Vakrangee share price was at Rs.85 levels on Jan’16.
By Jan’18 (in 2 years), it price moved up to Rs.505 levels.
This was a CAGR growth of 143.7%. But ever since Jan’18, its price is only falling.
By end of April’18 it price has touched a bottom of Rs.100 per share.
This price fall was triggered due to following 3 news breaks:
- Bonus shares (1:1) issued by the company in Dec’17.
- It was investing in PC Jeweller(linked to Nirav Modi’s PNB scandal).
- Alleged “insider trading” by Vakrangee’s top management.
The impact of these 3 news was so big that, its price fell by 125% in 4 months (Feb to Apr’18).
Generally, issue of bonus shares always results in decline of share price.
As 1:1 bonus share was issued, a 50% price decline was expected.
But price fell more drastically (125%). Why?
Due to other 2 factors (PC Jewellers & Insider trading).
From investors point of view, such large price dips can make market price attractive.
But before one can buy Vakrangee’s stocks, the bigger question needs answering.
Is Vakragee a scam?
To answer this question, lets dig into its business model.
#1. Business Model of Vakrangee Ltd.
The business model of Vakrangee Ltd. is super unique.
It is so unique that it will not be wrong to tag it as a monopoly business.
I am personally impressed with their business model.
What is their business model?
Vakrangee “provides” few “services” to those parts of India where access is limited.
How they provide it?
By opening “Vakrangee Kendras”.
#2. What are Vakrangee Kendras?
Vakrangee Kendras are basically retail outlets (shop/office).
These Kendras are used to provide services.
A typical vakrangee kendra in a village looks like this:
Yes, what you are seeing is a reality.
But do not yet judge them by the look of this office.
This office is perhaps located in a place which has no Post office, no Banks, no ATM, no internet, etc.
A typical of an Indian village, which is almost “isolated”.
Vakrangee opens their offices in such locations also.
Vakrangee prefers to NAME such shops/offices as “last-mile retail points-of-sale”.
Why they call it “Last-mile”?
Because these outlets are located in such places which has remain “unserved or underserved” till date.
“Unserved” means, no access to even essential services of the government.
#3. What services are provided in Vakrangee Kendras?
They provide following services to citizens of India:
- Banking & ATM.
#3.1 Banking & ATM:
People can open their bank-accounts in banks like SBI, PNB, Union Banks etc through Vakrangee Kendras.
This can be done even if the banks does not have its branch in that place.
One can also use Vakrangee Kendras to deposit cash, withdraw cash and transfer money to other bank accounts.
People can also use Vakrange kendras for opening fixed & recurring deposit accounts.
Vakrangee Kendra also provice banks statements to account holders.
Few of these Kendras also have ATM for cash withdrawals.
You can imagine, an “unserved” Indian village having these facilities!
What fantastic service these Vakrangee Kendras are providing to people of those villages.
Otherwise these same people may be travelling miles to reach the nearest semi-urban location to avail these facilities.
Vakrangee Kendras can be used for enrolment for Aadhar Card (UID) and Voter Card etc.
Vakrangee kendras can also be used for payment of the following:
- Electricity bills, phone bills etc.
- Online railway tickets.
- Exam fees payments.
- Taxes etc.
Vakrangee kendras can be used for availing following online services:
- Online downloading of Hall Tickets for students.
- Online form-filling for examinations.
- Digitisation of land records etc.
Perhaps this is the most exciting part of Vakrangee Kendras.
This is where these Kendra actually transform themsleved from a typical office to a retail store.
How they help in E-Commerce?
Vakrangee Kendras provide the following services:
- Online purchase of goods (Amazon).
- Prepaid mobile recharging (Idea).
- DTH recharging (Tata Sky).
- Sale of mobile handsets and SIM cards (Reliance JIO).
- Sale of online bus tickets (Red Bus).
Try to imagine the impact of Vakrangee Kendra’s on rural India.
These are such locations which may not have a full fledged grocery shop.
If people of these villages can buy things online from Amazon, it is one of the best examples of “social & economic inclusion”.
Vakrangee Kendra helps people to buy online life and general insurance products.
