Archives for 2014

The Investor Who’s Always Right

If you look back at the careers of the world’s most successful investors, a large majority of them have learned about successful investing in the best possible way – by making mistakes.

Warren Buffett did it with Berkshire Hathaway – the textile business. Charlie Munger admits he still makes mistakes even after many decades as a business person and investor. He has also said that it is important to “rub your nose” in your mistakes.

Doing wrong, or making mistakes (in investing or in life) is inevitable.

As Einstein once said, anyone who has never made a mistake (if there is such a person) has never tried anything new.

Value Investing Contest Winning Entry #5: Tree House Education

Tree House Education This report was prepared by Maheswar Reddy, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

Tree House Education & Accessories Ltd. (Tree House) is the largest self-operated preschool education provider in India. After establishing itself as one of the top brands in pre-school education, Tree House has also entered the K-12 school segment.

Rapid growth – From one center in 2003 to more than 400 in 2014:

2003 – Incorporated first Tree House pre-school in Mumbai
2006 – Established 6 more pre-schools
2007 – Converted to private limited company and launched first franchise
2008 – INR 35 crores investment from Matrix Partners India
2009 – Entered K-12 and day care segments
2010 – INR 15 crores investment from Matrix Partners India
2011 – Converted to public limited company; Successfully completed IPO of INR 112 crores; INR 9 crores investment from Matrix Partners; INR 31crores investment from FC VI India Venture
2012 – Acquired pre-school business “Global Champs”; INR 41 crores investment from ON Mauritius & Aditya Birla Company
2013 – Acquired pre-school business “Brainworks”

13 Lessons from 13 Years of My Life

I celebrate three anniversaries today –

Thirteenth anniversary of landing in Mumbai for the first time on 4th April 2001 to do my MBA
Eleventh anniversary of joining my first and last job on 4th April 2003
Third anniversary of quitting my first and last job on 4th April 2011

Life has come a long way from that time when I came to this unknown city in 2001…

…from early 2003 when I had lost hope of getting a job after being rejected by the very few employers who attended my MBA college’s placement season, and from the time I had almost rejected my only job because the salary was almost as much as what I would have earned in the role of a peon. So much for an MBA degree, huh!

Anyways, good sense prevailed, and I took on that job. Apart from the fear of becoming an “educated unemployed”, I was also helped by a promise I had made to my ‘would-be wife’ before joining my MBA that we would get married as soon as I got my job so that her family didn’t get her married off somewhere else. 🙂

So, the saying that there is a woman behind every man’s success has been true in my case. In fact, the woman in my life has not really been ‘behind’ me, but has walked besides me, holding my hand through the thick and thin that life has brought.

Well, I am not going to bore you today with my life story (let me keep it for some other day :-)), but would like to share with you a few life lessons these past 13 years have taught me – both in terms of my life, and my financial life.

Value Investing Contest Winning Entry #4: Gabriel India Ltd.

This report was prepared by Venkat Sivagnanam, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

I started to screen for a quality business which I understand and has long-term competitive advantages and potential to generate free cash flows for at least the next 20 years to come.

With this in my mind, I decided to focus on automotive industry in India as it is going through a domestic slump and has been in the news for bad reasons (high-interest rates, inflation, low sales etc.). It is not unusual to find an under-valued and reasonably strong business in a sector that is undergoing a temporary slump or recession.

I restricted my screening to automobile sector. Further, within the automobile sector, I decided to focus or limit my screening to the automotive components/products suppliers, rather than vehicle manufacturers/OEMs.

Value Investing Contest Winning Entry #3: Munjal Auto

This report was prepared by Sudhanshu Jain, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

Business Description and History
Munjal Auto Industries Limited (Munjal) operates as an auto component manufacturing company in India. The company provides exhaust systems, steel wheel rims, and spoke wheel rims for two-three wheelers; and fuel tank assemblies, seat structure systems, and side step assemblies for four-wheelers.

It also offers assemblies, including BIW parts, pillars, cross bars, control arms, tie end bars, accelerators, and brake and clutch pedal assemblies; and sheet metal components comprising mild steel parts, stainless steel parts, welded components, tri-nickel chrome plated components, liquid painted oven baked parts, heat resistant painted parts, tubular components, and roll formed parts.

The company was incorporated in 1985 and is based in Gurgaon, India. The company is a subsidiary of Thakurdevi Investments Pvt. Ltd. It is part of the Munjal group of companies. Its manufacturing plants are located in Gujarat, Haryana and Uttarakhand.

10 Lessons from the 2008 Crisis

Seth Klarman is not an investor you would read about much in business media. He is one of the more reclusive kinds out there. He rarely speaks in public or grants interviews.

Klarman is known for his very deep value investing style and willingness to pursue value where others get very nervous. Some people, in fact call him Warren Buffett of his generation.

