Fairfax India new issue

[Haryana]

Not much exclusive about action against IIFL, it looks like part of a recent series that is currently ongoing -

 

https://indianexpress.com/article/explained/explained-economics/rbi-paytm-causes-effects-9137548/

 

https://www.businesstoday.in/industry/banks/story/after-iifl-rbi-bars-jm-financial-from-doing-any-new-financing-serious-deficiencies-in-loans-for-ipo-financing-420212-2024-03-05

 

https://www.ibtimes.co.in/rbi-slaps-fines-bank-india-bandhan-bank-breach-rules-866741

 

https://www.fortuneindia.com/investing/federal-bank-south-indian-bank-shares-plunge-up-to-5-on-rbi-action/116146

 

[ICUMD]

All of this is excellent imo.  RBI oversight and review will help improve the quality and transparency of these businesses over the long run. This is necessary to attract FDI.

 

Through the vetting process, the value of underlying businesses increases.

 

 

[ICUMD]

https://www.business-standard.com/companies/news/canada-based-firm-fairfax-offers-all-cash-deal-to-acquire-idbi-bank-124031800325_1.html

[This2ShallPass]

"Because of the significant underachievement of passenger traffic in the last year of the second control period and the intended completion of capital projects during the third control period (from April 2021 to March 2026), UDFs were expected to increase significantly in the third control period.With the higher UDFs and the ultimate return of passenger volumes to pre-pandemic growth levels, aero revenue was expected to return to normal levels at some point during the fiscal year ending March 2024. Based on current traffic volumes, this looks likely to happen."

 

From annual letter. We are 3 years into the third control period, when they say UDFs are expected to increase, do they not know yet or am I reading too much into it? I wouldn't be surprised given India's lumbering bureaucracy..

[ICUMD]

7 hours ago, This2ShallPass said:

"Because of the significant underachievement of passenger traffic in the last year of the second control period and the intended completion of capital projects during the third control period (from April 2021 to March 2026), UDFs were expected to increase significantly in the third control period.With the higher UDFs and the ultimate return of passenger volumes to pre-pandemic growth levels, aero revenue was expected to return to normal levels at some point during the fiscal year ending March 2024. Based on current traffic volumes, this looks likely to happen."

 

From annual letter. We are 3 years into the third control period, when they say UDFs are expected to increase, do they not know yet or am I reading too much into it? I wouldn't be surprised given India's lumbering bureaucracy..

I've also not been able to get clarity on whether or not the UDFs were being recalculated in each control period as per the contractual agreement.  

 

In their reports, there is never any confirmation the UDF was paid as per the agreement.  Only vague statements. Recalculation was especially important during the pandemic.

Edited March 30 by ICUMD

[giulio]

https://www.joincolossus.com/episodes/83022007/hansen-the-long-short-of-investing

 

interesting discussion on India, around min 50.

It shows the advantages FIH has by being on the ground.

[giulio]

https://www.business-standard.com/markets/capital-market-news/iifl-finance-spurts-17-in-five-days-to-acquire-minority-stake-in-nse-124040500746_1.html

Small consolation.

I still have mixed feelings about FIH selling their NSE stake. I hope they can put the money to work in even better opportunities.

[giulio]

Here are my notes on the 2024 FIH agm that just finished:

• Something worth keeping in mind -> in 2023 they bought back 2.9M shares, the share price was up 24%; yet, $14.9 is exactly the same price at which they completed a SIB back in 2021. A lot has happened in 3 years...
• slide 28 is a nice summary of the impact of fees on returns
• BIAL will see "explosive" growth in the next years
  • huge number of aircraft ordered by indian airlines (1200?)
  • number of operating airports expected to roughly 2x to. 250 (?)
  • Air India established its 2nd HUB in BIAL -> increase in international flights (EU/US) + other flights from other parts of India
• Watsa said that there are lots of structure that you can set up to raise money for big opportunities; seemed very confident that money will not be a problem for FIH
• Sold NSE because valuation was too high and they saw downside risk given that NSE makes a lot of profit from options trading
• IIFL gold loans issues -> founder said there were minor "lapses", IIFL was used to set an example for others. He said they addressed all the issues raised by RBI and hope that RBI audit will confirm this (April 12th start)
  • no fraud, no money laundering 
• Lots of emphasis on the financial sector opportunity -> 7% real growth, 12% nominal, financials should grow at 1.5-2x the nominal = 18%
• I am not sure I got this correctly but Watsa said something like "we are targeting 20% rate of return, not 10-15%, need to offset some fx risk"
• Sanmar had a terrible year with PVC prices down 30-60%
  • improved efficiency in Egypt 
  • focus on specialty PVC
  • growth ahead -> China has similar population to India and uses 20M tonnes per year vs India's 4M tonnes per year
• Maxop and Jaynix -> "unlimited growth", their only constraint is capacity and they are expanding, huge demand
• Anchorage still stuck in regulatory approval, nothing will move before the election (I would expect nothing before 2025)
• Privatization opportunities will unlock after the election 

all in all, great enthusiasm as always. focused on integrity.

Deepak Parekh (founder of HDFC) is their consultant for everything and this is a HUGE plus in my view. 

 

Curious if any of the guys who attended in person were able to gain other insights.

