gfp Posted February 7 Posted February 7 It is important to remember when we are translating all these Indian asset values back to US dollars that there is also the possibility to leak some value on the currency
LC Posted February 7 Posted February 7 8 minutes ago, gfp said: It is important to remember when we are translating all these Indian asset values back to US dollars that there is also the possibility to leak some value on the currency Same with all foreign $ generating businesses - my napkin math is to discount the business' growth rate by some estimate of forex leakage. So if BIAL growing 10% PA and the rupee devalues vs the dollar call it 5% PA, I just use a 9.5% growth rate. I try and be conservative with the forex rate and generally look at least a 5 year window to estimate the forex leakage, below is USD INR :
hobbit Posted February 8 Posted February 8 15 hours ago, dartmonkey said: Great question, obviously the valuation of BIAL is the central element in valuing FIH, so how much is its 64% stake worth? They just bought 10% 2 months ago for $255m, so $2.55b is a good first step in how much the whole thing is worth, if they paid a fair price. 64% of that would be $1.632b for FIH, or $12.05 per FIH share. Obviously, we hope they got a fantastic deal for that 10%, and that it is worth a lot more. For instance, FIH bought a 10% stake the previous year, at the same $2.5b valuation, which is also the price they mentioned in Sept 2021. And in last year's AR they acknowledge that this valuation is conservative: The valuation of Fairfax India’s 64% interest in BIAL increased to $1.6 billion in 2023 from $1.2 billion in 2022, implying an equity value of approximately $2.5 billion for the whole company. Excluding cash flows from the 460 acres in Airport City, BIAL is carried on our books at 9.5 times normalized free cash flow, which we consider to be conservative. Bangalore is one of the fastest growing cities in the world and air passenger traffic in India is expected to have robust growth with increasing business and leisure travel, and the improvement in air connectivity to tier II cities. The valuation is supported by future cash flow estimates driven by the growth in capacity, non-aero revenue and real estate monetization plans described above, but does not reflect apparent market interest. Given the fact that they still wanted to buy that last 10% from Siemens, they have probably been lowballing the price with this $2.5b number. Also, in the same report, they use VERY aggressive discount rates to get this number, and VERY conservative EBITDA growth rates: At December 31,2023 the company estimated the fair value of its investment in BIAL using a discounted cash flow analysis for its three business units based on multi-year free cash flow forecasts with assumed after-tax discount rates ranging from 12.4% to 16.9% and a long term growth rate of 3.5% (December 31, 2022– 12.4% to 16.1%, and 3.5%, respectively). At December 31, 2023 free cash flow forecasts were based on EBITDA estimates derived from financial information for two of BIAL’s business units prepared in the second quarter of 2023 and for one business unit, the fourth quarter of 2022 (December 31, 2022– second quarter of 2022 for two business units and fourth quarter of 2022 for one business unit) by BIAL’s management. What EBITDA multiple is appropriate, for a rough valuation? A $2.5b valuation for BIAL implies a multiple of about 12. European multiples in recent years have been about 16 ( https://airport-world.com/buying-into-airports/ ), but that is in a region with much slower growth than what we are seeing in India. Given recent growth rates, far in excess of the 3.5% that FIH has been using in its accounting, 25-30 may be closer to the real fair value than 12, and 30x would give us a $6b for BIAL, or $28.35 per FIH share. But I would love to hear how you and others go about putting a number on FIH's crown jewel. I have been primarily been tracking the valuation of GMR airports which is pure airport play in India in public markets. With a worse growth rate , bad balance sheet, not so good revenue share arrangement ( Delhi airport is bad, Hyderabad is as good as Bangalore ) ; it has been trading at 25-30x the operating profit. I do not see how BIAL does any worse. https://www.screener.in/company/GMRAIRPORT/consolidated/ if you go the bottom right of the page , you can go through the quarterly PPTs and conference call transcripts. I have found them quite insightful when studying BIAL.
