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hobbit

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    Fairfax India new issue

    in Fairfax Financial

    Posted

    4 hours ago, Viking said:


    @hobbit thanks for posting. Do you have any thoughts?

    1.) is IDBI worth pursuing? 
    2.) what would the approximate cost be?

    - my assumption is FIH would need partners.

    3.) how does FIH pay for it? Without current shareholders getting thrown under the bus?

    - or could they fund it by contributing CSB and cash ($300 million or so?) and parters pony up the rest?

     

    Is it possible for Fairfax India to do a capital raise? With shares trading at around $13 and BV at $19? 
    Or do we see Fairfax India sell some more of the companies they currently hold?

    —————

    Do you have any thoughts on Anchorage? Will we see something happen on this front in 2023?

    Hi Viking,

     

    To buy controlling stake in IDBI, you would need close to US $2.8B . FIH would likely be a part of consortium as has been indicated here . FIH can also contemplate selling stake in NSE which can easily fetch them 200M+ 

     

    My understanding regarding IDBI is that there is a ton of value that can be potentially unlocked by having a credible promoter. IDBI is a whale and merger with CSB would definitely give them scale needed to retain a talent like pralay mondal. CSB has already hired some people (CXO) from IDBI in the past 12 months so this has been on cards for a while. The depressed valuations of CSB indicates the same.

     

    I would rather FIH not touch IDBI but Prem probably will not be able to resist since this is a once in a lifetime opportunity to build a top 5 bank in India. As long as FIH does not touch its BIAL stake I am fine with it . Given the incredible aviation growth in India I would be surprised if BIAL is not worth more than $5B whenever it IPOs in the next 12 months. Next year is the election year in India so FIH might try to push the IPO through before that if markets are favorable.

    Fairfax India new issue

    in Fairfax Financial

    Posted

    The Prem Watsa-owned company that runs Bengaluru airport has charted a course that has seen it grow steadily and profitably, and bridge the gap to its peers in Delhi and Mumbai. The challenge of monetizing a large expansion lies ahead

     
     

    Last week, Mint reported that Fairfax India Holdings Corporation, controlled by Canadian billionaire Prem Watsa, was planning to sell its 54% stake in Bangalore International Airport Ltd (BIAL). For now, Fairfax has denied this, saying it was a “long-term shareholder". Whichever way it goes, the Bengaluru airport has been a prime asset in Indian aviation as it has competed with its larger peers at Delhi and Mumbai. That’s why Watsa’s moves will be keenly watched.

    In the five-and-a-half years of Fairfax at the helm, BIAL has basked in profitable growth and endured a shutdown, and continued with a planned expansion despite some of its cash flows not materializing. Between 2011-12 and 2018-19 (the last full year unaffected by the pandemic), the airport registered higher growth in passenger numbers than Delhi and Mumbai, in both domestic and international segments. Bengaluru’s growth did come on a lower base, though the difference in size is more pronounced in the international segment than in the domestic segment.

     

    As a result of this higher growth, Bengaluru has bridged the gap with both Delhi and Mumbai, especially in the domestic segment. For example, in 2011-12, for every 100 domestic flights that left Delhi, 46 took off from Bengaluru. In 2018-19, this figure for Bengaluru had increased to 61 and was close to matching the 67 of Mumbai, which was constrained by capacity. The pandemic disrupted this time series and business plans. But as Indians take to the skies again, the relative growth of India’s three largest airports—which also intersects with demographic shifts—will be keenly watched.

     

     

    Crown jewel

    In Fairfax India’s portfolio, BIAL is the jewel, be it on size, visibility, returns or value to be unlocked. Fairfax India made its first investment in August 2015. As of 31 December 2021, it had invested $1.79 billion. Given the value of its listed holdings on the stock market and Fairfax’s internal estimates for unlisted holdings (like BIAL), it listed its portfolio’s fair value as $3.34 billion. BIAL accounted for 41% of the portfolio value and 46% of its underlying appreciation.

    In September 2021, the sale of a minority stake to a Canadian pension fund valued BIAL at $2.6 billion. Fairfax India expected a subsequent planned listing of a holding company, which hasn’t happened yet, to raise that to $2.9 billion. In its 2021 annual report, it said: “The marketability of BIAL to large pension funds and strategic global airport operators, even as an unlisted company, is very high…we believe that it [true value] could be much higher than $2.9 billion."

