Latest stories

Pricing strenght – A key indicator of competitive advantage

By Rohit Chauhan
In Competitive advantage, Uncategorized
September 10, 2005
2 Min read
2 comments
P

I was reading an interview of warren buffett a few days back. He was asked on what kind of businesses he prefers. His replied the ones where he can increase the price of the product ahead of inflation (he gave the example of see’s candies ). He also noted that one should avoid businesses where one has to pray before increasing the price by one cent (he gave the example of berskhire hathway – the textile company where they found it diffcult to increase prices )

The above comment got me thinking. Pricing strength of a business is a very powerful indicator of competitive advantage enjoyed by the business. Think of FMCG companies like HLL, P&G, marico . These companies have been able to increase their prices (although that ability has come down in recent past due to higher competition ). On the other end companies like steel , cement typically can increase prices only when there is supply shortage (which is only for a limited period of time)

I have found the above way of looking at a business a very powerful tool of checking if a business has enduring competitive advantage.

How about telecom companies or IT services companies …their pricing ability does throws up interesting insights ..although i have not been able to come to a conclusion

Read on2 comments

How VOIP would impact the Telecom industry

By Rohit Chauhan
In Industry analysis, Uncategorized
September 7, 2005
1 Min read
6 comments
H


Read this article on how VOIP is impacting the telecom companies (or could impact). The article focuses on the number of users switching to VOIP and that the traditional companies could see a fall of upto 25 % revenue in the next few years.


I think VOIP could be the disruptive technology often referred to by Clayton M. Christensen in his book ‘the innovator’s dilemma’ . This technology although just below the required performance levels of the regular telecom market is fast improving and moving into the rapid adoption phase. Now with microsoft, skype and google behind it , it should not be long before more rapid adoption happens.

all of the above should be great for the consumer, but what will happen to the telecom industry …i would guess that their entire business model could get disrupted in the next few years …what does this mean for companies like VSNL, bharti or reliance infocomm ?

some of them could face pain but would evolve with the new technology like reliance or bharti ..but i would not be too optimisitic for VSNL, MTNL and some others

i would be wary of investing in the telecom sector for a long term basis

Read on6 comments

Kothari products ltd – A Net cash graham situation

By Rohit Chauhan
In Company analysis, Investment ideas, Uncategorized
September 6, 2005
2 Min read
3 comments
K















I was running my screen in the year 2003 and came across kothari products. This was a company with 240 crs cash and equivalent (net of debt) on the balance sheet with a market cap of 80 crs ( i think they had 40 mn outstanding shares @ 170 rs / share). They currently have almost 300 crs (around 600 rs per share )

They were fairly profitable (although the profits were down). The market had beaten down the price due to legislation issues (The maharashtra government had banned Pan masala / gutka – their main products). The company was still profitable, although the profits had come down due to drop in sales. Its free cash flow is same as its net profit because Gutka and other tobacco products require little capex for plant and machinery or working capital. The main asset is the brand (in this case pan parag ). So their profits were pure cash for the owners


I bought the share at an price of Rs 160 – 170 a share and sold around 260 per share. The reason I sold was lack of information from the company ( their website is poorly updated in terms of financial results). In addition, I was not sure what the promoters were planning to do with the cash ( the promoters hold almost 70 % of the company).

So what’s the point of the whole thing …Its not that it was a profitable investment. Rather, although I made money on the whole thing, I did not have a very comfortable feeling with the investment. If I compare it with the other purchases I have done such as asian paints, or a concor which are good businesses with good management, this one made me uncomfortable as there was no transparency from the company. In the end I decided to get out rather than face an unpleasant surprise from the management.

My investment philosophy is closer to that of buffet where I end up buying good to great companies at fair prices and get a good night’s sleep. The above was an experiment in a graham style investment. It was profitable and based on a sound approach. But somehow requires more diversification and purchase in not so great enterprises.

Do you have a similar experience? please feel free to share with me

Read on3 comments

Subscription

Enter your email address if you would like to be notified when a new post is posted:

I agree to be emailed to confirm my subscription to this list

Recent Posts

Select category to filter posts

Archives