Thoughts on consumption sector…


Just finished reading this fantastic article by Aarti Krishnan from HBL. Thanks.
https://www.thehindubusinessline.com/opinion/columns/aarati-krishnan/are-consumption-stocks-invincible/article25625089.ece

Some thoughts would like to share…

I think this consumption story is here to stay… for a long long time
We are in a consumption mania – there are products and services to cater to all 5 senses

The regulatory changes may impose a temporary pull down on sector, but, as the sector is fundamentally strong, it will adapt quickly – when you have millions of people ready to spend – incomes levels expect to grow
Moreover, regulatory changes may also drive value migration from unorganized to organized players.

The rise of big retail still have a long way to go – reach of smart phones, mind set to provide bank/card details online, touch and feel before purchase etc.,
Millions of people like me still want to have a touch and feel while purchasing – exceptions may be only books, stationery, toys etc.,
Moreover, we have lots of families who keep an account book at mom-pop store and buy whatever they want through the month and pay when they get the salary – (online retailers listening? :))

Consumption index valuations most of the time were always higher than overall market valuations
Is it because market participants think that whatever the state of the economy is, consumption spending will not stop – discretionary spending may slowdown for a while?
Hardly the valuations of companies like Nestle, HUL, ITC, Glaxo, P&G, Colgate, Britannia, Page, crash – they come down during an overall market meltdown – like 2008 times – or some black swan events – like noodles controversy, but they bounce back quickly
I think the consumption sector came back in focus around couple of years back, and started as a PE expansion – for price to catch up with earnings and taken off as a sectoral bull run – also driven by NBFCs credit for consumption

I think there are too many fishes in the consumption pool, and growing bigger, but the size of the pool is very very large
The only challenge will be to find out which ones will grow to become a whale and getting on to them during volatile times and riding with them for a long long time.

Comments, feedback are welcome

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Book Review : Why I stopped wearing my socks


Though I keep reading books, I have never written a review.
I recently read “Why I stopped wearing my socks” by Alok Kejriwal.
I also had a thought of writing a review and here it is.

First about the author, as given in the book.
Born and brought up in Mumbai, Alok Kejriwal is India’s serial digital entrepreneur and currently heading Games2win.
His first two companies contests2win and Mobile2win pioneered digital gaming and promotions in the world.
Mobile2win was later acquired by the WaltDisney Co.
Besides being a businessperson, Alok is also a passionate speaker and a mentor for emerging entrepreneurs.
Alok has spoken at over one hundred conferences including at venues such as the Wharton and Harvard Business Schools and many of the IIMs and IITs.

Please goto https://therodinhoods.com/ to read more on Alok, his writings…

Now about the book

The book starts with him completing 10th grade and asked to go and help his grandfather in his trucking business.
There started his career in business and hitting on spot with his grandfather asking to expand the business and finding opportunity in ODC consignments.
His experience in working with officers in Mumbai docks are interesting.
His grandparents’ love and affection and their influence in his life from childhood and his deep faith in the almighty and gurus and their direction in his life and career has come out well in this book.

Then, for sometime he goes on trying his hands on LOC and Bill discounting, supplying leak-proof drums to a chemical company, starting ‘Solver’ for IPO subscribers and trading / investing in stock market.

Then, moving on to work in his father’s socks factory became a long duration stint in his career.
There he started learning the business, and his achievements was to come up with a detailed cost analysis which helped the company.
Untiring efforts to get potential buyers and finally cracking business with an European company which is a key start for their exports.
How being honest and open with a client has cemented him as a good businessman comes out very well in “Being Truthful is Being Profitable”.
The experience of being over-confident to accept a deal – very big risk – and how the team achieved on delivery
How does it feel like when you are called a liar? – He heard this twice on his face in his life.

After moving out of his father’s socks business, he had tried making a few attempts on an online ventures – and dropped those ideas

Finally, he lands up in online venture contets2win, followed by Mobile2win and Games2win
His experiences in Sales and Marketing – patience, persistence and perseverance is monumental – very much a trait for entrepreneurs – well explained
Few times you don’t know as an entrepreneur how much to charge a customer for a product or service
Few times you underestimate your business’ potential – to an extent of throwing 1/1000th of a number to a client 🙂
At times when a deal does not go through as expected – it may be for a better reason which you will know only in hindsight – so don’t burn your heart out
How do startup funding work? How VCs work? What do they expect from startup founders? How objective they are… What they can do to the startup business… How easy or tough they can be etc., etc., etc.,
How to balance startup days and time with family – what you may miss – how to evaluate which one to skip and which one to give importance to – may be you just need to ask your business stakeholder to help postpone the meeting – so you can balance both?
Post dot com crash – how difficult it was to run a dot com startup, when funding dried up, what were their efforts to raise funds which they could not – what advice they got – what helped them to find a solution – brilliant!
Fired out of the own company – how good it was in hindsight – Providence?

