Keepers of the Flame: Revisit into the Origins of Compounders in India and Asia (Bamboo Innovator Insight)

The following article is extracted from the Bamboo Innovator Insight weekly column blog related to the context and thought leadership behind the stock idea generation process of Asian wide-moat businesses that are featured in the monthly entitled The Moat Report Asia. Fellow value investors get to go behind the scene to learn thought-provoking timely insights on key macro and industry trends in Asia, as well as benefit from the occasional discussion of potential red flags, misgovernance or fraud-detection trails ahead of time to enhance the critical-thinking skill about the myriad pitfalls of investing in Asia at the microstructure- and firm-level.

Dear Friends and All,

Keepers of the Flame: Revisit into the Origins of Compounders in India and Asia

“A person or an organization may be down temporarily due to circumstances beyond himself or herself. But he or she may rise up from the values they held fast as keepers of the flame”, a Tata executive shared with me this belief over lunch during our business trip to India from 7-17 Dec and he handed us the Keepers of the Flame: A Century of Trust, a limited-copy DVD film on the life and times of the three great Tata stalwarts: Jamsetji, JRD and Naval.

Tata Group, with a total revenue of over $100 billion, is special among all MNCs in the world. Its mission is more than just economic. What makes Tata different is that its societal purpose powered its economic progress. Like Korea’s Samsung Group with Samsung Electronics as the flagship cashcow vehicle accounting for 70% of the market value of the sprawling conglomerate, the flagship Tata company is Tata Consultancy Services (TCS IN) which has a market value of $67 billion. Other major listed companies include Tata Motors (TTMT IN, MV $17.7bn), Tata Steel (TATA IN, MV $6.5bn), Tata Power (TPWR IN, MV $3.5bn), Titan Industries (TTAN IN, MV $3.2 billion), Tata Global Beverages (TGBL IN, MV $1.5bn), Tata Communications (TCOM IN, MV $1.3bn), Tata Chemicals (TTCH IN, MV $1.1bn), Taj Hotels (IH IN, MV $750m), Voltas (VOLT IN, MV $610M), Tata Teleservices (TTLS IN, MV $222M) and Tata Elxsi (TELX IN, MV $182m). The increasing criticism for these mega Asian giants is that they have grown too diverse and unwieldy to manage and potential internal family conflicts fighting over the economic ownership of the flagship cashcow vehicle has distracted the management in neglecting the value creation of the other multiple smaller pieces in the entire group.

As I buy a Titan Edge watch as a gift for my dad, the Bamboo Innovator pondered upon how Tata demonstrated their commitment to the idea that local society can develop local talent in the most adverse of circumstances. In 1987, the Tata Group formed a JV with the Tamil Nadu government (TIDCO) to open a watch-making factory in the remote south Indian city of Hosur, training the locals to be world-class horologists instead of taking the “efficient” short-cut way of staffing the place with professional engineers from elsewhere. Today, Titan Industries is the world’s fifth largest wrist watch manufacturer with more than 60% domestic market share and exports watches to 32 countries around the world, with their core expertise in precision engineering powering innovations such as the world’s slimmest wrist watch branded as Titan Edge. The Tata Group talks not of conquering markets but of serving people. As JRD always say, “What comes from the people must go back to the people, many times over.” The Tata experience suggests that the most resilient value companies are those created by action, by doing things, by engaging with people, by revealing and making explicit the firm’s values and then living by them, consistently, day after day after day.

What was shared by the Tata executive echoed the lifelong research work of the Bamboo Innovator: Why is it that some companies or people are able to bounce back from a crisis or challenge to scale greater heights, while others, particularly previously successful ones, remain in a state of protracted consolidation or even decline? Answering this question will illuminate the path for value investors to identify and invest in the emerging compounders and undervalued wide-moat innovators in Asia in the next five years.

Having spent the past decade plus in the miasmic Asian capital jungles interacting with the top management of Asian companies in various countries and sectors, we started to see how the mental model of the Bamboo can help to explain the underlying sources of moat creation and sustainability in outperforming value creators. We coined these compounders Bamboo Innovators, compounders who bend, not break even in the wildest of storms that would snap the mighty resisting oak tree. Due to their unique business models, the Bamboo Innovators are often overlooked, neglected, misunderstood and underappreciated, presenting mispricing opportunities for the value investors. The usual statistically cheap stocks in Asia are Extractors, either value traps with misgovernance issues with the controlling share owners extracting wealth from minority investors or fraudulent companies with the syndicates-insiders lying in wait.

