Saturday, October 30, 2010

Photoplus Expo ( New York ) - CEO of Elinchrom Answers

Photoplus Expo at NY took place from 28th to 30th of October 2010, got over yesterday. Have a video from that, though not the best of voice quality, background noise, one may have to listen on full volume.

I had a doubt and seeked clarification regarding Elinchrom's manufacturing operations which was clarified by Malcom Whittle.

Elinchrom CEO Malcom Whittle Talking about upcoming products. from Boston Wedding Photographers on Vimeo.

Listen at 2:01 minutes, Question:
When are we expecting the new range of RX packs ?
 "Its in the pipeline but we have a major problem. The recent expansion in our business in last few years has been so great, that we are running very fast, just to supply what we've got.Unclear.............most flash we've ever sold anytime in our life. One of the things that limits us from changing products is being loyal to people who are liking our products.... its in pipeline, we want LED in it, very powerful LED in it... LED technology is un acceptable for Videos as of now.....Its not our problem, its about LED manufacturing technology to guarantee over 5000 Kelvin"

Listen at 7:10 minutes,
Qs: Using Grids was an afterthought by Elinchrom, people switched to Profoto in their absence, now that you have it is great.

"Maybe American photographers did not care about it becoming bulky to carry. Our sales have climbed every year, year on year, this year our sales are 42% higher than last year, so I don't know who is running to Profoto."


I understand why Peter Lynch recommends smartest players in no/low growth, overlooked industries, how even in a slow growing industry one can find aces. To repeat, top three players in studio lighting system are Broncolor, Elinchrom and Profoto and the middle guy is giving  others run for their money. There also are over fifteen to twenty second rung competitors that make similar and in some cases correlated products into accessories whose markets can be penetrated and conquered eventually. Eg: FJ Wescott, an 84 year old company, based in Ohio, US ( In last 20 seconds CEO mentions that Powerpack and battery isn't one of Elinchrom's forte or strongest part of business, they are aware and are going come out with Lithium batteries soon, at the moment airlines do not allow moren than few grams of Lithium on plane, so it will be useful for local shooting. Also the new powerpacks will match those of Profoto or Broncolors. If you search in shopping sites the high end battery used for professional flashes by Profoto and Broncolor costs circa 6 lacs INR, at the moment Elinchrom's high end battery costs 2.5 lacs INR and falls slightly short in one or two aspects. "Its their (Broncolor (Also Swiss company like Elinchrom), Profoto(Swedish company)) particular speciality of short flash duration at full power and they sell it, its not difficult to do, we can do it, and our new power packs may match it".

Thursday, October 28, 2010

Learnings from Buffett - Find companies "way off the map" if you are not a billionaire yet

  • Benefits of not being tuned to television or terminal

What is the benefit of being an out-of-towner as opposed to being on Wall Street?

I worked on Wall Street for a couple of years and I have my best friends on both coasts. I like seeing them. I get ideas when I go there. But the best way to think about investments is to be in a room with no one else and just think. And if that doesn’t work, nothing else is going to work. The disadvantage of being in any type of market environment like Wall Street in the extreme is that you get over-stimulated. You think you have to do something every day. The Chandler family paid $2,000 for this company (Coke). You don’t have to do much else if you pick one of those. And the trick then is not to do anything else. Even not to sell at 1919, which the family did later on. So what you are looking for is some way to get one good idea a year. And then ride it to its full potential and that is very hard to do in an environment where people are shouting prices back and forth every five minutes and shoving reports in front of your nose and all that. Wall Street makes its money on activity. You make your money on inactivity.
If everyone in this room trades their portfolio around every day with every other person, you will all end up broke. And the intermediary will end up with all the money. If you all own stock in a group of average businesses and just sit here for the next 50 years, you will end up with a fair amount of money and your broker will be broke. He is like the Doctor who gets paid on how often to get you to change pills. If he gave you one pill that cures you the rest of your life, he would make one sale, one transaction and that is it. But if he can convince you that changing pills every day is the way to great health, it will be great for him and the prescriptionists. You won’t be any healthier and you will be a lot worse off financially. You want to stay away from any environment that stimulates activity. And Wall Street would have the effective of doing that.
When I went back to Omaha, I would go back with a whole list of companies I wanted to check out and I would get my money’s worth out of those trips, but then I would go back to Omaha and think about it.

