Why private equity funds and banks are wooing former head honchos of India Inc to manage their investments

Why private equity funds and banks are wooing former head honchos of India Inc to manage their investments 

http://economictimes.indiatimes.com/industry/banking/finance/why-private-equity-funds-and-banks-are-wooing-former-head-honchos-of-india-inc-to-manage-their-investments/articleshow/54383443.cms

Snippet from the article

Shantanu Khosla, 56, on the other hand, was clueless about Advent International, a leading private equity group, and its India footprint when he agreed to meet the fund's India boss Shweta Jalan for coffee at Mumbai's Four Seasons in February of 2015. 

Khosla, a consummate Procter & Gamble (P&G) lifer and occupant of its India corner office for 13 long years, always believed that "there was no other organisation for him in India", but when he was offered a regional role, after 30 years in the same organisation, he did feel a tad restless and needed a new adrenaline rush. More importantly, he dreaded the prospect of leaving India. 

That's when his former vice chairman Werner Geissler got in touch and sounded him out on an exciting new opportunity that was brewing. Just a month before, Geissler had joined Advent's global operating partner programme to work closely with its consumer focus team to assist them with identifying attractive investment opportunities and, as appropriate, generating post-investment value in their global portfolio. In India, at that point, Advent was zeroing in on one of Gautam Thapar's crown jewels — Crompton Greaves' consumer business — to carve it out as an independent setup and the hunt was on for a maverick to team up and spearhead the company under its new private equity owners, drive change and revitalise operations. 

The first meeting was sheer happenstance. "We sold the entrepreneurial story. He (Khosla) would have the ability to build something which will be his legacy. It has an entire entrepreneurial challenge without taking equal bootstrapping risks of a startup that an entrepreneur undertakes," recalls Shweta Jalan, MD, Advent India PE Advisors. "CG was not a broken company. It had a strong brand, good distribution. We had to double down to focus on the business — things like supply chain, go to market strategy, brand and innovation, etc. It is really a journey from good to great." 

Nobody, not even Jalan's team members, believed Khosla would be convinced. But she persisted and, after a few meetings, Khosla was drawn to the idea of empowerment in a professionally run Crompton Consumer in its new avatar. "After working in an MNC for so long, I didn't want to spend the rest of my life in a family-owned set-up. If the demerger had fallen through, I would have been out of the door the next day," grins Khosla, MD, Crompton Greaves Consumer Electricals. 

So from a matrix-driven global organisation to a domestic brand brimming with potential, Khosla was, by July, ready to switch shampoo and detergents for fans and lighting.

When stocks crash, should you buy them or sell them? - Rajeev Thakkar

http://www.livemint.com/Money/cjrehitKMJPDVwVXupl8yK/When-stocks-crash-should-you-buy-them-or-sell-them.html

Last Modified: Mon, Sep 26 2016. 09 31 AM IST

When stocks crash, should you buy them or sell them?

Would the fall of stick prices give the investors an opportunity to become rich or will the stock make the investor a Bill Miller

Rajeev Thakkar

Legends are made and careers are destroyed by large price movements in a stock over a short span of time.

Let us look at two examples.

One of the early successes of Warren Buffett was his investment in American Express in the mid-1960s. American Express was hit by a scandal, referred to as the Salad Oil Scandal, which caused its stock price to fall from $65 to $37. Buffett invested a massive 40% of his partnership assets in American Express and the rest, as they say, is history.

Bill Miller, a fund manager with an outstanding track record from 1991 to 2005, saw ‘opportunities’ in beaten-down stocks like AIG, Wachovia, Bear Stearns and Freddie Mac in 2008. He bought these stock when they fell significantly from the highs. And when they kept falling, he kept buying more of them. His 15-year track record got wiped out in a single year.

In India, we keep seeing such gyrations in various stocks and sectors, where individual stocks or sectors fall 50% and more from the highs. 

There could be various reasons for the fall.

Real estate or infrastructure stocks such as DLF, Unitech, GMR or GVK fall out of favour.

Stocks like Ranbaxy or Dr. Reddy’s correct on account of notices from the US Food and Drug Administration (USFDA).

Stocks like Financial Technologies or MCX correct due to problems at National Spot Exchange Limited (NSEL).

Nestle falls on account of suspected lead contamination of its noodles.

Welspun India falls on account of problems with its customer Target, a US retailer.

These are just illustrative examples and there are surely more instances of big falls in stock prices.

The question that arises is: what should be done? Is the fall giving an opportunity to become the next Warren Buffett or will the stock make the investor a Bill Miller?

Unless you own the stock, you are not forced to decide what to do with it. If you hold the stock, you are forced to choose between holding, buying more or selling the stock. If you do not own the stock and are not certain what to do, you can always look at other stocks.

UNDERSTAND THE PRICE MOVEMENTS

Just because a stock has fallen doesn’t mean it’s attractive. As a smart investor had pointed out, “A stock that falls 90% from peak is one which fell 80% and then halved further.” If you thought the stock was attractive just because it fell 80%, you could have lost 50% of your money buying it then.

Stock price movements are just that. Price movements. A company’s sales and profits do not depend on stock price movements. If on a fundamental business basis, the fall in stock prices is irrational, it may offer an attractive opportunity to buy the stock.

In order to arrive at a conclusion regarding a company, the following have to be satisfactorily answered.

