2017 October

How we caught & dropped a 5-bagger – Story of AGL

Posted by | Investing Framework, Scuttlebutt, Stocks | No Comments

Ceramic Tiles is one space which we have been tracking for many years now. In the past, we have misjudged the potential of branded players and missed some multi-baggers like Kajaria Ceramics and Somany. (blog post from 2013)
During 2015, we studied a company called ‘Asian Granito’. With Rs 850 Cr. in annual sales AGL is the 4th largest in India’s Rs 24,000 Cr. ceramic tile industry. It was available at Rs 160 a share and a market cap of Rs 360 Cr. i.e. 0.45 times sales vs. 2-3x for Kajaria and Somany. Despite throwaway valuations, we gave it a pass owing to some concerns on the business and management quality.

We again looked at it when we learned Mr. Tapan Jena, a professional with 27+ years of experience

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Gillette’s Eroding Moat & Key Lessons

Posted by | Indian Markets, Investing Framework, Investing wisdom, Stocks | No Comments

Back in 2013, I had written a post on Gillette discussing the likely challenges it is going to face in growing its business. A business with such headwinds trading at 80 times earnings should have gone only one way- down. That’s a different thing the stock has actually more than doubled given the exuberance in markets. Nevertheless, it has significantly underperformed the broader markets.
For a long time, Gillette was touted as the perfect example of a moated business, well reflected in its 70%+ market share, 60-70% gross margins and extraordinary Return on Capital Employed. This was all being protected by sustained investments in 1). product innovation; pioneered multi-blade technology and kept on launching better razors latest being a 5-blade razor 2). branding to have a dominant recall.
The demand was

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Why we prefer ‘First-Generation Owner-Operator with Skin-in-the-game’?

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We often say while talking about our investment philosophy that we prefer companies which are led by ‘First generation, owner-operator with skin-in-the-game’. Why do we have such a preference?
A company is called to be owner-operated when it is led by the promoter(s) who own the majority stake in the company.
It is said to be first generation owner-operated if it is led by the founding promoter(s). Think Relaxo Footwear or Wonderla Holidays.
Over time the leadership could be passed on to the next generation though it will continue to be termed as owner-operated. Think Garware-Wall Ropes which is currently led by 3rd generation or Amrutanjan Healthcare led by 4th generation.
The baton could also be passed on to a professional management team; qualified and experienced managers who would now

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Should you invest in IPOs?

Posted by | Food for thought, Indian Markets, Investing Framework, Investing wisdom, Investment Gurus, IPO | No Comments

There are two kinds of Initial Public Offering (IPO) –
1). Fresh Issue where new shares are issued and money raised goes to the company which can be used for growth or retire debt and
2). Offer for Sale where existing investors (promoters and private equity) sell their shares and money goes to them rather than the company.
Unlike earlier times when most IPOs were a fresh issue in order to raise growth capital, now most issues these days are Offer for Sale. During rapid growth phase companies go to private equity firms for capital and after achieving reasonable scale comes up with an IPO at rich valuations, leaving hardly anything on the table for new investors, to offer an exit to private equity.
IPO is a seller’s market, they

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