The Special Diwali call:-
Scripscan:Galaxy Entertainment Corporation Ltd
Target:No targets as returns can be huge.
History:The company much earlier was controlled by the Chatterjee group of Haldia petro fame and run by one Satish Chunder, a former banker from Citibank.Unfortunately,Chunder died suddenly and the company became rudderless.The company changed hands in early 2006; one of the largest and most experienced organised retailing chains, Pantaloon, bought 15.73% stake in it(now it holds around 31% stake).It also amalgamated Pan India Restaurants with itself which had food courts.Mumbai-based real-estate firm Phoenix Mills holds a 27 percent stake in Galaxy.Few papers reported the phoenix stake to be higher at 34%.No clue about it though as my figures are based on the SHP of the company.
Scene of 2010(Annual report with 92 pages)
Company:Galaxy Entertainment Corporation Limited was incorporated on August 13,1981.It operates leisure and entertainment centers across the country and as at the balance sheet date it has 23 centers offering a variety of facilities such as bowling,pool and video games,restaurant service etc.Note the below mentioned aspects.
Scene of 2012:Company eroded its network and was a BIFR case.The company only had 14 centres then.It was nearly a gone candidate but the 2013-14 A.R suggest an entire different picture.
Scene of 2014(Annual report with 78 pages)
Company:Galaxy Entertainment Corporation Limited was incorporated on August 13,1981.It operates leisure and entertainment centers across the country and as at the balance sheet date it has 28 centers offering a variety of facilities such as bowling,pool and video games,restaurant service etc.Note the below mentioned aspects.
Note:So the Biyanis seems to have learnt their lesson.Finally they have embraced the power of low debt and high cash flows.Even a lot of meaningless crap pages got curtailed from the A.R.The present A.R is quite a delight.
More from the 2014 A.R:-
1)With cash flows of 14.5crs the company repaid 7.2crs of debt and financed its capex worth 7crs.
2)Out of that 14crs,Trade payables contributed 10crs.The power of trade credit folks.Simply means it has been able to demand trade credit from its suppliers and made best use with it.
3)It got negative working capital of 13crs.Advances from customers stood at over 14.5crs.What the hell?I mean think about it-its gaming and restaurants business did a revenue of 17crs for the entire fiscal of 2013-14 and already 14.5crs+ is in your pocket.This is like your interest free money.Can expand,can pay your suppliers without need of any further capital.Obviously you have some superior offerings or products or plans through which your clients happily paid for it.In an ordinary product,we get the product and then pay for it.In an extraordinary product,we pay way before and get the product later.Recall my earlier recommendations of Caplin point,Symphony,Atul Auto,Relaxo etc.
4)Long term debt of around 4crs would mature within this fiscal.Further it has short term debt liabilities of 5crs.So are we really talking about a debt free,negative working capital,high cash flow generating Kishore Biyani company?
5)After a long long time,the future group as it seems has taken the company seriously.From closing the loss making centres to focusing on the profitable ones,opening up new ones,seems to have done the trick.Over a period of five years,they not only have more than what they had but a lot debt got retired,rentals are down sharply,strong cash flows,large trade credit facilities from suppliers,huge customer advances- all hints at the strong future prospects.This time as it seems,the Biyanis are determined to make it really big.
Food court/Food chain deals:Ammis biryani got a funding of 40crs from Saif partners when it delivered hardly 4-5crs of sales.Paradise foods got funding of 70crs at 3x(as per sources) its revenues from Samara Capital.Other deals in the QSR business include Ventureast investing Rs 21 crore in Goli Vada Pav, a Mumbai-based ethnic food chain selling vada pav, a popular snack in Maharashtra.Sequoia Capital also invested $5 million in Faaso’s,Pune-based vendor of Indian fast food.The only listed play,Speciality restaurants Ipo which was heavily subscribed,was priced at 4.5x its fy11 revenues.
