Fairfax India new issue

[Crip1]

18 hours ago, This2ShallPass said:

You can even look at 5.5 years, return is only 40% vs. 95% for Sensex (without currency adjustment) and 100% for s&p.

 

I simply don't understand their strategy and no one has been able to explain it (other than saying trust them). They buy these tiny companies on one hand and then have BIAL + bidding for IDBI on the other. Why? The tiny companies need to have outsized returns to make a dent (look at Saurashtra, good IRR on exit but who cares). Add to it, these small companies are in industries that are more traditional (i.e. no 10 or 20 bagger potential). 

 

I am less concerned with the 10-20 bag potential and more concerned with unlocking/monetizing the value. Several of us have been patient for quite a while but that patience, unless one had extraordinary timing, has not been rewarded in terms of market value. One could have invested in an index fund and done as well. The thesis as of now is BIAL.

 

-Crip

[SafetyinNumbers]

21 hours ago, This2ShallPass said:

You can even look at 5.5 years, return is only 40% vs. 95% for Sensex (without currency adjustment) and 100% for s&p.

 

I simply don't understand their strategy and no one has been able to explain it (other than saying trust them). They buy these tiny companies on one hand and then have BIAL + bidding for IDBI on the other. Why? The tiny companies need to have outsized returns to make a dent (look at Saurashtra, good IRR on exit but who cares). Add to it, these small companies are in industries that are more traditional (i.e. no 10 or 20 bagger potential). 

 

I think their strategy is to buy businesses that can CAGR 15%+ over long periods of time. Some are small and some are big but each investment they make grows their network. Over long periods of time that should yield dividends. I think everything in the private portfolio is marked conservatively in varying degrees such that intrinsic value (after performance fees) is probably closer to $35 vs the stated BVPS. That makes the CAGR starting net of IPO fees closer to ~13% since inception. 
 

Hopefully IDBI leads to a GP/LP structure where they can earn fees that offset the fees they pay Fairfax. 

[This2ShallPass]

1 hour ago, SafetyinNumbers said:

I think their strategy is to buy businesses that can CAGR 15%+ over long periods of time. Some are small and some are big but each investment they make grows their network.

How does it work though? BIAL real value is a few B. If that grows at 15% CAGR and you have a $50M investment growing at even 25% CAGR, how can the small one move the needle? Only unnecessary overhead and distraction for management. It's heads no one cares and tails you lose.

 

Feels like a way to justify they are doing something, showing they have 10 investments when in reality only 3 are relevant.

 

[SafetyinNumbers]

11 minutes ago, This2ShallPass said:

How does it work though? BIAL real value is a few B. If that grows at 15% CAGR and you have a $50M investment growing at even 25% CAGR, how can the small one move the needle? Only unnecessary overhead and distraction for management. It's heads no one cares and tails you lose.

 

Feels like a way to justify they are doing something, showing they have 10 investments when in reality only 3 are relevant.

 

Practically, some of those other investments unlike BIAL are paying dividends and are being recycled which helps pay the bills while BIAL and others are incubated. I’m not sure how much overhead and distraction it is for management. I prefer the team be busy getting lots of reps and analyzing lots of businesses. I’m sure they have a much better feel for the economy this way than if they only owned a few positions. 

[SafetyinNumbers]

2 minutes ago, Haryana said:

Yeah, there might have been some implied impairment due to tariff induced uncertainities. 

 

Btw, when you say "what’s best for the company" do you mean the investee or investor? 

When done right, both.

[This2ShallPass]

2 hours ago, Haryana said:

Those tiny positions of Maxop and Jaynix are doing great so far having added 95mm to BV in just a few years of holding which is 6% of total additions, are significant needle movers. 

I'm not saying these are bad businesses. But, they also carry big downside risk (from FFIs own discount rates used)..

 

When you put that gain against a $2.5B BIAL, they are not that material. We probably disagree on what we consider "significant needle movers". To me buying anything and everything is not a coherent strategy. It's ok to make small investments, but those have to be like Digit, you win massively or lose little.

 

 

[This2ShallPass]

7 hours ago, Haryana said:

Why Maxop and Jaynix cannot be like that and what is the big downside risk you mentioned? 

They're both in more traditional industries, not huge market share, no clear moat and are not disruptors. You can say insurance is also an old(er) industry, but India is still a nascent market with low non-life ins penetration and Digit was disrupting with their digital first initiatives.