As we head towards 2014, it is worthwhile for value investors to pause and relook into the wealth creation and destruction process of Compounders Vs Extractors. Value investors need to look beyond the aggregate market PE figures since the widening valuation chasm between the Compounders and the Extractors has distorted the “average” overall PE number; the quality wealth creators are rather pricey while most of the “cheap” companies are Extractors. In one of the figures extracted from Motilal Oswal’s 18th Annual Wealth Creation Study (2008-2013) forwarded to me by the accomplished and thoughtful value investor Hemant Amin (Part 1, Part 2), also head of the BRKets (, we can see that the wealth destroyed in the Indian market during 2008-13 is at an unprecedented high of INR 17 trillion ($276 billion), nearly the equivalent of the total wealth created by the top 100 companies!

Wealth DestroyedSource: Motilal Oswal 18th Annual Wealth Creation Study (2008-2013)

Value investors in Asia cannot look purely at quant “valuation” metrics since many business models and moats are “permanently impaired” and these stocks are the fertile ground for momentum traders and nefarious insiders who have the incentive and power to manipulate prices and volumes. Value investors who attempted to invest in these statistically cheap stocks in Asia have found themselves facing deadweight losses in their portfolio. We observed firsthand how these compounders grew from strength to strength, especially in difficult times during the 2007-09 Global Financial Crisis, while others, such as some Singapore SME business owners, grew to become either contented with what they have achieved or disillusioned with their core business, straying to seek “growth” for their private interests such as property development, or simply numbing/”exciting” their senses with destructive lifestyle at the MBS/RWS casinos while treating both their listed business vehicles as a personal ATM and their employees as disposable expenses rather than as valuable intangible assets. The listed companies belonging to the latter group become dangerous value traps; some even slipped into conniving with “syndicates”. Financial numbers were “propped up” artificially with the prospects of sexy growth projects to lure in funds from investors and the studiously-assessed asset value has already been “tunnelled out” or expropriated. Western-based accounting fraud detection tools and techniques have not been adapted to the Asian context to avoid these traps. And the Bamboo Innovator has seen how the perpetrators go away scot-free and live a life of super luxury on minority investors’ hard-earned money. Of course, it is often said that if one’s hands are kept clean in the front-office of financial services industry in Asia, one cannot be wealthy. When investors have knowledge in their hands, we have a choice to stay away from these people and away from temptations and do the things that we think are right. With knowledge, we have a choice to invest in the hardworking Asian entrepreneurs and capital allocators who are serious in building a wide-moat business.

Note also that the percentage of wealth created by the top 100 wealth creators during 2008-2013 is also at an all-time high of 93%, as compared to merely 2% from the start of the Asian bull market during 2005-2010 when the Sensex index was 6,000 (now 21,000), while the Shanghai index is up from 1,200 to around 2,100 over the same period. The situation in India is a reflection of the broader Asian market: Shareholder wealth gain is increasingly concentrated amongst a core group of compounders whose management have been focused on building up scalable business models quietly to last the distance and were consolidating the industry to make market share gains or introduce new innovative products and services to fulfill unmet needs of the customers.

The Godrej Group is part of this core group of around 200-plus Asian Compounders which have the “highest order of competitive advantage” that is beyond fitting them into the usual Porter-style matrix of “low-cost” or “differentiation” strategy, as shared with us by Mr G Sunderraman, the Head of Innovation and EVP at Godrej & Boyce, the holding company of the reputable Godrej family at their corporate headquarters at Vikhroli in northeast Mumbai…

To read the exclusive article about the inner workings of the Indian and Asian compounders in full, please visit:

Keepers of the Flame

Adversity doesn’t spare even superheroes. But the dignity with which they overcome setbacks only adds to their aura. And that is what makes Amitabh Bachchan’s longevity and enduring appeal the stuff of legends

Forever Big B

by Sourav Majumdar, Ashish K Mishra | Dec 23, 2013

topimg_23121_amitabh_600x400 Amitabh Bachchan_FINAL.indd

Adversity doesn’t spare even superheroes. But the dignity with which they overcome setbacks only adds to their aura. And that is what makes Amitabh Bachchan’s longevity and enduring appeal the stuff of legends

It is 8.15 pm and we are ushered into a study on the first floor at Janak, Amitabh Bachchan’s office bungalow in the upscale Juhu suburb of Mumbai. Janak is a couple of houses away from his residence, Jalsa, where, every Sunday, hundreds throng to get a glimpse of the 71-year-old superstar who has straddled Indian cinema like a colossus for nearly half a century. Read more of this post