Point to note:Owing to accumulated losses(negative reserves)it should have a lot of deferred tax assets.This amount is available to offset tax on future taxable income.Given the carried-forward tax loss,no tax provision is required for atleast some more quarters,if not years.
The Era of Sports:Probably sports in near future will occupy all our 365 days.We already have IPL,Kabbadi league,badminton league,Hockey League.ISL or Indian soccer league just got started too with a bang.Not to forget the ever raging EPL,Uefa champions league and all other sports carnival which we crave for bigtime.You can now enjoy all those on big screens with a glass of beer at food courts managed by Galaxy Entertainment Corporation.
On words of Sunil Biyani:"The Indian food service industry is growing on the back of increasing income and changes in food consumption pattern.Besides, food courts are driving this industry as malls are expanding to smaller towns.Food-courts play the role of anchor tenant in a mall. Along with complimenting businesses such as books, games, fine dining restaurants and movies,they provide good recreational space to the customers.However, there is a huge vacuum and the latest offerings are geared towards entertainment, relaxation and leisure dining. We plan to open 22-24 food-courts this fiscal at an investment of 10 crore".It currently runs 11 food courts, and has tie-ups with various malls to operate and manage food outlets through a minimum-guarantee-plus-revenue-sharing model.
Raju Nanwani?Who?Was looking at the SHP and found this bloke having 1.8 lakh shares,acquired over the last 9-10 months.The Bible of internet(obviously Google)came with few results,notable among them was a guy who also happens to be the VP of ICICI Sec.Considering my 9600 readers,he probably would have the search of his life now.Jokes apart,mailed him up but no reply as on time of this note.So is it like already the smart ones have started accumulating it?
Recommendation in public domain:Couple of reputed guys did recommend the counter with multibagger tag but those lacked any meaningful substance.In any case the stamp of value seekers help.
Few links to vindicate my stand:-
Fy13-14 numbers:It delivered a sales of 35crs and a PAT of 30 lakhs for fy13-14.Trading in fabrics contributed 17crs of revenues.Have no idea what it is all about.Core business contributed the rest(my subject of interest).
June numbers:Net profit of Galaxy Entertainment Corporation reported to Rs 0.20 crore in the quarter ended June 2014 as against net loss of Rs 2.30 crore during the previous quarter ended June 2013. Sales rose 18.20% to Rs 5.52 crore in the quarter ended June 2014 as against Rs 4.67 crore during the previous quarter ended June 2013.
FY14-15 Guidance:They expect to end the year with a 20% growth.
What can derail the story:Biyani is an over aggressive guy who for sake of topline growth sacrificed his cash flows and through massive debts made his empire.As we all know what followed next.In 2011-12,the company seeked shareholders' nod to hike borrowing limit to 80crs.So far,the company has pared debt but in case it opts for a big debt funding,the story will change again.There's no need of any debt as can be made out from the above penned lines.
Conclusion:So the scaling up of business is happening at a rapid speed.Its quoting at a mcap of just 46crs.The company's business of gaming and restaurants contributed 17crs on last fiscal.So roughly 2.7x of its trailing revenues.We are talking about a business with quite a bit of margin of safety.Valuation wise too,at 2.7x trailing revenues ,in comparison to the above mentioned deals,sounds pretty cheap.Scaling up of business with pedigree of Biyani,nearly zero debt company with high negative working capital and loads of cash flows makes it an interesting buy at present levels.There's no listed comparable peer,hardly any floating stock to talk about too.Even above average numbers can make the stock move really really high.
Btw:The company trades with very little volumes.Its overlooked for reasons not known to me.Buy slowly and accumulate at declines.Let the story unfold more.Don't make the stock move up with artificial forceful volumes,let market realize and re-rate it."Wish you all a very happy,peaceful and prosperous Diwali".Happy Investing folks.
BTW:People looking for midcap/smallcap positional call professional service may rush a mail at my mail id email@example.com to know more about it.