Moat Report Asia Monthly (Jan 2015) – “Keeping Life Good At Home”: The Dream of “One India”

 “Bamboo Innovators bend, not break, even in the most terrifying storm that would snap the mighty resisting oak tree. It survives, therefore it conquers.”
BAMBOO LETTER UPDATE | January 5, 2015
Bamboo Innovator Insight (Issue 64)§  The weekly insight is a teaser into the opportunities – and pitfalls! – in the Asian capital jungles.§  Get The Moat Report Asia – a monthly in-depth presentation report of around 30-40 pages covering the business model of the company, why it has a wide moat and why the moat may continue to widen, a special section on “Inside the Leader’s Mind” to understand their thinking process in building up the business, the context – why now (certain corporate or industry events or groundbreaking news), valuations (why it can compound 2-3x in the next 5 years), potential risks and how it is part of the systematic process in the Bamboo Innovator Index of 200+ companies out of 15,000+ in the Asia ex-Japan universe.

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 Dear Friends,Can You Guess This Asian Wide-Moat Company?

“Keeping Life Good At Home”: The Dream of “One India”

Q: “Ji, what motivates you? How did you push yourself over the years and not give up with all the problems and challenges?”

Mr. K: “Problems are part of life, whenever you do business. It will come to anybody who do business. Solve it and move forward. You keep on talking, there’s no solution. You need to keep moving forward. My motivation comes from the family, the support of the wife, and life being good at home was very important. Without that, you cannot do it. She didn’t push me. She kept life good at home and that’s what kept me going. No pushing. It’s the key to success, a good home environment.”

“Keeping life good at home”. This is a beautiful and fitting message for the New Year 2015 in India who is seeking to implement the uniform GST tax rate, with effective from April 1, 2016. The GST would replace more than a dozen taxes that increase incentives for corruption and offer the economy a boost of as much as 1.7%. Modi’s government had presented the uniform GST tax-rate proposal to the lower house in Delhi on Dec 18 last year and aims to pass the bill in the session of parliament beginning in Feb 2015. Since the GST unifies the states into a single landmass, into “One India”, inter-state movement will be seamless. By “keeping life good at home” with the various reforms and policies, companies which enjoy a pan-India manufacturing and distributing presence will reduce their logistics cost and stand to gain significantly in the domestic home market.

Can you guess who is Mr. K? Our latest monthly Moat Report Asia for January 2015 examines an Indian company established by Mr. K in 1988, now the #1 leader in the industry with a market share of 20% – and a beneficiary of the “One India” GST reform.

Led by Mr. K and his two sons who joined the business in 2000, the family business has transformed the industry in India with their vision, patient sacrifice and stable capital through long-term profound investments in building up the unique business model of loyal dealer network with over 10,000 point-of-sales, a pan-India manufacturing and distribution presence, superior design capability and production technology and marketing innovations, giving it a distinct competitive edge and premium pricing power over its peers. Thus, while its peers are impacted by the rising cost pressure, rupee volatility, and an uncertain business environment, the company went on to not only consolidate the fragmented industry but also successfully create a consumer ‘pull’ from catering to the aspirations of the consumers in the entire value pyramid with its quality product offerings. The company enjoys the highest brand equity in the industry and has consistently the highest ROA, ROE and profit margin, and the most efficient cash conversion cycle in the industry. Its Pan-India network means the company has the ability to move products quickest off shelves, at a rate equivalent to the size of 20 international football fields every day! The company has strong fundamentals with ROE at 26% and EBIT margins at 15+% that is far higher than its rivals’ 4-5% to support valuations.

Through shrewd capital allocation policy in reinvesting its profits back into widening the moat of the business, the company has grown its production capacity over 54-folds in a smart, asset-lighter way without blowing up its balance sheet and not raising any capital from the equity market since its 1988 IPO – by acquiring management control in efficient regional producers at a low capital cost which generated revenue from day one and serviced markets faster in selling with their own brand. With the plan to double production capacity in the next three years by Mar FY2018, and strong industry dynamics over the next 7-8 years supported by policies such as the GST reform, Swachh Bharat (Toilet for All by 2019) and “Housing for All by 2020”, the company’s mid- to long-term growth outlook is resilient and market value could potentially triple in 3-5 years. Mr. K’s family owns 52.1% of the company which is their flagship business vehicle.

Who is Mr. K and his listed family business?

