Turnaround Story #1 - Thomas Scott
Turnaround of Thomas Scott, post 2nd Gen. Promoter enters with Data & Tech !
Very often, I/ We chase turnarounds and they are for sure, elusive almost all the time until we come across Businesses like Thomas Scott! This came onto my radar right in February when the struggling family business of the Bang family announced that their son - Vedant Bang (age 27 then) would be joining the company. I didn’t pay much attention (although I remember checking his LinkedIn profile) and assumed another 2nd generation son would join his father in his business. And I was wrong in gauging what he could do to Thomas Scott until I saw the stock price yesterday.
V1 of Thomas Scott - Since inception till FY22, they had four own brands, making formal and semi-formal shirts. Sales stagnated between 15-22 Cr and PBT (before other income) was negative or flat. You would have seen these shirts in large format stores only. (I used to buy between 2015-17 in Westside if my memory serves me)
V2 of Thomas Scott - Vedant added the Tech Platform flavour, and expanded into Licensing (on Flipkart and Myntra) and Private Labelling (on Amazon) while keeping the traditional B2B vertical intact with more clients. He then started selling in UAE (through NAMSHI stores). The tech that he deploys helps him to launch new SKUs very fast by identifying Product Offering gaps by looking at the E-commerce platform data, which now enables Thomas Scott to fulfil 9000+ orders through warehouses set up across major cities. They now also sell Jeans, Blazers, Trousers, Bags and T-shirts. In summary - expansion through Product Categories and # of SKUs plus geographical expansion. Needless to say, Vedant has used his academic ( CA + CFA+ Actuary) and professional (Investment Banking in Deloitte) background to crack the Fashion Code, albeit through Data Science!
Outcome - Sales went up from 20 to 90 Cr, PBT from Zero to 10, and stock price from ~45 to 450 (10X) - all in 2-3 years.
As Charlie Munger would have called this as Lollapalooza effect (multiple mental models converging to a huge outcome); one can see the effect of following themes/models -
Value Migration (B2B to B2C/ D2C) - led to higher sales and margins
Using Tech to decide Micro- Markets, Product-Market fitment, Inventory Management, etc
Low Capex, Branding & Customer Acquisition Cost through Marketplace & FOCO model of distribution
Premiumization in Apparel and Fast Fashion Trend- Large TAM for decades
2 Day Delivery & Fulfillment centres - Competitive Edge over peers / small brands
Is it a good investment? - For me, at this valuation, the business is not investable, nor do I understand Retail much. The business model also has some inherent risks as of now (and maybe will continue)
Cash Flow Conversion issue and Higher Inventory plus Higher Debtor days
Faster Expansion than Cash Generation will force equity dilution or debt (recently they did preferential allotment)
Customer Concentration Risk (they want to capture 15% of Myntra sales in India)
and some other risks.
The reason that I wrote the thread is for the sheer appreciation of Vedant and what he has done in the last two years which is inspirational and value accretive, both! This story is a great example of how Management Quality is important to find out (and ride) growth stories.
Sources & Credits-
Very in-depth thread that came across written by Nabendu which forced me to write this Substack. Thank you Valuepickr and folks like Nabendu !
If you want to know how Vedant functions and his understanding of the business do read this interview
Twitter thread written by CA Swapnil Kabra
Some snippets from the Investor Presentation Below
DISCLAIMER: I AM NOT A SEBI REGISTERED ADVISOR OR A FINANCIAL ADVISER. ALL THE VIEWS ARE FOR EDUCATIONAL PURPOSES. I MAY OR MAY NOT HAVE INVESTED IN THESE STOCKS. PLEASE DO YOUR DUE DILIGENCE YOURSELF. THIS IS NOT A STOCK RECOMMENDATION.