Fairfax India new issue

[SafetyinNumbers]

  On 1/26/2025 at 2:10 PM, gfp said:

Did anyone on this message board attend the Fairfax India investor tour / trip this year?  I know Sanjeev went years ago.  Who went this year?

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I went. It was a great trip. Around 20 people including ~10 investors. Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

[dartmonkey]

  On 1/26/2025 at 4:36 PM, SafetyinNumbers said:

Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

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Wow, that is really invaluable information. Thanks a lot for making the trip and summarizing your impressions.

 

If you have any details about the positions you would care to contribute, I’m sure I speak for everyone here in saying that it would be much appreciated.  

 

I would also be curious to know more details about the trip: do they do one every year? how long did you go for? how much did it cost? does Fairfax look after accommodations, meals, etc? did you do a lot of travelling within India?

 

Ive never been to India, but it sounds like it might be a great way of, as they say in Quebec, joindre l’utile à l’agréable. 

 

[KFRCanuk]

  On 1/26/2025 at 4:36 PM, SafetyinNumbers said:

I went. It was a great trip. Around 20 people including ~10 investors. Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

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Is there a minimum amount of shares you need to hold? Or a certain net worth?

[gfp]

  On 1/26/2025 at 9:02 PM, KFRCanuk said:

Is there a minimum amount of shares you need to hold? Or a certain net worth?

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Anyone could have signed up.  They mentioned it at the annual meeting.  I assume thomas cook india did the booking

[petec]

  On 1/26/2025 at 4:33 PM, dartmonkey said:

obviously a very big deal for a company of Fairfax India's size, with its market cap of $2.4b (and considerably less than that, as little as a month ago), and book value of $2.9b (as of Sept 30). We don't know how Fairfax intends to structure the deal

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Interesting to speculate though.

 

1) FFH takes a direct stake.

 

2) FFH lends a fat chunk to FIH to complete the deal.

 

3) CSB is actually the acquiror, funded via an equity issue and a loan from FFH.

 

4) OMERS gets roped in on an 8% preferred deal.

 

Any other ideas?

[petec]

  On 1/26/2025 at 4:36 PM, SafetyinNumbers said:

I went. It was a great trip. Around 20 people including ~10 investors. Every management team we met was impressive including that of Fairbridge. All of the positions seem undervalued. Hopefully more investors will go every year and that will help close the discount as I’m much likely to hold onto my position for the long term as opposed to trading vs the discount. 
 

After seeing BIAL in action, it makes one think anything is possible in India and FIH is a right tail on that opportunity precisely because it’s actively managed and not passive.

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Damn! I had it in mind to go on this and missed it. Thanks for the info.

[gfp]

  On 1/27/2025 at 11:40 AM, petec said:

 

Interesting to speculate though.

 

1) FFH takes a direct stake.

 

2) FFH lends a fat chunk to FIH to complete the deal.

 

3) CSB is actually the acquiror, funded via an equity issue and a loan from FFH.

 

4) OMERS gets roped in on an 8% preferred deal.

 

Any other ideas?

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If Fairfax India "wins" the deal I think it's a near certainty that CSB gets merged into IDBI and IDBI is the brand name that survives.  I think that is a requirement.  I don't think it solves anything for the sellers if CSB pays in new stock, so I doubt that is likely.

 

I think you see FIH.U buy what it can, however those funds are obtained, and FFH parent company provide a chunk of capital and then the usual co-investor friendly partners that FFH regularly goes to.  Maybe Oaktree "loses" and co-invests, maybe FIH.U places new shares at $20 to raise some capital (I doubt it).  The participation of certain Canadian pension funds on boilerplate friendly preferred stock deals would not be surprising!

 

I don't think Kotak Mahindra "wins" for the reason mentioned above - I think India wants IDBI to continue as the brand name and the surviving institution and I don't think Kotak Mahindra Bank does that but we'll see..

 

The more time that passes before this potential deal closes, the more capital both FIH and FFH have available.  Market conditions don't seem right for an Anchorage IPO at the moment but isn't that still on-deck at some point?