It is very surprising and interesting to see two Steve Jobs moments happened in his life – Fired out of his own company and one of his business acquired by Walt Disney 🙂

A few learning from his experiences – a lot more in the book at the end of every chapter:
– Strategically doing nothing is doing something too
– Bad times never last. Honest people always do
– Being over-confident is the best way to self-destruct
– A single act of greed could kill
– Procrastination kills, just get up, get out, and get started
– Just keep doing good work and angels will come blessing
– Whatever happens, happens for good

Overall, a very good book, easy to read, just flows like a river page after page, you cannot put it down. Must read for startup founders, aspiring entrepreneurs, and a good read for anyone who is interested in knowing how startups work and hard and soft skills can be put to work.

Great work Alok sharing experiences with all, and also continuing to write, speak and mentoring others !

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Circle of Competence


What is common among Sachin, Pele, Schumacher, Tiger Woods, Mike Tyson, Navrathilova?
Sachin only into cricket, Pele only into soccer, Schumacher only into F1 racing, Tiger Woods only into Golf, Mike Tyson only into Boxing, Navrathilova only into Tennis

What is common among Maruti, Hero Motocorp, Pidilite, Asian Paints, TCS, Page, Castrol?
Maruti makes only Four wheeler passenger vehicles, Hero Motocorp makes only two wheelers, Pidilite is only into adhesives and specialty chemicals, Asian Paints only into paints and varnishes, TCS only into software, Page only into inner, sports and leisure wear, Castrol only into automotive lubricants

The keyword above is ‘only‘ and that’s what made all of them exceptional, and that means they have all stuck to what they know and what they are good at – core competence – with a lot of passion

And we all know very well how much shareholder returns these companies have created.

That’s what Warren Buffett and Charlie Munger called sticking to your circle of competence.

“Know your circle of competence, and stick within it. The size of that circle is not very important; knowing its boundaries, however, is vital.” – Warren Buffett

“We have to deal in things that we are capable of understanding.” – Charlie Munger

Staying within one’s circle of competence is very important in investing and that is the first level of Margin of Safety

Thanks,

 

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Overvaluation?


One of the simple back of the envelope calculations to check if some stock is overvalued or not is to check its market capitalisation to its entire sector market capitalisation and revenues.

So, just thought of analysing the sector leaders of this bull run (HDFC Bank, TCS, HUL, Bajaj Finance).

HDFC BANK

1

(Here the point to note is, the overall PSU Bank’s Market cap is quite less than sector’s revenues… Undervalued????)

TATA CONSULTANCY SERVICES

2

HINDUSTAN UNILEVER

3

BAJAJ FINANCE

4

Data from moneycontrol.com
Data numbers in crores

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Technology is a generic term – Software is a precise term


I have always wondered why they are referred as Technology companies.

  1. Apple’s share of revenues are mainly from iPhone sales, followed by iPad, and Mac computers.
  2. Amazon’s share of revenues are mainly from Retail (online and offline), and then AWS and others.
  3. Google’s share of revenues are mainly from Advertising. Other supporting products are mail, youtube, docs, browser, playstore, android etc.,
  4. Microsoft’s share of revenues are mainly from Personal computing software, followed by business processes etc.,
  5. Facebook’s share of revenues are mainly from Advertising, and a small percentage comes from payments

Most of them as you can see are purely consumer plays having direct B2C connection.
They use Technology for their products and services.
They develop software and hence software companies.

Are companies in Automobile, Engineering, Electronics, Pharmaceuticals, Chemicals not technology companies?
Don’t they use Technology for their products and services.

Please let me know what you think

Thanks

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All time highs and lows


Recently came across news where a stock price was referred to have hit an all time high.

So just thought of going through a list of stocks from recent bull run sectors (Finance and Consumer), and come up with their all time low and high and present price/market cap.

Some of the stocks have hit an all time low of less than a rupee and moved to as much as 4 digits – that is more than 1000 times and today they are very strong brands and still going great.

As you can see almost all of these are products and services we use on a daily/frequent basis in our day to day life.

