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Andrei Stetsenko

lines on the record: 88
first: 2024-01-04
most recent: 2024-01-04
sittings or episodes: 1
sources: podcast

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“Yeah, cross holding situations are very interesting. Who owns the stocks in India? So there are the owners, the entrepreneurs and their families own a lot of, you mentioned that earlier, then there are domestic equity holders. Tell us about that sort of culture, stockholding culture, maybe contrasted to China, which is not the Chinese real estate is much bigger there than stocks. And then the foreign holders of equity, yourself included, who owes that. I mean, I'm sure there's all these ETFs that own it, but how many are active funds such as yourself?”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Where there's been this kind of dawning realization that their interesting ways of buying underlying businesses at discounts and getting exposure to a diversified set of operating businesses in a way that is more attractive than just buying them directly.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“A big discount to some of the parts value. And there is this argument that the discounts would never close for X, Y, and Z reasons. They'd always existed. Eventually they did close. In India, I hear the exact same thing where people say, well, yeah, that company, it offers an indirect way of owning X company at a much lower PE because it sells at a huge discount to the market value of its stake in the company. But you'd rather just buy it directly because these things always sell their discount. And the logic for why we like these holding companies is that even if the discount never closes, we'd rather indirectly pay half BPE than pay full price if we can. And there's, without getting into details about specific holding companies, there have been some pretty interesting examples of one.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“With few exceptions, I mean, India does have a booming startup scene that includes some companies that they're burning cash. But I'd say generally speaking, you won't get far in the Indian market without profit. And I think part of the explanation for that is just that they never had anything close to the zero rate environment that I think fostered a lot of that kind of those kinds of businesses being formed and going public despite not having profits in our country. But one other thing I'd add about valuations is that India has this very interesting phenomenon that it's been a big area of focus for us is this phenomenon of holding companies where these used to exist. They still do to some extent in the US, but it used to exist basically before my time up until the 80s where you'd have a company that sold”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“And how often is it that Indian companies have a positive net income that they have a profit not, EBITDA, not gross profit, but a net income? You know, in America. Obviously, many, many companies make a lot of money and grow those earnings consistently. However, there are some companies that they've been public for five years and they still are not making money, but they have some sort of gross profit. They are profitable. I think there are also 3,000. There are lots and lots of companies that. Not making money. How common is it that in India that is a company that is not making money kind of a black sheep?”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“The work of signing companies that are high quality at selling at very attractive valuations, it's always and always takes work to find them. But I'd say that it's been pretty consistent. Just the presence of those companies and the opportunity set. And so on this most recent trip last month, I met with at least one maybe two companies again. I can't name them, but they sold at single digit PEs and were growing at double digits. Yeah, that's not necessarily representative of the broader market, but those are the kinds of companies that again through boost on the ground, you can find them. And not to say that it's not ever worth it to pay a higher multiple, it absolutely can be, but that's indicative of the kind of companies I'm talking about when I say overlooked.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“For example, of private secretary banks in India or of industrial companies. But if you had to just pick two off the top of your head, you'd pick HDFC Bank and Reliance Industries. And so those are two huge companies, among the biggest in India by market cap with very high PEs relative to some of the lesser-known companies that might be overlooked. And the companies that are selling out lower PEs, obviously that category includes some lower quality businesses, but it also includes a lot of overlooked companies that overlooked for any variety of reasons.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Think one broad generalization we can make is that the better note it is, the bigger it is, generally speaking, the higher the PE. And so while it's true, absolutely what you said that if you look at the indices, if you look at what ETFs that allow you to invest in, what they own, the Ps of their stocks, they're usually on the higher end. They're above 20, 30 is an unheard of 40 isn't unheard of. I've seen 50, I've seen 60. And these are companies that they're getting, if I had to argue for why they deserve that, say, you know, they're being valued not just for their track record and their prospects for continued earnings growth. They're being valued just for kind of being the obvious picks for someone who's looking to get exposure to India. And so there's a large number.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Earlier reference price to earnings ratios, what are the valuations that you encounter in India? Maybe you can summarize them overall. I believe it is the case that the India index valuations are probably on average more rich valuations than other emerging markets. So that's in the macro, like the overall index. But in the types of companies, once you get into the weeds, I mean, are you finding and then also do you think some Indian companies are fairly valued or frankly over too expensive? I mean, should a utility company be trading at 100 times price to earnings ratio?”