[This2ShallPass]

  On 1/27/2025 at 2:17 PM, gfp said:

Market conditions don't seem right for an Anchorage IPO at the moment but isn't that still on-deck at some point?

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Why do you say that? Isn't there a deadline ~Sep'25 for an IPO (some deal w omers)?

[gfp]

  On 1/28/2025 at 9:00 AM, This2ShallPass said:

Why do you say that? Isn't there a deadline ~Sep'25 for an IPO (some deal w omers)?

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Nothing specific - just in general the Indian stock market looks to be headed lower and I guess I expect it to continue for a while.

 

[villainx]

  On 1/27/2025 at 2:17 PM, gfp said:

Maybe Oaktree "loses" and co-invests, maybe FIH.U places new shares at $20 to raise some capital (I doubt it).

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Has Oaktree Capital done this sort of thing prior?  I don't think of them as buying whole businesses of this scale and keeping it long term.  If my thinking is correct, they wouldn't seem like a proper fit.

 

 

[jbwent63]

  On 1/28/2025 at 3:21 PM, villainx said:

 

Has Oaktree Capital done this sort of thing prior?  I don't think of them as buying whole businesses of this scale and keeping it long term.  If my thinking is correct, they wouldn't seem like a proper fit.

 

 

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Isn't Oaktree owned or controlled by Brookfield? They certainly buy businesses, so maybe that would be the vehicle it would use for this deal.

[Crip1]

Price dipped below US$17 early today on the TTD (Trump Terrif Diversion). I contemplated adding another 10-20% to my position with some dry powder from a recent sale, but got sidetracked at work and missed the dip. We may look back at today as one of the last times to buy this under $17.

 

-Crip

[nwoodman]

  On 2/4/2025 at 1:47 AM, Crip1 said:

We may look back at today as one of the last times to buy this under $17.

 

-Crip

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Never count out the vagaries of the market.  I also think it is a little dependent on the ramp towards the Anchorage IPO later in the year. “Waiting for Godot” springs to mind.  
 

It will be interesting to see if we get any color via the Q4  CC or AGM.

 

“If the IPO does not occur by September 2025, OMERS’ stake in Anchorage will remain fixed at 11.5% under a valuation protection mechanism. This prevents dilution of OMERS’ ownership, even if future valuations increase. Without the IPO, OMERS loses the opportunity to adjust its stake proportionally to Anchorage’s market value post-listing.

Valuation Ratchet Clause
    •    If the IPO proceeds but values Anchorage below the $2.6 billion valuation assigned to BIAL in 2021, OMERS is contractually entitled to additional shares to compensate for the lower valuation.
    •    This “ratchet” mechanism ensures OMERS retains its economic interest relative to the agreed 2021 baseline, potentially reducing Fairfax India’s ownership share in Anchorage.”

[gfp]

For anybody who attended the Fairfax India trip / tour this year - was there any discussion of additional airport projects within the 150km zone around BIAL?  It seem like there are one or two new airport projects moving forward and I was hoping the negotiation necessary with BIAL would result in Anchorage or whatever operating the new airport(s).  Was this discussed on the trip?

 

edit:  I should have tried tagging @SafetyinNumbers

Edited February 5 by gfp

[dartmonkey]

Ok, maybe I'll jinx it but this is turning into an impressive run for FIH, touching $19 today and closing at $18.75.

 

Up from $10 ten long years ago, under $14 last summer and $16.01 at the end of 2024, so $19 is giving us half the return in one month that we got in the preceding 10 years. And on basically no news. Volume is way up too, about 100 000 shares a day, which is about 5 times the normal volume. Understandably so, as people like me are sorely tempted to take some off the table - but I haven't done so yet. Maybe there are some bureaucrats in India that know something about the IDBI acquistion? Or the BIAL IPO?

Edited February 5 by dartmonkey

[mananainvesting]

  On 2/6/2025 at 4:27 AM, Haryana said:

The 5 year bull market in Fairfax India

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Let’s not jinx it!!! Let it soar  

[Viking]

Congratulations to all the owners of Fairfax India. Nice to see the stock (finally) moving materially higher. The value was always there… the only unknown is when it would be recognized in the share price. 
 

