Master class from Neville Noronha of Dmart

Reading transcripts of Neville Noronhna is a master class in understanding retail market dynamics, D-Mart’s company culture and insight into building a fantastic business

Here are some gems, my notes in red

On Opportunity size 

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Market size is very large. In fact, why do we have to worry? My message even to my competitor is the same thing, “Why worry about each other?” The Pie is big and the pie itself is growing so much. So, there is nothing to worry about competition. If there is anything to worry about, it is about us. We should not
… Read the rest

Evaluating low gross margin business ?

Avanti Feeds is the largest manufacturer of shrimp feed in India. Based in Andhra Pradesh, the Company is the dominant player in India’s aquaculture sector. Avanti Feeds is a great survivor in Indian aquaculture industry rebounding from death & obscurity

How Avanti became a leader?

In 2009, the Government made a decisive move to change the course of shrimp farming in the country. It allowed commercial cultivation of the whiteleg shrimp, also known as Litopenaeus vannamei. For this variant grew faster, was more resistant to disease than the black tiger shrimp and was more lucrative to cultivate. On the ground, Avanti spearheaded this change It convinced the farming community to get into the cultivation of vannamei shrimps. It partnered Thai Union Group, one of the largest global seafood companies to manufacture feed for white leg shrimp By 2017, the production of white leg shrimp touched 4.5 lakh tonnes in 2017, from 10,000 tonnes in 2010. While the production of black tiger shrimps, which was at 50,000 tonnes in 2009, was eventually stopped by 2015. Avanti emerged as the largest producer of shrimp feed in India

From -2019 Annual Report 

 

Like many other agri and aqua-based companies, Avanti feeds is … Read the rest

Annual Review – Piramal Enterprises 2019

In last four years, the business mix of Piramal Enterprises has changed completely

 

 

With financial services forming lion share of top line and bottom line.

Right from start, the decision to invest in Piramal Enterprises (as well as Thomas Cook) was to ride with smart managers who have a fantastic long term record of creating wealth. 

Coming to FY19 business performance

Financial Services

The NBFC sector was impacted by a liquidity tightening situation, triggered by default by IL&FS and further worsened with defaults by large corporate groups like ADAG and ZEE. The adverse environment led to reducing the growth loan book grew 34% y-o-y to ₹56,624 crores.  For any financial services company, it’s easy to expand loan book however the key is to maintain quality of loan book and ensuring there is no Asset-Liability mismatch. On both fronts, till now Piramal has done well. The NPA has been below 1% and across time zones the company has sufficient liquidity to match outflows.  At the company level, they have diversified their book from wholesale lending to retail lending which is now 71% of their book compared to 83% in FY 2015. The management indicated that this further improve … Read the rest

Suven Life sciences – Demerger to create Value?

Suven Life sciences is a company that I am tracking from 2014 This is what I wrote in 2014 on their optionality

But as you would have seen expecting the company to not to commercialize any R&D work for 18 years would be a real surprise

In 2015, I noted the possibility of monetizing their lead molecule in 2017

SUVN 502. For this molecule, we completed Phase-Ib trials and commenced preparations for the Phase-IIa (POC) trial. We hope to initiate patient trials during the second half of the current year and are hopeful of monetising this molecule post successful completion of the study in fiscal 2017

But few years with the company and I understood that

Drug discovery is a long, hard and uncertain process and putting your odds is as good as throwing a dice. There are far few too many variables to model an outcome

However we also observed that the company is building a different and more sustainable game plan

For a company earning 12-15% ROE and growing at 10-15%, this seems to be fair or even above par, however, we need to be cognizant that Suven is building various verticals that are yet not contributing … Read the rest

Annual Review – Ashiana Housing 2019

My last year review of Ashiana housing can be read here where we concluded that

The company has diversified into different cities but they are significantly dependent on Bhiwadi. Take this, Bhiwadi accounts for

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  • 40% of their current project’s unsold inventory
  • 45% of their future projects saleable area
  • 35% of their Land back

Lets first look at how they did in Bhiwadi, sales improved by 60% clearly showing early sign of recovery. The management in conference call indicated that even though the inventory overhang in Bhiwadi is 9 to 10 years they have performed significantly well … Read the rest

BSE – Heads I win, Tails I don’t lose too much

Established in 1875, BSE Ltd is the oldest stock exchange in Asia and operates the BSE exchange platform (formerly Bombay Stock Exchange). People often refer BSE as a duopoly with NSE being the other player however its a lopsided duopoly with NSE bossing the equity segment. Below is a snapshot of NSE dominance

Source – NSE Presentation

Not only NSE is dominant it is gaining market share due to its network effect.

