Investing Lessons: Case Study - ABC Logistics (Name Changed)
When we first came across ABC Logistics, it was an SME exchange listed company dealing primarily in transportation and allied services for D2C brands. Its key customers included well-known names such as Nestle and DS Group. Having invested in an Indian D2C fund that also had a stake in ABC Logistics, we became intrigued by the company's potential.
It listed in 2018 with impressive revenues of over 200 crores and a consolidated profit of over 10 crores, attracting our attention as investors interested in microcaps.
However, despite being interested, we approached it with caution given our belief that it wasn't undervalued, and took a tracking position in 2018. We engaged in extensive scuttlebutt, meeting the company's customers, partners, and industry entrepreneurs to gain valuable insights. Over the next 12 months, we had the opportunity to meet the promoters at certain group events, where they shared their growth process and strategic vision. ABC Logistics was focused on building strong B2B relationships with large clients, emphasizing specialized logistics, including cold chain services, and avoiding the low-margin last-mile delivery business.
As time passed, we grew increasingly convinced about the company's potential. Surprisingly, the stock fell by more than 50% over the next 18 months, despite no negative information, providing an opportunity for us to buy a significant volume of shares at an average market cap of 50 crore rupees. Despite the lack of movement in the stock price over the next three years, the company continued to strengthen its position, attracting new clients and diversifying its offerings to include multimodal railways and cold storage.
The period of Covid-19 presented a challenging time for many businesses, but ABC Logistics managed to maintain its revenue and break even, staying true to its specialized B2B logistics strategy. During this time, the D2C boom attracted considerable attention, with loss-making last-mile delivery companies making headlines. However, the father and son duo at ABC Logistics remained steadfast in their vision, avoiding the allure of trendy but unprofitable ventures.
Holding onto a stock for three years with no significant price movement was not an easy experience, especially when the market cap remained at 50 crores despite the company's substantial revenue and decent margins. However, our conviction in the business and the management's approach paid off when the stock price surged by over six times in just one year during 2022-2023.
This taught us valuable investing lessons:
Identify Bargains: Our 6x+ multiple return was a result of buying the stock at what we believed was a bargain. This experience reinforced the notion that there are always opportunities to find undervalued assets in the market.
Belief in the Business: Holding onto the stock for three years with little to no returns might have tested our patience, but our faith in the business and its management kept us committed.
Lumpy Returns: Investing in the stock market often means enduring periods of little or no returns, followed by sudden surges. ABC Logistics taught us that returns can come in lumpy forms, requiring patience and a long-term perspective.
Ignore the Noise: ABC Logistics' success story is a testament to the importance of staying away from market noise and trends. The management's focus on building profitable businesses rather than chasing what was currently in vogue allowed the company to thrive.
As of today, we continue to hold our shares in ABC Logistics, as we believe the company's moderate growth approach, ownership of specialized assets, and dedication to catering to large B2B clients will pave the way for further success. With a market cap of just over 300 crores and revenues of 400+ crores, ABC Logistics still holds significant potential to become a 1000+ crore revenue company in the next 3-5 years.
In conclusion, ABC Logistics' journey has taught us valuable lessons about patient investing, seeking undervalued opportunities, and staying focused on long-term success rather than succumbing to short-term trends. As we continue our investment journey, these lessons will remain invaluable in navigating the dynamic and unpredictable world of the stock market.
We want to emphasize that this communication should not be misconstrued as a recommendation, as we are not SEBI RIAs. It is crucial for readers to conduct their own due diligence and exercise caution.
Therefore, we urge all readers to approach this opportunity with prudence and carefully consider the potential risks involved. While the prospects appear promising, it is essential to maintain a cautious approach and stay informed of the inherent dynamics of the industry.
Happy to chat and discuss these in detail
About Us -
Govind Shorewala - Entrepreneur (Mining, Textiles) & Investor (Private & Public Markets) → Reachout at: govind.shorewala@gmail.com
Aaroah Mittal - Early Stage VC → Reach out at: aaroah.m@people-group.com