Source: Mint
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Infosys: Back to Square One
Source: Mint
Author: Raoji
I must bring an interesting observation I have been having for some time to your notice.
India is likely to witness shortage of quality investable companies in the future.
The seeds were sown few years back with the scrapping of press note, allowance of 100% FDI in most of the sectors, buy back by listed MNCs and regulatory arbitrage available to do buy back rather than paying dividend.
Moreover, in many cases Initial Public Offers are from companies that have been, private equity funded leaving less room for upside for secondary market players.
All these factors are compounding the valuation for high quality companies to stratospheric height, leaving less room for error, if forecasted earnings are not met.
Moreover, my observation is that in many areas, MNC with technological edge, global relationship, brand, superior business processes have an edge, emerging as leaders or have gained dominant markets share in respective field.
Many such, not represented in the listed equity universe of India.
The classic example is the compressor industry, where the world technological leader is not listed anymore.
This sets us in dilemma of how to invest in an excellent business, which is not listed, or invest in a second rung, average business as proxy play.
Therefore, relative value trade, pitting one company against another without a deep dig, is not going to yield sustainable return.
Such scenario also reinforces, hold on to the good companies you have discovered rather attempting to find new gem.
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Linkfest: April 13,2017
Some stuff I am reading today morning:
Cabinet clears listing for 11 PSUs (Mint)
Motilal Oswal: 3 Multi-bagger ideas for next one year (ET)
Indus-Bharti Infratel-World’s biggest tower company? (Quint)
Money deluge for MFs (BL)
Equity NFOs pick up as markets rally (BS)
The $90 Billion investor who wants to fire Wall Street (BusinessWeek)
How a crisis led to the formation of BSE (Mostly Economics)
Read with caution when there’s money at stake (Barry)
The 2017 Case for Gold (DR)
What’s wrong with dividends? (Monevator)
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Book Review: Dream Big
The Book-Dream Big by Cristiane Correa- is about the richest man in Brazil Jorge Paulo Lemann and his remarkable story of entrepreneurship.
Jorge Paulo Lemann started an investment bank called Banco Garantia.He ran it very successfully based on 3 principles-Learn from the best worldwide,meritocracy and incentives.
He harnessed the “super power of incentives” to create the biggest investment bank in Brazil and later sold it to Credit Suissee for $675 Million.
As an investment banker, he started taking over companies and formed a receipe for success which works something like this:
- Buy a bloated company with a world famous brand
- Get your own people in there-incentivise them heavily with v high bonuses/equity for meeting targets
- Cut costs ruthlessly…get rid of 20-30% of the existing workforce
- Laugh your way to the Bank
His 3G Capital used this approach to create the largest brewer in the world-InBrev.Some of his other famous acquisitions are Heinz, Burger King etc
The book is full of characters,anecdotes,events etc from the Brazilian business world which may sound arcane to us Indians.
But some of the lessons I learnt (or relearnt)in this book are :
- Networking counts. Jorge was an aggressive networker who used his education in Havard to build relationships. He would go out of his way to cultivate contacts. Sports- tennis/fishing etc – is a good way to network
- Look at the sector, not just the Company. I found it very amusing how Jorge decided to get into the brewery business: “I was looking at Latin America and who was the richest guy in Venezuela?A brewer (The Mendoza family who owns Polar).The richest guy in Colombia? A brewer (the Santo Domingo group,the owner of Bavaria). The richest in Argentina?A brewer (the Bembergs,owners of Quilmes). These guys can’t all be geniuses…it’s the business that must be good.”
- Look for companies that have frugality in-built in their DNA and focussed on business and market share…these companies are the ones who will decimate the competition
- Look at how the senior management is incentivised….that will tell you how they will behave
- Be non-flashy in your own personal behavior. Once Jorge was at a petrol pump when it got robbed.The robbers let Jorge go away, not knowing he’s Brazil’s richest man, as he was driving a 10 year old Passat !
Three examples from the Indian context came to my mind, while reading this book:
- The owners of the Paint Companies in India are all Billionaires….maybe it has less to do with them and more to do with the business !
- Laxmi Narayan Mittal used a similar approach to build his steel empire-used to takeover steel plants,fire the expensive expat managers there and get Indian technocrats from SAIL to run the show
- R K Damani of DMart is using the 3G approach-run a lean frugal operation, incentivize your top managers heavily (most of them are Crorepatis now) and aggressively take market share
Do buy this book to get an international perspective of a great business mind
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Who moved my booze?
Hat Tip: Sunil Jain
