BookMarks #76: The Unusual Billionaires

Title: The Unusual Billionaires 

Author: Saurabh Mukherjea 

Genre: Non-fiction, Business 

Published: 2016 

BookMarks 

The book’s key message is how to build the best performing long term portfolio. To drive home its message, the book uses the example of eight of India’s best performing companies. Alongside the author brings out his own stock-picking methods following the principles of Coffee Can investing and John Kay’s IBAS framework. 

The book has a selection of stories of India’s leading corporates and how they came out to be such. These are 

1. Asian Paints – focused on identifying gaps and how to fill them. Continuity in ownership. Building high entry barriers to competition. 
2. Berger Paints – steadily grown to be #2 in India, despite constantly changing ownership. Steady management provides the right guidance. Having paint industry experience is the key factor. 
3. Marico – took on the might of HUL and ended up buying their competitor product which had been launched to once buy-out Marico’s flagship products. Right innovations and timely product diversifications while holding on to their core strengths has been the key to success. 
4. Page Industries – Bringing an international brand to India and capturing the market share. 
5. Axis Bank – overcoming debacles to become a trusted name in Banking sector 
6. HDFC Bank – rising to the top of banking sector 
7. Astral Polyteknik – creating a new market space & constant innovation & scaling in the same. 
8. ITC – distribution network & diversifications.

The author has also presented John Kay’s IBAS framework, namely innovation, brands and reputation, architecture, and strategic assets and how this framework has been applied by these companies. Timely IT systems upgrade, investments in people, a truly independent Board with people having relevant experience have been the key for success. 

As per the author – “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative”. With this objective the author has given three broad themes on picking the companies. 

Theme A: Focus on the long term (more than ten years) without being distracted by short term gambles; 

Theme B: Constantly deepen the moat around the core franchise using the IBAS framework and 

Theme C: Sensibly allocate capital whilst studiously avoiding betting the balance sheet on expensive and unrelated forays. 

Additionally, the following checklist for evaluating businesses is provided 

1. Industry Attractiveness 
• Dependency on government regulation 
• Competition – number of competitors & intensity of competition 
• Overall industry size & growth potential 
• Proportion of value addition in the industry 
• Capital intensity & efficiency – lower capital intensity generally generates higher returns 
• Dependency on country’s broad economic cycle 
• Generates excess returns for shareholders (cost of capital >15%) 
2. Management Quality 
• Track record of good governance and clean accounting 
• Political connections 
• Track record of efficient capital allocation 
• Track record of focussing on core operations 
3. Competitive Advantage 
• Brand & Reputation 
• Company’s architecture strength 
• Ownership of strategic assets 
• ROCEs higher than industry average 

Overall, an interesting book which has tried to send the message of investing for the long run with the aid of narratives from some of India’s most successful companies. 

Previously on BookMarks: The Tales Next Door