Crores this year. The Growth has happened broadly due to lower airfares and there has been a clear shift from people travelling from 3 tier AC to Airlines. In the same 3 year period the Number of people travelling by AC has increased by only 1% CAGR against historical increase of 5%. The number of Passengers which were getting added to Train AC coaches were 3 crores a year broadly till a few year back, which is exactly the same number that airlines have added, a clear case of Value Migration.
Jewellery – Most Listed Jewellery Stock tanked 30% after Demonetization was announced but in 4 quarters after demonetization we have seen a strong move towards organized space which is 25% of the market, whereas the unorganized space is 75%. The Jewellery Market in India grew at 3% this year, though unorganized space saw degrowth of 7% whereas organized space grew at 25%. There is no Strong Demand in Jewellery, its just the growth of organized space at the expense of SME.
Conclusion – India is going through a major disruption in Small Business’ and this is a big opportunity for organized Players. Organized Real Estate companies are in a great spot where the real estate business is a proven 50-100 year old business and 80% of the competition is going to down. We believe the next 10 years a lot of wealth can be create as value migrates from unorganized players (80-90% market share) to the organized pie, here again there wont be a lot of growth in the overall sector but pie will shift towards efficient organized players.
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Stallion Asset is a SEBI Registered Equity Research Analyst. These are not recommendations, but just our thought process. The Data has been taken from company filings and various research reports that we keep reading.