4 days ago
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"I mean individual positions yes, but otherwise I still think it is well contained and every quarter, every four-five months we see a situation where markets do correct or there is a correction of 5% to 10% which is relatively short lived and it bounces back," says Nilesh Shah, Envision Capital.Josh and hosh right?
Nilesh Shah: Josh and hosh both go together. Even for josh you need to have hosh, so yes, they both go together undoubtedly.
But it is a little damaging and must be puncturing that euphoria that we were in just about a month back because individual portfolios and individual stocks have seen quite a bit of damage, I mean 30-40% odd, but it was well overdue I guess.
Nilesh Shah: Yes, but at the indices level the damage is not so much.
No, I am talking about portfolios.
Nilesh Shah: Yes, I mean individual positions yes, but otherwise I still think it is well contained and every quarter, every four-five months we see a situation where markets do correct or there is a correction of 5% to 10% which is relatively short lived and it bounces back. Why? Because the earnings growth is still quite very strong. I mean, leave aside the top 20, 30, 40 names, which I would probably call them as the Goliaths, leave aside the Goliaths, but down below, the Davids are still performing very-very strongly and there are pockets where there has been still 30% to 50% earnings growth. It is not just the 5%, 10%, 15%, but 30% to 50% profit growth or earnings growth and when you have that kind of scenario, I still think it is perfectly fine.
Earnings, I think, will increase decision making.
Nilesh Shah: Yes, but the earnings and I think the second is essentially the kind of populism or doles which are being given out, the kind of programmes which are there, where you get Rs 1500 or Rs 2000 a month. Clearly, I think that is going to be a lot of money. If you just look at India, 140 crore people, half of that women, 70 crore out of that if you slice out 20-30 crore of that and if each one of them is going to receive about say Rs 1000-1500 a month, that is 20,000-30,000 crores a month coming in as purchasing power. Where is that money going to go for? I mean, yes, there is going to be roti, kapda, makan. Maybe there is also going to be education, health, but after that, what next? It has to be the BPC. And I clearly see that markets like China have witnessed that and when you go from $3000 to $10,000 per capita, you are clearly seeing huge amounts of spending go up on the BPC side. And if you get the template right, if you have the playbook right out there, I think you could have a potential wealth creator. I mean, we saw these in the 90s where a lot of FMCG companies rode on the basic staples, what we talk as the soaps and the shampoos. I think that is now a mature category. You now have to move on to the BPC side and that is where I clearly think there is a very big, powerful mega theme which is likely to emerge in the next 5, 10, 15 years.
And I think also a big factor which would lead to that is also a lot more women are going to get out of their homes and start working and that is where they will spend.
Nilesh Shah: Absolutely and that is powered by digitisation. I mean, earlier you needed a physical distribution network.
Now, it is just two clicks and you have whatever you need.
Nilesh Shah: Two clicks and you are there. So, social media, influencers, all of that.
But not too crowded. You are not worried about that.
Nilesh Shah: It is crowded. But jo jeeta wahi Sikandar. I mean, you have got to spot the Sikandar there and ride it.
But this space in a sense has been traditionally dominated by the big boys which is that you have got HUL, you have got ITC, Tatas have tried to get their foot into the door. The new incumbents, Reliance, Nykaa, the new incumbents, can they make a mark?
Nilesh Shah: So, there are two plays here. One is the platform. So, I think Nykaa, Reliance are more platforms. They are going to sell everything and everything, even in the BPC category. And then there are the product companies. Within the product companies, I think they will have their own growth story and it is important to figure out who is going to scale up and who is going to keep growing sustainability, I think that is where basically the opportunity is.
The conventional, the Goliaths are going to struggle. They will probably grow at 2%, 3%, 4%, that is about it. I think that if you can spot the companies which are going to grow at 20% for the next five-seven years, I think there is a phenomenal opportunity because the underlying business is a very capital efficient business. Margins are high.
Spending on advertising is discretionary. And I think the day you kind of scale up, you do not need to spend as much on advertising and on digital promotions. After that, you will see margin expansion, cash flows emerge and that is really where the opportunity lies.
We have covered beauty and the personal care segment, but what about your previous favourites? Liquor companies and chakna like Nikunj says. Do they continue to stay put as part of your portfolio?
Nilesh Shah: Oh, absolutely. Clearly liquor, alcoholic beverages continue to be a huge opportunity. I mean one is of course currently the domestic opportunity where the sector pretty much is agnostic to any downturns and obviously continues to do very well. But I think very interestingly in the last one year or so the emergence of Indian made single malt, that is a huge new category, which is emerging and that is finding its way into global markets.
Radico
Nilesh Shah: And just to kind of have a perspective that the global market, the premium whiskey market globally is at about $150 billion. India's exports are only $350 million dollars. It is probably just 1-1.5%. Just imagine if that number becomes whatever 5% or something of the global market.
For the world’s largest population and largely malt and whiskey
Nilesh Shah: Absolutely, so they are discovering newer and newer frontiers. As they build new products, create new brands, and scale new frontiers, the growth is very strong out there.
But would names like a Radico or a USL or even a Sula for that matter, would be buys at these current levels because they have not fallen too much. I mean, they are those thematic ideas, which you continue holding for decades altogether.
Nilesh Shah: Yes, we currently own all three. We currently own all three and the investment thesis has not changed. Obviously, each of these companies have their own growth trajectories. Wine as a category is not growing at the pace at which a single malt is growing. So, those variations are there, but we clearly like the categories and we will continue to own as long as we believe the company is a category defining company. I think that is for us is very-very important and as long as that stays we stay in.
English (US)