People get access to Micro Insurance schemes under the following schemes:
- Atal Pension Yojna,
- Jeevan Jyoti Bima Yojna &
- Pradhan Mantri Suraksha Bima Yojna
Vakrangee kendras also has ties up with the following companies.
- Aramex India Private Limited.
- Delhivery Private Limited.
- First Flight Couriers Limited.
- FedEx Express.
Through these tie-ups they assist in providing courier services to even the remotest of locations:
#4. Vakrangee and Employment generation
Common man can set-up a Vakrangee Kendra as a franchisee.
Minimum Requirement to become a Vakrangee Franchisee are as below:
- Education: 12th
- Net worth: Rs.10 Lakhs.
- Cash: Rs.2 Lakhs.
- Dedicated motorcycle & android smart phone.
As estimated by Vakrangee, an individual operating a “Silver Class Kendra” can do a business as stated below:
- Total Income: Rs.60,000/month.
- Total Expense: Rs.32,000/month.
- Gross Profit: Rs.28,000/month.
One time investment required to start a “Silver Class” Vakrangee Kendra:
- Capex: Rs.3.0 Lakhs (+GST).
- Working Capital: Rs.4.0 Lakhs.
- Total Investment: Rs.7.0 Lakhs (+GST).
Return on Investment (ROI) for a Franchisee owner is as below:
- Gross Profit / month: Rs.28,000.
- Miscellenous Expenses / month : Rs.8,000
- Net Profit / month: Rs.20,000.
- Annual net profit: Rs.2,40,000.
- Total one time investment: Rs.7.0 Lakhs
- ROI: 34% per annum.
#5. How Vakrangee makes money?
In last FY ending Mar’17, Vakrangee’s turnover was Rs.3,948 Crore.
Out of this, the revenue distribution was as below:
- E-Governance: 36%
- Vakrangee Kendras: 64%.
How money flows in for Vakrangee?
Vakrangee has been appointed as “Business Correspondent (BC)” by various Indian banks like:
- Allahabad Bank,
- Central Bank,
- Bank of India,
- Union Bank,
- Bank of Baroda,
- Bank of Maharashtra etc.
Every time a consumer utilises the services of these banks through Vakrangee Kendras, Vakrangee gets a “commission”.
Similarly, Vakrangee also earns a commission on every “E-commerce” sale of the following brand names:
- Red Bus,
- Reliance Jio, Idea, Airtel, Vodafone,
- DishTV, TataSky, VideoconDTH,
- com (Pharmacy).
Vakrangee also earns commission from following “insurance” companies on sale of their products:
- HDFC Life,
- Bajaj Allianz,
- Tata Aig,
- Reliance GI,
- HDFC Ergo,
- Religare etc.
Similarly commission is also earned for taking booking on behalf of the following “courier companies”:
- Blue Dart/DHL,
- First Flight etc.
Vakrangee also earns a decent fee from Indian government for implementing Aadhar card, voter card schemes in various parts of India.
#6. Business Fundamentals of Vakrangee Ltd.
In order to analyse business fundamentals of Vakrangee Ltd, I decided to check the following:
- Growth rates.
- Financial ratios.
- Miscellaneous data.
- Price movement of last 10 years.
- Quarterly Trends.
- Intrinsic Value
#6.1 Growth Rates
Stocks which show’s consistent growth automatically becomes investor’s favourite.
Double digit growth rates makes stocks more interesting.
The financial parameters that I like as a growth indicator in stock are as below:
- Free Cash Flow Growth
- Reserves Growth
- Income Growth
- Profit Growth
- Dividend Growth &
- EPS growth (my favourite)
I use my stock analysis worksheet to quantify all these values.
This is the result for Vakrangee:
#6.2. Financial Ratios
Financial ratios helps investors to comprehend the numbers better.
It gives a first impression about the stock.
The ratios that my worksheet highlights prominently are as below:
- Price Valuation
- P/E – Price to Earning Ratio.
- P/B – Price to Book Value Ratio.
- P/S – Price to Sales Ratio.
- P/FCF – Price to Free Cash Flow.
