Saurabh Mukherjee is the best selling writer and author of The Unusual Billionaires.
He the founder & CIO of Marcellus Investment Managers. Previously, he worked for Ambit Capital (an Indian Investment Banking firm) for 8 years & ended as a CEO before resigning.
Mr. Mukherjee is a London School of Economics alumnus & CFA Charter holder. Having almost 20 years of experience in Equity Markets.
This book is a good read for investors who want to learn & invest in the Indian stock markets.
The Unusual Billionaire is a collection of stories of 7 companies with a great detailed description of ‘how they achieved extraordinary success’.
These seven companies include Asian Paints, Berger Paints, Marico, Page Industries, Axis Bank, HDFC Bank, Astral Poly Technik. There one more company on the list that included ITC the qualifying requirements.
These companies are selected on Coffee Can Investing criteria which is as follows:-
Consistent growth for 10 years (each year)
For Non-financials : Revenue > 10% & ROCE > 15%.
For Financials : Loan growth > 15% & ROE > 15%.
Structure of The Unusual Billionaires Book.
Each chapter is broken down into 3 parts.
- 3 Phases (on basis of time).
- The secret sauce of success of each company.
- Focus on core business.
- Deeping the competitive Moat with John Kay’s IBAS framework.
- Sensible capital allocation.
- Share price outperformance.
IBAS stands for Innovation, Brand, Architecture & Strategic Assets.
5 Takeaways from The Unusual Billionaires.
1. Focus on core business.
Companies which we invest in should have a complete & definite focus on its core operations.
Case study :
Asian Paints is a market leader in the paints industry since the 1970s & till date retain their position. They have tried to diversify, but never put a strain on their balance sheet to achieve that.
Marico’s Parachute hair oil & Saffola oil are market leaders since the 1990s. Even though they tried to diversify they never compromised their focus from the core business.
2. Competitive advantage.
Competitive advantage means a unique feature or quality which differentiates them from other companies. It will be different for different companies.
Axis Bank’s previous name UTI Bank was an advantage as people had great trust in the government-owned organization.
Asian Paints architecture (relationship with dealers & entry supply chain) is one of a kind which can hardly be replaced by any. They were the 2nd organization in India to have a supercomputer which they used for forecasting demand, which helped them to build their supply chain.
3. Industry Attractiveness.
Companies operating in heavy government-regulated industries may not be able to generate Coffee can investing framework returns.
The growth in the industry should be high & the competitive intensity should not be wide.
The portion of value addition in the final product should be high.
Banking is an attractive industry in a country like India where credit penetration is too low & other related services are underserved.
HDFC Bank is a unique & outstanding example.
Senior management team where all foreign bankers. The management used its foreign banking experience and built an exceptional financial institution.
Before HDFC Bank came into the picture share settle used to take place in dematerialized form, but payment was done in the physical form which used to take significant time.
To solve his problem HDFC Bank proposed to the stock exchanges that if they open an account with us, we will complete the process in less time duration.
Through which they got free-float & working capital cycle requirement of stock exchanges reduced considerably. They went after other players in the chain-like brokers, investors, etc.
4. Management Quality.
Management plays a key role in any companies success.
They which ‘hubris’ means down to earth, not flamboyant, don’t come in the limelight are considered great. Because they love to do their work, then anything else.
They should have a strong record of efficient capital allocation.
Case study :
Genomal’s the promotor family of Page Industries, only license manufacturer of Jockey Brand in India.
They originate from the Philippines where they achieved their first success with the Jockey brand.
Jockey offered them a license to manufacture in India after their own failure.
Genomal before entering the Indian market did market research, which yielded good results.
Instead of outsourcing manufacturing like other brands, they developed their in-house manufacturing facilities.
Jockey’s advertising campaigns “Just Jocking” & “Jockey or Nothing” are well known; which help to create brand awareness.
5.Coffee Can Investing & No churning.
Coffee Can Investing is already covered in the introduction.
Churning means stocks going out & new stocks coming in.
The author suggests churn in the portfolio will not provide the desired return as per Coffee Can Investing Framework.
No churning reasons:
- Higher probability of profits over the long term.
- Power of compounding.
- Neutralizing the negatives of ‘noise’.
- Back-testing results prove that rebalancing does not improve returns.
Case Study :
Sensex has returned over 15% CAGR returns over the last twenty-five years, there have been intermittent periods of unusually high drawdowns.
In 2008, for instance, an investor entering the market near the peak in January would have lost over 60% of value in less than twelve months of investing.
The author has provided various case studies to prove his point in the book.
Related Topic: The Education of a Value Investor (Book summary)
Conclusion of The Unusual Billionaires
The book includes a large number of quantitative analysis to back all his thesis. It is a classic which every investor should read to understand the Indian stock markets.
You can buy The Unusual Billionaires from here.
For Amazon. in (India): Book
For Amazon.com (other countries): Book
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