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How Unique Are the Companies You Invest In?

Aug 21, 2017

In this Issue:
» Strategic Sale Gets a Leg Up
» Paper Industry in Doldrums
» Market Update
» And more...
00:00
Radhika Pandit, Managing Editor of ValuePro

When I joined Equitymaster back in 2005, the Head of Research asked me to name someone I admired and explain why. It's a great question we ask all candidates looking to join our research team.

I remember naming the sports personality Steffi Graf. I was a huge fan. Thanks to her superior court coverage and ability to consistently hit forehand winners, she was arguably the best women's tennis player of her time. What I admired most about her was how she always seemed to excel during times of crisis. When she retired, she held the second highest number of Grand Slam titles, a record only recently surpassed by Serena Williams.

Our idols and heroes, of course, need not be athletes. They can be businessmen, scientists, entertainers, leaders, thinkers, fathers, mothers, you name it. But I would guess that all of our heroes have some unique trait that separates them from the rest. Their uniqueness sets them apart.

The world of investing offers many unique personalities to admire. Warren Buffett and Charlie Munger always come to mind first, but why restrict ourselves to American investors when we have our very own super investors right here in India?

In fact, my colleague Kunal has a list of some forty super investors that he and his team track so they always know what the 'smart money' is doing. And what do these super investors look for? Unique businesses that set them apart from the rest.

Sumeet Nagar is one of the team's favourite super investors. In a recent interview with The Economic Times, Nagar said he and his team are always looking for what is unique about a business. In the investing world, a company that has a unique competitive advantage is said to have a moat. Sumeet runs a concentrated portfolio of around fifteen stocks and typically invests with at least a three to five-year time horizon. So, he only wants to invest in companies that have a unique and enduring moat.

Kunal and his team have been scouring Nagar's portfolio and they think they've spotted something for their readers. The company is from the mid and small-cap space and is a leader in its industry. Its focus on superior quality products and processes has earned it a solid client base. It enjoys pricing power and can charge a premium for its products. In other words, the company seems to have a unique and enduring moat.

The Smart Money Secrets team is so eager to reveal this company to their readers they will be releasing their report well ahead of schedule.

Editor's Note: Many of our readers know Radhika has been with us for over a decade now. She recently took a few months sabbatical, but is now back with us, turning her stellar research to two of our services: ValuePro and Smart Money Secrets. Welcome back, Radhika. Equitymaster has missed you!

02:30 Chart of the Day

After three years of underachieving its disinvestment targets, the government is back with a bang. This time, it wants to focus on strategic stake sales of non-public sector units (PSUs) and areas where disinvestment has so far been poor. FY15-16 saw no disinvestment through this route.

For FY18, the total budgeted disinvestment target has been set at Rs 725 billion. Of this, Rs 465 billion is expected to come from minority stake sales, buybacks, mergers, public listings, and the CPSE ETFs. Rs 150 billion is likely to come from strategic sales. And the balance Rs 110 billion from listing of state-owned general insurance companies.

Centre Gets Cracking on Disinvestment


The biggest strategic disinvestment planned for this fiscal is the 51% stake sale in Hindustan Petroleum to ONGC. At current valuations, this deal would fetch the government more than Rs 300 billion, surpassing its strategic sale target for the year.

The disinvestment program has made slow progress so far. But as the government steps up public investments to spur economic recovery, it is leaving no stone unturned to shore up its revenues. To expedite the disinvestment process, it will set up a high-powered committee of ministers whose goal will be to reduce the time it takes to identify a company for strategic disinvestment. The committee will be comprised of the Finance Minister, the Transport and Highways Minister, and the minister of the administrative department of the company earmarked for strategic sale. Whether these efforts yield results only time will tell.

04:00

As India Inc grapples with slowdown and rising debt, private investment has become inconspicuous by its absence. But there is one industry where investments have dried up due to government policies favouring imports. The paper industry has not been expanding capacities for at least the past twelve months.

After the ASEAN Free Trade Agreement was implemented, the import duty started to fall in 2015 and finally fell to zero in 2016. Resultantly, paper imports from ASEAN countries grew at an annual rate of more than 40% over the past three years. This helps explain why domestic paper mills have been unable to cash in on demand and have not added fresh capacities despite operating at almost 100% capacity utilisation.

Another headwind is the cost of wood, which is much higher in India than in other ASEAN countries. The Indian Paper Manufacturers Association will be demanding non-tariff barriers or safe-guard duties to compete with cheap imports. But until then, the paper industry will be stuck in an unfavourable operating environment.

04:30

Indian equity markets opened the day on a flat note. At the time of writing, BSE Sensex was trading marginally higher by 6 points and NSE Nifty was higher by 15 points. Both the mid cap and small cap indices are trading up marginally. Stocks from the metal and oil & gas sectors are the major losers.

04:56 Investment Mantra of the Day

"If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes." - Warren Buffett

This edition of The 5 Minute WrapUp is authored by Radhika Pandit (Research Analyst) and Madhu Gupta (Research Analyst).

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