 

On the risk, see below on discount rates used by FFI. Very high discount (riskier investment) to go with low growth rates, seems like a combination you should run away from:)

 

Q2 update

 

Maxop

 

At June 30, 2025 the company estimated the fair value of its investment in Maxop using a discounted cash flow analysis based on multi-year free cash flow forecasts for its two business units with assumed after-tax discount rates ranging from 14.3% to 16.8% and a long term growth rate of 4.0% (December 31, 2024 - 14.9% to 16.1%, and 4.0%, respectively).

 

Jaynix

 

At June 30, 2025 the company estimated the fair value of its investment in Jaynix using a discounted cash flow analysis based on multi-year free cash flow forecasts with an assumed after-tax discount rate of 23.0% and a long term growth rate of 1.5% (December 31, 2024 - 23.4% and 1.5% respectively).

 

[SafetyinNumbers]

5 hours ago, This2ShallPass said:

They're both in more traditional industries, not huge market share, no clear moat and are not disruptors. You can say insurance is also an old(er) industry, but India is still a nascent market with low non-life ins penetration and Digit was disrupting with their digital first initiatives.

 

On the risk, see below on discount rates used by FFI. Very high discount (riskier investment) to go with low growth rates, seems like a combination you should run away from:)

 

Q2 update

 

Maxop

 

At June 30, 2025 the company estimated the fair value of its investment in Maxop using a discounted cash flow analysis based on multi-year free cash flow forecasts for its two business units with assumed after-tax discount rates ranging from 14.3% to 16.8% and a long term growth rate of 4.0% (December 31, 2024 - 14.9% to 16.1%, and 4.0%, respectively).

 

Jaynix

 

At June 30, 2025 the company estimated the fair value of its investment in Jaynix using a discounted cash flow analysis based on multi-year free cash flow forecasts with an assumed after-tax discount rate of 23.0% and a long term growth rate of 1.5% (December 31, 2024 - 23.4% and 1.5% respectively).

 

I see the huge discount rates and low terminal growth rates as conservatism suggesting the marks are way too low which keeps management fees down. 

[dartmonkey]

53 minutes ago, Haryana said:

Had they used a more reasonable discount and growth rate, the higher valuation would have moved Needle a whole lot more which again shows that how book value is understated. 

This. Pretty much any business that you discount at 15.5% (Maxop) or 23.5% (Jaynix) is going to look super cheap. They bought about 70% of both of these in 2021 and 2022, so they are consolidated and carried at super low prices, and despite that, they have 26% and 38% annualized returns. Imagine what the returns would be like if they were discounting them at 10%! Yes, they are small and dwarfed by BIAL (they are now carried at $97m and $82m), but they are growing like weeds. A few more distractions like these, PLEASE!

 

 

[Hsmpanl]

8 minutes ago, Haryana said:

What happened to the stock near close, volume of 2500 (<$45,000) and it shot up 3%. 

Did someone here read my post and got influenced? (LOL)

Betting somebody entered a market order by accident and is NOT gonna be too happy...

[This2ShallPass]

5 hours ago, Haryana said:

Why are you interpreting their use of high discount rates as an indication of "big downside risk"? Even if they went to zero, which is the maximum exposure, the impact is absorbable. 

I'm not interpreting it as big downside risk. That's what a discount rate is correct, the riskier the business the higher discount rate you should use? As a comparison, FF views Jaynix as a more riskier investment vs. Maxop.

 

4 hours ago, dartmonkey said:

This. Pretty much any business that you discount at 15.5% (Maxop) or 23.5% (Jaynix) is going to look super cheap. They bought about 70% of both of these in 2021 and 2022, so they are consolidated and carried at super low prices, and despite that, they have 26% and 38% annualized returns. Imagine what the returns would be like if they were discounting them at 10%! Yes, they are small and dwarfed by BIAL (they are now carried at $97m and $82m), but they are growing like weeds. A few more distractions like these, PLEASE!

 

 

Oh the halo around Fairfax is growing by the day. In 2019 they could nothing right and today no wrong. We are now happy about businesses w very high discount rates. I'll happily take the other side of this, these companies most certainly are not growing like weeds. We can check in after 3 years and they still wouldn't make a dent to FFI book value..

