Fairfax India new issue

[Gamma78]

had written soemthing but then realised the article was a decade old. 

Edited August 11, 2024 by Gamma78

[glider3834]

On 8/11/2024 at 5:12 AM, Thrifty3000 said:

IIFL getting caught up in another scandal. This time it involves the chairperson of SEBI. Too much corruption…

 

https://hindenburgresearch.com/sebi-chairperson/

https://www.business-standard.com/companies/news/no-investments-in-adani-firms-sebi-chair-not-involved-in-fund-s-ops-iifl-124081100293_1.html

[SafetyinNumbers]

19 minutes ago, glider3834 said:

https://www.business-standard.com/companies/news/no-investments-in-adani-firms-sebi-chair-not-involved-in-fund-s-ops-iifl-124081100293_1.html

Also FFH fully monetized the position in 360 Wealth in May 2023. 

[Thrifty3000]

2 hours ago, SafetyinNumbers said:

Also FFH fully monetized the position in 360 Wealth in May 2023. 

[Haryana]

IIFL Finance was down a little on Monday after the Hindenburg short report but Fairfax India was up.

 

Not going much lower than 14 on scary news. 

 

Looks like a MOAB.

 

Not the American kind of MOAB - Mother Of All Bombs. https://www.scientificamerican.com/article/what-is-the-mother-of-all-bombs-that-the-u-s-just-dropped-on-afghanistan/

 

Fairfax India kind of MOAB - Mother Of All Bottoms.

 

[gfp]

I hadn't checked in on IIFL Securities in a little while - was surprised to see the chart

[mananainvesting]

BIA Tailwinds

 

[ourkid8]

Fairfax India to Acquire 65% of Global Aluminium Private Limited
 

https://www.fairfaxindia.ca/press-releases/fairfax-india-to-acquire-65-of-global-aluminium-private-limited-2024-09-06/?utm_source=newsletter&utm_medium=email&utm_term=Fri+Sep+06+2024&utm_campaign=Fairfax+India+to+Acquire+65+of+Global+Aluminium+Private+Limited
 

 

[Junior R]

39 minutes ago, ourkid8 said:

Fairfax India to Acquire 65% of Global Aluminium Private Limited
 

https://www.fairfaxindia.ca/press-releases/fairfax-india-to-acquire-65-of-global-aluminium-private-limited-2024-09-06/?utm_source=newsletter&utm_medium=email&utm_term=Fri+Sep+06+2024&utm_campaign=Fairfax+India+to+Acquire+65+of+Global+Aluminium+Private+Limited
 

 

good to see them adding more to portfolio ...Need the IPO to close the gap to book value

[This2ShallPass]

On 9/6/2024 at 2:59 PM, Junior R said:

good to see them adding more to portfolio ...Need the IPO to close the gap to book value

Bit of a headscratcher when they're in the bidding for IDBI. Last 3 companies they bought are small and industries that have very small growth rate. Then you have a portfolio dominated by a huge BIAL position and going after another even larger buy w IDBI. Both are multi billion positions and last 3 buys combined for <$150M.

 

What's their strategy? Are they going big or small? Do they want to be in industries that are seeing a boom in India or slow traditional ones?

 

[SafetyinNumbers]

4 hours ago, This2ShallPass said:

Bit of a headscratcher when they're in the bidding for IDBI. Last 3 companies they bought are small and industries that have very small growth rate. Then you have a portfolio dominated by a huge BIAL position and going after another even larger buy w IDBI. Both are multi billion positions and last 3 buys combined for <$150M.

 

What's their strategy? Are they going big or small? Do they want to be in industries that are seeing a boom in India or slow traditional ones?

 

Can you outline the growth rates for the last three acquisitions?

[This2ShallPass]

On 5/4/2024 at 1:07 PM, This2ShallPass said:

Terrible quarter - public equities down 25% and private investments down 6% when Sensex was up 2%. Silver lining, discount is closing. Not exactly the way you want it to happen by BV going down 10% Also, their private investment valuations seem pretty conservative, so less risk of a downside surprise there.

 

IIFL finance involved in something fraud related. they're of course downplaying it but getting banned by the regulator is a clear sign. Not sure why Fairfax doubled down by providing line of credit.

 

Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%. Investment thesis on these unclear, just distraction for management.

 

I reduced my position by 30% early this year. BIAL setup is great, I'm waiting for Anchorage IPO to move out of Fairfax India fully. 

 

"Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%."

 

From their last quarterly report @SafetyinNumbers.