 

G

[MMM20]

6 minutes ago, giulio said:

I am not sure I got this correctly but Watsa said something like "we are targeting 20% rate of return, not 10-15%, need to offset some fx risk"

 

Makes sense purely on inflation differentials if you're a long-term investor thinking/reporting in USD.

 

Edited April 10 by MMM20

[UK]

21 minutes ago, giulio said:

Here are my notes on the 2024 FIH agm that just finished:

• Something worth keeping in mind -> in 2023 they bought back 2.9M shares, the share price was up 24%; yet, $14.9 is exactly the same price at which they completed a SIB back in 2021. A lot has happened in 3 years...
• slide 28 is a nice summary of the impact of fees on returns
• BIAL will see "explosive" growth in the next years
  • huge number of aircraft ordered by indian airlines (1200?)
  • number of operating airports expected to roughly 2x to. 250 (?)
  • Air India established its 2nd HUB in BIAL -> increase in international flights (EU/US) + other flights from other parts of India
• Watsa said that there are lots of structure that you can set up to raise money for big opportunities; seemed very confident that money will not be a problem for FIH
• Sold NSE because valuation was too high and they saw downside risk given that NSE makes a lot of profit from options trading
• IIFL gold loans issues -> founder said there were minor "lapses", IIFL was used to set an example for others. He said they addressed all the issues raised by RBI and hope that RBI audit will confirm this (April 12th start)
  • no fraud, no money laundering 
• Lots of emphasis on the financial sector opportunity -> 7% real growth, 12% nominal, financials should grow at 1.5-2x the nominal = 18%
• I am not sure I got this correctly but Watsa said something like "we are targeting 20% rate of return, not 10-15%, need to offset some fx risk"
• Sanmar had a terrible year with PVC prices down 30-60%
  • improved efficiency in Egypt 
  • focus on specialty PVC
  • growth ahead -> China has similar population to India and uses 20M tonnes per year vs India's 4M tonnes per year
• Maxop and Jaynix -> "unlimited growth", their only constraint is capacity and they are expanding, huge demand
• Anchorage still stuck in regulatory approval, nothing will move before the election (I would expect nothing before 2025)
• Privatization opportunities will unlock after the election 

all in all, great enthusiasm as always. focused on integrity.

Deepak Parekh (founder of HDFC) is their consultant for everything and this is a HUGE plus in my view. 

 

Curious if any of the guys who attended in person were able to gain other insights.

 

G

 

Thanks!

[ICUMD]

@giulio  thanks for the excellent summary.

 

My main thoughts attending the meeting online were

 

1. Air India making BIAL a secondary hub is a game changer.  All of a sudden you are guaranteed international connectivity and incr passenger volumes. This will translate into huge revenue streams, esp for their non aero businesses.  International passengers have much deeper pockets than domestic, on average.

 

2. Financial services can grow faster than infrastructure developments.  IDBI, if they can cinch the deal under Fairfax India, would be the next game changer.  Hopefully announcement on this will happen after Indian elections close in June.

 

3. Anchorage 

Doesn't seem to be a huge priority, though I could be mistaken.

 

4. SIB

Doesn't seem to be in the works.

They are apparently happy picking up shares on the market.

 

 

[Xerxes]

I ll add a comment on BIAL, both because it was (to my great pleasure) mentioned on the call by the CEO of the airport, and as well in previous non-Fairfax related links that I posted in the past on potential wide-body overcapacity glut in the future. 
 

India’ underinvestment in airport capacity in the 90s was a huge tailwind for the Gulf super-connectors (I.e Emirates, Qatar and the failing Etihad). It helped them grow.
 

India can claw back that passenger-traffic that is rightly theirs and take share from other destinations. 
 

This would be zero sum game for the Emirates of the world. As over the next decades both Saudi Arabia and India take up the mantle and build super-connectors. And not to mention their domestic markets. 
 

A secondly effect of that would be a glut at global level for wide-bodies. But that is not our problem. 

[giulio]

I got the same impression wrt Anchorage which is strange because 1) they said that Anchorage will own the entire bial stake eventually, 2) if they are going to bid when other infrastructure assets get privatized they should have a structure in place.

Iirc they should list bial by September 25, but given their partner in Anchorage I guess they can renegotiate that.

 

On the sib. Watsa said "we are buying shares in the market" numerous time. Truth is they haven't bought any in 2024 (while ffh has been more active). Last purchase was in November.

They are preserving cash, maybe something good will happen in H2.

[value_hunter]

They bough some in Mar.

https://ceo.ca/api/sedi/?symbol=fih&amount=&transaction=&insider=

[nwoodman]

Interesting Article in Mint on the future plans for Airport Privitisation in india.  Apologies for the lack of a link but the app is a bit of a pain

 

Airport privatization 3.0: Here are the 13 candidates

An increasing number of airports in India will sport private-sector owners, as the country's state-owned airport operator prepares a plan to privatize 13 more airports in the coming months, and also sell its residual stake in the bigger airports of Bengaluru and Hyderabad, according to two senior officials aware of the matter.

Airports Authority of India (AAI) plans to kick off the third phase of airport privatization after the general elections, beginning with offloading its remaining 13% stake in Bangalore International Airport Ltd (BIAL) this year, the officials said on condition of anonymity.

 

A track record cannot be understated