Last year at the same time, I wrote on Learning from Kite flying festival for investing in equity shares. This year I am going to release the sequel of my previous article 😉 and try to explain learning in a detailed manner.
Flash Back 😉
As we have seen the kite as a business, thread as a competitive advantage (USP), other kites as a competitor and consider the person who holds the kite as a manager/ a leader, who run the business.
The person who not only holds the kite but also the person who hold sets of thread (Firki) is also important. If he does not support well to the person who holds the kite, then going higher and higher become difficult.
Starting of Part – 2
Now, after a brief recap of my previous article; let me start with detail explanation.
A good kite also needs a wind to fly to the sky high. A skillful person who knows how to make the kite to fly well also cannot be able to push his kite to the sky high if there is not an availability of good wind flow. And also, if sun temperature is very high, then also a person cannot able to make a kite fly well.
Similarly, with the business,
If the economy isn’t able to grow or growing at a very slower than business also cannot be able to grow much faster though business having a good manager. A good manager can able to sustain his business, but without good growth, the business can suffer.
Similarly, if the temperature of the sun is very high means Interest rate among the economy is very high then it will become more difficult for the manager to expand the business.
As I am not going to write much about macro factors in the current article so let me move forward with details on a business level.
If we get a good kite with a skillful person who makes kite to fly well then,
Huge wealth creator = Good Business + Good USP + Good Manager + Good Key Employee
Good business with a good USP can grow decently by itself also but additionally if it gets a good manager then this business, having a potential to become a huge wealth creator for us.
We can have a couple of examples of businesses such as Symphony Ltd, Eicher Motors Ltd. Piramal Enterprise etc.
Symphony Ltd. Was established as a Symphony Comfort Systems Ltd. for manufacturing air cooler in the year 1988. And in 1990, the company expanded business to all over the India. Two years after launch, the Symphony had become a national brand. After the IPO in the year 1994, the company expanded its product portfolio Water heaters, room heaters, flour mills, water purifiers, air conditioners, washing machines and exhaust fans but none of the products succeeded excerpt air cooler. Due to this reason, the company falls under BIFR [Board for Industrial and Financial Reconstruction] company in the year 2001.After BIFR, the company exited from all the diversification and continue to focus on Air cooler business. In the year 2008, company turnaround and acquired International Metal Products Co (IMPCO). Currently, the Symphony has ~50% of the market share in organized residential air cooler market (From AR 2015-16).
(For detail story of Symphony Ltd. Kindly visit – http://www.forbesindia.com/article/my-learnings/symphonys-achal-bakeri-on-how-to-make-your-company-great/33504/1
And lecture of Achal Bakeri https://www.youtube.com/playlist?list=PLgAkbY5uEbBS6XqDX6mxYMABSFYSt8WJj )
Eicher Motors Ltd.
Royal Enfield, a brand of Eicher Motors Ltd. has faced the much troublesome period in the past. Demand was low with sales barely crossing 2,000 units a month against the production capacity of 6000. And additionally, The Eicher Motors management did not see value in the box. Currently, Royal Enfield contributes ~40 percent of Eicher Motors’ turnover, ~80 percent of its operating profit (EBITDA).
Such huge turnaround was made by Mr. Siddhartha Lal, who is passionate about bike riding. Mr. Siddhartha Lal had asked for 2 years from his father Mr. Vikram Lal for turnaround Royal Enfield.
In bikes, he suggested changes such as a shift to an aluminum unitary engine with the gears and the engine as a single unit, disc brakes placed on the right and an electric starter were introduced. Mr. Siddhartha Lal also changed the way the bikes were sold—from rickety, basic, even dirty shops in dingy by lanes to state-of-the-art showrooms.
(For detail story of Eicher Motors Ltd. Kindly visit – http://www.forbesindia.com/article/super-50-companies-2015/eicher-motors-its-all-in-the-drive/40705/1
If we get a kite which is not much good but with it a skillful person who make kite to fly well then,
Wealth Creator = Bad Business + Good Manager
If we get a bad business, having a good manager, then also that business can able to create a wealth for us. A good manager can able to make a business better for the long-term horizon.