Source: Lecture at the University of Florida Business School

  • Berkshire will not be compounding over 20% anymore

Do you ever change your investing standards?

Did we change our standards? You know, I don’t think so, but you can’t be 100% sure. If you haven’t had a date for a month, you might say you wouldn’t have dated that girl on the first day – but I think we would have.
It does not reflect our giving up on finding an elephant of a business to acquire. We have plenty of cash and could sell stocks if we really needed to. We’re well prepared to acquire a very large business.
We acquired TTI in the first quarter, which is a terrific business. We wish it were five times bigger, but maybe some day it will be.
Munger: The one thing I think we can promise you is that we won’t make the kinds of returns buying the things we are now that we earned on the stuff we bought 10-15 years ago. There’s just too much money floating around.
Buffett: We won’t come close.
Munger: It’s a different world with more modest expectations.
Buffett: We hope you share them.

Source: BRK Annual Meeting 2007 Tilson Notes

  • Reflects confidence at a very early age

When did you know you were rich?

I really knew I was rich when I had $10,000. I knew along time ago that I was going to be doing something I loved doing with people that I loved doing it with. In 1958, I had my dad take me out of the will, as I knew I would be rich anyway. I let my two sisters have all the estate.
I bet we all in this room live about the same. We eat about the same and sleep about the same. We pretty much drive a car for 10 years. All this stuff doesn't make it any different. I will watch the Super Bowl on a big screen television just like you. We are living the same life. I have two luxuries: I get to do what I want to do every day and I get to travel a lot faster than you.
You should do the job you love whether or not you are getting paid for it. Do the job you love. Know that the money will follow. I travel distances better than you do. The plane is nicer. But that is about the only thing that I do a whole lot different.
I didn't know my salary when I went to work for Graham until I got his first paycheck. Do what you love and don't even think about the money. I will take a trip on Paul Allen's Octopus ($400M yacht), but wouldn't want one for myself. A 60 man crew is needed. They could be stealing, sleeping with each other, etc. Professional sports teams are a hassle, especially when you have as much money as him. Fans would complain that you aren't spending enough when the team loses.
If there is a place that is warm in the winter and cool in the summer, and you do what you love doing, you will do fine. You're rich if you are working around people you like. You will make money if you are energetic and intelligent. This society lets smart people with drive earn a very good living. You will be no exception.

Source: Student Visit 2005

  • How Buffett Would Invest with a Small Amount of Money    
    If I were working with a very small sum – you all should hope this doesn’t happen – I’d be doing almost entirely different things than I do. Your universe expands – there are thousands of times as many options if you’re investing $10,000 rather than $100 billion, other than buying entire businesses. You can earn very high returns with very small amounts of money. Everyone can’t do it, but if you know what you’re doing, you can do it. We cannot earn phenomenal returns putting $3, $4 or $5 billion in a stock. It won’t work – it’s not even close.
    If Charlie and I had $500,000 or $2 million to invest, we’d find little things we could do, not all of it in stocks.
    Munger: But there’s no point in our thinking about that now.
Source: BRK Annual Meeting 2007 Tilson Notes                             

According to a business week report published in 1999, you were quoted as saying “it's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.” First, would you say the same thing today? Second, since that statement infers that you would invest in smaller companies, other than investing in small-caps, what else would you do differently?

