Hidden gem

I came across this hidden gem recently while scouting for a good investment bet. Here’s what I discovered about CESC Ventures which was de-merged from CESC last year and holds multiple businesses within itself.

Current market-cap of Firstsource Solutions Ltd. (FSL) = 4425 Cr

CESC Ventures (CV) holds 54% of FSL => 37.4 Cr shares (0.54 * 69.3 Cr shares of FSL)

Value of FSL in CV = 0.54 * 4425 = 2389 Cr.

At an extreme holding company discounting of 80% for CV (conservatively taken)  = 0.2 * 2389 = 478 Cr.

FSL gave a dividend of 45% (4.5/share) => 37.4cr shares X 4.5 = Rs.168 Cr.

So FSL contribution to CV = 168 + 478 = 646 Cr.

Current equity of CV = 26 Cr = 2.6 Cr shares of 10/-

So FSL alone contributes 646/2.6 = Rs. 248/share to CV. CMP (as on 25-Aug-20) of CV is Rs. 283. So rest of the business is valued at only Rs. 35. And what does this consist of?

1.     FMCG – Under Guiltfree Industries, they have ‘Too Yum’ brand of chips which clocked sales of 300 cr/year in 2019. Latest figures are not known but it is targeting double the amount this year. Following the reception it got in the country, it also spread to international markets including Singapore, Australia, Dubai. They also have acquired 70% stake in Apricot Foods (which has a lesser known brand e-Vita) which makes chips and the like (Nimboo Sev, Halka Fulka etc.) mostly prevalent in south.

2.     Bowlopedia – which runs 11 restaurants in Kolkata, New Delhi and the NCR under the brand names “Waffle Wallah” and “The Chef’s Bowl”

3.     Quest properties which operates “Quest Mall” in Kolkata (supposedly among the top ones in the city)

For a brand growing at Rs. 300 cr./year, to be valued at less than Rs. 35 is a gross mismatch. The other businesses have not even been considered in this figure of 35. Also, the holding company discount for FSL is extremely conservative @80%. It should be way less. That itself should bring it on par with the CMP and thus provides a high margin of safety. And the rest of the businesses are free. There will be high chances of value unlocking along the way.

The big business will come post IPL2020 and other such marketing events. Already the company has started posting advertisements of Too Yumm Karare featuring Virat Kohli. Dividend contribution of FSL of 150+ Cr will more than cover the brand expenses and the rest is cash on the books.

Truly a hidden gem waiting to be discovered by the market.