Albert Einstein's century old teaching, everything is relative, stands true even today. As humans, we have a tendency to compare everything. My car vs your car. My house vs your house. My salary vs your salary. Comparisons are not only limited to our daily lives, they extend even to the stock markets. The most used metric while investing, price-to-earnings, is testimony of this. We see the P/E of a company relative to its peers. Stock A trades at a P/E of 100 whereas a similar stock B trades at a P/E of 50. We conclude that Stock A is overvalued in comparison to stock B. But what if the stock has no comparison in the listed space. What if the business being analysed is unique and has no antecedent. Well, it becomes even more challenging yet interesting for us to analyse such companies.
Tired from the world of comparisons, we got curious to find such a unique set of companies from the BSE 500. And voila! We found nine such companies. These companies have distinctive business models with no particular listed space peer in comparison. In this two part story, we analyse their businesses and also present a solution to finding their peers.
SBI Cards and Payments
Credit cards are a funny business, wherein a company would want its customers to delay payments so as to generate interest income but not delay it so much so as to turn it into an NPA. At 18.3 per cent market share by cards in force, SBI Cards is the only listed credit card company in India. COVID was expected to be a jolt for the company. After all, with the economy stagnating and unemployment reaching new heights, customers would tend to delay paying bills, thereby increasing non performing loans. And the September 2020 results were indeed scary. At 7.5 per cent GNPA (gross non-performing assets), including the accounts not declared as non performing per the SC order, it seemed that the worse was coming true. However, a swift economic recovery on the back of decreasing COVID cases led to a significant fall in GNPAs to 4.5 per cent in the next quarter (December 2020).
At just 3 per cent penetration, credit cards have a long runway for growth in India. A consumption-led economy coupled with favorable demographics should provide enough impetus for growth in the coming years. SBI Cards has the backing of parent SBI, an outsourced sales staff of more than 30,000, partnership with several major retailers, airlines, etc., along with several other advantages. But wait before you invest, as competition from nimble fintech firms like Paytm, BharatPay and the likes is intensifying. Meanwhile, it's definitely worth adding to the watch list.
To find comparatives for SBI Cards and Payments, one will have to travel across the Atlantic and reach the US, where two companies, Visa and Mastercard, trading at a P/E of 43 and 56 respectively, are direct comparisons of SBI Cards.
Affle (India)
What happens when a Microsoft-backed technology firm with a platform business, involved in digital advertising and marketing, lists on Indian bourses? Well, first the company lists at a premium of around 25 per cent. But thereafter as the Street realises the potential in platform businesses, the stock returns more than six times return in less than two years. This has been the story of Affle.
The company helps B2C companies such as e-commerce, FMCG, Healthtech, Ed-tech and others with consumer acquisition through relevant mobile advertising with its proprietary consumer intelligence platforms. These platforms aim to increase return on marketing spend through contextual mobile ads and reducing digital ad frauds. Recent acquisition of various platforms such as Mediasmart, Appnext and others is powering the revenue growth for the company. The acquisitions also help the company's platform to become even more robust as it now derives more information from 2.1 billion connected devices.
Going ahead, our expected time spent on mobile phones is certainly expected to increase. Add to this the advent of the internet of things, which will connect various devices. Affle stands to benefit from this trend. But lo and behold, because Facebook and Google already control the majority of digital advertising. Wait, there's more. Affle trades at an astonishing P/E of 143! But then, who is complaining? Affle's listed peer in the US, The Trade Desk, currently trades at a P/E of 135 as well.
Delta Corp
Have you ever visited Goa? While crossing over the Mandovi river that cuts across Goa's capital city of Panaji, you might have noticed six beautifully lit ships shimmering in the river. These ships make Goa the casino capital of India. Three of these six ships, named Deltin, are run by Delta Corp. Delta Corp is the only Indian listed company with interests in casinos and online gaming, along with hospitality. The company operates three offshore gaming vessels in Goa and two onshore casinos in Goa and Sikkim. Expanding its international footprint, the company launched its casino operations at the Marriott hotel in Kathmandu (Nepal) in 2020.
While COVID had shuttered the company's casino operations last year, its strategic investment in the online gaming company Adda52.com (Poker & Rummy) paid off as stay-at-home culture led to an increase in online gaming. While travel and tourism is expected to be the last sector to fully recover from COVID, a fall in COVID cases, opening up of the economy, favorable demographics, as well as the rising income levels can benefit the company in the medium-to-long term. On the other hand, the casino business is rife with regulatory risks and the company might face institutional investors' ignorance due to ESG compliances.
As such, Delta Corp trades at a EV/Sales of 11.1 and can be compared to Wynn Resorts (enterprise value to sales:11.5) and MGM Resorts International (7.9). These companies operate casinos and hotels in the world's casino capital, Las Vegas. Since tourism and travel in the US has hugely been impacted due to COVID, these companies have reported losses and that is why don't have comparable P/Es.
General Insurance Corporation (GIC Re)
For ill health, we have a health insurer, and for damaged cars, an auto insurer. But have you ever wondered where insurers get themselves insured? It's the reinsurers like GIC Re that reinsure other insurance companies. Here is how it works. Insurers pay a part of the premiums that they collect from their policyholders to a reinsurance company, and in exchange, the reinsurer agrees to cover losses above certain limits. This puts a cap on the insurer's maximum possible loss. But on the other hand, the reinsurer is left to figure how to cover an amount that can turn out to be massive if a major disaster does strike. The reinsurers make money by two ways; underwriting profitably and investing the share of premiums received from insurers.
GIC Re is the largest reinsurer in India with a 60 per cent market share. The company is government-owned and reinsurers fire, marine, motor, health, agriculture, aviation and more. The company has continuously reported underwriting losses in recent years on account of international catastrophes and its inability to accurately assess risk. It has also faced tough competition from international peers ever since the reinsurance sector was liberalised. However, the company enjoys first right of refusal in reinsurance contracts, and only when it declines the risk, do the foreign reinsurers come into play. Of late, the government is notably determined to privatise one insurance company. Can GIC Re be that? We will get to know soon enough.
Switzerland based Swiss Re and Germany based Munich Re (EV/EBITDA 3.1) are two of the world's largest reinsurers and are comparable companies for GIC Re which trades at an EV to EBITDA of 9.6.
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