 

Serious question, how is anyone excited about a business w 23% discount rate and 1.5% growth rate? Would any of you put your own money into such a business?

 

 

 

 

 

[Hsmpanl]

45 minutes ago, This2ShallPass said:

I'm not interpreting it as big downside risk. That's what a discount rate is correct, the riskier the business the higher discount rate you should use? As a comparison, FF views Jaynix as a more riskier investment vs. Maxop.

 

Oh the halo around Fairfax is growing by the day. In 2019 they could nothing right and today no wrong. We are now happy about businesses w very high discount rates. I'll happily take the other side of this, these companies most certainly are not growing like weeds. We can check in after 3 years and they still wouldn't make a dent to FFI book value..

 

Serious question, how is anyone excited about a business w 23% discount rate and 1.5% growth rate? Would any of you put your own money into such a business?

 

 

 

 

 

I get what you’re saying, all depends if the discount rate reflects the risk of the business. I’d happily pay PV23 for something with very slow growth like BTI. Hopefully FFH is just being extremely conservative and we are all getting a double digit IRR.

Edited October 2, 2025 by Hsmpanl

[This2ShallPass]

5 hours ago, Hsmpanl said:

I’d happily pay PV23 for something with very slow growth like BTI.

Is it because you're more certain on the outcome? On a pure risk adjusted basis, wouldn't fixed income be a better option.

 

[Hsmpanl]

5 hours ago, This2ShallPass said:

Is it because you're more certain on the outcome? On a pure risk adjusted basis, wouldn't fixed income be a better option.

 

Yeah, exactly. If the assumptions for 1.5% growth are correct then I’d make a 23% compounded return on the investments. Even if cash flows decline by 10% compounded I’d make a 13% IRR. Anything you assume a 23% discount rate you’re building in a massive margin of safety, so the question is whether the discount rate is appropriate and matches the riskiness of the investment.

[hardcorevalue]

Still drifting lower.

 

If this gets back down to $12 or $13 again, I'll definitely be buying even with the fee structure, some real value in BIAL that's being marked conservatively even if the IPO never comes. Honestly, I'd prefer a sale to Adani or GMR as even within Anchorage it will be an orphaned asset given its scale and then we would just be complaining about a discount on Anchorage...

[dartmonkey]

13 hours ago, This2ShallPass said:

I'm not interpreting it as big downside risk. That's what a discount rate is correct, the riskier the business the higher discount rate you should use? As a comparison, FF views Jaynix as a more riskier investment vs. Maxop.

 

Oh the halo around Fairfax is growing by the day. In 2019 they could nothing right and today no wrong. We are now happy about businesses w very high discount rates. I'll happily take the other side of this, these companies most certainly are not growing like weeds. We can check in after 3 years and they still wouldn't make a dent to FFI book value..

 

Serious question, how is anyone excited about a business w 23% discount rate and 1.5% growth rate? Would any of you put your own money into such a business?

 

I guess the question is, is Jaynix (the one with the 23% discount rate and 1.5% growth rate) really growing at 1.5%? This is what they said in the annual report:

 

Quote

The global cable lugs market is valued at around $2 billion and is growing rapidly at around a 6% CAGR. The growth is driven by demand for data centers,switchgears,EV and transmission infrastructure.Strict UL certification requirements ensure high performance and safety. Jaynix is one of the few manufacturers outside of the U.S. that offers design, manufacturing and testing capabilities under one roof. Nikhil and Ninad are passionate hands-on operators, with Nikhil focused on commercial business development efforts and Ninad on engineering and production. They will continue to drive the business and stay invested with a significant minority stake. Jaynix is set to launch its own range of lugs and neutral bars in the U.S. market with products designed to perform better than the current offerings in the market. It is investing in a new facility to cater to this demand which is expected to be operational in mid-2025. In 2024, Jaynix’s revenue increased 30% over the previous year to $46.7 million, while EBITDA grew 43% and net profit grew 48%, to $14.8 million and $10.1 million, respectively, generating an ROE of 30%. Its performance is laudable in the context of the U.S. imposing tariffs of 39% on aluminum products from India, though this was removed later. The fair value of Fairfax India’s investment in Jaynix increased to $81.6 million in 2024 from $49.3 million in 2023, implying a price to earnings of 11.8 times and a price to free cash flow of 10.3 times. Jaynix’s growth prospects remain very robust.

