Fairfax India new issue

[This2ShallPass]

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]

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 2 hours ago by nwoodman

[gfp]

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]

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. 

 

 

[gfp]

1 hour ago, Xerxes said:

 

 

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. 

 

 

Thanks that is helpful 

[This2ShallPass]

11 hours ago, nwoodman said:

We shall see.  Fairfax seems happy to wait it out, so that’s good enough for me. 

Thanks for the detailed explanation.

 

8 hours ago, gfp said:

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.

Yes it's clean structure wise and lot of cash available at FFH. But would be a bummer for all us minorities holding for so many years. The other question is do they shelve the Anchorage IPO? I wouldn't be so bummed if they do the merger some time after Anchorage so everyone can profit from the airport's market value..