Dear Investor,
Hope you and your family are holding up well in these torrid times. We hope and pray to god that you and your family have not been exposed to the COVID pandemic. The last one month particularly has been tough for all of us and will be an event we will remember throughout our lives.
Below is a chart detailing our performance viz major indices:
NOTE: Dated June 04, 2021
Q4 FY 21 & FY 21 Annual Portfolio Performance Update
In this portfolio update we would like to capture the last quarter and annual results of our model portfolio companies. Some of you may or may not have all these companies in your portfolio as portfolio build-up depends on your vintage. Key takeaways from 16 of the 20 model portfolio companies that have declared results so far are:
Our portfolio demonstrated a robust median sales growth of ~10 % and earnings growth of 40% in FY 21 over FY 20.
Our portfolio has a moderate PE ratio ~ 24x, providing us both a headroom for multiple expansion and a cushion for downside protection.
Our portfolio companies improved their Return on equity from their 3 year average of 16.6% to 19.1%. If one were to simplify, returns made by investors converge with the longer term ROE of their underlying portfolio.
Our portfolio companies were efficient in converting their profits to cash on books (Cash flows generated from ops were 1.2x PAT); an evidence of efficient balance sheet management during torrid times.
Sectoral Trends
In our previous updates we have spoken about tailwinds in the IT and the Pharma Sector. In this update we will write about tailwinds in the gaming and the women hygiene sectors in India.
Gaming
The gaming industry in India is estimated to be ~ 2 Bn USD and has grown at a CAGR of 30% over the last 4 years. If we were to do a like to like comparison, our mobile gaming industry is where China was in 2013 (now at USD 25 bn). Both mobile gaming and gaming viewership is fast emerging as a viable entertainment replacement option to conventional forms such as movies. While we match China in terms of mobile gamers, the market size is roughly a tenth of the same. This is largely attributable to both our disposable capital and acceptance of gaming/e-sports as a viable alternative to physical sports. The switch is already happening in developed economies in the west and in Asia, India is a little behind both in the revenue pool and the regulations around luck based/skill based games. COVID driven lockdowns have been a boon for the gaming industry in India (gaming hrs up by 35%). An interesting subsegment in gaming is e-sports, which is like playing any physical sport. This segment has seen a 2x growth in audience (to 17 mn) and 25% growth in revenue pool (of ~ 110 Mn) between 2018 and 2020. We have stayed away from both Casinos and luck based games that are closer to gambling. We have invested in a market leader in the fast-growing e-Sport segment (80% share) in India.
Female Hygiene
We have looked at the Female Hygiene products market since 2014-15 more from a Private Equity side. The penetration of Female Hygiene products in India has grown from ~ 15% to 20% now. It is still low when compared to Thailand 50% and 90-95% in the developed world. Over the last 5 years, this segment has grown at a CAGR of ~ 8% to ~ USD 550 Mn. The Market is dominated by Whisper of P&G (51% share), Stayfree of J&J (12% share) and Sofy of Unicharm (7% share). The last 5 years have seen both segmentation and innovation in this category with the launch of both premium products and alternatives like Menstrual Cups. Both these are good signs for any new and growing market. The price per unit of product varies from INR 22.5-3.5, and both ends of the spectrum have scaled up players like Comfy, Pee-Safe, Niine and Whisper. We have invested in a company, which owns the Comfy brand of sanitary napkins. Comfy is a value for money brand that is priced at ~ INR 3.5-4 per piece. Comfy has a market share of 1% and the management has plans to grow comfy from a 55 cr sales business in FY 21 to a 100 cr sales business in FY 22. As a reference, it is very difficult to scale up brands in India and there are very few (<250) scaled up (>100cr) consumer brands in India.
Thanks
Prescient Capital