- Return on Equity (ROE)
- Return on Capital Employed (RoCE)
- Cash Returned on Invested Capital (CROIC)
I use my stock analysis worksheet to quantify all these values. This is the result for Vakrangee:
#6.3. Miscellaneous Data
How to get a rough idea about the current position of the stocks price?
I prefer to look at the below indicators?
- Current price compared to its 52W high and Low price.
- How much the price changed in last 30 days and 12 months.
- What is the market cap.
- Compared to the Industry P/E, what is the P/E of stock.
- What is the price growth in last 3Y, 5Y and 10Y.
- What is the average dividend yield in last 3Y, 5Y and 10Y.
I use my stock analysis worksheet to get quick answers to these questions. This is the result for Vakrangee:
#6.4. Price Chart of Last 10 Years
Why I like to see price chart?
Frankly speaking price charts tell very less about a stock (unless you are a technical analyst).
But I still like to give it a glance. Why? It gives an idea of how the current price is placed compared to last 10 years trend.
There can be few scenarios here:
- If price is only bullish – current price can be overvalued.
- If Price is remaining modest – poses a question why price is not growing fast enough?
- When price is falling – current price can be undervalued or business fundamentals may be weakening.
I use my stock analysis worksheet to generate the 10 Year price chart. This is the result for Vakrangee:
#6.5. Quarterly Trends
Why to look at quarterly results?
For long term investors, long term trends are more valuable.
But it is also essential that the investor should not miss noting the short term trends.
If in short term term, the income, earnings are falling, it poses a risk.
Investor must get the answers for the Why’s before proceeding.
The quarterly trends that I refer are as below:
- Total Income – TTM data verses last FY data (if rising or falling).
- Net Profit – TTM data verses last FY data (if rising or falling).
- Earning Per Share (EPS) – TTM data verses last FY data (if rising or falling).
I use my stock analysis worksheet to get pictorial chart for the above important informations.
This is the result for Vakrangee:
#6.6. What is the Intrinsic Value of this stock?
This worksheet may not be very accurate, but it attempts to estimate Intrinsic value of stocks.
I believe that, even if it is a rough estimation of intrinsic value, it is still worth doing it.
Because investing in a stock without comparing its intrinsic value with its current price is a big mistake.
Based on the knowledge that has been gathered, this worksheet attempts to estimate the intrinsic value of its stock.
There are several ways to estimate intrinsic value of a stock. But I rely more on the following methods.
I have incorporated all of my favourite methods in my worksheet to estimate intrinsic value of stocks.
An intelligent formula then generates the net intrinsic value of the stock derived from all these individual methods:
- DCF method
- NCAPS method
- Absolute PE method
- Reproduction cost method
- Benjamin Graham’s Formula
- Earning Power Value (EPV)
I use my stock analysis worksheet to estimate intrinsic value of stock. This is the result for Vakrangee:
P.Note: This worksheet is estimating the intrinsic value of Vakrangee as Rs.57.4.
This may be due to negative EPS growth rate (10 Years) between Mar’08 and Mar’17.
This worksheet give extra emphasis on EPS growth.
But in last 3 quarters, the EPS has been improving. This will push the Intrinsic value up.
Hence I would personally like to increase the intrinsic value by another 30%.
- This makes the intrinsic value by Rs.75 (57.4 x 1.3).
#7. What is the final conclusion?
This worksheet considers all aspect of stock to arrive at a final conclusion.
What is the ultimate question in stock investing?
- The stock is good or bad?
How to arrive at this conclusion?
My stock analysis worksheet does this very nicely for me.
Based on the following parameters, it generates an overall grade for its stock.
If the generated grade is above 85%, the stock is considered good.
Lets see what grades are generated for Vakrangee:
It must be noted that, this worksheet gives more importance to the price valuation of stock.
A stock which is priced right will score higher.
This worksheet gives score to its stocks very defensively.
There are not many stocks in the market that can earn grade above 80% from this worksheet.
The business model of Vakrangee makes it a unique business.
But in last couple of years, its market price was very overvalued.
In last 3-4 months, its valuation has become more realistic (due to price fall).
But it is still slightly overvalued.
My personal estimate is that, the fair price for Vakrangee is around Rs.75.