How did an exchange so prevalent lost its Mojo?

CEO Ashish Chauhan has put it very aptly in his interview with Forbes

The BSE was late to the derivatives game. Typically, one is likely to trade equities at the same exchange where one trades derivatives. So a gap was created. The BSE had basically zero market share in derivatives, currencies, commodities… pretty much everything except a little bit of equities and some initial public offerings (IPOs). The technology wasn’t considered very good. People had pretty much written the BSE off. Why did the NSE become so big? Not on the back of the past but on the back of the new [offerings]. Derivatives played a big role in it.

So there were mainly five issues which the BSE … Read the rest

Annual Review – Ajanta Pharma 2019

To get yourself familiar with Ajanta Pharma read my opening post about the company. In last year review sent to premium subscribers, we had projected below

There was steep degrowth in Africa Institutional business and Branded generics, Also in Asia, they underperformed their own expectations resulting in modest growth. India business outperformed their own expectations (even mine) and USA business did very well too.

Three reds meant that they had their first topline decline in the last 15 years. The beauty of doing predictions is to get humbled very quickly in markets. In my 2017 review send to subscribers I had pasted projections from brokerage houses in the end note, I am reproducing them below

What was not baked in estimates was visible in price, The PE derating clearly told in advance that market doesn’t expect company do well and as it happens many times price discounts the performance for next 24-36 months in advance

 

Having spent enough time on past lets now review the current year

 

India business

During this time, the key ingredient of cheapest cialis onlines in bloodstream and become effective to provide extreme satisfaction to men and women. purchase viagra … Read the rest

Quality Investing

This is one of the best books to read for long term investors

Quality investing : owning the best companies for the long term.

by Lawrence A. Cunningham,Torkell T. Eide, Patrick Hargreaves.

While the whole book was a fantastic read, one thing I really found useful was patterns they shared to look in quality companies.

When looking for quality companies, the desired outcome is always clear: strong, predictable cash generation; sustainably high returns on capital; and attractive growth opportunities. Yet the building blocks that enable companies to achieve these results vary widely,

Examine these routes, however, and patterns emerge –   similar combinations of strategies, techniques, or capabilities that transcend companies or industries,

Patterns are great reusable templates and ones which can be used successfully across different companies and sectors. This then becomes an essential tool kit to develop in search of finding quality companies. Let’s learn some of the patterns discussed in the book

  1. Recurring Revenues

Recurring locked in revenues lead to predictable cash flows and in turn exhibit business quality, Keep below the table in mind

Type License Service Subscription
Common In Large Software Companies Industrial Companies Marketing, Software as Service companies, Platform Business
Key Success Factor The software
… Read the rest

IIFL Demerger Analysis

The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You have to work hard on it. Ask yourself what are the arguments on the other side. It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.

—Charlie Munger

Nirmal Jain, co-founder of IIFL did this in 1999 when their firm realized that opening their paid research to world wide web would bring more clients compared to their current subscription model. They disrupted their own business

Source – Excerpt from Stay Hungry Stay Foolish

The binary decision paid off and in coming years they became of one of most successful broking business in India. My interest in the IIFL group rose due to an interesting remark made by one of the most astute investors in the world

IIFL, for example, in spite of an average 14% return on equity (ROE) and a 30% annual growth in book value per share over the past ten years, even at its current price of around 700 rupees per share is selling at … Read the rest

GRUH Finance – Mr Consistent

Virat Kohli picture is not a coincidence he is “Mr Consistent” run-scoring machine for Indian cricket team just like GRUH finance the money making top-notch HFC.

I have done the comparative analysis of Housing Finance Companies (GRUH/REPCO/CANFIN) in past, you can read them here and here

In 2018 (At Q4 Mar 2018) GRUH Finance and Canfin grew their loan book by 18% and REPCO’s loan book grew by 10% with GRUH having healthy growth in disbursements. The yearly growth had slowed down (from last year levels) for both Canfin home and REPCO while GRUH maintained its consistency

Both GRUH and Canfin homes had better bottom line growth as well

This was driven due to

  • Cheaper costs of funds
  • Significant improvements in cost to income ratio, branch employee productivity gains
  • Improving and retaining net interest margin

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