Yes, I would still say the same thing today. In fact, we are still earning those types of returns on some of our smaller investments. The best decade was the 1950s; I was earning 50% plus returns with small amounts of capital. I could do the same thing today with smaller amounts. It would perhaps even be easier to make that much money in today's environment because information is easier to access.
You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share!! I tried to buy up as much of it as possible.
The answer is still yes today that you can still earn extraordinary returns on smaller amounts of capital. For example, I wouldn't have had to buy issue after issue of different high yield bonds. Having a lot of money to invest forced Berkshire to buy those that were less attractive. With less capital, I could have put all my money into the most attractive issues and really creamed it.
I know more about business and investing today, but my returns have continued to decline since the 50's. Money gets to be an anchor on performance. At Berkshire's size, there would be no more than 200 common stocks in the world that we could invest in if we were running a mutual fund or some other kind of investment business.

Do you believe that we'll have significant mispricings again? And if you were 26 today how would you generate the 50% returns that you said you might do with smaller amounts of capital?

Attractive opportunities come from observing human behavior. In 1998, people behaved like frightened cavemen (referring to the Long Term Capital Management meltdown). People make their own opportunities. They will be frozen by fear, excited by greed and it doesn’t matter what their IQ, degrees etc is. Growth of 50% per year is with small capitalization, not large cap. The point is I got rich looking for stock with strong earnings.
The last 50 years weren’t unique. It’s just capitalizing on human behavior. It’s people that make opportunities when others are frozen by fear or excited by greed. Human behavior allows for success if you are able to detach yourself emotionally.
In 1951, I got out of school at 20 years old. At the time there were two publishers of stock information, Moody’s and Standards and Poor’s. I used Moody’s and went through every manual. I recently bought a copy of the 1951 Moody off of Amazon. On page 1433, there’s a stock you could have made some money on. The EPS was $29 and the Price Range was from $3-$21/share. On another page, there is a company that had an EPS of $29.5 and the price range was $27-28, 1x earnings. You can get rich finding things like this, things that aren’t written about.
Essentially the gist of Buffett's knowledge is to invest/partner in business you know about, if you don't know then develop an understanding. Find one great company, get rich. There don't have to be more than 20 purchases in your entire life. One per year is more than enough.

Monday, October 25, 2010

Q2 - Sep 30th FY11 - Photoquip Result Analysis and Buffett Munger quips

In two words, exceeded expectations. It is going to make co-owners of this business wait for lesser duration than I had anticipated.

If one does not know the "whys" of trends in revenues and profits, its tantamount to gambling. Reasons behind rise and fall need to be validated and proven, whether they are temporary or sustainable. That was the reason that despite Photoquip having grown revenues 3x+ times between 2006 and 2010, it was not such a high conviction bet compared to Relaxo, TTK Prestige, Hawkins, even though latter have not grown revenues with similar scorching pace.

With my expectations set low enough I was looking for 25%+ topline growth and did not care much for bottomline this year nor do I still. Companies have to resort to all sorts of measures, experiments, ads, promotions to establish market place. You know that Microsoft sells XBox console at less than cost price to the company, actually making a loss only with hope of making profits later in distributing gaming titles. Its very much applicable to Elinchrom, sell the kit, to create sizeable userbase and make tonnes on accessories. One needs solid base, money will come eventually. Microsoft prefers piracy in India as long as it helps beat Linux and opensource flavours, so that users contributing zero to bottomline stay familiar with Windows atleast. Earn mind space if not wallet share.

Actual September results can be downloaded from BSE website or here ( Q2 2011 Photoquip )

Topline trend continues, 46% up.

Encouraging to see depreciation for this quarter at 0.5 crores higher than whole of last year, more new products underway !

Economies of scale yet to reflect on bottomline. One will have to wait. Raw materials have risen in tandem with revenues. Xbox factor ? maybe.

Hirings up, employee cost 45% up. Useful parameter I learnt from S&P Global Challengers study (,2,2,0,1148443919038.html) that uses two extrinsic and two intrinsic factors, one of them being increase in number of employees.

