RJ has on 13th April, 2007 brought 2.3% or 4.5 lakh shares of Infomedia India Ltd (according to bulk deal data provided by BSE). This brings his total stake in Infomedia to 7.7% (refer Investments of RJ as on 31st Dec’06).
This is an interesting and a classic RJ buy. Let’s see why:1. Infomedia has remained an underdog compared to most benchmarks, returning far less. Also the company has not been able to scale up in spite of a huge and profitable opportunity.
2. In spite of all the above, Infomedia has certain key strengths, which might have appealed to the investor:
a. Company is a leader in yellow pages business, which provides it with a huge moat around this highly profitable and low capial intensive business.
b. The yellow pages business is highly scalable (company can start such ventures in each and every town of India).
c. Such a business has a tremendous pricing power, once it is established (much higher than a dominant newspaper)
d. The company is also all set to exploit the opportunity presented by the growth in Special Interest Publications (SIP) in India
e. Finance is not a constraint for the company (it had cash of about Rs.50 crore or Rs.25 per share in balance sheet as per March 2006 balance sheet).
f. The majority stake (63%) of Infomedia is held by ICICI Ventures, which itself is primarily an investor
g. Excluding cash, it trades at a multiple of 27x
Thus Infomedia has all the making of a classic RJ buy viz., huge size of opportunity (yellow pages, SIP), scalability (launch of yellow pages in new towns) and a reasonable price (Infomedia is currently in investment mode, hence depressing its short-tem earnings, making P/E based valuation appear deceptively expensive).
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