Interview with JST Investments COO Aditya Kondawar

In a chat with Radhakrishnan Chonat (RC), Director of AlphaStreet, Aditya Kondawar, COO, JST Investments, shares his IPO investment strategy and talks about how to invest in IPOs.

Radhakrishnan Chonat: Good morning, everyone. Today, I have Aditya Kondawar with me. He is the Chief Operating Officer at JST Investments. He has been following IPOs for more than a decade now, and he is pretty well known on the Twitterverse for his unbiased in-depth views on IPOs. He has been featured on CNBC Awaaz, ET Now, ET Now Swadesh etcetera. He has been a regular publisher of articles on Bloomberg, Livemint, Hindu Business Line, Morningstar, etcetera. He likes to track new age businesses, IPOs, unlisted markets, FMCG, telecom sectors, etcetera. Let’s catch up with Aditya and find out a little bit more about him and his interest especially in IPOs. This is the IPO season. So let’s see, what he has to say? Welcome to the show, Aditya.

Aditya Kondawar: So thank you, Mr. RC. Thanks for inviting me and for the very kind introduction. I would like to describe myself as just a curious person you know and all of this curiosity has led me till here, and I hope it takes me more places, you know, going ahead as well. So about me, you know, IPOs have always had a special place in my heart. I have been tracking IPOs since 2012, so more than a decade for me. I used to create some pocket money for myself in college by applying in IPOs. I invested my first salary in the Indigo IPO and you know, Indigo IPO opened at a huge premium, and then that really got me in love with IPOs.

Radhakrishnan Chonat: Excellent. So do you remember, which was the first draft red herring prospects you read from beginning to the end because it usually runs 200 plus pages easily, right.

Aditya Kondawar: Correct. Yeah. So I think, Indigo was the one, which I read fully from start to end. Before that I used to track IPOs, but you know, how it is in markets. You know, you have to really burn your hands first and then you actually learn what the process is like and why you have to carry out the process. So between 2012, ’15, it was something like this, where I used to rely on the news or the speculation or the tips and few small articles here and there [Technical Difficulty] primary research, it was always secondary research. It was only in 2015 when I got my own salary, I thought okay, this is my own money, this is my own hard earned money, which I have earned after a labour of 30 days, so let me go through what the document actually is and let me just read up about the company. So Indigo of course, you know, it was a company that we all have used in our daily lives and that really got me interested in the company. So I thought let’s read about it and then I read the prospects from start to finish. I learned a lot of thing. You know, I learned that they are a market leader, the management team is experienced, they came from a US-based airline, their cost efficiency was the highest, their maintenance costs were rationalized, you know, they have or they had all A320 or A320 NEOs. So you know, that got me interested in reading more, and I applied in the IPO, and I got the IPO, and the IPO listed at a premium that was a huge motivational boost for me. That okay, what I’m doing is correct. So and from that point onwards, I have started reading DRHP from start to finish. Before that, also, I used to read, but not that properly.

Radhakrishnan Chonat: Excellent. In this day and age of short forms and (inaudible) WhatsApp messages, it’s good to see somebody, who spends time on reading. So you mentioned primary research and secondary research, right? Most of — most of the — Indian investors rely on secondary research, which is basically tips or, you know, hearing your friend invested in this company, okay, let me also jump in, they don’t look at their risk profile and all that. So if I were to ask you, to motivate those people move to primary research, of course, you know, I think it will be a hard task to ask anyone to know fully read DRHP. Can you explain to our audience, what sections in a DRHP should the investor read before he or she makes a decision?