Why true leaders need ‘first’ followers: Di Bella

Why true leaders need ‘first’ followers: Di Bella

Published 17 December 2013 09:38, Updated 18 December 2013 08:38

Phil Di Bella

I believe that many of the leaders of today are self-appointed leaders. You only become a true leader once people choose to follow and support you. In today’s society, we are constantly being told, particularly the younger generations, to become leaders and to establish ourselves. But the truth is leadership and becoming a leader is not all it’s cracked up to be – especially business leadership. Read more of this post

As Singapore grows richer, more people get left behind

Updated: Monday December 23, 2013 MYT 10:26:47 AM

As Singapore grows richer, more people get left behind

SINGAPORE: Every day, through eyes clouded by glaucoma, Peter witnesses the spending power generated by Singapore’s economic success, knowing he can only afford to look on. Read more of this post

Find the Coaching in Criticism

Find the Coaching in Criticism

by Sheila Heen and Douglas Stone

Feedback is crucial. That’s obvious: It improves performance, develops talent, aligns expectations, solves problems, guides promotion and pay, and boosts the bottom line. Read more of this post

Building a Game-Changing Talent Strategy

Building a Game-Changing Talent Strategy

by Douglas A. Ready, Linda A. Hill, and Robert J. Thomas

Founded 25 years ago by eight partners, BlackRock, the world’s largest asset management firm, rewrote the playbook in financial services. While many of its peers were stumbling and retrenching in the aftermath of the 2008 recession, BlackRock was charting a course for growth. Its revenue, profits, and stock price all performed consistently during that tumultuous period. Read more of this post

Seeking the Why of Giving; People have internal and/or external reasons for behaving charitably. For many a nonprofit organization, research into those motivations can be valuable

December 21, 2013

Seeking the Why of Giving


Beyond the tax deduction, what motivates people to give money to charity? With Americans donating hundreds of billions of dollars to causes every year, it’s a question that directly affects nonprofits, and new academic research is trying to offer a clearer answer. Read more of this post

From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions

From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions

by David Simchi-Levi, William Schmidt, and Yehua Wei

Traditional methods for managing supply chain risk rely on knowing the likelihood of occurrence and the magnitude of impact for every potential event that could materially disrupt a firm’s operations. For common supply-chain disruptions—poor supplier performance, forecast errors, transportation breakdowns, and so on—those methods work very well, using historical data to quantify the level of risk. Read more of this post

IDEO’s Culture of Helping

IDEO’s Culture of Helping

by Teresa Amabile, Colin M. Fisher, and Julianna Pillemer

Few things leaders can do are more important than encouraging helping behavior within their organizations. In the top-performing companies it is a norm that colleagues support one another’s efforts to do the best work possible. That has always been true for pragmatic reasons: If companies were to operate at peak efficiency without what organizational scholars call “citizenship behavior,” tasks would have to be optimally assigned 100% of the time, projects could not take any unexpected turns, and no part of any project could go faster or slower than anticipated. But mutual helping is even more vital in an era of knowledge work, when positive business outcomes depend on creativity in often very complex projects. Beyond simple workload sharing, collaborative helpcomes to the fore—lending perspective, experience, and expertise that improve the quality and execution of ideas. Read more of this post

The Top 7 Management Tips From Harvard Business Review

The Top 7 Management Tips From Harvard Business Review

DEC. 21, 2013, 6:24 AM 3,350

Harvard Business Review recently released a book of their top Management Tips. Here are the ones I felt were the most insightful and actionable.

Get Through Your To-Do List

Via Management Tips From Harvard Business Review:

“Self-discipline is hard. Try these three tips to make your work more efficient every day:

Get three things done before noon. Statistics show that the team ahead at halftime is more likely to win the game. Enjoy your lunch knowing that you accomplished at least three tasks in the morning. Read more of this post

The New Patterns of Innovation

The New Patterns of Innovation

by Rashik Parmar, Ian Mackenzie, David Cohn, and David Gann

The search for new business ideas and new business models is hit-or-miss in most corporations, despite the extraordinary pressure on executives to grow their businesses. Management scholars have considered various reasons for this failure. One well-documented explanation: Managers who are skilled at executing clearly defined strategies are ill equipped for out-of-the-box thinking. In addition, when good ideas do emerge, they’re often doomed because the company is organized to support one way of doing business and doesn’t have the processes or metrics to support a new one. That explanation, too, is well supported. Without a doubt, if you tackle business innovation systematically—rather than hoping people will get creative during an “innovation jam” or a special offsite—you improve the odds of success (and decrease the chances you’ll be left staring at a blank sheet of paper). Traditional, tested ways of framing the search for ideas exist, of course. One is competency based: It asks, How can we build on the capabilities and assets that already make us distinctive to enter new businesses and markets? Another is customer focused:What does a close study of customers’ behavior tell us about their tacit, unmet needs? A third addresses changes in the business environment: If we follow “megatrends” or other shifts to their logical conclusion, what future business opportunities will become clear? Read more of this post

