Actionable news
All posts from Actionable news

Investing Opportunities In India, Part 2: Eros International

India's Internet penetration rate is at 19% and growing rapidly.

The country's middle class is expected to grow rapidly.

It has GDP growth of 8%+.

Discretionary spending is expected to ramp faster than GDP growth.

Eros Now grew registered subs 36% sequentially in Q1 and 39% sequentially in Q2 2015.

Back in July, I started the first part of my mini series on investing opportunities in India, and I focused then on MakeMyTrip (NASDAQ:MMYT). I have had a lot of success over the years investing in Internet-related companies, with MySpace (owned by Intermix) back in 2005 (the precursor to Facebook (NASDAQ:FB)), Baidu (NASDAQ:BIDU) in 2006, Zillow (NASDAQ:Z) in 2012 and a handful of others. While growth in Internet penetration is slowing down globally, and valuations are pretty high in the majority of the biggest players like Google (GOOG, GOOGL), Amazon (NASDAQ:AMZN), FB, Alibaba (NYSE:BABA), BIDU, etc., there are still opportunities in some international markets where Internet penetration is still low. My area of focus is now fully on India, as I think it presents the best opportunity in the world for investors.

As I mentioned back in July, Mary Meeker had highlighted India in her latest "State of the Internet" 2015 report, and Jeff Gundlach was recently interviewed on CNBC, where he talked at length about India. Here is a portion of his comments:

"Yeah. I'm really quite bullish long-term on India. In fact, I'm like a 10 on a scale of 1 to 10 bullish on Indian equities for the next generation.

What happens next month, I have no idea. Year to date, it's been pretty sleepy, although last year they killed it. And the reason is basically a demographic reason.

One of the reasons China had such an incredible economic performance over the last generation is they had a couple hundred million people entering the labor force, and they also made some reforms and they took some of the glue out of the gears in the economy.

Well, India is in that same position. There will be a couple hundred million people entering the labor force in India and they have plenty of room for improvement when it comes to the legal system, the cronyism and all this. When I mention Indian equity market, people bring out these negatives. And I say, well, that means there's room for improvement.

Early in my career I was having lunch with Howard Marks. I was sitting there and I said, you know what, Howard, I don't understand why anybody ever buys a AAA-rated corporate bond because they can only go one way, right. They can only go down.

And so markets that have problems generally have some sort of discount built in to them.

So I believe that if you are going to - I was speaking and a guy came up to me, he was like 24 years old, what should I buy and not touch it, I have a 50-year horizon. I said I would buy the Indian stock market."

Again, India has tremendous fundamental tailwinds:

  • Ramping GDP growth recently, now above 8% annually.
  • Low internet penetration rates that are rising rapidly (only 19% online, and only about 7% using broadband internet).
  • Excellent demographics (More than 50% of its population is below the age of 25).
  • Low oil (India imports about 80% of its supply).

With all of this in mind, it's obvious to me that the middle class will experience rapid growth. Focusing on companies which capitalize on that growth should allow us to generate outsized returns over...