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Super friendly and open to investors. Sometimes they can actually mean that they kind of like Berkshire Hathway. They don't really even really meet. And you have to try for years and years to even get a meeting where you can confirm for yourself that it's a business that's focused on being run well rather than promoting yourself.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“It's to grow market caps and to try to earn their way to a higher PE, both by having good business performance and by having effective communication with investors. And to that point, what one way or one criteria, a piece of criteria that we use to screen for corporate governance, apart from obvious stuff like what we hear from our contacts on the ground, is simply just how management communicates where there have been examples of companies that they overpromise and under-deliver, they seem to be focused more on the short term than anything else. And you obviously steer clearer those and try to focus on the ones that do the opposite, where they're very conservative in how they approach investment and growth projections. And, you know, that doesn't necessarily mean that they're”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Some of them are similar, but some of it is stuff that you can try to figure out by basically being a forensic encounter and looking through annual reports and finding related party payments to some entity that was founded a few years ago and doesn't seem to do much except collect payment from this listed company. And I'd say that, again, very, very generally speaking, that was something you'd come across more often when we first started going to India over a decade ago. Was that kind of pattern where it was much more overt than anything that you'd see now? I think a lot more Indian management since then have gotten with the program in terms of realizing that even if they might want to be unethical for whatever reason, the best way to maximize their wealth is not to siphon money from companies.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Corporate governance is, I think, the fact that there is both good and bad corporate governance in a market, as I think that statement is also true of the US, that should be an advantage to active managers because one of the jobs that we're hopefully performing is identifying managements that are ethical and honest, are well regarded. And that really you can't really do that just by looking at a Bloomberg screen. You have to go on the ground. You have to talk to people. You have to collect Scuttlebutt. You have to hear, you know, well, that promoter maybe isn't well regarded for this reason, you know, that one may be, you know, he wasn't the brightest, but the next generation, you know, that they get it. And, you know, there's a process that isn't foolproof, obviously, but a process by which you can.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, people might wonder why does it matter if someone owns a little more than they're supposed to? It's exactly what you just said. If you really have a much smaller float or public ownership of a company than what people think that it takes a lot less to move the stock in accordance to what might benefit a certain interested part.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, that appears often where there's a stock, let's say there's a million shares, but 950,000 of them are owned by inside. So only 5%, 50,000 of them are floating. Don't take a lot of money to move that price around, and then that valuation that's how you had a company that owned ports having a price to earn ratio of 50 or 100.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“The Adanis dot around that threshold by having certain nominally independent managers own and trade stocks on their behalf. And anecdotally, I have heard stories allegedly about fund managers being approached in Mumbai hotel rooms and being offered large sums of money on the condition that they invest in accordance to certain instructions. And so that is obviously a much more serious allegation. And the sense, I think, is that to the extent that the stock promotion was maybe too exuberant, that that's kind of excusable to the extent that these rules were being violated. That's a concern and probably something that's going to be scrutinized going forward.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so part of that story was about the appearance of impropriety, but not necessarily anything overtly illegal involving kind of maybe over exuberant promotion of valuations of the group where the projections were made not unlike perhaps some large electric vehicle companies in our country have the stocks appeared driven intentionally more by sentiment than fundamentals. Again, not necessarily anything illegal. The stuff that was potentially or allegedly illegal in the Adani case involves limits on how much the promoter, as they're known in India, basically the controlling shareholders, how much they're allowed to own of a given company. And so usually the public has to own at least 25 or 30 percent of shares outstanding. Allegedly,”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“The company day to day, who are allocating capital, they think of it as their capital. And so they're much more thoughtful about how they invest and how they deploy capital. And if you can find the best, the most capable among that group and co-invest with them, basically be a partner with them in this business that is there, you know, it's the family, it is the family's wealth is that business, then those have been some of our best investments.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's a great topic because I think a lot of people might have this impression of India as kind of the Wild West where they may not be as quote unquote professional in terms of the managements and boards of US companies. I think in my experience, I found the opposite to be true where I've known a few US companies in my day that had very professional pedigreed boards that made terrible terrible decisions and really did not act in the interests of shareholders. In India, of course, there's examples of that, but you can find, but what you can also find, which I think is much more rare in the US, is a company where the founder or the founder's kids are the controlling majority shareholders. And so even though there are maybe fewer quote unquote professional directors on the board, the people who are running”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“That we are excited about, they're generally lending with a really low loan to values against stuff like property to salaried workers where not only can they point to a long history of having low very low defaults, but they can also have reasonable assurance that the collateral is good.