Why ‘fungineering’ your workplace won’t work

Why ‘fungineering’ your workplace won’t work

Published 13 December 2013 10:16, Updated 16 December 2013 08:44

Oliver Burkeman

Workers at an Australian call centre where ‘fun’ was a core value were found to consider the party atmosphere a burden.  “One of our core values is to inject fun and quirkiness into everything we do,” Neil Blumenthal, a founder of the online eyeglass retailer Warby Parker, recently told The New York Times. This is a philosophy currently enjoying a resurgence in the tech and retail industries, among others. As we enter the season of office holiday parties, it’s a safe assumption that the workplace quirkiness quotient will skyrocket. Which means it’s also the season for the curmudgeons among us to renew our passionate entreaty: Please – no, really, please – can we stop trying to “make work fun”? Read more of this post

The Big Lie of Strategic Planning: A detailed plan may be comforting, but it’s not a strategy

The Big Lie of Strategic Planning

by Roger L. Martin

All executives know that strategy is important. But almost all also find it scary, because it forces them to confront a future they can only guess at. Worse, actually choosing a strategy entails making decisions that explicitly cut off possibilities and options. An executive may well fear that getting those decisions wrong will wreck his or her career. Read more of this post

Q&A: Cash crunch in China

December 22, 2013 6:33 am

Q&A: Cash crunch in China

By Simon Rabinovitch in Shanghai

At the end of Friday the People’s Bank of China, the central bank, responded to rising money market rates by announcing it had injected more liquidity into the system. With investors on edge as Chinese markets reopen on Monday, will last week’s injection be enough to calm fears that China is set for a cash crunch or will there be more? Read more of this post

China “Fixes” Liquidity Crisis By Banning Media Use Of Words “Cash Crunch”

China “Fixes” Liquidity Crisis By Banning Media Use Of Words “Cash Crunch”

Tyler Durden on 12/22/2013 21:00 -0500

UPDATE: 7-day repo is now up 140bps at 900bps – as the “liquidity crisis” is worse than any other seasonal effect since the crisis…

How do you “fix” a nations’ banking system’s increasingly desperate need (and dependence upon) for government-provided liquidity without giving in and just providing all the inflation-stoking liquidity the banks demand? Simple – in China – you ban the media from discussing it. As The FT reportsChinese propaganda officials have ordered financial journalists and some media outlets to tone down their coverage of a liquidity crunch in the interbank market, in a sign of how worried Beijing is that the turmoil will continue. The censors have warned reporters not to “hype” the multiple-sigma spikes in overnight-funding rates and have forbidden the press from using the Chinese words for “cash crunch.” Read more of this post

The Trouble with China’s Troubled-Asset Relief

The Trouble with China’s Troubled-Asset Relief

12-20 15:17 Caijing

A better solution would be to develop the credit-rating market, establish a more comprehensive regulatory framework for the financial system, and create an effective mechanism for ring-fencing risk.

By Zhang Monan

BEIJING – Back in 2009, in the midst of the global recession, China’s government launched a massive economic-stimulus package that bolstered GDP growth by fueling a surge in bank lending. But now it is becoming increasingly apparent to policymakers and investors that easy credit and lopsided policies have generated significant risk for China’s banking system. Indeed, amid rising concern about banks’ troubled assets, defusing financial risk has become the authorities’ central goal. Read more of this post

Hayek’s attack on central planners can fit markets too

December 22, 2013 1:37 pm

Hayek’s attack on central planners can fit markets too

By John Authers

Universal approach that could mean funds go to wrong borrowers

Modern financial markets have many critics, and perhaps Friedrich Hayek’s name should be added to the list. Read more of this post

Australia Sets Higher Capital Buffer for Four Biggest Lenders

Australia Sets Higher Capital Buffer for Four Biggest Lenders

Australia’s four largest banks will need to carry an extra 1 percent of core tier 1 capital from Jan. 1, 2016, due to their systemically important status, according to the country’s banking regulator. Read more of this post

How Google came to accept managers…and found the 8 things the best managers do

How Google came to accept managers…and found the 8 things the best managers do

Published 08 December 2013 17:56, Updated 10 December 2013 09:36

David A. Garvin

Since the early days of Google, people throughout the company have questioned the value of managers. As one software engineer, Eric Flatt, puts it, “We are a company built by engineers for engineers.” And most engineers want to spend their time designing and debugging, not communicating with bosses or supervising other workers’ progress. Read more of this post

