• Sterlite – a complicated story

    Introduction Sterlite is a vertically integrated manufacturer of fiber optic cables. The manufacturing of fiber optic cable starts from silicon chemicals which is converted into preform which is used to draw fiber which are combined to make the end product – fiber optic cable. Preform is a glass rod with extremely high purity and forms the core of the fiber. It is the most important component of the fiber optic cable and the quality of the cable derives to a large extent from the quality of the preform. The manufacturing of preform requires highly specialized manufacturing process. Preform is to optical fiber cable what software was to the computer industry.…

  • Oberoi Realty – quality real estate business

    Following up from the first two articles about real estate (you can find them here and here). Since the articles were quite long, I’m going to summarise them here for convenience. So, the first article talks about the real estate cycle in India starting from the liberalization in 1991. We are currently in the second real estate cycle. The first cycle peaked in 1995 and the second cycle peaked in 2012-14 period. Currently, we are in the final stage of the second real estate cycle. While it is not clear when the third real estate cycle will start, it feels like we are close to the bottom because there is…

  • Mahindra Holidays – a melting ice cube?

    Mahindra Holidays is a company which sells vacation ownership for 7 days per year for 25 years – also known as timeshare. The company earns revenue from one time admission fee plus annual membership fee over the period of 25 years. In addition, it earns revenue from selling food and beverages at its resorts. The business has a market capitalization of INR 2,600cr. They have total assets of more than INR 6,000cr. Out of this 6,000cr, they have land + other fixed assets + receivables + cash of 4,309 cr. Out of this, they have land + receivables + cash of 3,438cr. Out of this they have land + cash…

  • Narayana Hrudayalaya – Building an affordable model of healthcare at scale

    Hospitals provide a necessary service and are hence relatively immune to economic cycles. On the other hand, it is a highly capital intensive business and is inherently riskier to that extent. For capital intensive businesses such as hospitals, the capital expenditure required is more than the cash generated from operations especially during the growth phase of the business. Most of the hospital chains currently in India are in their growth phase and hence have negative free cash flows as can be seen from the table below. Kovai has a positive cash flow as they derive a majority of their revenues (88%) from one single multi-specialty hospital. NH (2011-18) NH (2011-18)…

  • MCX – time is a friend for this business

    I want to find businesses which get better with time like aged whisky. These are businesses which have a competitive advantage which is not only sustainable but grows over time. And that led me to the concept of businesses for which time is a friend. Businesses go through cycles and however strong the business may be, it will face its share of difficult times. These could be due to an external reason such as industry or economy-wide slowdown or due to internal reasons specific to the business. Most business struggle to survive during these so called downcycles. But are there businesses which handle the adversity well and emerge stronger with…

  • Opportunity in financials in India

    Introduction Companies in the financial sector in India including banks and NBFIs have created tremendous amount of value over the years. There is a good reason for that. As I have discussed in one of the previous articles as well, it is rare to find businesses which have high returns on capital and at the same time have ample opportunities to reinvest the capital at the same high returns in the core business. If such businesses exist they can be the dream compounding machines. Financials is one space where companies with good business models can do exactly that. This has been addressed in an article I read by Saumil Zaveri…

  • Hawkins Cookers – An Enduring Moat

    Introduction In this article, I want to talk about a business which will be any value investors’ delight. It would surely be a favorite of Warren Buffet. The company in question is Hawkins Cookers and any investor in India would have surely heard of it. This is a well-known story with a narrative which is familiar to most. If not let me lay it out briefly at the outset and then go into the details. Hawkins is engaged in manufacturing and marketing pressure cookers and other cookware for Indian households. They have built a reputation for manufacturing high quality products and is a well-known brand in India. In terms of…

  • Ambika Cotton Mills Ltd. – Quality Cotton Yarn Manufacturer

      Introduction Ambika Cotton is engaged in the production of specialty cotton yarn which is used in the manufacturing of premium quality shirts and t-shirts. While yarn manufacturing is a commodity business, Ambika has managed to carve out a profitable niche for themselves. Consistent with the commodity nature of the business, most other companies’ margins fluctuate with the raw materials. Also, as we will see the spinning sector is characterized by over-investments during the recovery cycle, which leads to overcapacity and depressed pricing thereafter during the downturn. We will also see how in this industry Ambika has stood apart from the bunch and differentiated itself. There are two aspects to…

  • Coca Cola vs. Sees Candy

    Introduction In this article, I want to focus on two types of businesses which are terrific businesses in their own right. Coca Cola and Sees Candies are the best examples of the two types of businesses which I would like to discuss. We can refer to these two businesses as standardized product led competitive advantage (or just product led competitive advantage) vs quality led competitive advantage. I chose Coca Cola and Sees Candies because Warren Buffett invested in both of them and doesn’t stop singing praises of these businesses till date. These businesses have made Warren Buffet insanely rich. While many people may not have heard of Sees Candies but…

  • Max Ventures – A Unique Demerger Opportunity

    I wrote the below article which analyses Max Ventures in November 2016. Introduction In my last article, I described my investment framework and the four areas of focus. The first two areas which I talked about were: Demerger situation New venture started by an established businessman The special quality about these two situations is that the stock price is artificially depressed for reasons other than the quality of the underlying business. I recently came across an opportunity which is a combination of these two situations – Max Ventures & Industries Limited (MVIL). MVIL was listed on stock exchanges (NSE and BSE) on 22nd June 2016 at a price of 45…