THE UNUSUAL BILLIONAIRES

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About Author

• Saurabh Mukherjea was the CEO of Institutional Equities for Ambit Capital, an Indian investment bank.
•  In 2014 and 2015, he was rated as the leading equity strategist in India by the Asia money polls.
• Mukherjea has spent most of the past decade trying to construct and implement systematic methods for analysing Indian companies in the midst of the chaos that surrounds the Indian stock market.
• A London School of Economics alumnus, Mukherjea is also a CFA charter holder.

How Saurab Mukherjee has identify such companies?

• Saurab Mukherjee has used Robert Kirby’s “Coffee Can Portfolio” model. The formula to derive it is:
  • For Non-Financial Service Firm (Decade):
    • A 10% Revenue Growth every year
    • And at least 15% of Return on Capital Employee (ROCE)
  • For Financial Services Firm (Decade):
    • Return on Equity (ROE) of at least 15% every year
    • And Loan Book Growth of 15% every year
• Mukherjea identified 8 companies According to this:
  • Asian Paints`
  • Berger Paints
  • Marico
  • Page Industries
  • Axis Bank Ltd
  • HDFC Bank Ltd
  • Astral Poly
  • ITC
• The CCP has outperform Sensex every year and Sometimes by More than 25%

Asian Paints

• Asian paint from start has focused on core business i.e. paint segment only
• This is the only company in the paint segment which has not seen a change in its controlling shareholders in the past seventy years
• Creating a unique working culture that nurtures talent (Hiring from IIMs) and gave them full freedom to work
• Focus on technology to reduce cost & increase efficiencies: colour tinting machines & IT system
• Good relationship with dealers
• Prudent capital allocation and Continues innovation
• Branding plays a key role in making Asian paints as the largest paint company in India

Berger Paints

• Berger paint is the second largest paint company in India
• Berger paint has seen so much change in ownership from Lewis Berger, a British manufacturer to Vijay Mallya, who sold to Dhingra brothers at last
• Berger Paint has focused on core business only and had not diversified the business
• Focus on hiring talents from IIMs and giving them full responsibility and authority to work
• Continues innovation in product and launching new products with special characteristics
• Strong relationship with distributors (Giving benefits to them like Rebates, favourable credit terms, and rewards & gifts like international holidays)
• Berger had A strong supply chain which keep a company inventory costs under control and keeps the dealer happy
• Aggressive advertisement campaign to focus on Branding

Marico

• Marico’s journey is unique from a commodities-driven firm to a fast-moving consumer goods (FMCG)
• Marico’s most popular product is Parachute and Saffola
• Marico had completely focused on its core business and product specially parachute and saffola
• Marico had continuously focused on innovation in packing & product to attract customers
• Unique work culture (no attendance register, remuneration based on performance, no cabins)
• Maintain relationship with distributors like sending them for foreign trips, etc.
• Extending winning brands like Nihar shanti Amla, VAHO, Hair & Care etc and divesting low margin brands like sweekar
• Using auto-replenishment, demand driven model (where if distributors inventory depleted than company send fresh one), unlike other FMCG pushing their inventory to distributors
• Prudent capital allocation- First company to declare quarterly dividends in FMCG
• Diversifying its business in various categories like oats, edible oil, hair nourishment products etc and in various nations

Page Industries

• In 1990, Jockey International (USA) gave the exclusive licence to Sindhi business family Genomals to launch and expand Jockey’s presence in India
• Within two decades, Page Industries became the biggest license company of jockey in world
• Page had focused on its core business i.e. Jockey only
• Delivering a differential product which is upgraded year after year to provide comfort, durability and affordability with fresh design
• In house manufacturing of elastics to reduce cost rather than outsourcing manufacturing
• Various facilities were provided to workers to avoid labour strike like free lunch, crèche facility, proper sanitisation and health facility in factories etc
• Quality of product and supply chain management (Strong ties with distribution channel and especially mom & pop store) is the two strongest aspect of Jockey compared to its peers
• Doesn’t acquired company which is not directly related to core business and only acquisition will occur if the acquire company post at least 20% CAGR

Axis Bank

• Axis Bank was backed by UTI (Unit Trust of India), India’s largest mutual fund house and some of the professional bankers of Public sector. Axis bank had a slow start, when it started its operation in 1994
• However, under the leaderships of Supriya Gupta, P Jayendra Nayak and Shikha Sharma, the bank has now become the country’s third largest private bank
• Axis bank has Increased ATMs & branches at much faster rate than its competitors (to increase CASA)
• Axis bank has Largest ATMs and Branches in India
• Increase the focus on Advertising to build a strong Branding
• Innovation in products like launching its app for digital banking and Aadhar base e-kyc etc
• Providing better facilities to clients like creche, ESOP, adding accident insurance cover of 20000 to salary account etc

HDFC Bank

• HDFC received its banking licence in 1994 and its MD Deepak Parekh roped in Aditya Puri to head the bank since inception.
• Mukherjea writes HDFC Bank focused on two key principles – building a stable and low-cost liability base, and winning clients by offering unique solutions
• HDFC Focused on building a granular, low cost franchise along with a market-leading position in most retail product since its start
• HDFC had Taken minimum risk (when other banks were focusing on personal loan and credit cards, HDFC was least interested (Bank suffers huge losses for that except HDFC))
• Continues innovation ahead of peers (ten-second personal loan approval, automated settlement system for stock market, etc)
• HDFC had Focused mainly on profitability over growth
• Money spent by bank in advertisement was much lower than their peers, even HDFC Bank didn’t use celebrity to build their brand name

Astral poly

• Astral Poly Technik Limited is engaged in manufacturing and trading of pipes, fittings and adhesive solutions.
• The company’s managing director Sandeep Engineer start was rough before building a profitable firm to turn it into India’s largest manufacture of Chlorinated polyvinyl chloride (CPVC) – an expensive, but high-quality alternative to GI pipes
• Astral Pipes Focused on core business (CPVC pipes)
• Continuous innovation in product to stay ahead of competitors
• Recently, it had installed robotic truck- fitting machine to reduce loading time by more than half
• Astral was also the first company to train plumbers and certifying them
• Astral was also the first company to start barcoding on pipes to prevent duplicates
• In India, to keep focus on his CPVC pipes, Engineer sold products at loss (Huge impact)
• Focusing on plumbers as they are the ultimate decider of pipes
• Aggressive branding (Full profit of FY05 was spend in advertisement and unique advertisement like advertising on buses & rickshaw and at wankhede stadium)
• Treat their employees from watchman to promoters equally (all have same uniform)

ITC Limited

• Unlike other companies ITC didn’t stuck to its core business of cigarettes instead diversifying its business in Financial services, hotels, IT, etc
•  But he never compromised on cigarettes market share and focused on it along with other business
• Consistent performance is due to:
• The quantum of unrelated capex has not stressed the balance sheet
• 50% of cash flow generated from operation has been paid out as dividend from last decade
• 35% of cash flow from operation has been invested in business which generate healthy ROCEs