Author Topic: Fairfax India new issue  (Read 92359 times)

ICUMD

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Re: Fairfax India new issue
« Reply #200 on: December 29, 2017, 04:13:19 PM »
BIAL may be on the books for 600 million with a 1.2 billion valuation. But it is reasonable to think that the airport is worth far more than that - I doubt you can build a state of the art airport serving 20 million passengers per yr for that price.  It is also growing at > 25% yoy.  Book value is understated,  in my books.....  I think it is worth at least 100% more - ~ 2 - 3 billion, pre expansion costs.
« Last Edit: December 29, 2017, 04:15:33 PM by ICUMD »
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zippy1

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Re: Fairfax India new issue
« Reply #201 on: December 30, 2017, 12:16:20 AM »
So in the earlier discussion, there were concerns that Fairfax India may be a PFIC. I am wondering whether this turned out to be true or false?  Does one (a US citizen) need to file any special tax document or put it inside an IRA?

I assume if there is an issue people may have to deal with it during the tax season earlier this year?

Will appreciate any insight and suggestions!

DooDiligence

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Re: Fairfax India new issue
« Reply #202 on: December 30, 2017, 03:20:33 AM »
So in the earlier discussion, there were concerns that Fairfax India may be a PFIC. I am wondering whether this turned out to be true or false?  Does one (a US citizen) need to file any special tax document or put it inside an IRA?

I assume if there is an issue people may have to deal with it during the tax season earlier this year?

Will appreciate any insight and suggestions!

It is & you should own it in a tax advantaged account.
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zippy1

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Re: Fairfax India new issue
« Reply #203 on: December 30, 2017, 04:25:04 AM »
So in the earlier discussion, there were concerns that Fairfax India may be a PFIC. I am wondering whether this turned out to be true or false?  Does one (a US citizen) need to file any special tax document or put it inside an IRA?

I assume if there is an issue people may have to deal with it during the tax season earlier this year?

Will appreciate any insight and suggestions!

It is & you should own it in a tax advantaged account.

many thanks!  :)

dartmonkey

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Re: Fairfax India new issue
« Reply #204 on: January 01, 2018, 03:17:37 PM »
They follow IFRS rules in their valuation of BIAL, using a DCF model, giving a calculated value $1.2b, but that does not mean that is what they really think the thing is really worth. It is not their style to buy at almost twice the price they really think its worth, even if they have to call this 'fair value' in their verbiage:

"The cash consideration paid for the additional 10.0% equity interest in BIAL exceeded the fair value of those additional shares acquired, as a result $74,202 (approximately 4.8 billion Indian rupees) of the cash consideration paid was attributable to the costs incurred to (i) motivate GVK to sell its remaining 10.0% equity interest in BIAL, (ii) increase the company's holdings in BIAL to enhance the company's investment returns, and (iii) accelerate the development of a second runway and terminal, and make improvements to the existing runway".

I would call this legalese verbiage. Yes, they paid more because they really wanted it, and a high price is often what is required to get the owner of a good asset to sell, but that is all perfectly obvious. I have been able to obtain their first draft, nixed by the lawyers, which said:

"We bought 38% in March, for an implied value of $1.01b, IFRS rules force us to apply crazily conservative DCF parameters like 10-13% discount rates, 3% growth rates even though is is growing like a weed, over 20% growth in traffic in recent years, not counting the value of commercial development on sited. Using those estimates, the value comes out at $1.23b - garbage in, garbage out. On the other hand, we love it so much, we were happy to buy another 10% of this fantastic asset at an implied valuation of over $2b in July. You be the judge of whether it is worth $1.2b or $2b or much more."

rohitc99

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Re: Fairfax India new issue
« Reply #205 on: January 01, 2018, 03:36:40 PM »
They follow IFRS rules in their valuation of BIAL, using a DCF model, giving a calculated value $1.2b, but that does not mean that is what they really think the thing is really worth. It is not their style to buy at almost twice the price they really think its worth, even if they have to call this 'fair value' in their verbiage:

"The cash consideration paid for the additional 10.0% equity interest in BIAL exceeded the fair value of those additional shares acquired, as a result $74,202 (approximately 4.8 billion Indian rupees) of the cash consideration paid was attributable to the costs incurred to (i) motivate GVK to sell its remaining 10.0% equity interest in BIAL, (ii) increase the company's holdings in BIAL to enhance the company's investment returns, and (iii) accelerate the development of a second runway and terminal, and make improvements to the existing runway".

I would call this legalese verbiage. Yes, they paid more because they really wanted it, and a high price is often what is required to get the owner of a good asset to sell, but that is all perfectly obvious. I have been able to obtain their first draft, nixed by the lawyers, which said:

"We bought 38% in March, for an implied value of $1.01b, IFRS rules force us to apply crazily conservative DCF parameters like 10-13% discount rates, 3% growth rates even though is is growing like a weed, over 20% growth in traffic in recent years, not counting the value of commercial development on sited. Using those estimates, the value comes out at $1.23b - garbage in, garbage out. On the other hand, we love it so much, we were happy to buy another 10% of this fantastic asset at an implied valuation of over $2b in July. You be the judge of whether it is worth $1.2b or $2b or much more."

+ 1
air traffic is growing 15%+ across india. Most airlines are operating with a PLF of 85% and still growing. I have been to the airport several times over the last 10 years and the traffic is up several times. when the airport was built, it was way out of the city and with expansion of the city, it wont be long before the airport comes within the city.
A 3% growth in anything in india is almost equivalent to 0 growth or recession. when i looked at the DCF assumptions for BIAL, it was more than obvious they are very very conservative. Look at IIFL ..they are growing 30% and thats not really too high in the space they operate. A lot of other well managed financial services companies of the same size are growing at the same rate. It may sound odd to call 30% growth as conservative, but the tailwinds in the financial services space is quite high

hobbit

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Re: Fairfax India new issue
« Reply #206 on: January 05, 2018, 01:38:46 PM »
Not to doubt you hobbit but even fairfax india isn't pricing in $1.2B for BIAL.  In their latest 10q they run a dcf model and estimate their stake in BIAL at $592m.   There is some verbage around the additional purchase that they basically overpaid to convince BIAL to sell.

if you buy X% stake at 1 billion mkt cap and then buy another 0.1X% stake at 2 billion mkt cap , accounting principles wont let u hold the entire investment at 2 bn mktcap until and unless there is another independent deal in the market that confirms ur valuation. if u trust fairfax management its a no brainer that the investment is already worth1.2 billion with a much higher intrinsic value.

ICUMD

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Re: Fairfax India new issue
« Reply #207 on: January 05, 2018, 07:41:53 PM »
One point however is that BIAL holds a considerable amount of debt on its books.  Furthermore, it is expanding the airport with a new runway and terminal, at a cost I believe of ~600 million USD.  They have made good strides to reduce this debt over the past year and I think they will continue to do so under Fairfax's prudent management and rapid revenue growth.  As they pay down this debt, they should be able to increase BV and induce a rise in Fairfax India's share price.

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chrispy

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Re: Fairfax India new issue
« Reply #208 on: January 13, 2018, 06:04:59 AM »
I am very happy about it as I was able to pickup shares but is there any reason why ffxdf plummeted going into Dec 31 and then took off?

obtuse_investor

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Re: Fairfax India new issue
« Reply #209 on: January 13, 2018, 06:53:45 AM »
No idea. I assume since the Indian composite index dipped a little, fih fell too.

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