Lockdown due to Coronavirus has provided me the much needed time to pursue my passion of reading the Annual Reports of the Companies and analyze the Profit & Loss Accounts, Balance Sheets, Cash Flow Statements etc.Equity markets in India over the last four decades have created tremendous amount of wealth for investors. Companies like Divis Lab, Vinati Organics, Crisil, Astral Poly, HDFC Bank, Infosys etc. have been huge wealth creators. The investing style which i believe in is growth investing rather than value investing and following are some factors which i analyze before investing into a Company:
- Quality of the management
- Return on capital employed
- Market share of the Company in the industry it operates
- Size of the Industry
- Future growth potential of the Company and Industry
- Possible existence of the Company over next decade
- Ratio of cash generated from operations to PBT
- Reasonable price
While I was going through the Annual reports of companies operating in different sectorsfollowing question struck me:
ARE THERE ANY BUSINESSES/COMPANIES WHICH ARE DISRUPTION PROOF/LESS PRONE TO DISRUPTIONS?
Before I try to articulate on the above question, I went back to History and tried to find out few of the cases where businesses or companies got disrupted/closed in a matter of few months/years:
One of the primary reasons for most of the above businesses which got disrupted was because of the advent of new technology or the businesses could not adapt to the new changes which unfortunately led to their downturn. It would be interesting to see how following companies with possible disruptions adapt to their existing business models and which of them can create wealth in the long term for shareholders?
POSSIBLE DISRUPTIONS
| Multiplexes | Digital Content | Insights |
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USP of online streaming platforms is that they have a lot of global content readily available with them whereas companies like PVR, Inox have to depend on films getting released over a period of time. Rather than a family or couples going to watch movies in multiplexes and spending approx. Rs.1200 they would much rather prefer to subscribe Netflix/Amazon at 500 Rsand watch variety of content like web-series, movies TV shows etc. |
| Vehicles on fossil fuels | Electric Vehicles/Cab aggregators | Insights |
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Auto and auto ancillary industry is and will go through 3 severe disruptions viz electrification of vehicle, Cab aggregators like Ola & Uber &autonomous vehicle. |
| Public Sector Banks | Private Sector | Insights |
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Current market share of private banks vis a vis public sector counterparts is roughly 30:70. In the forthcoming five years this ratio will be easily flipped in favour of private sector banks. Due to poor work culture of PSU banks and their sub-standard customer services coupled with regulatory interference by Government like Farm loan waivers, PSU banks have failed to create long term wealth for their shareholders. |
NO DISRUPTIONS/LESS DISRUPTIONS
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Insights
Contrary to popular belief, the product Maggi is neither the top revenue generator nor the top profit contributor for Nestle India. Nestle India derives 46% of their revenues from infant milk powder and nutrition products an area where it enjoys a virtual monopoly in the Indian market with almost 97% market share. With 26 percent revenue coming from Maggi which is yet another undisputed leader in its category would remain undisrupted according to me in forthcoming years. |
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Pidilite with its iconic fevicol brand and creative advertising since 1960’s, it has become the synonym for the word adhesives in India. Pidilite has become the first choice for carpenters across India. I believe it will be very difficult for any other competitor to break this virtual monopoly. |
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Perhaps the only company on the planet to achieve 20% revenue growth for almost six decades. Since half a century it has been a market leader in India.On the basis of superior customer collection data over last 4 decades, refilling of inventory is done directly to its retailers 3-4 times a day to its 60,000 dealers across India. |
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Insurance business has been in existence since centuries, and disruption to this business would be practically impossible to my mind. With very low insurance penetration in India, growth of this industry at healthy rates for coming decade is a high possibility. |
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To my mind there is no alternative to Footwear, be it chappals or shoes.Infact any high end technological changes may hardly affect the businesses in this industry. |
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In India as along as humanity exists, there would be a need for credit and banks would stay relevant inspite of any disruptions. The way banking is done might change but the need for loans/deposits would continue in future as well. |
To conclude, disruptions have made many businesses irrelevant and thus equity investing in India has become further more interesting.Above write up is just a food for thought not only for the readers but also for me to keep a watch on future disruptions and I hope one can create tremendous wealth through possible disruption proof businesses.
Thank you!!
(Above article was written by Anuj Chordiya,who is a AFP (Investment Planning) professional and an Associate Member of Institute of Cost Accountants of India, with valuable insights from Mr. Piyush Chordiya, Independent Financial Advisor. For feedback kindly connect on 9767656563/9850694905 or reach us at [email protected])
[Disclaimer: The above content is only for informational purpose and not a Stock recommendation to anyone. One may contact their professional advisor before investing in any of the Companies.Views expressed herein are strictly personal and have been gathered from years of experience, Annual reports and learnings from my various Gurus like Ashish Kila, Saurabh Mukherjea, Prashant Jain, Bharat Shah and many others. Alternate views are welcome. Photos and company logos have been sourced from Google, Company websites and Wikepedia]
Nicely explained with illustrations..