Wont make much into profits, operating efficiencies are a wee while away.

Two interesting quips from Buffett and Charlie Munger:

Student: What are they teaching us wrong in business schools ?
Munger: How can you answer it only in one hour ? [laughter]

Interviewer: Are you overspending on GEICO advertising ?
Buffett: Quotes another successful CEO, "Half of our Ad revenues is going waste, I don't know which half."

We need to learn from others mistakes, as the quote goes, "Its an honour to die for ones country, make sure other guys get the honour."

I continue to accumulate.

Friday, October 22, 2010

Photoquip Update

Invested quite a bit of time to delve and figure number of photographers in India. Very difficult in absence of any photographers association with long term record.

A general trend, in the States 50%+ photogs are independent and similar number is employed as staff in newspapers, media, magazine etc. Numbers in latter category have reduced over last 10 years due to internet overtaking print media.

In the US there are abundant photographers' associations. Estimates are between 100,000 - 150,000 photographers in the US, its population is 300 million. Numbers have not grown for the past 10 years. We like no growth industries. This works out to ratio of 1:2000 - 1:3000, Photographer : Population ratio. Assume, that for India this ratio is still low, although I doubt, at 1 photographer for 5000 citizens. This works out to over 240 000 photographers in India.

Trend of media employed photographers is reducing, and self employed wedding, niche, corporate, fashion photography is increasing.

As per my calculations only 1000 Photogs bought Elinchrom equipment last year ( 1000 photogs/studio * 1 lac Rs per gear = 10 crore Rs, + 3 crore in replacement market = 13 crore) from target audience of 240, 000. That too low end basic gear. Paraphernalia and accessories have still not been in great demand, nor the high end gear, though rising as per annual report. They're ready and waiting on purchasing power and demand to rise. Once base is established then upgrades and plenty of accessories are needed each year, there are dozens of light shapers and soft boxes each between 10 - 80,000 Rs one can add on.

Couple more observations from latest annual report downloaded from available since 21st of October are:

a) Company is reducing none core business like trading in camera, tripods, print and focussing on Elinchrom

b) Now Pause. Rejoice. Domestic demand grew by 51%. Domestic topline grew from 8.72 Crores to 13.2 Crores from 2009 to 2010.

c) Exports also keeping up momentum from 27 Crores in FY 09 to 33 Crore in FY 2010.

Other thoughts:

Fresh Photogs graduating from Film and Photography Institutes will buy professional gear unlike previous generation wedding photographers. Those considering Photography as part time profession are likely to spend 1 lac Rs and buy a softbox rather than building one like this -->

In above calculation of 240,000+ I have calculated only Still Photography professionals and have ignored film industry which is far bigger and that uses some Elinchrom products like continuous lights. Each market is different and rental network is an awesome business model too. Anyone reading this and passionate about photography should consider equipment rentals in metro cities in India, its going to make money.

To sum, India is showing signs being a growth driver in this recession resistant, price inelastic business. Keep tabs for next 4 quarters and watchout for economies of scale. Huge market is un penetrated and only 10,000 out of 240,000+ photogs are using proper gear in India.

Saturday, October 16, 2010

Ilustrated biography of Buffett : Comic readers delight

Nice illustrated book I completed today, lets ones imagination build Buffett's real world. Will send you back to Chapter 8 and 20 of the Ben Graham's Intelligent Investor. Anyone who enjoys reading comic books would savor this biography. Link : Amazon

One has to admit Buffett was both born as well as determined to succeed although latter alone can be a sufficient condition.

Other than his passion and thirst for investing, Buffett's wealth is blend of twin factors, long term compounding (8th wonder of the world) and borrowing other people's money. He has been in business for 75+ years in theory and 70 years in equities alone.