Million-dollar Picasso sold at charity raffle for $170

Million-dollar Picasso sold at charity raffle for $170


Sunday, December 22, 2013 – 15:31


PARIS – A million-dollar drawing by Pablo Picasso was snapped up on Wednesday by a 25 year-old American art lover at a online charity raffle for a mere 100 euros (S$170). Jeffrey Gonano said he had been looking for a picture to hang on his living room wall when he read a news article about “L’Homme au Gibus” (“Man with Opera Hat”), raffled by Sotheby’s in Paris. Read more of this post

Edgar M. Bronfman, Billionaire Who Expanded Seagram, Dies at 84

Edgar M. Bronfman, Billionaire Who Expanded Seagram, Dies at 84

Edgar M. Bronfman, the second-generation heir who expanded the Seagram (VIV) Co. empire with profitable oil and gas and chemical investments, has died. He was 84.

Canadian-born Bronfman, a long-serving president of the World Jewish Congress, died yesterday at his home in New York surrounded by his family, the Samuel Bronfman Foundation said in a statement on its website. Read more of this post

For craftsman, making porcelain for Mao a lifetime glory

For craftsman, making porcelain for Mao a lifetime glory

(Xinhua)    14:07, December 23, 2013 Read more of this post

Universities face an identity crisis

Universities face an identity crisis

Monday, December 23, 2013 – 09:00

Victor Perez-diaz

The Straits Times

Higher education in Europe today finds itself in a state of profound uncertainty. What should universities’ primary focus be – research, professional training, or social inclusion? Should governments invest more in higher education to underpin long-term economic growth? Read more of this post

Mayor Bloomberg leaves his mark on New York

Mayor Bloomberg leaves his mark on New York 

Sunday, December 22, 2013 – 15:26


NEW YORK – Love him or hate him, one thing is for sure: New Yorkers will not forget outgoing Mayor Michael Bloomberg anytime soon. As the independent billionaire politician bids farewell to City Hall by touting his accomplishments during 12 years in office, academics, urban planning experts and political pundits say the mark he made on New York is indelible and strong. Read more of this post

After decade in jail, freed tycoon leaves different Russia

After decade in jail, freed tycoon leaves different Russia


Monday, December 23, 2013 – 10:10


MOSCOW- Mikhail Khodorkovsky may have trouble recognising Russia should he ever decide to return after a decade in prison that saw his oil empire dismantled and political ambitions smothered by arch foe Vladimir Putin. Read more of this post

Hunt for Returns Prompts IPO Renaissance as U.S. Leads the Way

Hunt for Returns Prompts IPO Renaissance as U.S. Leads the Way

Twitter Inc. and Hilton Worldwide Holdings Inc. helped lead the best year for U.S. initial public offerings since the financial crisis, with strong trading debuts likely to stoke investor demand for new shares in 2014. Companies raised about $22 billion in U.S. IPOs in the fourth quarter, bringing the total for the year to $56 billion, the most since 2007, according to data compiled by Bloomberg. Sales in Europe and Asia also rose sharply, with global deals tripling from the prior three months, the data show. Read more of this post

Citigroup to Standard Chartered Hurt by Korean Debt Curbs

Citigroup to Standard Chartered Hurt by Korean Debt Curbs

Standard Chartered Plc and Citigroup Inc. (C) have seen their $6 billion bet on South Korea turn sour in less than 10 years as the two banks struggle to sustain profits in an economy plagued by rising household debt. Read more of this post

Citic Sees PBOC Staying Out of Market to Curb Debt: China Credit

Citic Sees PBOC Staying Out of Market to Curb Debt: China Credit

Two of China’s three biggest securities firms predict the central bank will refrain from using open-market operations to inject funds this week as policy makers seek to rein in debt and contain inflation. Read more of this post

China’s local government debt seen at $3 trillion as of end 2012: think tank

China’s local government debt seen at $3 trillion as of end 2012: think tank

12:47am EST

BEIJING (Reuters) – China’s total local government debt may have reached 19.9 trillion yuan ($3.28 trillion) by the end of 2012, almost double that of two years previously, a media report said on Monday, citing a private study by a government think tank. Read more of this post

China wants more party bosses reprimanded for ignoring graft

China wants more party bosses reprimanded for ignoring graft

12:27am EST

BEIJING (Reuters) – China’s ruling Communist Party would like to see more party bosses held accountable for allowing corruption to happen on their watch, something that rarely happens now, a senior official told a newspaper on Monday. Read more of this post

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