     

     

    Growth flight

    While Delhi and Mumbai airports were privatized in 2006, Bengaluru came up from scratch in 2008. Fairfax took over from GVK Group as the principal shareholder in 2017. The other shareholders currently are Siemens (20%), the government of Karnataka (13%) and the government of India (13%). Airports have two broad revenue streams: aero (what they charge airlines for navigation, parking, ground handling) and non-aero (rentals, shops, advertising). While a split for BIAL is not available, the company that owns the Delhi airport derived 30% of its 2018-19 operational revenue from the aero side and 70% from the non-aero side.

     

    The decade leading up to the pandemic was one of healthy growth for Indian aviation, both airlines and airports. According to Fairfax India, between 2009 and 2019, aero revenues of BIAL grew at a compounded annual growth rate of 16% and non-aero revenues at 17%. It was also highly profitable, earning a net margin of 33-42% between 2016 and 2019, before the pandemic wrecked its numbers.

     

     

    Funding an expansion

    For BIAL, the pandemic came at an inopportune time. In December 2019, it started its second runway. To its first terminal, which handled 33 million passengers in 2018-19, it is adding a second terminal: first phase this calendar (to handle another 25 million passengers) and second phase in 2028-29 (20 million). A tripling of capacity will give it infrastructure to bridge the gap to Delhi and Mumbai further.

    In 2018-19, BIAL’s had revenues of about ₹1,440 crore. This was only about 38-39% of Delhi and Mumbai, which lead in international traffic. BIAL, though, does better on profitability.

     

    At the same time, its aero revenues are likely to be lower than expected as the regulator has cleared a smaller increase in per passenger fee that BIAL can charge airlines from 2022-26. Balancing expansion with growth and profitability will test BIAL in the coming years.

    Fairfax India new issue

    in Fairfax Financial

    Posted · Edited by hobbit

    one has to take these speculative news articles with a grain of salt since a lot of the times in the past they have been proven to be wrong. FIH might well be exploring a sale of BIAL if they can get something north of $2B which is what they were expecting in an IPO and would be in line with the recent airport transactions in India. If they can capture most of the upside that they would get in an IPO without having to worry about approvals causing delays etc it might not be a bad idea. However investing it into IDBI might be a very risky bet. One condition to bid for IDBI is to have a minimum of $2.85 B in equity and if you combine BIAL(2B) + Fairchem(250 MM ) + IIFL wealth(190 MM) + possibly NSE(250 MM ) too + cash (200MM) , that is where FIH is headed.  

    Fairfax India new issue

    in Fairfax Financial

    Posted · Edited by hobbit

    On 4/27/2022 at 6:46 PM, Viking said:


    @hobbit i was going over some old posts… What do you see as the trigger for Fairfax India to increase the valuation of the airport? Is it perhaps the sale of another sliver of Anchorage - at a higher price than OMERS paid? Would opening the second terminal later this year be sufficient? Or something else?

     

    The airport really is the key building block to value Fairfax India as it is the largest asset by far. If we get further confirmation that the current valuation for BIAL is indeed accurate (or even low) then that would scream that the $20 BV is real and the shares are, indeed, wicked cheap at $12.20. Regardless i bought another big slug today. Looking forward to reading the earnings report tomorrow. 

    I have absolutely no doubt that BIAL airport with 2 terminals and 70M annual passenger capacity, BIAL is worth more than 4B . Sydney airport was recently privatized at 4 times that. (17B equity and 25B enterprise ). Pre-covid Sydney airport was 3x more profitable than BIAL with much worse growth profile. As Indian economy grows and passengers spend more,  even a 4B valuation might look silly. I think discount arises from the perception that Indian Govt can do random stuff which could be detrimental to shareholders like they have done with the recent tariff order. India has always been a country with socialistic tendencies and only in the last 10-15 years has taken a turn towards capitalism. it will take time for the market to accept that there is no turning back from this change of stance. Modi getting reelected will certainly reinforce that. Until then BIAL is quietly building up its intrinsic value and no one knows when the gap between share price and BV will close. Omers deal is moot since omers has a 'special' relationship with fairfax which allowed them to negotiate a ratchet clause which makes it valuation questionable. But i am not worried about this at all since  as long as Indian govt stays does not interfere , the value of BIAL will be realized. Even an IPO might not close this gap since this is a perception problem about the entire country, airport being a public asset.