Late last year, he returned US$ 4 billion cash to his clients (from a fund size of around US$ 30 billion). In fact, Klarman has had about 30% of his fund’s assets in cash over the past two years as he has long been concerned about the state of the financial markets and typically looks for deeply-discounted situations.

In a recent letter to his clients, Klarman has warned that the QE (quantitative easing) stimulus bubble has become unsustainable and will burst at some point in time.

He has noted that “most” investors are downplaying risk and this “never turns out well,” noting that most people are not prepared for anything bad to happen. He wrote in his letter (emphasis is mine)…

No one can know what the future holds, but any year in which the S&P 500 jumps 32% and the NASDAQ Composite 40% while corporate earnings barely increase should be cause for concern, not further exuberance.

It might not look like it now, but markets don’t exist simply to enrich people.

Value Investing Contest Winning Entry #2: V-Mart Retail

This report was prepared by JK, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

The Big Picture
Understanding the big picture, foreseeing the structural trends and sector tailwinds play a critical role in identifying and developing conviction on ideas that go on to become multi-baggers creating huge wealth for investors in the long run.

So what are the current structural trends going on in the Indian economy?

I can clearly identify two –

1. Switch from Unorganized players to Organized players: Organized players are gaining market share from the unorganized players. This structural shift is happening in every consumer facing sector, be it jewellery, bathroom solutions, plumbing solutions, kitchen appliances, shoes, apparels and inner-wears, restaurants, or retail.

Why this switch? Because of rising income levels, customers’ aspirations are increasing and organized players are considered to be providing higher quality products.

Social proof, advertisements, Pavlovian association (to associate ‘I have heard of this product’ to ‘I like this product’) are the psychological reasons which are making sure that this switch is here to stay.

Value Investing Contest Winning Entry #1: Balkrishna Industries Ltd.

This report was prepared by Ankit K, as part of the Safal Niveshak Value Investing Contest. None of the facts herein have been validated by Safal Niveshak. Also, please DO NOT treat this report as a “recommendation” from either the author or Safal Niveshak. Do your own homework.

Company History and Business
BIL is a Siyaram Group Company with its history dated back to 1962. From setting up its first manufacturing unit in 1988, it has come a long way in becoming India’s leading exporter of “Off-Highway Tires”. It is an export oriented company with 90% of sales moving to different countries worldwide.

Highlights of the company’s business and financial strength are as follows:

Widest and comprehensive product portfolio of over 2,000 SKUs and develop 100 to 120 incrementally per year.
Current achievable production capacity is 166,000 MTPA (metric tonne per annum). It is to be enhanced to 276,000 MT by FY15.
Market presence in more than 120 countries all over the world.
Manufacturing facility at: Aurangabad, Maharashtra; Bhiwandi, Rajasthan; Chopanki, Rajasthan; Bhuj, Gujarat; Dombivali, Maharashtra
[Read more…] about Value Investing Contest Winning Entry #1: Balkrishna Industries Ltd.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 2

Image Source: Outlook India

After talking about the important concept of economic moats in the first part of his interview, in this second and concluding part, Prof. Bakshi talks about his thoughts on valuations, mental models, diversification, checklists, and why you must buy great businesses for the long term.

Safal Niveshak: One of the problems that new or small investors have is that they can’t really get their heads around valuation. It seems so complex. A lot of the terminology is complex, the concepts are, and there is a lot of contrary thinking needed to effectively value businesses.

How can valuations be made easier? How have you made it easier? Or can it not be made easier?

Prof. Bakshi: Vishal, that particular problem is equally applicable to large investors!

Anyway, over the years I have dealt with the problem in many ways. As a disciple of Ben Graham, when working on any business and not necessarily moats, I developed my own ways of thinking about valuation.

Value Investing, the Sanjay Bakshi Way 2.0 – Part 1

Image Source: Outlook India

After much delay owing to issues in getting mutually convenient dates, I have finally finished my interview of Prof. Sanjay Bakshi. 🙂

Here is the first part of the interview. As you will find below, it’s amazing the way Prof. Bakshi has explained critical concepts in investing in a highly comprehensive yet simplified manner.

Enjoy the wisdom!

Safal Niveshak: Let me start with a question I have been waiting to ask you for some time now. Through a comment on a link I shared on FB and through a few of your posts over the past few months, you have suggested that your investment philosophy has moved further towards high quality businesses, and great managements. Can you please elaborate on the same? What has been this transition all about? And why?

Prof. Bakshi: I started my career as a value investor in 1994. Over the last twenty years, I have practiced most styles of value investing including as Graham-and-Dodd style of investing in statistical bargains, risk arbitrage, activist investing, bankruptcy workouts, and Warren Buffett style of investing in moats. There have been times when I have owned 40 stocks and times when I have owned just 10.

I teach all these value investing styles in my course at MDI. I tell my students that they need to pick a style which suits their personality.