n a recent shareholder letter, Vallum Capital Advisors showcased their bullish stance on specific stocks, reflecting optimism driven by strong growth indicators. While specific stock names weren't disclosed, Vallum's confidence mirrors its portfolio, which includes Landmark Cars, Arvind Fashions, Saregama India, Muthoot Finance, Home First Finance Co India, and Ajanta Pharma, among others, as per data from PMS AIF WORLD.
Vallum Capital, managed by Manish Bhandari, delivered a return of 45.7 percent in FY24 compared to 30 percent for the benchmark index.
Bhadari’s bets are a play on what he calls an ‘Acceleration Phenomenon.’ India, according to him, is on the cusp of an Acceleration Phenomenon where investments in infrastructure, transportation and communication will drive high economic activity and lead to income growth.
This income growth will lead to expansion of the population in various income segments and subsequently benefit services that cater to the income group’s demands. Herein lie the investment opportunities for investors.
1. Luxury auto: Vallum Capital has invested in a major luxury car dealership, for which it foresees significant growth in sales over the next decade. The dealership's revenue streams which include sales and servicing of new and pre-owned cars, car accessories, insurance, and financing solutions become valuable as more cars are sold.
Although India sold just 0.03 million luxury cars (ASP > Rs 50 lakhs) out of 3.8 million units last year, compared to China's 4 million out of 30 million sold, there's huge room for growth, Vallum said.
"Our investee company has established a strong franchise, with a market share indicating significant dominance in the regions it operates," said Vallum.
Additionally, Vallum said that the sale of pre-owned luxury cars, presents significant opportunities and their investee company has introduced this segment to its dealership, doubling its Total Addressable Market size (TAM).
Vallum said that the luxury auto dealer they have invested in has acquired 11 premium brand dealerships through mergers, showcasing its market dominance. Although the emergence of electric vehicles (EVs) and hybrids poses challenges for internal combustion engines (ICE), it also offers dealerships a chance to attract customers from independent repair shops.
2. Apparel brand: Vallum has invested in the brand that owns US Polo, Calvin Klein, Tommy Hilfiger, Arrow, and Flying Machine. Over the past two years, the investee company has focused on its key brands while divesting non-profitable ones, leading to significant transformation. Vallum said that the company's efforts in product, pricing, format, and a strengthened balance sheet, have positioned them for success in the thriving premium apparel sector. The introduction of US Polo women's wear is expected to drive further revenue growth, said Vallum.
3. Music content company: Keeping the evolving music consumption habits in India, Vallum has invested in a leading music content company. Vallum pointed out that the rise of streaming apps and affordable data has caused the weekly music consumption in India to increase to 26 hours from 21 hours, though it remains below the global average of 32 hours.
The investee company uses data analytics and artificial intelligence (AI) to boost the success of music labels and has diversified its revenue stream by entering OTT platforms, live events, short videos, and web series.
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4. Corporate-backed NBFC: Pointing to a corporate-backed Non-Banking Finance Company (NBFC) that shifted its focus from wholesale to retail lending, Vallum said that the investee company is positioned for market share growth in areas like affordable loans, microfinance, two-wheelers, rural, equipment, and MSME/SME financing. The investee company, according to Vallum, has a competitive edge with lower borrowing costs and expertise in digital loans and cross-selling.
5. Housing loan - Vallum has invested in a scalable housing loan business utilising advanced digital technology for loan disbursal. The investee company's uniques approach is to focus on home loan influencers, boosting branch-level productivity, and cost efficiency. With a strong balance sheet and room for growth, the company offers higher returns on equity, Vallum said.
6. Pharmaceutical company - Vallum's investments in oncology API, formulation, biologics, peptides, and CDMO businesses are starting to pay off, the portfolio management firm said in its letter. The last three years posed challenges due to regulatory actions and delays in their formulation plant, resulting in cash flow issues and increased debt. "Despite these setbacks, we remained patient and committed to our goals," Vallum said.
From luxury auto dealerships to pharmaceutical companies, Vallum's diversified investments underscore their confidence in emerging opportunities. While specific stocks were not disclosed, their bullish stance resonates with their portfolio composition, supported by data from PMS AIF WORLD.
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