AvenuesAI

A sliver of every checkout

Every time someone pays for something online in India, a payment gateway quietly passes the money from buyer to seller and keeps a tiny sliver for the service. Infibeam Avenues, through its CCAvenue brand, is one of the older such gateways, with a software arm beside it. It rides a genuine wave — the relentless shift of Indian commerce onto screens — and its sales have grown fast, compounding better than sixty per cent a year over five years.

So far, the Buffett checklist is happy. The trouble is what the growth earns.

Cheap on assets, but thin on returns

The shares trade at about eighteen times earnings and, tellingly, right around the value of the assets on the books — a floor of sorts. But the return the business earns on its owners' capital is poor, only six or seven per cent, and that is the heart of the matter. Munger taught that a business compounding revenue while earning feeble returns is a treadmill, not a flywheel: it grows, but it does not grow rich. Payments is a fiercely competitive, low-margin trade, and the numbers show it.

What to weigh

The cautions are several and honest. Despite years of profit the company pays no dividend; the promoters hold only about a quarter of it and have trimmed even that; the tax rate has been low, flattering profit; and the returns on capital sit well below what a quality business should earn. The growth is real, but the moat and the profitability are open to doubt.

What this asks of you

This is the speculative end of the value-with-growth spectrum, and a value buyer should treat it as such. The case, if one takes it, is that a fast-growing payments business bought near the value of its assets eventually earns better returns as it scales. But the discipline cautions against confusing a busy, low-return business for a wonderful one. If owned at all, own it small, watch whether returns on capital actually rise, and lean on the near-book price as the only real margin of safety.