     

    Also IIFL finance , CSB and chemplast are significantly undervalued here. Just take a look at the numbers IIFL finance posted a day ago and TCI egypt is marked at 250M on FIH books whereas its true value is closer to 1B

    Fairfax India new issue

    in Fairfax Financial

    Posted · Edited by hobbit

    2 hours ago, Xerxes said:


    a dash of optimism on a Monday morning 

    haha yes!  if you take $9.50 as IPO (2015) price, a $30 book value today would be a 17-18% CAGR net of fees. I think if you are investing in India via any equity fund, venture , PE etc that is par for the course in terms of risk adjusted return. They have traded as high as 1.4 *BV so $30 seems reasonable to me.

     

    Given the current investments and the outlook I would be extremely surprised if they do not do 18% CAGR net of fees.

    Fairfax India new issue

    in Fairfax Financial

    Posted

    1 hour ago, Viking said:


    It looks like Fairfax India got a good exit price as well. I wonder if the proceeds will be used to buy back more Fairfax India shares. Perhaps Fairfax India is raising cash to support future growth of Anchorage (via infrastructure investments).

    —————

    Bain Capital, global private equity firm, on Thursday said has agreed to acquire 24.98% stake in IIFL Wealth Management Limited for  ₹3,680 crore ($485.6 million).

     

    Existing investors General Atlantic and Fairfax India Holdings Corporation will make a partial exit from IIFL Wealth, part of the homegrown financial services firm IIFL Group.

     

    Bain Capital is proposing to acquire 2.2 crore shares constituting 24.98% stake in the company at  ₹1,661 per share for a total consideration of  ₹3679.95 crore "by way of a share purchase agreement executed on March 30, 2022 with General Atlantic Singapore Fund Pte. Ltd. and FIH Mauritius Investments Ltd," IIFL Wealth said in a regulatory filing.

    The exact shareholding post-acquisition is yet to be disclosed.

    The deal will be through Bain Capital’s investment vehicle BC Asia Investments X Ltd. The transaction is subject to regulatory and other customary approvals, the filing added.

     

    As on December 2021, General Atlantic owned 21% in IIFL Wealth, while another 13.64% was held by FIH Mauritius Investments Ltd, a wholly owned subsidiary of Fairfax India Holdings Corporation, owned by Indian born Canandian billionaire Prem Watsa.

     

    Mumbai-based IIFL Wealth Management is among the leading wealth and alternative asset managers in India with ~$44 billion (around  ₹3.3 trillion) in assets (as on December 31, 2021).

     

    https://www.livemint.com/companies/news/bain-capital-to-acquire-25-in-iifl-wealth-general-atlantic-fairfax-part-exit-11648701785729.html

    Unless there is an immediate plan to use this cash for example for share buyback etc , this is not a good price. A large stake sale such as this normally comes at 20%+ premium to the trading price . IIFL wealth is doing really well as a business but there is a case to be made for  buying back shares of FIH at these prices. 

     

    BIAL is the fastest growing major airport in the world with a second terminal coming online at some point later this year. There is a clear path to 200M in EBITDA. I would not be surprised at all if there is a significant markup in the valuation of BIAL ( >80%) from the current 2.6B in near future barring another wave of COVID. 

    Fairfax India new issue

    in Fairfax Financial

    Posted

    5 minutes ago, ICUMD said:

    From today's developments. Can only speculate reasons for the investors to sell at current market prices. 

     

    OTOH, Fairfax's playback is clear.  Buy back aggressively FIH.U while at a tremendous discount to BV.

     

    They have purchased back nearly 10% of the company in the last six months.  Anticipate ongoing buybacks, if not an outright takeover by FFH.

     

     

     

    IMO takeover by FFH will never happen. The whole point of forming FIH was to have the flexibility to do investments that they cannot do through FFH. Also having a nice fee stream does not hurt. 

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