Aditya Kondawar: Absolutely. So that’s a very important question, and I’m glad that you highlighted it right. So a DRHP, I call it like a pulley of the company, right? It tells you everything you know, from start to — from A to Z, from start to end about the company. Now what really happen is that you know, you — when you click on the DRHP, a 500 or a 600 page of document opens up and then people get scared. They’re like — how can I read a 500, 600 page of document you know, I’m really scared. Let’s just forget it. You know, it’s like — it’s anyways, IPO, you know, like seven days my money will double or it will not, so let’s just ignore the document and let’s go ahead and invest. But then you know, there have been a lot of episodes, wherein we have seen that if you don’t do your own due diligence, you can get up stuck, you know, your hard earned money can get stuck in companies. For example, the biggest example is of Reliance Power, where we have seen Paytm, we have seen a few more examples, like CarTrade recently. So what people should do is that from the big document of DRHP, you don’t have to read everything. So I have been reading DRHPs for what, 10, 11 years now. And one thing I’ve realized that you know, out of the 600 pages, only 50 to 70 pages are important, right? So a DRHP tells you everything about the company, what the company does, how it earns money, how it spends money, what kind of a management it has, you know, what kind of a background they’re coming from, what kind of experiences they have had educationally and professionally. Are they really cut — cut for the role that they have currently at the organization, you have risk factors, you have SWOT analysis, you have the financials, we have the industry data that is given. So when you read up as a — as an investor, as a newbie, who’s reading a DRHP for the first time, just assume that these are pieces of the puzzle, right? So just go to every piece and try to form a view of the company by combining all of them. For example, let me talk about a company like Nykaa, right. So when you look at the risk factors of Nykaa, they said that they have a 4% pledge. I mean, that means that 4% of the company’s equity shares are pledged in the form of a loan against a loan by bankers, then they said that, you know, the consumer trends and habits are changing very fast, so it can be hard to keep up. They said that marketing, where they have to spend a lot. And when you saw the financials of Nykaa, they were improving. When you saw the industry size and the industry trends of Nykaa, you could see that the industry is expanding at a rapid pace because the retail market, the Indian retail market, the Indian consumer, has been spending a lot, right. So you combine all of these pieces together, you come to know that it is a good company. Then in the end, you have to see the fact — you have to see the valuations, you have to compare it to peers, maybe in the domestic markets, or in the international markets, and then form a view. In the case of Nykaa, of course, 22 times price to sales was extremely expensive. So just to demystify this price to sales, it means that if a company is doing INR1 of sales, you’re paying INR22 in valuation to the company, right? So it’s 22 times sales. So that was a very, you know, it was quite an expensive valuation. So what you do over here, you have to simplify everything. See, the thing is the world of finance, tries their best to complicate stuff, okay, but you are — you as an investor, as a layman, you have to see everything from the point of view of a five year old, you have to simplify everything to its basic crux and then you can form a view. So just to sum it up, go through the important sections, compare it with peers, and then form your own view. See, you may be wrong, you may be right, that entirely depends on a lot of factors. It can depend on the market timing, your luck, and several other factors. But what really happens is, is that with every DRHP that you read, you gain industry insights about a new sector, about a new company, and then you go on a learning curve. You then automatically what happens is that you know, whenever the next IPO comes, you would directly go and read the DRHP, even though you may not apply to the IPO, but you have gained knowledge and knowledge gained is never wasted.

Radhakrishnan Chonat: Excellent. So that’s like a INR15,000 course every time you read a DRHP for free?

Aditya Kondawar: Absolutely, absolutely. That’s a very good, good way to put it.

Radhakrishnan Chonat: Excellent. So let me ask you the million dollar question. You mentioned about Reliance Power and Paytm. What went wrong? For an average investor, he reads in the newspaper that Paytm has been subscribed X number of times, and he has that FOMO right, fear of missing out. He goes and puts his hard earned money of you know, what INR15,000 on average, at least one lot. And then, listing day he sees everyone saying the opposite of what they said pre-IPO Paytm [Foreign Language] though he’s actually wondering, what, what just went wrong? [Technical Difficulty] those audience, who blindly went behind the FOMO, do you have any advice for them? What actually went wrong? You mentioned briefly about valuation? So if you can distil Paytm especially because that’s something that’s on top of everyone’s mind, that’d be great.

