»5 Minute Wrap Up by Equitymaster

On This Day - 17 MAY 2019
What Makes TVS Srichakra and CCL Products a Cut Above the Rest?

Radhika Pandit, Research Analyst

Investing in commodity stocks is not easy.

First, the profits of these companies are influenced by commodity prices. These price movements are difficult to predict.

It is also futile to predict the changes in the commodity cycle.

You can never be fully sure when a down cycle is on its last legs paving the way for an upcycle and vice versa.

So how do you go about investing in the stock of a commodity business?

Or should you even bother investing in such a business in the first place?

If commodity businesses are out of your circle of competence, you should certainly stay away from them.

But our view is to not shun such stocks altogether.

Even Prof Sanjay Bakshi - a super investor we closely track - who otherwise avoids these stocks, does make one exception.

His rule? Buy Commodities, Sell Brands.

In simple terms, it is a business which can pass through the fluctuations in commodity prices to its customers. Even though it is in a commodity industry, it has stable earnings.

In Smart Money Secrets, Sarvajeet and I have recommended two stocks that are also a part of Prof Bakshi's ValueQuest India Moat Fund - TVS Srichakra and CCL Products.

TVS Srichakra is in the commoditised tyre business and subject to fluctuation in rubber prices.

--- Advertisement ---
What's Common Between Four of the World's Top Five Companies?

If you look at the four of the world's top five companies by market capitalisation - Apple, Alphabet (Google), Amazon, and Microsoft, you'll find something amazing.

They are using one powerful strategy to scale their business all over the world, without any major costs involved.

Even Nike, Uber and Netflix are using the same strategy to kill their competitors mercilessly.

Want to know which Indian companies are using this strategy?

Click here and see yourself...

However, the company has created a niche for itself.


It is a preferred partner for original equipment manufacturers (OEMs). These are the big automobile manufacturers. It specialises in the two-wheeler industry.

Plus, the company signs a formula-based contract with OEMs for a pass-through of raw material price changes.

Thus, it passes along the increased raw material cost to OEMs.

Also, TVS is a strong brand in the auto and auto ancillary space.

Let's look at CCL Products.

It is one of the world's largest coffee producers. It has made its business model resilient to coffee prices. In fact, it is now moving to India's branded coffee market.

CCL is one of the finest coffee producers in the world with more than 1,000 coffee blends.

No other company in the world has this kind of capability. Its value-added coffee products help it garner better realisations and customer stickiness.

Along with its value-added products, most of its plants operate at close to full capacity. This provides significant operating leverage and makes it one of the world's lowest cost coffee producers.

So you see, you do not need to completely avoid commodity businesses. Look for those that have competitive advantages.

Now while we have recommended TVS Srichakra and CCL Products in Smart Money Secrets, what is our latest view on these 2 stocks?

For that, stay tuned for our upcoming Smart Money Secrets report.

Sarvajeet and I will publish it in less than 2 weeks.

The report will have our latest views on these 2 stocks along with the other positions as well...

...And a new stock recommendation!

If you haven't subscribed to Smart Money Secrets yet... you can sign up here.

Chart of the Day

TVS Srichakra and CCL Products.

Both are businesses selling commodities - Tyres and Coffee respectively.

Yet they have some competitive advantages that set them apart from other commodity players.

These advantages are what compelled Sarvajeet and me to recommend them in Smart Money Secrets.

They have a strong positioning in their sectors. Their dominant share means they enjoy a degree of pricing power.

This is also seen in the returns doled out to shareholders, measured by the Return on Equity ratio.

For both, it has averaged at more than 20% in the last five years. This is healthy, although the fluctuation has been more pronounced for TVS Srichakra.

TVS Srichakra and CCL Products Are Rewarding Shareholders Well

Warm regards,

Radhika Pandit
Radhika Pandit
Co-editor and Research Analyst, Smart Money Secrets

PS: Radhika Pandit and Sarvajeet Bodas, co-editors of Smart Money Secrets, are getting ready to recommend their next stock. If you haven't subscribed to Smart Money Secrets yet... you can do so here.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407