SARF communication Pvt Ltd deals in the online sale of mobile phones. They have been in this business for the last 12 years. It all started with selling a couple of mobile phones and using that money to buy another, now it’s a 150 Cr turnover business. The future looks brighter as mobile phones are ranked under top 5 commodities to deal in the next fifty years.
Think about it. How long have you been using your current phone? Most people I know of purchase a new phone every two years. Our dependency on mobile phones is on the rise and the current pandemic has further accelerated the adoption and usage.
The business consists of buying mobile phones from the distributors and selling in Business to Business (B2B) and Business to Consumer (B2C) online portals. SARF sells in B2C portals namely amazon, flipkart, 2gud, tatacliq and clubfactory and B2B portals namely udaan, arzooo and shopx.
Ever bought a new mobile online while exchanging your old one? The old ones are collected by these portals and sold on lot basis to dealers. The dealers examine each item, repair if necessary and they are then marketed as refurbished items. The refurbished items can also be listed in the online portals. SARF deals in both new and refurbished (seconds) sales. If some of the phones can’t be sold, they are dismantled and sold as original spare parts.
Below is the average monthly turnover for the last 3 financial years. To get the annual turnover you have to multiply by 12.
FY 20-21 explanation (selecting this year as the investment amount wasn’t tracked in the previous two years):
Investment: 10.92 Cr
Gross profit: 38.13 Lakhs. It’s 3.49% of the investment. Gross profit is the difference between selling price and cost price. From the Gross profit, expenses would be deducted. Expenses include those that are recurring as well as one time. Recurring expenses such as office rent, employee salary, marketing cost etc. When those expenses are deducted we get net profit. SARF splits the profit equally between the investors and the business owners.
Net profit: 24.72 Lakhs. It’s 2.26% of the investment. As mentioned above, equal split means the investors will get 1.13% per month. Which translates to 13.56% RoI per annum.
SARF has 12 Crores in investment. Based on their turnover, their banker is ready to loan an additional 14 Cr at 12 per cent interest per annum. But the founding partners and brothers – Shabbeer Hussain and Rafi – are not considering interest based financing. They would rather pay 13-15% to secure investment as per the rulings of the shariah.
With the present 12 Cr investment, they feel that they’re underutilizing the resources. They have 30 employees and without any significant additional overhead, they can manage 25 Cr investment. It’ll also improve their margins as the recurring expenses are almost the same up to 25 Cr. Which in turn can up the RoI to 18% p.a.
Investment Terms:
A brief note on Investment security: The investment would be reflected as loan in the financial records of the company. In a private limited company such as SARF, in case of business closure, as per the laws governing such companies (Company Act 2013 & Income Tax Act 1965), the loans would be settled using the company assets and incoming payments. Loans have a higher priority than shares.
Investment types:
- Profit and loss: 50% of the profit would be shared with the investors. The investment is taken as a loan and will be returned back when the investor wishes post the lock-in period.
- Compounded returns: You can reinvest a percentage or portion of the profit (4% recommended as most real estate assets nets RoI between 3.5 – 7.5%). It’ll be added to the investment each month and you’ll get compounded returns. Your investment will grow and so will your profit.
Future plans:
SARF is one of the four companies owned by the two brothers Shabbeer Hussain & Rafi. While SARF focusses exclusively on online sales, the focus of the other companies is as follows:
- Mobile Square – Four retail stores in Chennai ( Doveton, Anna Nagar, Selaiyur and Ambattur) with plans to expand to 100+ outlets in the next five years. The moment they touch 35 outlets, the process of opening additional outlets will become self-sustaining without needing external investment in sha Allah. An outlet requires an investment of about 50 to 70 Lakhs.
- BestBuy Enterprises – for refurbished mobile phones wholesale.
- SARF Industries (SARF Exim) – Mobile phones export from India to Dubai. This is a lucrative area because in the last 5 years, mobile phone export has seen a 600% increase. The government offers 1 Lakh Cr in subsidies to companies setting up mobile phone manufacturing plant in India. Recently Foxconn has announced plans to invest 1 billion dollars to setup a manufacturing plant in Chennai which will house 19,000 employees. TATA group is looking to invest 5000 Cr for a mobile phone component manufacturing plant in Hosur. India is all set to become a mobile export hub. On the demand side, 68% of all mobile phones are traded in Dubai. Export of mobile phones from India to Dubai is a great bet given the industry developments. Total investment required for this enterprise is 25 Cr. SARF has done their market research and have started exporting on a small scale.
Comments:
- Due to low entry barrier, it’s easy for anyone with a GST to trade online. Anyone can do online business, but to do it over a period of time and make profit is remarkable. SARF has cracked the online sales when its competitors couldn’t.
- The other edge SARF has is covering all the bases. They’re not only online, but have retail and export division, B2B and B2C, new and refurbished, sales and service, local and social. Overall it seems to be a holistic enterprise.
ESAF Due Diligence:
[Photo: summary of the findings done for amazon]
Disclaimer:
This is an ESAF initiative to help business owners who have the expertise and are seeking capital. Please do your due diligence before investing