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the S for net interest, the problem that India fortunately for them has not encountered is they haven't had to deal with rates falling to the floor. The inflation rate in India up until recently was substantially higher than in the US in the past couple years they've been much more similar at one point actually Indian inflation was below that of the US and as a result rates have while they've moved around they've been a lot less volatile than in the US so if you are extending loans you know it's you're kind of the window of where your funding costs and your yields have it's moved a bit over the years but you know basically you're paying mid single digits for funding and you're yielding high single digits low double digits on what you're lending to other opportunities in India we're not that excited about financials the one”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I'd say that the most important broad brush distinction in terms of how we looked at sectors in India is we try to steer clear of anything where it's dependent on anything other than the company doing well at what it does. So if we're talking about a telecom company or a contractor for government funded infrastructure projects, they might be just fine as businesses, but if they're ultimately at the whim of a bureaucrat, you know, the change in government at some point, that's not a risk we want to run. So we prefer to focus on companies where their product or service has to prove itself in the market to the end consumer. So that includes financials, that includes consumer goods, it includes industrial goods, tires, specialty chemicals. Anything where it's being sold to consumers or other enterprises.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Ads along the highway for branded cement because there's certain brands that have built trust that if you use this product, the building you build will still be standing decades from now. Whereas if you try to save a little money by going with some unknown competitor,”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“I wouldn't say that there's most are less important. I'd say that there's a greater variety of ways in which to develop and sustain a mode. So a good example would be stuff like agricultural chemicals, even cement, their commodity products in the US and India. They're often almost consumer goods. They're branded. They're sold directly to small scale farmers or builders. And because the regulatory infrastructure isn't as developed as it is in the US where if you buy agrochemicals in the US, you can rest assured that there's been some government entity that has expected some variant of that product. You don't have to take the company's word for it. And India, reputation is much, much more important to a company's brand. It's really synonymous with the company's brand. And so you'll see.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“And maybe I'm interpreting that it has a slightly different impact on the performance of so-called high quality companies in the US. There's a tremendous premium on companies' ability to grow their earnings. That's based on, oh, it's the number one player and they have these competitive moats, these series of competitive advantages. In India, maybe it's. Not that moats are less important, but companies can grow their earnings with having maybe slightly less of a moat. Maybe there's room for four dominant companies instead of just one in America.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“As consolidated as they are in the US, there's still this ongoing process that I mentioned earlier of taking share from the unorganized players. So there's just the state of development in just about any industry we look at is at a much earlier stage.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so the US market, as you indicated, is very top heavy. There's these tech companies especially that a lot of them are winner takes all our winner takes most markets and they're growing fast but the overall market is not growing so fast that a new entrant can come in and also do well again very generally speaking in India it's very different because the market for everything you know generally speaking is is growing rapidly you can start a business in a sector like irrigation pipes or in a workforce staffing like temporary staffing that does very very well even though that industry might be considered more of a commodity industry somewhere like the west with lower margins lower returns on capital in India if you are managing to grab your fair share of that growing pie you can do very well you know the industries aren't”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Funded by venture capital or by bank loans, they have to go public in India. And so they're listed out of necessity. And that's continued with all these recent IPOs where I've been to India 15 times now and the number of exciting newly listed businesses that I've met with has only grown over time. And these are companies that, again, they probably wouldn't be public in a market with a different structure.