 

 

In other words, they are growing a lot faster than 1.5%. That 1.5% is just the parameter they are using to calculate what they call 'fair value' for this holding. Muddy Waters should be outraged at this parameter, as well as the 23% discount rate, because they are clearly sandbagging the company's present value this way - oh wait, MW is making the opposite claim. Anyways, the 'fair value' of this 70% stake has grown from $32.5m when they acquired it in February 2022 to $49.3m at the end of 2023 and to $81.6m at the end of 2024 (and down a bit to $78.7m at the end of 2025 Q2.), so that 1.5% growth rate has not applied in the past few years, and doesn't seem to apply for a company whose "growth prosects remain very robust." They are obviously allowed a lot of discretion here, and they could no doubt say that they are just being conservative, but their results and their description are not those of a low growth business.

 

 

[This2ShallPass]

On 10/2/2025 at 5:20 AM, Hsmpanl said:

If the assumptions for 1.5% growth are correct then I’d make a 23% compounded return on the investments.

So you're assuming the discount rate is not correct and you make a very good return? Yes, agreed if that's the case. But why would a company unnecessarily put that high a discount rate. Not trying to be argumentative, but why not use 30% 40%, be even more conservative. I trust FF has valid reasons for the rates they are using. Maybe slightly conservative, a few % points.

 

On 10/2/2025 at 8:16 AM, dartmonkey said:

They are obviously allowed a lot of discretion here, and they could no doubt say that they are just being conservative, but their results and their description are not those of a low growth business.

I can't square why they would use 1.5% terminal growth rate if real growth is much higher (for Maxop they use 4%). The stake has grown for sure, but I still feel any business need a cohesive strategy. Defining the target market is imp and it sets the stage for everything else. Bidding for IDBI on one end and Jaynix on other is trying to do it all.

 

[dartmonkey]

4 hours ago, This2ShallPass said:

Not trying to be argumentative, but why not use 30% 40%, be even more conservative. I trust FF has valid reasons for the rates they are using. Maybe slightly conservative, a few % points.

 

On 10/2/2025 at 11:16 AM, dartmonkey said:

They are obviously allowed a lot of discretion here, and they could no doubt say that they are just being conservative, but their results and their description are not those of a low growth business.

I can't square why they would use 1.5% terminal growth rate if real growth is much higher (for Maxop they use 4%). The stake has grown for sure, but I still feel any business need a cohesive strategy. Defining the target market is imp and it sets the stage for everything else. Bidding for IDBI on one end and Jaynix on other is trying to do it all.

We are not told how they get these precise-sounding parameters (23.0% discount for Jaynix, not 20% or 30% or 40%, and not even 23%, but 23.0%!) or 1.5% for the growth rate (not even keeping up with inflation, which is 1.55% yoy at last count), but I wouldn’t read too much into them. Clearly the business is growing fast, 29% annualized over the past 3.5 years in fair value increases, and they describe a lot of growth potential. If it does that for another 5 years while they wait for the slow wheels of the Indian bureaucracy to turn, it would be worth $283m, or more if they lower the discount parameter a bit (say to 15.0%?). 
 

Still small potatoes next to a couple of billion for the airport, but it pays the bills and gives them something to do to make the wait not seem so long. And as they say, a few hundred million here and a few hundred million there, …

[TwoCitiesCapital]

10 hours ago, This2ShallPass said:

So you're assuming the discount rate is not correct and you make a very good return? Yes, agreed if that's the case. But why would a company unnecessarily put that high a discount rate. Not trying to be argumentative, but why not use 30% 40%, be even more conservative. I trust FF has valid reasons for the rates they are using. Maybe slightly conservative, a few % points.

 

I can't square why they would use 1.5% terminal growth rate if real growth is much higher (for Maxop they use 4%). The stake has grown for sure, but I still feel any business need a cohesive strategy. Defining the target market is imp and it sets the stage for everything else. Bidding for IDBI on one end and Jaynix on other is trying to do it all.

 

 

I wouldn't read too much into it. The problem with DCF is that the terminal growth rate and discount rates dramatically change the valuation - even if the changes in those rates are small because the impact compounds. 

 

I wouldn't put much weight that Fairfax is getting growth rates, terminal growth rates, and discount rates exactly correct in marking their books. But they have to mark something. 