Warm regards,


The Moat Report Asia

A new monthly issue of The Moat Report Asia is now available!

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Bamboo Innovator Daily Insight: 6 Jan (Tues) – The cleaner who soared to the board: How companies can recognise the hidden talents within their ranks; Forgiveness: The Least Understood Leadership Trait In The Workplace


The cleaner who soared to the board: How companies can recognise the hidden talents within their ranks: FT

Forgiveness: The Least Understood Leadership Trait In The Workplace: Forbes

Elon Musk Uses This Ancient Critical Thinking Strategy To Outsmart Everybody Else: BI

By creating a mission statement people can begin to identify the underlying causes of behaviors, as well as what truly motivates them to make changes: NYT

The Problem With Meaning: Our fuzzy modern idea of “meaning” is a poor substitute for real moral architecture: NYT

Britain’s 27 most disruptive entrepreneurs of 2014: Telegraph

Start strong or end strong? The public speaker’s dilemma: FT

A false history supports the jihadi myth; Extremist interpretations of Middle Eastern history promote narrow-mindedness: FT

The Isis economy: Meet the new boss; Signs of discontent are evident across the ‘caliphate’ as people tire of its taxes, price caps and shoddy services: FT

Two men have been arrested for allegedly conspiring in a $110 million home loan fraud against a collection of Australia’s biggest banks. TheAge

Volcanic eruptions are among the earth’s most cataclysmic events, but scientists are often reduced to analyzing possibilities within possibilities when making forecasts. The truth is, no one really knows for sure what will happen: NYT

Patient, Heal Thyself: ‘The Patient Will See You Now’ Envisions a New Era of Digitally Perfected Care: NYT

How Divesh Makan gained entry into Zuckerberg’s inner circle: Forbes

How A Comic Book Nerd Became Bond Buyers’ Best Friend; Covenant Review’s Adam Cohen admits that he obsessively read “The Dark Knight Returns” before every exam he took in law school: Forbes

Does focusing too much on the story of social good behind a business hinder long-term success? FP

‘Heartware’ crucial in tackling disasters: TheStar

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CFOs Delve Into the Trenches of Operations: WSJ

Top CFOs Advise: Focus on Company, Not Numbers: WSJ

Hyperbaric Oxygen Therapy Gets More Popular as Unapproved Treatment; Use of HBOT to Treat Autism, Brain Injury Is Growing Despite a Lack of Conclusive Evidence: WSJ

Investing Process

Warren Buffett, corporate raider: Quartz

A little-known Hong Kong-listed firm has come out of nowhere to become the world’s largest solar-power company by market value. A tight relationship with its parent company should give investors reason to worry whether its time in the sun will last. WSJ

Greater China

James Packer among billionaires hit by $100 billion Macau casino losses: TheAge

Founder Group executives held in graft probe following Zenith allegations that executives have committed insider trading, selling state assets, rigging stocks, as well as bribery and forgery of documents: SCMP

China’s largest airline has lost its chief financial officer as part of a widening investigation that has claimed four top executives over the past week: FT

Why Investors In China May Face A Bleak 2015; “This year, China will likely face the worst fiscal challenge since 1981. We believe this is the most important risk to the economy and one that is not well recognized in the market”: Forbes

China’s M&A mission to reach for the stars: FT

HKEx Jumps on Report China’s Li Backs Shenzhen Stock Link: Bloomberg

Explanation of China’s new shadow margin lending, made possible by a Jack Ma owned company: Chiecon

China’s Tencent launches private online bank: report: ChinaPost

Chang Gou: China’s first third-party payment company to go bust?: WantChinaTimes

How Internet Companies Disrupt China’s Secondhand Car Market: TechNode

Petco Removes China-Made Treats Amid Pet Sickness Fears: WSJ

Corruption in China: Does It Matter? JGlobe

“China’s fiscal slide” less fun than it sounds: FT

Xi’s Reform Gambit: ProjectSyndicate

China Property Shows Default Lines: WSJ

Chinese Gadget Makers Vie for Brand Recognition; Lenovo, Huawei Are Prominent Presence at CES, in Attempt to Raise Their Profile: WSJ

Tears ahead for China-driven milk boom in New Zealand: TheAge


CBI raids IRB Infra offices in Pune & Mum; stock tanks 10%: Moneycontrol

Has Bajaj Auto owned up to its strategic mistakes? With its market share falling from a consistent 24% a few years back to 18% now, it appears Bajaj Auto has decided to tweak its earlier strategy of focusing on select models: Moneycontrol