Aditya Kondawar:  So you know, just to — just we are[ph] starting, you know, it will be — it is very convenient for us right now after the Paytm, after the Paytm stock has disappeared and has corrected to say that what has gone wrong with them, right. So I feel it’s a bit unfair. I’m going to speak for the whole IPOs, and then I’ll speak about Paytm as well like what, what is really not working for them, or what is really working for them. So you know, you have to really look, so the whole IPOs right, they always come in euphoric times, number one. So you have had a 1986, 1989 dot.com boom 2013, ’15, ’17, ‘18 and then, of course now 2020, ’21 and 2010 IPO boom as well. So what really happens is that you know, markets sometimes reach a level, where there is a lot of euphoria. And in this euphoria, companies try to tap the markets because they get a higher valuation for the company, that’s simple as that. You know, I have seen a lot of examples recently wherein the companies have come in at a 1, 2, 3x valuation that would — they would be trying to get before. So that clearly shows that, you know, a lot of IPOs try to come and tap the — tap into the market euphoria. What really happens is that, you know, this IPO actually culminates in a proper IPO run, wherein people totally ignore the fundamentals and just go ahead and apply. See — let’s be very honest, okay. IPOs are treated as a lottery ticket by a lot of people, I’m not just saying retail investors, just to clarify, I’m saying a lot of — a lot of classes of investors, NNI, QIBs. When there is so much liquidity in the system, everyone is just trying to make a quick buck on it, right? And it’s not as if, you know, mutual fund managers can just say no to the money, right? They’re just getting inflows and they’re just going to keep diverting it and IPOs are a good way to allocate the money right [Foreign Language] so let’s just put it into it and then let’s try to (inaudible) but, you know, that’s where the problem is. So what happens is, let’s look at the IPO, IPO lifecycle, right. So, a few IPOs come, they would list at a [Foreign Language]okay-ish premium, then a few more IPOs come, they list at a huge premium. And then what happens is that you know looking at that investors think to themselves okay, IPOs are easy way to make money. And at the same time, on the other end companies think that okay, the market conditions are extremely good, let’s look at the market [ph]. So, you have companies coming up, you have investors — investors lining up (inaudible) it becomes a full circle. So, that has happened always right. In 2008, Reliance Power, if we talk about it, there was mass euphoria in the market. Energy sector was hot, so the markets were hot, the budget was just introduced, the dream budget was just introduced. You know, Manmohan Singh had said that, you know, the energy sector, the power sector is going to take India to the next, next level. So Reliance Power came in the midst of all that — all that and IPO worth INR11,000 crores got bids of INR7 lakh crores. Can you imagine that time when there was no online facility as well. I believe 4 crore forms were distributed that time. So it was just unprecedented. You know, everyone said that Reliance is going to list at a premium, Reliance is going to list at a premium or Reliance Power is going to list at a premium and it did, it did. It listed at a 19% premium and then [Foreign Language] everything was over. The company announced the bonus, the company did a lot of stuff — they could not do anything. The company has lost 98% of its wealth. But if you could have — would have just opened the DRHP and read the fundamentals of the company, you would have seen that the company was a newly formed company, company profits was just INR16 lakh, just INR16 lakh, when NTPC, Tata Power had 1000s of crores of profit that time. And then let’s shift to now okay. What has happened in the past one and one and a half year is that there has been abundant liquidity in the system right. Liquidity is sloshing around the globe, thanks to central banks all across the world, thanks to the US Fed. And that liquidity is coming here, it is chasing assets, they are — and that liquid is, is inflating efforts. That is why you see that there is a — such a long Bull Run this time and I mean, it’s not even stopping. Let’s not just say Bull Run, but the euphoria is not stopping. Now, let’s talk about Paytm, right. So what happened over here is also something similar. People started to ignore fundamentals. If you would have opened the Paytm DRHP would have known that Paytm has spread itself too thin. They are in a lot of businesses, you know, they’re into wealth, tech, insurance, broking, payments, BNPL, they have a small payment, they have a payments bank, I believe if I’m not wrong, yes, they have payments bank. So it’s not a leader in any of those. There isn’t — there is no clear roadmap to profitability. The financials just improved in the past six, nine months. And the valuations that were being demanded, you know, it was like 25, or 26 times price to sales, if I remember. And when you look at global majors, right, you look at Facebook, Amazon, Google, which are the — like the real innovators. They create new technologies altogether. They are trading at less than 12 or 7 times price to sales as well. So I mean that really, if you would have read all of that, then you would have known that, okay, you know, this is a tech company, of course, you know, they have a lot of customer base, they have created a household digital brand, maybe for themselves, but is it really worth paying $20 billion or 26, 27 times price to sales for. So the answer would have been no. At least for me, it would have been no. And I mean, then that, that way they could have safeguarded their capital. You know, they could have said that okay, let me just see how the company performs after listing, how they, how the management evolves, how the management gets mature with being a listed company, what is the kind of capital allocation they do from being a startup to now a listed entity, and then I can take a decision.