nwoodman Posted February 8 Posted February 8 26 minutes ago, hobbit said: I have been primarily been tracking the valuation of GMR airports which is pure airport play in India in public markets. With a worse growth rate , bad balance sheet, not so good revenue share arrangement ( Delhi airport is bad, Hyderabad is as good as Bangalore ) ; it has been trading at 25-30x the operating profit. I do not see how BIAL does any worse. https://www.screener.in/company/GMRAIRPORT/consolidated/ if you go the bottom right of the page , you can go through the quarterly PPTs and conference call transcripts. I have found them quite insightful when studying BIAL. +1, I was just starting to look at them yesterday. The Indian market is a bit frothy so figured they might be a 20-30% overvalued. Based on “bullshit earnings” multiples I got the following: It is quite the range but whichever way you cut it seems undervalued on the FIH books. There has been a bit of chatter about the second airport too, so it will be fascinating to see how that evolves. Either way seems like a good margin of safety and I am sure we are looking forward to seeing what the market comes up with.
villainx Posted February 8 Posted February 8 5 hours ago, nwoodman said: There has been a bit of chatter about the second airport too can you describe the chatter? I must be misremembering something because I’m not aware of second.
SafetyinNumbers Posted February 8 Posted February 8 34 minutes ago, villainx said: can you describe the chatter? I must be misremembering something because I’m not aware of second. Lots of articles last night on the subject https://english.jagran.com/india/bengaluru-second-airport-bial-officials-back-nelamangala-and-kanakapura-road-for-location-details-bengaluru-news-10217493
nwoodman Posted February 8 Posted February 8 (edited) 14 hours ago, SafetyinNumbers said: Lots of articles last night on the subject https://english.jagran.com/india/bengaluru-second-airport-bial-officials-back-nelamangala-and-kanakapura-road-for-location-details-bengaluru-news-10217493 That's along the lines of what I was reading. There seems to be a political angle, with various "officials" wanting the second airport in their jurisdiction. There also appears to be a bit of confusion, as the 90 million passengers the officials are getting their knickers in a knot over are slightly less than the 100 million capacity BIAL is currently designing T2 Phase 2 and smaller T1 upgrades to accommodate by 2030. There is always a fair chance that final passenger numbers are much higher than even the 90-100m envisaged, so perhaps there is merit in a second airport. A 2008 concession agreement between Bangalore International Airport Limited (BIAL) and the government prohibits new airports within 150 km of KIA until 2033. So, it is unclear to me if this will be tested. Plans for an airport in Hosur, in Tamil Nadu (40 km from Bengaluru), face legal hurdles due to this clause. The Hosur airport would also be at Karnataka's disadvantage, which is where the upside might be that BIAL gets an inside run on developing a second airport. BIAL have certainly proven their bona fides with T2. Challenges and Next Steps (as far as I can tell) Political Consensus: Ministers lobby for sites in their constituencies (e.g., Nelamangala vs. Kanakapura), but the government insists decisions will prioritize connectivity and economic impact. Land Acquisition: Estimated cost of ₹10,000 crore for 4,400–5,000 acres. Federal Approval: After finalizing the site, Karnataka plans to submit the proposal to the AAI by mid-February 2025. Estimated Timeline: A second airport will take 7-8 years, hence the sudden flurry. If BIAL gets the gig, great; if not, I'm happy to see deliberations drag on in true Indian style. Edited February 9 by nwoodman
gfp Posted February 8 Posted February 8 My hope has been that the need for a second airport well before 2033 (based more on location and commute times / traffic than absolute terminal capacity), coupled with BIAL's 150km "noncompete" will bring Anchorage or BIAL or whatever entity it is into the development project for the second airport. If everyone is happy with the way they are operating / managing / running the current airport - and I see no reason to believe that constituents are unhappy - this coupled with the "noncompete" make them a natural fit for the 2nd concession.