That is as per Peter Lynch – Buy what you see !!!

Company Name All time low All time high Latest Price Latest Mkt Cap
Bajaj Auto 147.32 3,472.60 2,689.20 77,816.58
Hero Motocorp 18.00 4,200.00 3,238.00 64,666.57
Maruti Suzuki 156.10 10,000.00 9,364.00 282,867.77
HDFC Bank 6.45 2,219.05 2,078.45 564,286.40
Kotak Mahindra 0.64 1,424.00 1,287.55 245,481.78
ICICI Bank 3.82 365.65 340.65 219,182.55
Axis Bank 2.46 655.35 656.55 168,620.02
Kajaria Ceramic 1.41 787.55 491.15 7,806.84
Cera Sanitary 3.25 4,300.00 2,735.00 3,557.11
ITC 0.69 353.20 312.70 382,474.07
VST 49.70 3,774.00 3,161.00 4,881.19
Whirlpool 10.63 1,805.00 1,795.25 22,776.67
Symphony 0.13 2,212.75 1,118.85 7,827.14
TTK Prestige 5.75 8,911.20 6,914.75 7,987.34
Bajaj Electric 1.65 706.35 544.25 5,559.06
Hawkins Cooker 15.00 4,650.00 3,350.05 1,771.44
Havells India 0.16 723.00 714.60 44,696.29
V-Guard Ind 2.61 254.90 221.95 9,451.02
HDFC 6.80 2,051.00 1,950.15 329,806.26
Indiabulls Hsg 166.00 1,439.40 1,278.10 54,535.97
LIC Housing Fin 4.60 794.10 520.50 26,267.71
GRUH Finance 0.16 381.95 341.00 24,969.09
Dewan Housing 1.58 685.00 664.85 20,853.61
Repco Home 158.05 923.00 552.10 3,454.01
Bajaj Finserv 87.06 7,200.00 6,974.00 110,980.82
Bajaj Finance 1.95 2,959.70 2,984.05 172,468.66
Nestle 59.33 11,590.00 11,325.00 109,190.80
Britannia 14.00 6,944.10 6,737.00 80,951.22
GlaxoSmith Con 93.75 7,695.00 7,429.75 31,246.21
Bata India 11.86 1,087.60 1,095.95 14,085.98
Relaxo Footwear 1.14 874.00 849.75 10,227.05
Titan Company 1.17 1,006.00 882.05 78,307.18
Jubilant Food 80.80 1,555.00 1,550.60 20,463.12
Asian Paints 2.73 1,488.60 1,392.00 133,520.33
Berger Paints 0.41 341.45 342.75 33,282.23
HUL 9.33 1,807.75 1,769.00 382,709.18
Godrej Consumer 4.94 1,450.75 1,435.65 98,121.00
Dabur India 3.00 490.70 479.50 84,392.00
Marico 2.10 388.00 375.15 47,665.00
Colgate 39.06 1,285.00 1,152.30 31,284.00
P and G 151.11 11,000.00 9,744.30 31,119.00
Emami 2.34 714.00 565.55 25,464.00
Gillette India 40.00 7,196.90 6,491.05 21,057.00
Page Industries 241.25 36,335.95 35,430.65 40,033.00

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Market Cap – How big can it get?


Look at the data given below for these companies, when they were listed, their listing market cap and today’s market cap and calculate for yourself how many times multibagger these are.

Company Name Listing Listing Day Mkt Cap approx (in Cr) Current Mkt Cap (in Cr)
Reliance 1977 10.00 818,507.00
TCS 2004 47,000.00 785,202.00
HDFC Bank 1995 200.00 564,829.00

There are close to 30 companies in NSE whose market cap is more than one lakh crore (https://bit.ly/2Nl8z5W) and of course they are multi-multi baggers for investors over past few decades.

But, the question is, how big can they get from here?

Can we expect the top 3 companies to become atleast a 10 bagger in next couple of decades? – that would be anywhere from half trillion to more than one trillion dollar market cap.

No one can answer with certainty. It may not happen, or may happen in a much longer time – not just in a couple of decades.

We may also see a spin off of the lines of businesses to happen to unlock value and list them separately, which is happening with some of the BFSI behemoths like HDFC and ICICI listing their AMC and Insurance businesses.

Hence, top market cap stocks can remain in an investor’s portfolio as pillars of foundation / all weather stocks and for consistent dividends, and any investor looking for 25x or 50x gains over next decade and beyond should look elsewhere.

Please share your thoughts in the comments section below.

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