 

Btw, can you explain what their strategy is when they buy a $50M company one year and going for $5B next year?

 

[ICUMD]

Decided to entirely liquidate my large position in Fairfax India. While I think Bial is a great opportunity, their inability to execute an IPO over so many years suggests they are bogged down in burocracy.  I suspect they have a lot of competition for quality assets. 

 

Management execution has been poor.

Saw better opportunity elsewhere.

 

[SafetyinNumbers]

8 hours ago, This2ShallPass said:

"Bottom 6 positions all worth only 10% of pf ($270M total, equal to Sanmar). They're all slow growers / bad industries - discount rate ranging from 13 to 28% and growth rates 1.5-5%."

 

From their last quarterly report @SafetyinNumbers.

 

Btw, can you explain what their strategy is when they buy a $50M company one year and going for $5B next year?

 

Probably similar to my strategy. I have 40%+ position in a $25b company and but still own ~2-5% positions in three <$50m companies.  I think they just try to buy stuff at a big discount to intrinsic value. It’s a novel concept. 
 

With respect to the first part of the comment on slow growers/bad industries is misguided in my opinion. The high discount rate shows these are fast growers over the forecast period and the valuations are conservative assuming continued depreciation in the rupee (we might actually get appreciation). The terminal growth rate has to be equal to or less than nominal GDP growth otherwise whatever company being model becomes the entire economy over enough time.

 

[dartmonkey]

7 hours ago, ICUMD said:

While I think Bial is a great opportunity, their inability to execute an IPO over so many years suggests they are bogged down in burocracy.  I suspect they have a lot of competition for quality assets. 

 

Management execution has been poor.

It sure has been disappointing so far, but it seems like a lot could go right. Public investments up 12% since June 30, and with BIAL 2/3 of the private investments, it's hard to know exactly what value is being created but air traffic is up, the IPO will arrive some day and there is a lot of upside. I think their record for investments that have been monetized is actually pretty good, but it has been a test of our patience, that's for sure.

Edited September 13, 2024 by dartmonkey

[Junior R]

I think the IPO is due to some back and forth with government as stated on the call...Eventually will get sorted out and if it trades 10%+ above value on balance sheet it should give a good gain

[hardcorevalue]

I think the issue is this is a bit like the line about Brazil. It has a bright future and always will.

 

We are approaching a decade of no returns on the stock and the fees keep accruing. 

 

Fairfax’s balance sheet is greatly improved from years ago and they already own so much I wonder if they will just a decent multiple of book value and take it out. 

 

Wouldn’t bet on that though. 

[ICUMD]

Struggled for years with this one.

Value is locked in Fairfax India for sure. 

 

Fairfax always realises value based on their book value calculation.

 

Investors will possibly realize value based on speculative events. 

 

That makes this at best a speculative investment in my books. 

 

Therefore my rationale to move on.

I still like that airport and hope to visit it one day.

[Haryana]

A few points with references to the recent 2-part post by @Viking :

 

1.

"When should an investor sell an investment?
According to Peter Lynch, a pretty smart guy, an investor should sell an investment when the story / fundamentals take a turn for the worse. Pretty simple. "
FIH Implication: The India story / fundamentals remain the same as before and actually improving.

 

2.

"Who got Fairfax the most wrong? The haters. Their hate stopped them from being rational. It stopped them from looking at the company objectively. "
FIH Implication: Fairfax India is irrationally hated at the moment like Fairfax was hated 3 - 4 years ago.

 

3.

"The three most important words in investing are margin of safety.” Warren Buffett
“It is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately with people or doesn't take at all.” Warren Buffett
FIH Implication: FIH market price might be just about 40% of its instrinsic value with future growth rate.

 

4.

“Be patient. The stocks that have been most rewarding to me have made their greatest gains in the third or fourth year I owned them. A few took ten years.” Peter Lynch
FIH Implication: This is where the hard work comes into play as selling could be a big emotional relief.

 

[Haryana]

1 hour ago, hardcorevalue said:

...

We are approaching a decade of no returns on the stock and the fees keep accruing. 

...

 

The fees accrue for a maximum of 3 years and therefore is mostly paid off.

 

Within each 3-year period, those fees are already accounted in book value.

 

Actually, it is the book value that keeps on accruing and fee is already paid.

 

[Viking]

2 hours ago, ICUMD said:

Struggled for years with this one.

Value is locked in Fairfax India for sure. 

 

Fairfax always realises value based on their book value calculation.

 

Investors will possibly realize value based on speculative events. 

 

That makes this at best a speculative investment in my books. 