Sunil Mittal, a founder of Bharti Airtel has started his 1st venture of manufacturing bicycle parts in Ludhiana at the age of 18. After He sold off his bicycle business, he started importing Suzuki Motor’s Electric Power Generators from Japan. This business was going well and Mr. Mittal started to make profits out of it. But as an Indian government banned the importing of gene sets, he has to stop this business. After falling of Generator business, he started with the marketing of telephones, various fax machines under the brand Beetle. In the year 1992, he got a chance to bid one of the four mobile phone network licenses auctioned in India; and in the year 1994-95, he launched AirTel under Bharti Cellular Limited (BCL). Within a few years, Bharti AirTel became the first telecom company in India to reach 2 Million subscriber point.
Bharti Airtel has a business which is highly capital intensive in nature. Business requires the constant investment of capital for purchasing spectrum, such as 2G, 3G, 4G and more, also for upgrading the network, maintenance of network, high government regulations, and huge competitions. Telecom business itself is a very tough business and Airtel survives as a market leader.
(For detail story of Bharti Airtel Ltd. Kindly visit – http://www.startuparchive.com/bharti-airtel-success-story/ )
BUT, what happens when we get a good kite but with the unskillful person? The kite gets torn
Wealth Destroyer = Good Business + Good USP + Bad Manager
Balaji Telefilms Ltd.
The Indian television market is expected to grow at a CAGR of 15.50% to reach US$ 15.20bn in 2019. Balaji Telefilms is one of the largest production houses across India, South Asia, South East Asia and the Middle East is delivering Hindi and regional content. The company has produced many hit TV shows such as Kyunkii…Saas Bhi Kabhi Bahu Thi, Kahaani Ghar Ghar Kii, Kasauti Zindagi Kay, Jodha Akbar, Pavitra Rishta, Bade Ache Lagte hai etc. company also has produced many hit movies such as Kyaa Kool Hai Hum, Shootout at Lokhandwala, Shootout at Wadala, Lootera, Once Upon a Time in Mumbai Dobaara, Shaadi Ke Side Effects and Ragini MMS-2, The Dirty Picture, Ek Villain etc.
In Fy15, Company has given interest-free loan and in FY16, an approximate company gets 8.30% interest income.
In FY16, Company has posted Rs.2.80 Cr of Net Profit in FY16 and remuneration took by management was Rs.6.72 Cr in FY16.
AND, also both kites are not good and the person is also unskillful to make kite to fly then
Huge wealth Destroyer = Bad Business + Bad Manager
This one is a deadly combination and one should avoid such investment. Such investment can become our biggest mistake.
Bhushan Steel Ltd.
Bhushan Steel is a sixth-largest steel manufacturing company as per capacity of 2.2 million tonnes (mt) in India. Steel consumption is highly cyclical in nature and also depended on the economic and industrial conditions worldwide and for the regional market.
Over the last 9 years, the Company has generated cash flow from operation of Rs.9192.68 Cr and required to invest Rs.28957.62 Cr. So, that company needs to fund expansion by taking additional debt; and debt of the company increases from Rs.5718.14 Cr in FY08 to Rs.44477.93 Cr in FY16.
In August-2014, Central Bureau of Investigation (CBI) arrested vice-chairman of Bhushan Steel, Mr. Neeraj Singhal, on charges of bribing SK Jain, chairman of Syndicate Bank for taking a bribe of Rs 50 lakh for increasing credit limit of some companies in violation of banking rules.
Sources: Moneycontrol, Moneylife, Forbes India, Equitymaster, mint, screener etc.
—- Charlie Munger
Disclaimer: Businesses discuss in this article is not a recommendation to Buy-Sell-Hold. And I am not a SEBI registered research analyst.