Thread by @badola_arjun

Summary of a talk by @SamitVartak "Importance of Creating Long-Term Wealth for Clients".

Short thread 👇

Things he would look for in companies:

1. Survival: Staying away from a company if you doubt its existence 10 year down the line, even if the opportunity is too exciting.

As soon as you extent your time horizon you start to realize there are very few companies which survive.

2. Differentiation: It can be any industry. Through differentiation one survives, as they tend to be last man standing.

3. Be the best: Differentiating yourself to be the best in the industry.

4. Smart Growth: That is quality over aggressiveness

Shares examples of companies to explain the concepts:

1. BKT industries: The promoter initially entered the two wheeler space but they failed as it was generic in nature.

Then they entered four wheeler (cars) but failed against the leaders like MRF.

This made them think, What business can make you differentiate and help you survive? Later, they came across a niche area where there was no Indian company dealing in that sector.

It was a niche area of complex and huge tires.

Dealing with 27k SKU compared to 100 SKUs for ordinary tyres.

Mining, construction, and agriculture went through a downturn from 2012. Market for this industry went from 15 billion to 10 billion (down 30%) but the company increased it sales by 50%.

This happened because their cost is 50% less to their next competitor. It is a cost leader turned to a global brand.

2. Page Industries

How Page differentiated itself:

1. Cost of manufacturing
2. Quality
3. Distribution
4. Branding

There was another company Lovable Lingerie which had 2,500 SKUs and page had only 500 SKUs.

Why low SKUs?

1. Page decided to focus on high volume items and does not want to offer everything.
2. Plus, with limited no. of styles you can control the quality.

3. Easy for labor management: As they documented their full process.

They decided to cap their margins at 20-21% so that it keeps the competitors out. (They can easily make 30%)

A entrepreneur who know what he want to target with a sustainable competitive edge are the companies which investor value a lot.

What do we look for in an investment? (coming back to initial points)

1. Survival: If you don't look for it then you are a trader.

Survivorship comes from entry barriers. (Moat). If a business can survive for a long, market gives it better multiples for such certainty.

2. Disruptor not disrupted: Don't sit ideal as you will get disrupted at certain point of time.

The disruption cycles have shrunken down which means it does not take much time for disruption to happen.

3. Prudent Growth: A good business has enough to fund its expansion but one has to be very careful with taking debt for expansion. Growth should come with profitability.

Survival is prerequisite but we also need growth. Look at growth opportunities.

25% growth does not come from industry growth, it comes from taking away competition.

The growth should also come with smart diversification like Page expanded into sports and leisurewear.

4. Keep learning: Technology keeps changes and track the industry. Keep evolving.

5. Efficiency: The most efficient player is the last person standing and this is not compromisable

6. Trust: Make sure you never loose the trust of the customer.

7. Scalability: If Samit sees that lower level management is scared of promoters he stays away from such companies. As it shows that they are not empowered enough.

8. Consumable vs one time: Consumable gives you a repeat business and protects you in tough times.

9. Think for the company: Don't get lost in day to day operations. (This he is saying for the management's perception)

What he values more:

Survival > Growth

Consistency > Volatility

Pricing power > Customers deciding prices

Scalability > stagnancy

Professional setup > Micro setup

--THE END--

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