homemarket NewsPositive on Asian Paints, Titan; upbeat on cos that can suffocate competition: Marcellus Investment
Positive on Asian Paints, Titan; upbeat on cos that can suffocate competition: Marcellus Investment
"The next 12 months will be an environment where market shares will consolidate in our country. So, regardless of whether you are using large-cap investing or small-cap investing- back the market leader, back the company with the strongest moats and you will come out of this smiling," said Saurabh Mukherjea, Founder, Marcellus Investment Managers. Mukherjea believes companies that are sector leaders, that have the ability to suffocate competition are the best bets.
“What we look for in companies is the ability to kill competition, suffocate competition when the going gets tough so as global recovery picks up, one would expect input cost inflation. What we are trying to see is which franchises make the most of it, and build their competitive advantages further,” said Saurabh Mukherjea, Founder, Marcellus Investment Managers.
“In the last three quarters, we have seen plenty of strategic aggression from Asian Paints, which is gladdening our hearts, leading us to buy even more of the stock,” he told CNBC-TV18.
He further said, “Based on the results published yesterday, it is relatively clear that they are hammering competition. The volume and value growth were both pretty similar suggesting that they haven't really taken meaningful price hikes as yet. This company is way more profitable than its competitors; it is three times as large as its nearest competitor. So, by preventing price hikes from coming through, so far Asian Paints is hammering the financial strength of its competitors. So barring Berger Paints, one really worries about the rest of the companies and their ability to deal with this sort of pricing pressure from Asian Paints. This is a historical trait you will see across sectors.”
“In India, consistent compounders- market-leading franchises suffocate the competition. When input prices go up, they deliberately hold back on price hikes, and the competitors margins get torched. Second about growth in dealerships, already before COVID, Asian Paints had twice the dealership network that its closest rival did and as they said in their earnings that they have grown the dealership network by more than half, so at its peak they have around 80,000 dealerships and now they have added 40,000 more. So, growing its dealership network by 50 percent through COVID is mind-boggling,” Mukherjea explained.
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He further mentioned, “The third aspect that is gladdening our hearts is that non-paint initiatives are all profitable, they are growing and are doubling year-on-year like their waterproofing business, home decor business. So Asian Paints is getting stronger, they are suffocating the competition. We are in the business of investing in great franchises, which go on to build dominant franchises, businesses so that we and our clients grow our wealth at 20- 25 percent.”
Mukherjea further explained, “For the last four or five decades, this company has grown free cash flows decade upon decade at 20 percent CAGR. Our reckoning is the current decade will be no exception. So, we bought the stock yesterday and we are buying more as we speak. And this is exactly the sort of reason why living in India and investing in the Indian market is such a privilege.”
“The point we have historically made is what happens in our country over the last few years is giving a great chance for well-run franchises. We don't own Havells but it is a well-run franchise. Jubilant Foodworks is another example although we don't own it,” he said.
According to him, the supply-side pressures which are arising from COVID, exigencies like GST, demonetization, they are further and further polarising industries in favour of one or two market leaders and that is what investing in India is so powerful. “You have been given on a platter a country where industries are polarizing, Havells in electricals, Jubiliant Foodworks in the QSR space and Titan in jewellery.” he said.
“You back the leader, and you then let the leaders suffocate the competition and exigencies like this whole supply chain disturbance after COVID, the surge in crude prices after COVID are classic ingredients for that. We have seen this time and time again and that is why we stay the course and keep loading up on these franchises like Titan, Asian Paints, TCS, you then end up compounding your portfolio at a very healthy rate over 3-4-5 year period and this is a distinctive trait of the Indian economy. No other large economy in the world has this degree of polarisation in market shares in sector after sector,” stated Mukherjea.
He mentioned, “The next 12 months will be an environment where market shares will consolidate in our country. So regardless of whether you are using large-cap investing or small-cap investing- back the market leader, back the company with the strongest moats and you will come out of this smiling.”
For the full interview, watch the video
(Edited by : Dipikka Ghosh)
First Published: Oct 22, 2021 12:13 PM IST
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