Radhakrishnan Chonat: Right. Excellent insights for anyone, who decides to invest in an IPO going forward. Looking at the other side, you are somebody, who reads DRHPs on a regular basis. Name a company or companies that come to your mind, where you were so impressed that you decided straightaway that you know, I should invest in this company or the valuation was such that there was money left on the table for the investor to make. Can you mention a few companies that you came across like that?

Aditya Kondawar: So number one, of course, of course, is DMart, you know, Radhakishan Damani Ji. He has created an excellent franchise, in the form of DMart. Everyone goes to DMart to buy their groceries. I mean, you go on a weekend over there and food is being distributed, it’s such a rush over there. IPO came at INR299, and it lists — it listed at 100% premium, it was INR600 on a listing day. And look at the price now, I mean, it has been a phenomenal wealth creation journey. The DRHP was good. You know, in fact, DMart is such a company that where you could not really — where you could have invested without even reading a DRHP, just one visit to the store and just knowing a bit about Radhakishan Damani would have influenced you or would have — it would have given you a conviction that you know, this is a company that I want to stay with, because you go to their stores, they are so frugal in nature, the only place that they don’t compromise is value to consumers. So you would get the cheapest of the cheapest goods over there. Their stores don’t have any fancy interiors, their stores have no helpers, they have no fancy point of sale counters. What they give the best in the retail system is the prices and that is why consumers flock to them, and that is why they have such a huge growth. If I want to talk about DRHPs that were good, you know Burger King is something that comes to my mind, which was a very good DRHP. Mrs Bectors was good. Gland Pharma was good. I believe even the Indigo DRHP was very good because it was quite a — quite a long time after the airline got listed and the kind of data that (inaudible) was interesting. What else? The insurance companies that came to get listed, they had really good data. Yeah, these are the — these are the few that come to mind honestly. I mean, there are a lot of — a lot of more DRHPs, but yeah, these are the ones that come to my mind, right now.

Radhakrishnan Chonat: Excellent. A few more IPOs are lined up for the rest of the year, especially the big behemoth like LIC. Are you looking forward to reading LIC’s DRHP or has it already come? I don’t think it has come, right?

Aditya Kondawar: Correct. So it hasn’t come yet. So the moment it comes, I would definitely want to take a look at it. Because new age companies are — different companies that come to the market, they’re always full of niche [ph] data, data that can help you learn more. So definitely, you know a company like say LIC or NSE definitely when they come to the markets would love to read their DRHPs.

Radhakrishnan Chonat: Excellent. And to our listeners Aditya has an active Twitter handle, where he distils all the (inaudible) that he gains from DRHP in good threads, as they call it on Twitter. Please do head over to his Twitter handle. Aditya you can mention your Twitter handle over here.

Aditya Kondawar: Yeah. Thank you. So it’s Aditya_kondawar.

Radhakrishnan Chonat: Aditya_kondawar, do follow him for interesting threads on all the DRHPs that were mentioned here and he’s definitely going to do that for the upcoming IPOs also. So other than IPOs, tell me a little bit more about your other investment interests.

Aditya Kondawar: Sure. So you know, we run — we run, we are at JST run a long only fund, right? So the sectors that I track are FMCG, telecom, textiles, and some bigger moves [ph] and of course, we’re the newest companies. I like to own businesses, as a business owner. I haven’t really looked at all my stocks, as just stock tickers or the stock prices, you know, I have always wanted to be a business owner with them. I have 10, 20, 30 year view. I believe I haven’t sold anything in the past few years from my portfolio, because I’ve just bought them and I’ve just forgotten about it. I keep tracking all the stocks that I have in my portfolio. And that’s about it, you know, as — so investing is very boring, you know, you just have to read up a lot, you have to know what the promoter is thinking, what he’s doing, you have to take care of a few thing and that’s about it. You know, you just keep tracking the company. It’s not as if buy and forget, like before, it’s buy and track. And if I had to summarize my investing philosophy, right, like how investors would be like this [ph], there are two main points. Number one, the company should be a market leader; and number two, the company should have a clean promoter. So in the 4,000, 5,000 odd listed companies that we have in India, if you apply these two filters, I think 99% — more than 99% of the companies will get filtered out.

Radhakrishnan Chonat: Excellent. Can you tell us a bit more about JST Investments and you know, your co founders and your journey on the investment world.

