A Thread..
Some Learnings from Professor Bakshi Maintenance CapEx Lecture :
2 Types CapEx :
- Maintenance CapEx
- Growth CapEx
Some Learnings from Professor Bakshi Maintenance CapEx Lecture :
2 Types CapEx :
- Maintenance CapEx
- Growth CapEx
Maintenance CapEx : Refers to CapEx that is necessary for the company to continue operating in its current form.
- No new streams of revenue
- It will help you maintain current streams of earnings, not help for the growth
- No new streams of revenue
- It will help you maintain current streams of earnings, not help for the growth
Growth CapEx: It is the expenditure on new assets that are intended to grow the company's productive capacity.
- Money spent on new buying equipments/ new plant setup / new land which will create new streams of earnings.
- Money spent on new buying equipments/ new plant setup / new land which will create new streams of earnings.
Comparison
Apple:
-Good Product
-Happy Customers
-Happy StakeHolders
-Profit Making company
-Powerful Brand
Go Pro:
-Good Product
-Happy Customers
-Not Happy StakeHolders
-Loss Making Company
-Great Product, Lousy Investment
-Not Powerful Brand
Apple:
-Good Product
-Happy Customers
-Happy StakeHolders
-Profit Making company
-Powerful Brand
Go Pro:
-Good Product
-Happy Customers
-Not Happy StakeHolders
-Loss Making Company
-Great Product, Lousy Investment
-Not Powerful Brand
Key Lessons from above example :
- Go-Pro required High Spend on upgrading technology which goes from the cashflows.
- Need to Spend a more & more money to stay in the game.
- No uniqueness (Its collection of Technologies).
- Go-Pro required High Spend on upgrading technology which goes from the cashflows.
- Need to Spend a more & more money to stay in the game.
- No uniqueness (Its collection of Technologies).
- Should be careful about the companies which are making high price products.
- It's take away cash from earnings which is not available to share holders.
- It's take away cash from earnings which is not available to share holders.
Maintenance CapEx is the enemy of the investing. It should be low.
As an Investor we should avoid high maintenance capex industries and should focus on low maintenance capex industries where the obsolescence is very low.
As an Investor we should avoid high maintenance capex industries and should focus on low maintenance capex industries where the obsolescence is very low.
For eg. Basic Chemicals producers -> using same technique which were used 100 years before.
Warren Buffet Once made an investment in Brick Company, Charlie munger said we use the same procedure that were invented since decades.
Warren Buffet Once made an investment in Brick Company, Charlie munger said we use the same procedure that were invented since decades.
[Exception] : There are exceptions in every case.
When you are leader and you want to kill the competitors and you spend billions of dollars to stay ahead in the game. and by doing that you ensure that the entry barriers will be very high for new competitors
When you are leader and you want to kill the competitors and you spend billions of dollars to stay ahead in the game. and by doing that you ensure that the entry barriers will be very high for new competitors
Eg.
Intel Spending large amount on money on producing cutting edge technology.
Not all Maintenance CapEx are bad, if you are the leader, strong balance sheet, high margins and no need of outside capital then Maintenance CapEx will give you the competitive advantage.
Intel Spending large amount on money on producing cutting edge technology.
Not all Maintenance CapEx are bad, if you are the leader, strong balance sheet, high margins and no need of outside capital then Maintenance CapEx will give you the competitive advantage.
All credits to the professor @Sanjay__Bakshi
Video Lecture Link :
Video Lecture Link :
https://twitter.com/Sanjay__Bakshi/status/1303540371822051328?s=19
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