Fairfax India’s share price was always an enigma for me. It has always been a very well run company. BIAL is an amazing asset - owning 74% is brilliant capital allocation (they got their elephant gun out).

Edited February 6 by Viking

[thowed]

Thanks to everyone on this thread.  I've been following FIH on-and-off since the IPO but finally got in a few months ago just in time, and this thread definitely helped with the conviction.

[Cod Liver Oil]

When @nwoodman finally bought some, I knew we were close. The man owns very few stocks. His skull is a Fairfax planetarium. Good things to come. Many of these things have the EKG of a stone and awaken from a coma  "slowly,  then all at once."  I'll  wait until MSGE, NEN, Joe and Odet rip the van winkle.

Edited February 7 by Cod Liver Oil

[dartmonkey]

Up again today, over $19.38 as I speak. In 1st Sept 2017 it got to $18.94, which was a great start from $10 in 2014, but as far as I can tell, that's the highest it got until yesterday and now again today. 

 

The company was founded in 2014 (Modi was elected in the Spring) but only started operations in 2015, when it completed its $1.1b in funding, and buying a variety of stakes in public and private companies, mostly in the next 18 months, so it's been almost exactly 10 years.  Going from $10 to $19 with no dividends is about a 7% annual return, which sounds terrible, but it was at 5% a month ago, so in 5 weeks it has gone from terrible to just bad. Of course, gains in book value are better, since it is still trading at less than 90% of book, and book value probably understates the gains in intrinsic value, which I think are probably much higher still. But a little good old share price appreciation is overdue and welcome, especially as they may have the opportunity to plough a lot of cash into IDBI if they win that auction. 

[SafetyinNumbers]

  On 2/6/2025 at 7:05 PM, dartmonkey said:

Up again today, over $19.38 as I speak. In 1st Sept 2017 it got to $18.94, which was a great start from $10 in 2014, but as far as I can tell, that's the highest it got until yesterday and now again today. 

 

The company was founded in 2014 (Modi was elected in the Spring) but only started operations in 2015, when it completed its $1.1b in funding, and buying a variety of stakes in public and private companies, mostly in the next 18 months, so it's been almost exactly 10 years.  Going from $10 to $19 with no dividends is about a 7% annual return, which sounds terrible, but it was at 5% a month ago, so in 5 weeks it has gone from terrible to just bad. Of course, gains in book value are better, since it is still trading at less than 90% of book, and book value probably understates the gains in intrinsic value, which I think are probably much higher still. But a little good old share price appreciation is overdue and welcome, especially as they may have the opportunity to plough a lot of cash into IDBI if they win that auction. 

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The fair way to measure the investment performance would be to use the IPO price after listing fees or $9.50 and compare that to intrinsic value per share which unfortunately isn’t readily apparent. My guess is the actual returns (theoretical until a realization) are somewhere between 10-15% CAGR after performance fees for 10 years.

[dartmonkey]

  On 2/6/2025 at 7:58 PM, SafetyinNumbers said:

The fair way to measure the investment performance would be to use the IPO price after listing fees or $9.50 and compare that to intrinsic value per share which unfortunately isn’t readily apparent. My guess is the actual returns (theoretical until a realization) are somewhere between 10-15% CAGR after performance fees for 10 years.

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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. 

[hobbit]

  On 2/6/2025 at 11:43 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. 

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Can you please explain how you get to $25 if BIAL trades at valuations comparable to other airports? Given the growth BIAL should trade 25-30x EBITDA , which puts the valuation of BIAL at 6B and valuation of FIH in excess of $43. 

[nwoodman]

MS recently update their Indian macro chartbook.  Healthy YoY Air Passenger growth.
 

[dartmonkey]

  On 2/7/2025 at 3:12 AM, hobbit said:

Can you please explain how you get to $25 if BIAL trades at valuations comparable to other airports? Given the growth BIAL should trade 25-30x EBITDA , which puts the valuation of BIAL at 6B and valuation of FIH in excess of $43. 

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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.