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, that's a good question. India has had an IPO boom over the past few years. And that's continuing a long history where I'll just briefly get into the reasons why, at least in my view, there's such a huge number of high quality listed companies in India, especially compared to a developed market like the US, where the banking system is very different from what we're used to in the US. So it's very difficult if you're starting a business or growing a business to get a bank loan. The whole banking system was basically state controlled up until fairly recently and even now it's still dominated by state around banks. So if you are a huge state-owned oil company, the system was designed to fund you. It was not designed to fund a scrappy entrepreneur. And so as a result, a bunch of businesses that in the US or elsewhere would have probably been”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“I think someone going in and just buying a random basket of Indian stocks would probably do okay. I think the job that we have and investors like us have in going to India is to try to find companies that are benefiting from multiple levels of tailwinds where GDP growth, that's great. That's a given. Everyone hopefully is benefiting from that. A lot of our companies, they're benefiting on top of that from an increase in the formalization of their sector. Whereas a few years ago in an industry like chemicals, there would have been a lot of production happening by, you know, not, I wouldn't quite call the mom and pops, but informal enterprise that weren't paying taxes that were unregulated, that the shift from that to these organized, including listed businesses.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“In India, you can basically plug into this database that allows you to have a verified payment and identity resource for every single potential customer. There's so much that India has accomplished, but it doesn't take any magic for it to keep growing at the rate it has”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Take higher productivity jobs in cities, service sector employment, rapidly expanding basic technologies that are proven elsewhere being applied in terms of improving everything from agricultural yields to factory output, anything you can imagine. And a couple of that with the fact that India, because it's only now getting to where countries like China are, where were a couple decades ago, it can leapfrog certain technologies. And so there's no one talks about building out fiber optic, landline internet in India, because everyone now has a cell phone. And no one talks about ways to link people's for digital commerce because they have something called Ahar, where that's a whole separate interview. But if you're a”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Well, if you rewind back to before China's big slowdown, I think it's important to note that China's market did perform very well. If you start at the point where they were where India is today up to the moment where their growth model started sputtering as recently as 30 or 35 years ago, India and China had very similar levels of per capita GDP. China obviously took off on this incredible growth trajectory. India has taken a lot longer to develop to get the engine revving the upside of that is that there's a lot of room still to run. So India doesn't need to reinvent the wheel to keep growing from where it is now, which again is maybe you could say behind China by two decades, maybe three. And there's a lot of catch up development just from stuff like people leaving farms to go.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“So it's got a billion people. Yeah, compare it to China. China has been a very huge economic success in terms of just GDP growth, but some doubts call into question the quality of that growth. Is it just a giant real estate bubble, as well as people look at the stock market and say, hey, the GDP has been growing 9% a year, but the stock market is flat. What's going on here? How is India different from that?”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“China and India waiting to develop. China's now well ahead of India. And so if you're looking at as many companies now are of where do I diversify away from China, you can put a plant in Malaysia, you can put a plant in Vietnam, but if we're talking about really huge scale production, India's really your only bet. And companies are in fact shifting there like perhaps most notably.”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, India really is the only, not even emerging market, it's the only country left that has over a billion people and just it has a bunch of things that are they really don't need anything special for living standards to keep improving for GDP to keep growing for earnings on every kind of imaginable company to grow because there's a huge consumer market domestic demand that's that's there. That alone would be enough to attract multinationals and investors to India but on top of that you have this labor force that the labor costs are incredibly competitive relative to China, Vietnam, Brazil anywhere just about anywhere you look and so the answer is basically just that it's unlike anywhere else it is unique there's you know at one point there was”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Over the past, you know, let's call it 20 years, the SMP has done well. U.S. mid-caps and small caps have done slightly better than the S&P. And then if you compare those to the Indian indices, the benchmark Indian index, the Sensex has done very roughly, double the cumulative performance of the S&P and then Indian mid and small caps have done even better than that. So it's past performance, no indication of future results and obviously anything that we're doing in India, the whole point of it is to do something different than the indices. But that just gives you a sense of the opportunities available there, especially, I have to say where if you're willing to do the work of going past digging deeper than the household name companies, you can Really uncover some”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So we're not a big firm, so we can't be everywhere at once. So with limited resources, you have to prioritize. And a bit over a decade ago, your dad and I, we sat down and basically went through the potential niches where we could become experts or at least attempt to become experts in terms of various emerging markets. We looked at Brazil. We briefly considered Indonesia. it wasn't close. I mean, India was the obvious choice at that point in terms of trying to dolge expertise. It wasn't obvious, I have to add, though, at that point that India would become the investment success story that it has been, where a lot of things have gone India's way and we expected or hoped that they would, but it was still not as obvious. That as it might seem in hindsight”
2024-01-04 · Forward Guidance · Dispatches From India | Andrei Stetsenko, Partner at Farley Capital · IDENTIFIED FROM THE TRANSCRIPT