My thesis and Financial model (Disc: not a recommendation to buy or sell)
A pointer before I explain
I could not make a lot of sense of Candere and the profitability of the business, and hence have focused highly on Indian and Middle East business
Revenue
The the business is guiding a 25-30% revenue growth for the next 2-3 years,
Owing a lot to its FOCO model’s success. I have assumed 27% growth as the store footfall is expected to be 20% increase + 6-7% of SSG
Interest costs
Interest costs should be reduced as the return ratios and free cash flows are set to improve and hence they plan on reducing debt. They also plan to sell their plane and some lands to be asset light and repay debt
PBT
The MAIN thing to focus on is PBT, which is at 4% but with the stores maturing and barely any additional costs, the pbt should increase to atleast 5% which is guided and what I have used as.
Valuations
Now, most of us could have guessed that the business is overvalued due to its PE at the moment
And I think it’s true
I gave the model some of the best possible scenarios
But just can’t make sense of it
Some antithesis pointers
• I have my doubts if this aggressive growth is actually practical, the non south region is under penetrated for the company but I really don’t know if opening 100+ stores would work.
• second of all, I think the business commentary contradicts itself a bit. Maybe I didn’t pay enough attention, but this is what made sense to me. The goal is to create a 50-50 ratio of own stores and FOCO model for Indian business
Meaning, 130 FOCO stores to be added in the next 3 years
24 something are set to be for FY24
80 in FY25 and the rest I think FY26/27
Average inventory is 20 crores and Inventory turnover is 2.5
50 crores per store
Which makes incremental revenue of 6500 crores
Assuming a 7% SSG growth from FY24 onwards
28000 crores from Indian business
The rest of 8000 crores has to come from Middle East and candere
Which again, seems a bit of a stretch
here are my notes regardig the model