Both Charlie and Buffett recommend either starting game early or living long enough to let the 8th wonder of world work its charm. If one saves 10,000 Rs per month for 40 years and compound it at 20% per annum (post inflation) it grows to 1.7 billion (170 Crores) Rs. in today's value. BSE has returned those returns since 1980 ! Most of us including myself lack the discipline and patience but if one plays safe over long term, returns will actually be more than your imagination.

Another thought to remember is, if you or your children save 2000 $ per year from age of 18-25 i.e. 7 years only and then not save anything for the rest of their lives, they would outperform the person who saves 2000$ per year from 26-65 years of age i.e. 40 years, assuming return rate are constant/same during compounding, even though second person saved 33 years extra. Draw for them this chart and frame it in their room.

Friday, October 15, 2010

Videos for Elinchrom

Above video,  Chris's family owns part of  Elinca SA, a family owned business that owns Elinchrom brand.

Second video, 

Listen carefully at around 18 seconds into the video, who recommends Scott Kelby to use Elinchrom BX RI strobes ? and what were his words. None other than legendary Joe McNally (Wiki : Joe McNally) , site :

Ranger Quadra was revolutionary in 2009

Wednesday, October 13, 2010

When Markets Collide : Investment Strategies for the Age of Global Economic Change

Should not have picked up this from library after reading the title. Mohamed El-Erian is regarded as Bond of Bonds. As expected a macro book more useful for fund managers will hundreds of billions to avoid systemic risk.

Elaborate analysis of 2008 events, which for me does not count. Dissecting past events with precision doesn't count, predicting future does. Not at my frequency.

More Scuttlebutt in Digital Flash and Light Shaping market

Over the last few days I probed further into Studio Flash market. I joined photography discussion forums to ask questions than being a passive reader and also visited shops around NZ as a prospective buyer.

Many interesting experiences, I was booted out of photography forum for writing something on these lines "What are the risks with investing in Profoto, Broncolor, Bowens or Elinchrom as an investor. Newspaper used to be money minting business but not anymore due to internet. Can studio lighting become obsolete over coming decades." Although my question was not graced with a response for what was posed by blinkered photogs but I nevertheless got my answers. An experienced photog replied "That line of thinking should be discussed at another forum, here we discuss the equipment we love, lust for and dream of working with". That statement had an impact on me, sort of Harley Davidson fanboy chatter. Did not mind being kicked out after that :)

I also posed as a buyer at Photography Equipment vendors at Wellington, NZ. There are three brands that dominate here Bowens, Profoto and Elinchrom. Bowens having no after sales service i.e. repairs need to be done in Europe, Profoto being very expensive and having no entry level or intermediate level gear. Elinchrom has locally trained service repair technicians (this is a country of 4 million, yes just 40 lac humans with sheep outnumbering us), its a good feat to achieve for any company.

Few more observations, first, pretty much Lynch Flower in Desert all over again for me. Since this is a no growth market in West, only smart companies are growing, no new companies are entering.

Secondly, In India and other developing countries like Philippines, these Photogs make their own DIY softbox and light reflectors even in studios. Infact in Indian marriages, social events, birthdays etc I have hardly seen Photographer coming with light reflectors, softbox, this is complete contrast to West where nearly 100% of shooting at weddings are done with good gear. I remember in my own marriage in India not having seen light shapers or softboxes because they buy heavy junk so far which is not portable. So studio lighting means lighting in a brick and wall studio. I am definitely not choosy but its a contrast to see shabby quality of output produced at mass scale because of non discerning public as yet. All they use is a flash even in marriages. We deserve better in India, afterall marriages are one time affair for most and special occasion in any case.

Photoquip sales are just 20% in India and 80%+ via exports. I am only glad that most of the growth so far has been coming from no-growth-industry of developed West and only some from India. This ratio will gradually change, and it could still be embryonic but over long term it will change when-home-made light shaping / "jugaad"  mentality changes, gears become more affordable and users more polished and customers demanding.

