Owning Max Ventures has been frustrating. From 2017, the company and its Balance Sheet have been getting better and more streamlined, but the M.Cap has only been plummeting. This makes you re-consider your fundamental assumptions and when you realise that you aren’t wrong, it only makes matters worse. This is when your rules of portion control or size of investment come into play. If you’ve gone overboard, all you would be is frustrated, even more so because the opportunity cost has been incredibly high.
In 2017 Max was sounding more like a business incubator with multiple businesses. Today it is a lot more focused. It has done away with Education, Residential Real Estate, Venture Funding in non Real Estate areas and narrowed its focus down to two main areas.
- Building, Leasing and Maintaining pure play grade A office space in Delhi and the NCR.
- Packaging business with Toppan (Japan)
It has shut or is in the process of shutting/exiting everything else which has made its RE operations almost DEBT FREE and Its films/pacakaging business can service its own debt without looking for corporate support.
Pure-Play Commercial Real Estate
Max has decided to ONLY manufacture Grade A office spaces with highest possible Green Certification and ESG norms. On the surface the difference does not seem like much but there is a huge compounding effect that it has begun to create. Delayed gratification nonetheless but simple short term pain for long term gain.
- Ownership – The office building will only be owned by Max Ventures, the Landlord or the Investor like New York Life. Ownership will not be broken into smaller pieces like majority of the existing buildings in the market. When ownership is not like a mini democracy run by an association of persons, the maintenance and integrity of the building are in tact.
- Maintenance – Max Services will be up keeping the building. In simple worlds the owner will take care of the building himself. There can’t possibly be more skin in the game. This is generally underrated.
- Funding – Max will continue to buy, redevelop or get into distressed real estate projects in the NCR only. With a near debt zero balance sheet, it will fund its new projects by discounting its lease rentals or by bringing in marquee investors like New York life or even REITS.
- Grade A and above – The business world is consolidating and so would the tools the same people use. A company like Apple would not like to share its building with some 3rd grade company, even though it may be profitable. Companies are getting conscious of the company they are in. Max has the power to say NO, to companies that do not gel with its philosophy. In fact it is almost like a “By Invitation Only” tenancy.
- Low Tenant Turnover – The lower the tenant turnover, the higher the rental yield and the better it is for the occupants. With single ownership and marquee tenants over long leases, the yield is likely to be amongst the highest.
- 1$ rental – World over, rent of a $, + or – another 10-15 rupees for a Grade A office space with Metro connectivity and great location is a no brainier. WFH or no WFH, these properties are hard to come by as Grade A is a philosophy you need to undertake before you start construction and you can’t easily switch to a Grade A once you’ve built it.
In a very simplistic view, if you believe in an India story, the Grade A story is just a part of it. Large companies that are entering every year will be looking for an address to set up shop. Outsourcing with the new tools of distributed teamwork, thanks to the hyper digital effects of Covid, will only make doing business with India more viable. In short, the need exists and is real. Max has answered the Where, How, What and How much and just has to answer the When.
THINK NESCO.
Packaging JV with Toppan (Japan)
The packing business is super easy to understand. Max Films has the 3rd largest capacity of BOPP with 72 KTPA in India. With massive tailwinds in the packaging industry and move towards recyclability and premiumization the business is only for the taking.
With TOPPAN as its JV partner, Max always has a choice to either sell domestically or internationally. Right now they are at a 25% International business mix. When India starts taking its plastic regulations more seriously, this can be a 100% india business.
Sahil Vacchani understands manufacturing like it were second nature to him. He was one of the key people behind the success of Dixon Technologies, until he sold his share to come take over the reigns of Max Ventures. So large is his manufacturing ability that his RE business too seems to be inspired from the manufacturing business.
Max Ventures has finally got all its rockets pointed in the right direction. Lets see how well and far it can fire.
I perfectly agree with all the analysis. The whole restructuring of Max Group is also in that direction. They have streamlined their working and activities and the focused approach should help the Company to get their acts together, put up a better performance and profitability. Curiously, this is absent so far. And that’s where this whole game of analysis, future policies and prophecies and wait happens.
My personal view is that Analjit Singh has so far proved to be a better and astute business man than many others and have not let his shareholders down on a long term basis. Look at the way in which Max Financial Services was created, also how Max India was restructured.
The wait should not be too long otherwise investors’ patience runs out.
On their RE business, the only issue is the scalability of the business. You cannot have many such A Grade buildings with a near zero debt status or the wait is longer.
On the packaging business, they have to quickly improve the profitability.
You will be surprised as to how much demand there is of grade A space. I was too. Look at the amenities that Max is giving. Actually simplifies life a bit. Patience is key here. Its more of a slowly and then suddenly story. Also given the ultra low liquidity, it will be difficult to get in when the movement starts, if it starts 😉