Blue Pebble ltd: A three digit growth story

disc: not invested but evaluating

Most big corporate offices are not blank anymore; they always have some branding or interior work done that showcases their culture, history and work ethic. This requires a lot of attention to detail and very high customisation. To tackle this niche, Blue Pebble was created.

Blue pebble ltd was established in 2017 by Mr. Manoj Tiwari and Mr. Nalin Gagrani and is headquartered in Mumbai. Blue Pebble's primary business is in corporate office interiors, where they take up projects and brand them according to the requirements of the client.

Blue Pebble does these kinds of interior works for big corporate houses and uses its very experienced design team and in-house manufacturing and printing facility to fulfil such orders. It is a very interesting business which is building its comprtetive advantage while also growing at 100% with a very reasonable valuation. So let's begin!

To understand the business in detail, I will break down all the processes that happen when taking orders so they are very easy to understand. Then, we will get into the details of revenue breakdown and other things.

Getting an order

Big corporate houses like Infosys, HDFC bank, Air India, American express, Nestle, Meesho, 3M etc issue tenders with their specifications that their branches or headquarters need some interior work done and they need a business to take this up. Salesmen of Blue Pebble will hear about this from multiple sources such as direct contact from established relations( They have executed), ground work, architecture firms, advertisements etc and fill the tender with their credentials.

After this, the blue pebble team will take some time to understand the brand and history of the company, present their ideas to the client within the budget and if selected, will get to work.

Design and execution

In my opinion, this is what differentiates the business from the rest. Blue Pebble then will start working on unique designs and execute them in under three months( mostly). Blue pebble has a core designing team where individuals have an experience of over 30 years. These guys churn out multiple designs which suit the brand of the company. They have an in-house printing facility and manufacturing facility to make 3d art, murals and other art works so that quality is not sacrificed.

Some of their recent projects:

The reason this business caught my eye was because of these types of work. I find it beautiful and if done under budget (which they do), Its a great opportunity because multiple companies will opt for such designs and work. There is a transition of coporate offices from dull designs to such art works.

Handing out the project

Once the project is complete, it is handed out to the client. I am introducing this specific process to highlight the way payment is done. The projects are billed at certain milestones such as 10% of completion or 25% or 100 walls done or something. This ensures that the company has working capital to fund big projects.

Product offerings

1. Environmental branding: The main interior business comes under this. All the brand work, design prints, colours, lights etc fall under this. This constitutes about 74% of revenue

2. 3D installations: this includes art murals, hand crafted art work and other installations that are a part of the work they do. this consists of 8% of their revenue.

3. Design consultancy: various services to ensure clients receive expert design advice tailored to their unique needs. This constitutes of 8% of revenue.

4. Design and build: This is what I believe is going to power the next leg of growth. Earlier, Blue Pebble only worked on the beautification of a warm shell office(the office that is a bit done and has some things installed), and their projects would only be about 50L or so. However, design and building take over the whole process of architecture, furniture, and branding. It takes up a huge pie chart of the order size. They received their first order from 3M, which is about ten crores! Do you see the massive difference in average order size? Even assuming that ten crores is an outlier, they will surely be able to increase the order size in crores now that they are taking up the whole pie. There are multiple other advantages to it that I will discuss with you all in my thesis.

   
   

5. Digital and immersive experiences: Blue Pebble has taken up a few projects where they use AR or augmented reality to advertise for their clients. This is a very margin-accretive business that expands the TAM significantly. Although the order size will be small, it adds to the business's MOAT of being a one-stop solution for everything about branding.

   I think this explains the core operations of the business fairly well. There are a lot of other things to discuss about the business, which we will do so in the thesis and anti-thesis pointers.

   
   

Thesis pointers

1. Very High growth: In FY24, the business did a revenue of 22 crores. For H1FY25, the orderbook stands at 20 crores already! The order book+ promoter guidance suggest that the business is poised to grow in triple digits! Moreover, the management has guided for a possibility of margin expansion as the FY24 operating margins were 22.8% but the margins guided for are about 22-25%. I would assume similar to a slight bullish bias on margins.

2. Impressive fundamentals: The business is a zero debt company, has an improving trajectory of cash flows( could be better though) and has a great ROCE of 70%! The business definitely has what it takes to survive downturns and gives good assurity as a SME business.

3. TAM:I did not make a whole section of the industry because I believe there is no need to. The business is tied to commercial real estate, a huge market growing by 50 million sq ft annually. For a small business like Blue Pebble, if it ensures that it executes good projects, there are plenty of new orders, and even more so since it's getting into design and build. Moreover, they take up renovation projects, not just new offices, so the old offices also enter the potential market of Blue Pebble. I also like that their products synergise with the rise of co-working space. This industry, too, needs such brandings to attract high-end customers, and Blue Pebble fits right in. 

4. Optionality of hospitality segment: The management seems very keen and confident in entering this segment. Hospitality too is a growing market and will lay a greater emphasis on branding because it can directly translate to revenue (while office makeovers dont translate to higher revenue) . I personally believe that this is a huge market segment and if cracked, and yield great results and especially regardings its terminal value and survivability during downturns.

5. Repeat customers:One might think that this is a non-differentiated business and that there is no MOAT to it. I, too, had to think deeply, and I would have agreed to readily, but one number held me back from such a quick conclusion. Blue Pebble has established great relationships with its clients. For example, they have made 80 consignments with HDFC bank, 40 with Infosys, and 4 with Bharat Petroleum. Having so many orders from the same company, which is a mammoth, is not a joke. So, what is their competitive advantage?

6. MOATs:In my opinion, I see two advantages. First, ensuring that each project stands out differently, focusing on every little detail and maintaining good execution time are MOATs that allow sticky customers and high margins. In short, focusing on design and execution is necessary in this sector. Secondly and most importantly, is the move of becoming a one-stop shop for everything. The client must sign Blue Pebble as the contractor, and everything will be taken care of. Expanding to design and build immersive experiences increases this MOAT as now they expand their offerings, which the client needs. With an established portfolio and credentials, they are more likely to get the more significant piece of the pie and increase the revenue from the same customer without making much effort.

   
   

Anti-thesis

1. SME category: A big worry should be the low liquidity of the business. One must be very careful with this and it becomes a problem that we all need to look at in our own personal capacity.

2. EPC business: A disadvantage of being a EPC business is that there is no sustainable business, it all depends on the order book. Blue Pebble too to some extent is an EPC business which means we can not always be sure of how sustainable the business is in the long term. There is no recurring revenue to the business.

3. Very susceptible to economic downturn: If a recession strikes and companies need to cut down on costs, one of the first things that will stop happening is probably giving out orders for branding. Their business model is not of critical value and, hence, not an essential offering to any company. This risk can be managed if they enter into design and build effectively (since the construction of the office is still more important) and crack the hospitality segment( In this, branding becomes of higher importance)

4. Risks of working capital: Although they have managed it farily well, it can be a cause of concern since they deal with very big corporates who will have a higher say and delay receivables. That is something to be looked at!

Valuations

As of August 7( when I completed this segment), the valuations are about at 25 PE. I find the valuations to be very reasonable for such a strong business and triple digit growth. With a strong runaway ahead for the next few years as the design and build takes off, I expect the growth rates to be similar. We can consider a reasonable 20 PE for exit and 30 if the markets are very bullish. All in all, the business seems quite attractive.

Valuations are subjective and hence I would advise everyone to study it independently

This marks the end of the blog. I hope you all understood the business well and if you have doubts, feel free to reach out to me on twitter or on email. Subscribe if you enjoy the content!