Saturday, October 9, 2010

Just One Thing: Twelve of the World's Best Investors Reveal the One Strategy You Can't Overlook

 Excellent collection of insights by diverse fund managers. The ground rules of sound investing are refreshed in this nice compendium. It possessed cogent nuggets of investing truth.

John Mauldin contributes with an essay in the final chapter The Millennium Wave which piqued my curiosity even further. I've tried to imagine other planets, and peek into future but without much technological angle. I had already come to conclusion last year couple of times that 'human beings will not be allowed to drive cars', we should see this within next 30 years. We've seen this in sci-fi movies most of which will appear 1960s when it actually happens.

I am pretty much in consensus with nutty, crazy, obsessed and shamelessly future
seeing personality Ray Kurzweil. (Wiki : Ray_Kurzweil) Bill Gates too yearns to seek insights from him and invites him for dinners. I believe Bill Gates visions are borrowed too partly, but its fine, once someone shows you the moon hidden behind bunch of leaves in tree, you can re affirm its existence. A lot of Ray's technological insights into future have already come to pass, eg: which was proven by Deep Blue vs Human Champion Garry Kasparov in 1997 was forecasted in 1980s.

Let me remind myself and anyone else who is reading, Moore's law is pretty much alive and in action, infact rate of change is increasing geometrically and share with you Ray's insights. Within next few decades 1000 $ (as in affordable) computers will be as smart as humans, after another couple of decades a 1000$ computer
will be billions of times smarter than humans. Before this time it will be game over for humans, as in decision making. Infact humans will not even know whats happening around, all innovations will be made by machines, which will make successive incarnations of intelligent machines. Human understanding, intelligence will become the limiting factor for progress. Most of the time will be spent by humans in learning and unlearning new fields of study. I believe Star Trek will appear 17th century bullock cart, compared to disruptive change ahead of us. Interesting bet on Turing Test :

And despite obstruction and prevention by Govts, it will be unstoppable. Could be disturbing and maybe we just learn to accept not just change, but rate of change.

Wednesday, October 6, 2010

Reduce Simran Farms and some more thoughts

While Simran Farms continues to rise, it would be better to reduce from 80+ Rs levels as there is no clarity on sharing money with minority shareholders. Management has doubled their salary without mentioning when or if the dividend will be paid.

Selling now may look like a mistake in hindsight, happy to be wrong than sorry, and I may end up buying again @ 200 Rs but for now, until they mention and pay dividends I will gradually reduce stake. Happy to buy at higher levels again when credibility through dividends is established.

I've pondered over this a few times, as a generalised blanket statement "Indians love money but lack equivalent passion". Nor do their products appear let alone dominate in supermarkets across the world, global take off is an issue. Hawkins of Hawkins Cooker was borrowed from an English company, Prestige part of TTK Prestige again from a UK company, Eveready brand in India fell into Indians hands due to Bhopal Gas disaster. Where is the classy company that has gone global built in India by Indians ? Part of the issue is 200+_ years of Industrial revolution skipped India by in British rule. I would attribute that to lack of shrewdness in Indians again, a lesson still not well learnt.

There is difference between honesty, integrity, kindness and shrewdness and they are not mutually exclusive. As as wise man said, "One should be softer than flower when kindness is concerned but stronger than thunder when principles are at stake". Its interesting to note cultural differences in east and west. I also feel that those in western world who dont understand the meaning of word "humility" and have to pull down the pants of opponents to win elections as psychologically stunted in their development and growth due to environmental reasons. Its a long debate, and I can go on...

Buffett considers enthusiasm as single most important criterion while making purchases, not price, nor even brand, while buying great companies. Comically attributing his success to lack of oversight in companies that Berkshire loosely controls, astute Buffett never buys out a business from management that is looking to cash out and retire.

Tuesday, October 5, 2010

More on Photoquip

Hi All

This is to reply on some comments I have received. You're welcome and hope it makes money for all of us.