nwoodman Posted February 9 Posted February 9 (edited) Some further notes on the proposed sites for the second airport attached. Some thumb-suck estimates on the new build cost too: 30-50m passengers Land $US1.2bn Airport Construction $2.5bn Total ~$3.7bn Perhaps I need to rethink my lower bound $4bn valuation on KIA Bengalarus second airport: Nelamangala and Kanakpura Rd emerge as top choices (Hindustani Times) "To accelerate the project, the state government is considering inviting Bangalore International Airport Limited (BIAL) to spearhead the development, the report added. This move could help navigate the non-compete clause that restricts the construction of another airport until 2033. Officials believe BIAL, which successfully operates KIA, would be well-equipped to take on the new project." Why is Karnataka racing to finalise its 2nd airport site in Bengalaru? A neighbour is in the fight (The Print) But building the second airport also has its challenges. In its concession agreement signed with the Union government on 5 July2004, BIAL ensured that it remains the sole airport in Bengaluru, at least until 2033. “No new or existing airport shall be permitted by GoI to be developed as, or improved or upgraded into, an International Airport within an aerial distance of 150 km of the airport before the 25th anniversary of the Airport Opening Date,” according to the concession agreement. The only concession is for the development of Mysuru and Hassan airport. The new proposal by Karnataka is likely to complicate matters. “We are exploring if we can give the contract to build the airport to BIAL itself. In this way, they can waive off the non-compete clause,” the official cited above said. As of January 2024, Fairfax has invested approximately $7 billion in the country. Watsa stated, “In the next five years, we are looking at doubling that. We got a few projects already that we’re working on.” Indeed! Notes on Proposed Sites for Bengaluru’s Second Airport.pdf Edited February 9 by nwoodman
Txvestor Posted February 9 Posted February 9 On 2/6/2025 at 5:43 PM, dartmonkey said: Yes, that would be a very Buffettonian way of thinking about it, and I think it's the right way. Not sure about the $9.50 as baseline, but since the 50c listing costs would represent a one-time cost of setting up the company I guess that makes sense as a baseline. And if you put BIAL at a price that compares with other airports, I think you get to $25/share pretty easily, which would represent (25/9.5)^(1/10)-1= 10% annual return. To get to 15%, you would need intrinsic value to be over $38 (as 9.5*1.15^10=38.43), which is maybe a bit of a stretch, but by no means impossible. So there's probably still a margin of safety with a $19 share price. Interesting that the ground up replacement cost of an airport like KIA is like $6.5B. Even if we don't quite get to the Sydney airport valuations, it seems to me that a 12-15B valuation is on the cards within a 5yr time frame. 2.5B valuation at which they bought 10% recently from Siemens sure does seem like a bargain basement price.
This2ShallPass Posted February 9 Posted February 9 16 hours ago, Txvestor said: Interesting that the ground up replacement cost of an airport like KIA is like $6.5B. Even if we don't quite get to the Sydney airport valuations, it seems to me that a 12-15B valuation is on the cards within a 5yr time frame. 2.5B valuation at which they bought 10% recently from Siemens sure does seem like a bargain basement price. Siemens knows all this, why did they agree to then sell at such a price. The only reason I could think of is it's a smaller non controlling share and realizing the actual value could take few years..
nwoodman Posted February 9 Posted February 9 28 minutes ago, This2ShallPass said: Siemens knows all this, why did they agree to then sell at such a price. The only reason I could think of is it's a smaller non controlling share and realizing the actual value could take few years.. I wonder if it is also a cleaner arrangement to be out of BIAL if they intend to bid on the 2nd airport.
Eng12345 Posted February 10 Posted February 10 On 2/9/2025 at 3:57 PM, This2ShallPass said: Siemens knows all this, why did they agree to then sell at such a price. The only reason I could think of is it's a smaller non controlling share and realizing the actual value could take few years.. 250 mm or even 500 mm is such a small drop in the bucket to Siemens. Siemens has been on a long road to simplify their operations and I'm sure this is just one portion of this.
nwoodman Posted February 13 Posted February 13 (edited) A few articles floating around about the introduction of Aerial View Display (AVD) at KIA. Some notes attached (geeking out) https://www.indianeagle.com/traveldiary/bengaluru-international-airport-aerial-view/ This is far more than just some CCTVs strung around the place. The productivity and safety gains make it a no-brainer, but from my reading, the primary headache is dealing with an individual airport's legacy IT backbone. While there are plans, only 5% of airports globally have made the leap. The fact that BIAL has completed a successful implementation shows class on many levels. I like this asset more and more and you can't help but think it can only further their case for the second airport. From the notes AVD Primer - BIAL.pdf Edited February 13 by nwoodman
dartmonkey Posted February 13 Posted February 13 that’s great, I was really looking forward to those Q3 earnings!