 

Therefore my rationale to move on.

I still like that airport and hope to visit it one day.

@ICUMD At the end of the day we need to be as rational as possible. If your analysis told you it was the time sell and move on then that is the right decision for you. 
 

Here is my take on Fairfax India. I think the stock is cheap. I also think there is a good chance that significant ‘hidden’ value will be realized when the BIAL IPO happens. 
 

The issue with Fairfax India is when the value will be realized by Fairfax India and Fairfax. Not is the value actually there. 
 

As a result, i view Fairfax India not as a speculation but primarily as a timing play. For patient investors, the risk/reward looks pretty attractive.
 

Do I own Fairfax India shares today? No. That is primarily because I am way overweight Fairfax. However, i have owned Fairfax India many times in the past as a short term trade. I usually have kept my position size modest.

—————

The key is what is the value of the collection of assets that Fairfax India owns? And what has it done over the past 5 years? I think BIAL is the real deal.
 

Coiled springs usually (eventually) get released. 

Edited September 13, 2024 by Viking

[This2ShallPass]

2 hours ago, ICUMD said:

Therefore my rationale to move on.

Wow..you have been one of the longest bulls here. But I hear you, I reduced by 30% as well. The relative underperformance (vs. how well India has done) is staggering. Also, some real headscratchers on strategy.

 

BIAL is a true crown jewel asset and I'm hoping for IPO soon (maybe more wishful thinking). I'll be fully out after the IPO.

 

2 hours ago, hardcorevalue said:

they already own so much I wonder if they will just a decent multiple of book value and take it out. 

Be careful what you wish for Minority investors have never done well (some may say screwed over) on Fairfax takeouts..

 

 

[dartmonkey]

1 hour ago, ICUMD said:

Fairfax always realises value based on their book value calculation.

 

Investors will possibly realize value based on speculative events. 

 

That makes this at best a speculative investment in my books. 

 

Therefore my rationale to move on.

 

It seemed like a good idea at the time.

 

But this bad trend can't last more than a year or two, can it*? Trading way beneath book value of its components seems like more of a reason to be a buyer than a seller. 

 

*That was supposed to be sarcasm. Here are the numbers, more than 5 years significantly beneath par:

 

[hobbit]

FIH is such a head scratcher--but I still think it will pay off barring a major macroeconomic shock to India

 

check where GIL/GMR infra is trading. the only pure play airport stock in India. Trading at more than 35 times operating profit with negative free cash flow and ton of management issues. this is the only comp that matters wrt BIAL. Based on this BIAL's conservative value is 5-6B.

 

https://www.screener.in/company/GMRINFRA/consolidated/

 

 

All the small companies that Fairfax India is buying is feeding into China +1 manufacturing play. Manufacturing is growing massively in India and Maxop, Jaynix and global aluminum are highly levered plays on China +1 strategy playing out . All potential 10 baggers in 10 years if you have the patience.

 

Sanmar's Egypt is stake is valued at zero in the Book value calculation whereas they converted some debt into equity at a 800M valuation recently. 

 

https://menafn.com/1108544117/Indian-TCI-Sanmar-plans-on-establishing-USD150-m-ethylene-station-in-Egypt

 

IIFL finance did a decent round couple of years ago for their housing finance subsidiary where ADIA put in some money. Bajaj housing finance IPO announced yesterday sent market into a frenzy which is probably why IIFL finance was also up 7% today .

 

https://www.business-standard.com/content/press-releases-ani/iifl-home-finance-becomes-india-s-leading-affordable-housing-finance-company-with-aum-crossing-rs-35-000-crores-and-pat-increasing-by-32-per-cent-yoy-124052300851_1.html

 

FIH intrinsic value at this point is $45+... they own crown Jewels like BIAL but rest of the portfolio is a highly levered play on manufacturing moving to India and financial industry being inherently levered to GDP growth. 

 

 

Edited September 13, 2024 by hobbit

[Crip1]

11 hours ago, ICUMD said:

Decided to entirely liquidate my large position in Fairfax India. While I think Bial is a great opportunity, their inability to execute an IPO over so many years suggests they are bogged down in burocracy.  I suspect they have a lot of competition for quality assets. 

 

Management execution has been poor.

Saw better opportunity elsewhere.

 

Among other things, this board is a lot more of "This is what I am doing, and here's why" vs. "You're an idiot if you don't do this or that". I'm still holding but if you find other investments which have better risk/reward profiles, more power to you.

 

That said, do you care to elaborate on the better opportunity?

 

-Crip