 

Perhaps make you own adjustments and get a range of values. Or use the observed growth rate for the last three years and stretch it forward for three years. Slap a a reasonable multiple on that and then figure out the discount rate that gets it back to today's value. Does that discount rate seem like a reasonable return for the risk of holding the position? If so - it's being carried at a reasonable valuation and your discount rate is your expected IRR over the next 3-years. 

. 

[This2ShallPass]

6 hours ago, dartmonkey said:

Clearly the business is growing fast, 29% annualized over the past 3.5 years in fair value increases, and they describe a lot of growth potential. If it does that for another 5 years while they wait for the slow wheels of the Indian bureaucracy to turn, it would be worth $283m, or more if they lower the discount parameter a bit (say to 15.0%?). 

No doubt, if they grow anywhere close to 29% then it's a slam dunk. I just don't think they will in the long term given the industry they are in (no moat, competition will definitely come in if it's that attractive). 

 

18 minutes ago, TwoCitiesCapital said:

I wouldn't read too much into it. The problem with DCF is that the terminal growth rate and discount rates dramatically change the valuation - even if the changes in those rates are small because the impact compounds. 

It's the combination of small size and low growth rates that's a no for me. Even if you think Fairfax is sandbagging, they expect BIAL to grow 2-3x faster terminally than Jaynix. That's saying something.

 

[TwoCitiesCapital]

41 minutes ago, This2ShallPass said:

No doubt, if they grow anywhere close to 29% then it's a slam dunk. I just don't think they will in the long term given the industry they are in (no moat, competition will definitely come in if it's that attractive). 

 

It's the combination of small size and low growth rates that's a no for me. Even if you think Fairfax is sandbagging, they expect BIAL to grow 2-3x faster terminally than Jaynix. That's saying something.

 

 

No doubt - but it's not like they're in a position to buy more BIAL at this time and it already dominates the portfolio?

 

So they have successfully weighted the most attractive opportunity way larger than anything else in the portfolio...so the complaint is then that there are other names in the portfolio at all? Instead of holding cash and earning less returns?

 

I don't mind them earning in excess of cash on the remainder while also making relationships connections that may result in larger deals and/or roll-ups along the way.  

 

[SafetyinNumbers]

I think the discount rates and terminal growth rates have more to do with what they paid for the asset than anything else except they do assume fairly high inflation in their assumptions.

 

Buying something and immediately writing it up doesn’t seem right either. Plus this way we get to enjoy lower fees. 

[This2ShallPass]

4 hours ago, SafetyinNumbers said:

I think the discount rates and terminal growth rates have more to do with what they paid for the asset than anything else except they do assume fairly high inflation in their assumptions.

Are you saying discount rates are completely decoupled from the risk of an investment? I mean how Fairfax India is doing it. I'm like a broken record now, why did they use 23% for Jaynix and 13-17% for Maxop?

 

4 hours ago, TwoCitiesCapital said:

 

No doubt - but it's not like they're in a position to buy more BIAL at this time and it already dominates the portfolio?

 

So they have successfully weighted the most attractive opportunity way larger than anything else in the portfolio...so the complaint is then that there are other names in the portfolio at all? Instead of holding cash and earning less returns?

 

I don't mind them earning in excess of cash on the remainder while also making relationships connections that may result in larger deals and/or roll-ups along the way.  

 

I disagree that in all of India they can only find one good large investment.

 

[This2ShallPass]

Fairfax puts some artificial discount rate on their investments and we should just ignore them seems like the common opinion. Said differently, just trust Fairfax. FFI has been a bad investment so far. Really bad if you do relative performance from start. What will make you guys question if Fairfax India is doing the right thing?

 

This might sound like I'm trying to argue but I'm genuinely curious, since everyone is defending them. I have been patient for 10 years with this one but at some point it's not working right?

 

[SafetyinNumbers]

1 hour ago, This2ShallPass said:

Fairfax puts some artificial discount rate on their investments and we should just ignore them seems like the common opinion. Said differently, just trust Fairfax. FFI has been a bad investment so far. Really bad if you do relative performance from start. What will make you guys question if Fairfax India is doing the right thing?

 

This might sound like I'm trying to argue but I'm genuinely curious, since everyone is defending them. I have been patient for 10 years with this one but at some point it's not working right?

 

If intrinsic value is $35-40 and we started at $9.50 post IPO fees, is that a good enough return?