gfp Posted February 13 Posted February 13 6 minutes ago, dartmonkey said: that’s great, I was really looking forward to those Q3 earnings! oops! posted the wrong press release!
gfp Posted February 13 Posted February 13 https://www.globenewswire.com/news-release/2025/02/13/3026350/0/en/Fairfax-India-Holdings-Corporation-Financial-Results-for-the-Year-Ended-December-31-2024.html
This2ShallPass Posted February 14 Posted February 14 10 hours ago, gfp said: https://www.globenewswire.com/news-release/2025/02/13/3026350/0/en/Fairfax-India-Holdings-Corporation-Financial-Results-for-the-Year-Ended-December-31-2024.html Meh report, only $55m in unrealized gains. Outside of BIAL, there's no reason to own this (bunch of smaller companies that won't move the needle and Sanmar seems like an albatross, only negatives so far). "At December 31, 2024 the company's book value per share decreased 4.1% to $20.96 from $21.85" The discount really closed to <10%. Seems like buying ahead of BIAL IPO, maybe an announcement is coming (it's about time)?
nwoodman Posted February 14 Posted February 14 (edited) 3 hours ago, This2ShallPass said: Meh report, only $55m in unrealized gains. Outside of BIAL, there's no reason to own this (bunch of smaller companies that won't move the needle and Sanmar seems like an albatross, only negatives so far). "At December 31, 2024 the company's book value per share decreased 4.1% to $20.96 from $21.85" The discount really closed to <10%. Seems like buying ahead of BIAL IPO, maybe an announcement is coming (it's about time)? Don’t disagree but the thesis is the airport. Sanmar is going to be a drag for the next year but should start working from 2026 onwards. Edited February 14 by nwoodman
TwoCitiesCapital Posted February 14 Posted February 14 8 hours ago, This2ShallPass said: Meh report, only $55m in unrealized gains. Outside of BIAL, there's no reason to own this (bunch of smaller companies that won't move the needle and Sanmar seems like an albatross, only negatives so far). "At December 31, 2024 the company's book value per share decreased 4.1% to $20.96 from $21.85" The discount really closed to <10%. Seems like buying ahead of BIAL IPO, maybe an announcement is coming (it's about time)? BIAL IPO and* IDBI bid We'll see how those evolve but are the only two things that really have the potential to move the needle here.
This2ShallPass Posted February 15 Posted February 15 21 hours ago, nwoodman said: Don’t disagree but the thesis is the airport. Sanmar is going to be a drag for the next year but should start working from 2026 onwards. That's why I'm still holding as well, the airport is such an incredible asset. What do you expect to change w Sanmar next year? 14 hours ago, TwoCitiesCapital said: BIAL IPO and* IDBI bid Do you think IDBI bid can cause this big move? We don't even know if FFI will get it and even if they do, what economic interest they will have is not clear. I doubt FFI can have a majority interest since they don't have anywhere near the cash for it..