Japan & Korea

Japan turns to Supermums to revive the economy: TheAge

Samsung Electronics attempted to put a difficult year behind it and bring forward a futuristic vision of the “internet of things”, as it hunts for new sources of growth beyond smartphones and tablets: FT

South Korean households pile up debt: FT

Ikea transforms Korea’s local furniture trade; Differentiation is key to living with Goliath: JA1, JA2

Abenomics boost for Japan property shrinks back to Tokyo: Reuters

South Korea Gets Serious About Tackling Corporate Collusion: WSJ


Malaysia trims mega-project near Singapore, report says: FT

1MDB Didn’t Repay $563 Million Loan Due December, Edge Says: Bloomberg

GlobeAsia’s Man of the Year: Ahok, Indonesia’s Shooting Star: JGlobe

Unilever on the hunt for Singapore startups to mentor and partner: BT

Singapore Alert to Risks as Cracks Emerge for Junk: Asean Credit: Bloomberg

Philippines Urges Spending After China-Like Graft Chill: Economy: Bloomberg


Berkshire Soars as Buffett Shifts Focus From Stocks to Takeovers: Bloomberg

Here’s An Interesting Way Visualizing Bubbles Within The Stock Market: BI

Investors gave stock pickers a resounding vote of no confidence in 2014, pouring $216 billion-a record inflow for any mutual-fund firm-into Vanguard Group, the biggest provider of index-tracking products: WSJ

Companies must beware the dividend trap if earnings flag in 2015: FT

Brazil tries to fix nation’s ‘sugar daddy’ problem; Rousseff seeks to reform nation’s overburdened pension system: FT

Nine reasons why banking growth cannot be taken for granted; What if centuries of steady expansion in the banking industry were about to go into reverse? FT

Monetary activism is a virus that infects politics; Investors toast low rates with no thought to the repayment, writes James Grant: FT

The west has lost intellectual self-confidence; Faith in three props of post-cold war world – markets, democracy and US power – has faltered: FT

New hope and old woes as Detroit exits bankruptcy: AFP

Value Managers Root for More Market Turmoil : Bloomberg

Is Citi The Next AIG? ZeroHedge

For Bond Investors, Ignoring Expert Advice Has Been Profitable: NYT

NASDAQ to Buy Dorsey, Wright & Associates for $225M; DWA is a data analytics, passive indexing and smart beta strategies provider with 17 ETFs: ValueWalk


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The World’s First Mobile ‘Superchip’ By Nvidia Is Insanely Powerful And The Size Of A Thumbnail: BI

Intel’s Impossibly Tiny Chip That Will Allow Super-Thin Laptops Has Finally Arrived: BI

Eye phone: How a TED Fellow’s new app could help restore sight to millions: TED

Start-Ups Aim to Break Down ‘Deep-Linking’ Walls Between Apps and Web: NYT

Scary new world of 3D print which will revolutionise war and foreign policy,not only by making incredible new designs possible but by turning the defence industry – and possibly the entire global economy – on its head. Times

Advertisers to get a glimpse of Apple Watch promise, challenge: Reuters

A Future for PCs? Acer’s Chen Is Betting Company On It: Bloomberg


Rise of superbugs and what we can do about them: KoreaTimes

Stop Subsidizing Big Pharma: NYT

Cancer’s Random Assault: NYT

Energy & Commodities

Saudi Arabia’s $750 Billion Bet Drives Brent Oil Below $54: Forbes

Revamped oil hedges may test OPEC’s patience: FP

The coming showdown between Canadian and Saudi oil producers on the U.S. Gulf Coast: FP

Oilfield Writedowns Loom as Market Collapse Guts Drilling Values: Bloomberg

Consumer & Others

The Rapidly Expanding Grocery Chain Aldi Is Shockingly Cheaper Than Walmart: BI

How Timberland used customer data to reboot its brand: WaPo

LG’s New Washing Machine Is The Most Exciting Thing To Happen To Laundry In Years: BI

Part Generation X, part baby boomer: why products do not suit me: FT

More than 1,500 jobs at risk after Bank Fashion collapses; Bank becomes first retailer since Christmas rush to collapse as pressure grows on high street: Telegraph

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