Photoquip is a distributor for Elinchrom's Swiss products but it also manufactures products for Elinchrom's worldwide sales in India. I am told sales are sustainable and I am gullible enough to believe it, again results will tell whether we are wrong. I like their move into entry level equipment.

If one goes through the photographer blogs and discussion forums world over and you will know that top brands are Profoto, Elinchrom, Broncolor, Bowens and Alienbees.

Elinchrom has been widening moat against Profoto and Broncolor which are very expensive due to European labour rates and possibly image they wish to retain. In last couple of years Elinchrom has started gear at lower end with a new brand name called D-Lite for beginners, gear would still be around 1 lac INR. Compared to those by Broncolor and Profoto and Elinchrom's high end, around 5 lacs Rs.

You have to concoct an an experiment in your mind and visualise how many professional photographers will use this product, the gap globally has been huge, not only between top and low end, but also middle segement, which Elinchrom filled with Quadra Ranger couple of years back. Its simply a company that is ahead of curve.

Secondly, as Indian market matures, Photoquip does not need to burn R&D to invent new products, product line is universally ready to be used given the purchasing power increases, unlike what other companies need to do. Hawkins has had to learn to come into cookware, Agrotech Foods cannot introduce global products due to different palate preference in India.

Go through these very ordinary blogs/reviews:

Elinchrom Catalog

Elinchrom Product Chart, out of which I suspect only 25% is consumed in India at present

What am I doing with Photoquip ? If I had more money I would have bought 14% of the company without triggering open offer, so I am accumulating gradually with monthly savings.

Since my horizon is relatively long term and I dont care if it goes nowhere for a year or two, in general its best to add to rising positions especially as a trader. You can give it another 12 months to prove itself.

I must add that Photoquip floundered and lost all the money it made from Elinchrom, between 1998 and 2004 by introducing tech products, Gretag Masterlab ( Gretag went bankrupt), Clik cameras (became obsolete). Pretty much what you would expect from a protean tech universe. Its amazing to see how much money is wasted by corporate di-worsefication into unknown ventures. I hope they resist the urge to di-worsify.

Ballarpur Industries which I know quite a lot about wasted more than 3000 crores into various ventures (from leather, to household door, bricks, you name it) from its flagship paper business.
Had they stuck to their original line of business they would be multi billion dollar business. All the same even more amazing to notice 3M at top of their game in diversified businesses and producing over 55,000 products.



Monday, October 4, 2010

Cera Sanitaryware Ltd is a buy

I had this stock and disposed of it in 60s last year.

Reason being, its price (not topline/bottomline) is strongly correlated to sentiments of Construction Industry. And that my friends is a dangerous place to be in given lack of information in Indian real estate market. I had a roller coaster ride in Unity Infra from 1050 Rs buy price in 2008 to 60 Rs low in 2009, back to 550 Rs now (after subdivision from 10 to 2), we learn.

Why I disposed of Cera Sanitaryware was low ROC, I like to dispose off companies that go below 20% ROE, ROCE or ROIC irrespective of brand name.

Scan through 2006 numbers, total capital employed ( Debt + Equity ) is 48 Crore and Net profit earned is 2.4 Crore, thats a rubbish number, 5% annual returns on investment, who wants to be in a business sad as that. In 2009, total capital employed was 107 Crore, return of 13 Crore, okay but not good enough @ 12% per annum.

Since no company can grow its net profits rate faster than return on equity over long term, I decided to sell. Analogous to science of accounting this is a post mortem measure too. It does not tell you that other players in industry are feeling more pain and your company is gaining market share. Net profit marging will improve from 3% of sales to 11% of sales on various accounts and economies of scale. Obviously that is overcast and veiled. This company is set to be a steady compounder 25%+ returns per annum and a buy. Especially to be loaded on bad infrastructure sentiments.

I am happy to buy at at 5x the price I sold it a year back, in investing it is never wrong to change your mind. It is only wrong to change your mind and do nothing about it.