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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.

§  Our paid Members from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing.

 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,

KB

The Moat Report Asia

www.moatreport.com

http://accountancy.smu.edu.sg/faculty/profile/108141/KEE-Koon-Boon

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

Access the in-depth idea presentation:

http://www.moatreport.com/members/

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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