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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
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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,

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!

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

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers 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. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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