Investors Mindset

Saurabh Mukherjea’s Book Unusual Billionaires shows the story of seven outstanding and most successful Indian companies. He has used the term “Coffee Can” Portfolio in his book. Using Robert Kirby’s “Coffee Can” Portfolio (construct a portfolio of stocks and should remain untouched for a long period of time to generate enormous wealth).Based on the above conditions he has picked seven companies like Asian Paints, Berger Paints, Marico, Page Industries, Axis Bank, HDFC Bank, Astral Poly.

He looked for the companies that meet the parameters of:

a.Revenue growth of 10% and RoCE(Return On Capital Employed) of 15% every year for non-financial Companies.

b.For financial service companies, ROE(Return On Equity) of 15% and loan book growth of 15% every year.

Asian Paints.

Asian paints focus on supply chain efficiencies and entrenched themselves further in paint sectors. Asian paints capital allocation remains quite impressive.Asian paints understand customers better than is competition. The main difference between Asian paints and Berger paints performance was in Asian paints there is no changes in controlling shareholders while in Berger the controlling shareholder changed 3 times.

Berger Paints.

Focusing on Core Business.

a. Strong Supply Chain

b. Wide Enough Product Range

c. Product with Special Characteristics

d. Effective Marketing

e. Benefit to Dealer

f. Management Talent

Berger’s architecture is “strong relationship with dealers”. Dealers and painters are 1st customer of any paint industry. Berger beats its competitors by offering most attractive benefits to both dealers as well as painters.

Marico.

Marico consistently focus on 3 factors driving company growth rate maintaining brand leadership, extending winning brand, divesting low margin brands. Following the strategic funding where a portion of annual profit was invested in pursuing product innovation.

Mariwala says of the lesson he learned. “In any culture-building journey, the role of the middle and top management is crucial. If someone takes it lightly and says ‘this is the Managing Director’s values’ then those values will just not percolate throughout the organization.”

For any FMCG company, width and depth of its dealer–distributor network and its relationship with distributors are key strategic assets. Marico has a distribution reach of more than four million outlets and a direct distribution reach of a million outlets.

Page Industries

Page industries has widened the gap between itself and its competition by mastering manufacturing process and R&D to produce a high quality talent.Page Industries has a highly labour-intensive business model. It invest only where it gives core business with RoCE of 20%.

Axis Bank

Axis Bank creates 4 strategic business units:

a.Retail,Small to Medium-sized enterprise and agriculture banking

b.Corporate banking.

c.Non-banking retail subsidiaries.

d.A corporate center

It had a strong board of director. Bigger win of axis bank was getting salary accounts of govt departments, public sector employees, armed forces etc. Axis bank has the largest ATM networks and largest branch network as compared to other Private sector banks.

HDFC Bank

HDFC Bank focused on two key principle

a.Building a stable,low-cost liability base.

b.Winning client by offering unique solution.

Investors have been so confident of the bank ability to use capital in efficient way that bank always raised capital at very high multiples.

HDFC Bank outperformance is due to:

a. Risk aware

b. Internal architecture

c. Iconic HDFC brand

Astral Poly

a.Consistent in improving RoCE and focused capital allocation in the pipes business.

b.Strengthening competitive advantages trough expansion and launching new products.

c.An intense focus on genuinely helping every stakeholder involved in the company’s journey-employees, distributors, plumbers, and shareholders.

d.Launching new product at regular interval not only in CPVC but also in PVC plumbing.