Aditya Kondawar: Yeah. Absolutely. So JST Investments is a team is a team of three core people. We are around eight people in total now. So at JST, we basically whatever, whatever philosophy I just told you, right, so, we try to instill the same in our client portfolios. We are here for the long term. We are never buying stock. We are never buying stocks for our clients. We are buying businesses for them. So it has been like, what, almost two years since we started JST, and it’s close to 150 clients for us now, and half of them come from abroad, or you know, from different countries, the US, Canada, or Africa, Japan, Middle East. We have a lot of clients from the Middle East, for some reason. About my partners, so our CIO is Mr. Aditya Shah. He has been in the markets since 13 years. Our Head of Research is Anish Moonka, who has a similar experience like me. All of us have — so we met through Twitter, fun story. We all met through Twitter. We started collaborating on Twitter. And then naturally, we thought, okay, we are doing something similar to each other and let’s — let’s just try to come together and do and just let’s just scale this work [ph]. All of us have the same goal. You know, we try — we love to read companies, we love to find out good companies, we love to interact with people. We meet with a lot of promoters, stakeholders, employees of companies. We interact with a few IPO going companies’ management as well. We have done that as well on Twitter. And that’s about it. You know, investing is very plain, it’s very simple, it’s very boring. We don’t try to complicate it. And like you said, you know, we have been educating a lot of people through Twitter. We put everything in a very simple manner because we try to put up stuff in a way that we would like to receive it, right. So for us personally, we want to receive everything very personally, very basic — in a very basic way, and that is why we put it in that way and it has worked wonders.

Radhakrishnan Chonat: Great. Great to hear that. Let’s talk about your personal interests. So what do you do during your free time?

Aditya Kondawar: Absolutely. So — so I am a voracious reader, number one. I’m a fitness enthusiast. I love to network with people. I love to meet people. I love to talk to them. I love to travel as well. Most of all, I love to spend time with my family. So if I have to just break down my day, you know, so my day starts at 5:30 am. I wake up very early. I go for a run, then I read a book, then I log in, then I work till like 7, 7:30, then talk to my family, have dinner and then just socialize with my partners, just think about strategy and then again read a book and then sleep off by 9:30 pm.

Radhakrishnan Chonat: Excellent. So if we were to ask you to name a few books, that will be up, you know, must read list for anyone, who’s listening. Can you name a few books that you know, you will definitely recommend?

Aditya Kondawar: Yeah. Sure. So I’m going to divide it into two parts, one is investing and one is non-investing, right. So in the investing part, I would request you to read all the books of Mr. — of the — of late Parag Parikh sir. I mean, he has written amazing books that are very simple to read, very simple to understand. Then, so he has a few books, Stocks To Riches, Value Investing and Behavioral Finance, and then his — and then his life story, which is called Timeless. So you can find that on PPFAS website, do read that as well. Then on number two, Dr. Vijay Malik, so he is called the Doctor of Stocks because the way he analyses company is like a doctor performing a surgery, right? So he takes out everything out from the company and he puts it out, you know, the pros and the cons, and then he just gives the conclusion. I believe that his articles are the best in the country. I mean from A to Z, everything is called [Ph] about the company. Talking about non-investing, so I read a — read a lot of non-investing books as well of course. I read philosophy, I read mythology, I read autobiographies, business books. So I think Tuesdays with Morrie is a very good book that you guys should read. It’s about life. It’s the — so it’s the story of a old man, who is slowly dying, and a young man, who has had everything about his life thought wrong, and then how he recalibrates his thoughts to the old man’s thoughts, and then how he starts enjoying life. So of course, number one, Tuesdays with Morrie. What else? So I read a lot of business books. So Indra Nooyi’s book, My Life in Full. That’s a good read. The Shoe Dog by Phil Knight, that’s a good one. So yeah, I think yeah, these five books. Yeah.

Radhakrishnan Chonat: Excellent. Excellent choices. Thank you, Aditya for giving us valuable insights about IPOs and definitely recommending those books. And we look forward to catching up with you again when new IPOs like LIC come up and hearing your views for our audience. Thanks again for your time, and looking forward to more catching up with you.

Aditya Kondawar: Thank you. Thank you, Mr. RC Ji, and thank you, AlphaStreet for arranging this.