Thread by @Sanjay__Bakshi

@shyamsek You won’t have to. The market will do it for you. Lol! Seriously though when businesses push their high ticket items to customers by making them available at low EMIs they are, in effect, borrowing sales from future periods.

@shyamsek Cheap EMIs basically accelerate sales. People who cant afford to pay cash down (but will be able to in some future period) become current customers instead of future customers. They give in to instant gratification.

@shyamsek But once you have bought something on EMI, you won’t be buying it again for a long time. So a future customer becomes a current customer. How then does the business grow in future? By finding even more such future customers and converting them into current ones with low EMIs.

@shyamsek But when, as you point out, access to low EMIs stop the whole machine of creating artificial growth comes to a grinding halt.

@shyamsek Gowth in such businesses is like a drug. The drug is cheap credit. When the drug supply vanishes or is greatly diminished, the growth stops. Then there are withdrawal symptoms.

@shyamsek And the investors wonder what happened to the growth? Because they didn’t focus on the source of that hyper growth. They source was cheap and readily available credit. And when that well dries up, even for a while, we get a severe drought...

@shyamsek What’s the correct way to analyse such businesses? Ask how many customers are paying cash down. And look at the growth rate of those customers over time.

@shyamsek The earning stream that comes from those customers who can pay cash now without any borrowing is much more durable than the earnings stream from “borrowed from a future period” customers. Because the latter category is fragile.

@shyamsek This kind of analysis will often produce results that will not be to the liking of the analyst who is fixated on, and seduced by, the high growth rates in business volumes and earnings- which by the way may last many years. But that does not change the validity of that analysis.