nwoodman Posted February 15 Posted February 15 (edited) On 2/15/2025 at 7:51 PM, This2ShallPass said: That's why I'm still holding as well, the airport is such an incredible asset. What do you expect to change w Sanmar next year? Hopefully it plays out something like this: “1. PVC Price Recovery and Demand Growth (Mid-to-Late 2025 Onward) • The PVC market is showing early signs of stabilization, with prices bottoming out in late 2023. • Industry experts predict higher global PVC demand in late 2025 and 2026, driven by a rebound in construction and infrastructure spending, particularly in India and Southeast Asia. • India’s PVC consumption is expected to grow at 8% CAGR, creating a structural demand tailwind for Sanmar’s Chemplast Sanmar unit. • Timing: Expect a gradual price recovery from mid-2025, with stronger margins by 2026. 2. Anti-Dumping Measures in India to Support Domestic Pricing (Q2 2025 Onward) • The Indian government is advancing anti-dumping duties on paste PVC and suspension PVC imports, particularly from China, South Korea, and the EU. • If finalized, these duties would reduce import pressure and improve pricing power for domestic producers like Chemplast Sanmar. • The PVC Quality Control Order (QCO), set to take effect by June 2025, will further limit low-quality imports, benefiting domestic manufacturers. • Timing: Once anti-dumping measures are officially imposed (likely Q2-Q3 2025), expect price support and margin recovery for Sanmar. 3. Full Utilization of Expanded Capacity and Operational Efficiency Gains (Q3 2025 Onward) • Sanmar has completed major capacity expansions (e.g., 41,000 TPA specialty PVC addition and full ramp-up of TCI Sanmar’s 400,000 TPA Egypt plant). • Efficiency improvements and higher utilization at TCI Sanmar (Egypt) should significantly boost profitability once PVC prices stabilize. • Timing: Efficiency-driven profitability improvement from Q3 2025, with full impact in 2026. 4. Diversification into Higher-Margin Specialty Chemicals (Late 2025–2026) • Sanmar is expanding its Custom Manufactured Chemicals Division (CMCD) to cater to high-value agrochemical and pharma markets. • Five new contracts signed for specialty chemical intermediates, with a second-phase expansion of the new plant planned in 2025. • This shifts revenue mix away from commodity PVC toward less cyclical, higher-margin products. • Timing: Specialty chemicals’ revenue contribution will increase meaningfully from late 2025. 5. Stronger Financial Position and Lower Debt Burden (Q4 2025 Onward) • After the 2021 IPO and debt repayments, Sanmar significantly reduced its financial leverage, lowering interest costs. • Fairfax India remains a long-term supportive investor, providing stability. • Recent cost control measures and cash preservation efforts position the company for profitability in the next market upturn. • Timing: Lower financial costs and improved cash flows from Q4 2025, supporting sustained profitability. Expected Timing for Sanmar’s Return to Profitability • Short-Term (H1 2025): Limited profitability improvement, awaiting pricing recovery and regulatory actions. • Mid-Term (H2 2025): Anti-dumping duties, demand recovery, and full plant utilization start boosting margins. • Long-Term (2026): Stronger profitability driven by higher PVC prices, specialty chemicals growth, and cost efficiencies.” We shall see. Fairfax seems happy to wait it out, so that’s good enough for me. Edited February 18 by nwoodman
gfp Posted February 15 Posted February 15 Does anyone think the mechanism / structure for Fairfax India investing larger sums (like the possible IDBI bank deal) is actually them ending FIH.U as a stand-alone entity and merging it with Fairfax Financial at a 'fair and friendly' exchange ratio? You create this vehicle and it trades for years at a deep discount while you charge fees and repurchase shares, removing capital from the vehicle. The opportunity set evolves into larger targets. Lots of shareholder overlap. Simplifies the structure, removes the bifurcation of "certain Indian investments are in Fairfax Financial because they were made earlier, certain Indian investments are in Fairfax Financial because they are in the insurance industry." etc.. I had assumed they would accomplish bigger deal sizes by using some convoluted LP structure or friendly preferred co-investors but it seems to me like merging FIH.U into FFH is the cleanest solution and there is plenty of capital at the mother ship going forward.
Xerxes Posted February 15 Posted February 15 1 hour ago, gfp said: Does anyone think the mechanism / structure for Fairfax India investing larger sums (like the possible IDBI bank deal) is actually them ending FIH.U as a stand-alone entity and merging it with Fairfax Financial at a 'fair and friendly' exchange ratio? You create this vehicle and it trades for years at a deep discount while you charge fees and repurchase shares, removing capital from the vehicle. The opportunity set evolves into larger targets. Lots of shareholder overlap. Simplifies the structure, removes the bifurcation of "certain Indian investments are in Fairfax Financial because they were made earlier, certain Indian investments are in Fairfax Financial because they are in the insurance industry." etc.. I had assumed they would accomplish bigger deal sizes by using some convoluted LP structure or friendly preferred co-investors but it seems to me like merging FIH.U into FFH is the cleanest solution and there is plenty of capital at the mother ship going forward. In 2018 AGM, Prem has said and I quote (based on memory) "we want FIH to be as far as possible from FFH" A comparison was made (again from memory) to self-sustaining ships going on a voyage of discovery, while not putting mainland to risk.
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