Will the company survive a crisis? This was the difference between American Express and Lehman Brothers. The former survived while the latter did not. Sometimes the answer to the question is clear.

Whether it was about alleged lead residue in a brand of popular noodles, or pesticide in cold drinks or worms in chocolates, it was clear that once the respective company undertook remedial measures, the products would be back on the shelves, and that consumers loved the products.

On the other hand, where it is something like Winsome Diamonds or Kingfisher Airlines, where there are huge defaults to lenders and apparently hardly any assets, it is almost clear that the company will not survive.

Many a times there is uncertainty. Satyam Computers was such an example. Often it seems that the company may not survive whereas eventually it does.

As mentioned earlier, unless one is holding the stock, one is not forced to take any action.

If the answer is that the company will survive, the subsequent question is: will the customers come back?

Often, the answer depends on whether there was systemic wrongdoing by top managers or whether the company was a victim of external fraud or circumstances. Thus, a regular product recall (say, for a car) due to a faulty part is not as serious as, say, systematic cheating on pollution data by the car manufacturer.

Where the involvement of top management is established, it will help if there is a complete overhaul of the governance structures. Usually, customers and regulators are tolerant about genuine errors but crack down heavily on wilful wrongdoing.

In conclusion, a steep fall in a stock price is not a cause to blindly purchase a stock. Questions pertaining to survival and customer loyalty have to be clearly answered. For most investors, discretion may be the better part of valour.

Rajeev Thakkar, chief investment officer and director, PPFAS Asset Management Pvt. Ltd.

Specialty Chemicals and diagnostics two mega trends for next 10 years: Ravi Dharamshi

http://economictimes.indiatimes.com/markets/expert-view/specialty-chemicals-and-diagnostics-two-mega-trends-for-next-10-years-ravi-dharamshi-valuequest-investment-advisors/articleshow/54342532.cms

Specialty Chemicals and diagnostics two mega trends for next 10 years: Ravi Dharamshi, ValueQuest Investment Advisors

By ET Now | Sep 15, 2016, 11.22 AM IST

n a chat with ET Now, Ravi Dharamshi, CIO, ValueQuest Investment Advisors, says India has about 3% market share of the specialty chemical industry which will go up to 4.5% market share in five years. We will still be a small fish in the overall scheme of things but that is a huge 50% growth for a sector. Edited excerpts

ET Now: What is your view on the pharmaceuticals sector?

Ravi Dharamshi: You cannot look at pharmaceuticals as a homogenous sector anymore. The various companies are going through their challenges and which company is where in terms of solving their challenges is going to determine whether you should be invested in that company or not.

So, if you have a company that has just passed through all the FDA issues and do not have any amount of unsustainable one-time earnings in their profit numbers, then I think that is a safe bet. The various leaders have been facing challenges because of that. The base generic portfolio in US has been facing pricing pressure for the last five-six months which is what is getting reflected and it could probably have to do with the US election cycle. We do not know for sure and if that is the case, then I think sooner or later, Indian generics are the lowest cost producers and they will be the last man's standing and we will gain market share for sure.

If India today would be at about roughly somewhere between 13% and 15% market share in US generics, this number is bound to up to 25% over the next 3-5 year period. Picking the right player is definitely more than 50% of making money in pharmaceuticals. I cannot make a blanket statement that this pharma is good or that pharma is bad. I have to be very picky and choosy about what I buy.

ET Now: Every time reboot happens in a sector, the big guys get better, the small players get weeded out. The example is Amazon survived the 2000 storm and is todaqy one of the biggest companies in the world. TCS, Wipro and Infosys survived the 2000 meltdown, today they are the big lead boys. Can a similar thing happen in pharma?

Ravi Dharamshi: First of all, I do not think that the challenges are as grave as the 2000 dot-com bubble was. So, yes.

ET Now: Survival of the fittest, let me put it this way.

Ravi Dharamshi: I feel majority of Indian companies will survive this phase. They will come out triumphant and as a country, India would have great built, great entry barriers because of this. We would have a base of intellectual property. We would have a base of regulatory and compliance standards which other countries will find difficult and, of course, the natural advantage that we have in terms of cost and people remains.

ET Now: Where are you picking your spots? Let us talk about two or three big trends then?

Ravi Dharamshi: Let us first talk about speciality chemicals. Now this is a jargon. Everything falls under chemicals. So first of all, from the morning that you get up to the time you go back to bed, every product that you use will have chemicals, even the food that you eat. So from toothpaste to whatever toiletries you use, everything will have chemicals. It is an all pervasive nature. Let me give you some startling statistics. So, the global chemical industry was about $3 trillion in 2001. It moved to $4.5 trillion. Now $4.5 trillion is way bigger than IT, way bigger than pharma and many other global sectors. $4.5 trillion and you cannot believe what the China size was. China was about $250 billion in 2001. It went to 1.5 trillion. So almost 80-90% of the incremental growth, China alone took away. So US, Europe have been losing market share and this sector though at aggregate level has been growing 15% so you can imagine the kind of business that has moved to China.

ET Now: And that will now move away from China?

Ravi Dharamshi: There are two-three things that have happened. One is Europe has implemented something called reach programme which means basically they want the chemical companies and their entire value chain to be certified and brought up to a certain level of compliance standards with environment. Second, China is facing pollution issues and third, we have become competitive vis-a-vis China and the fourth is we have a base of companies over here who can deliver to a little extent to the global demand.

ET Now: So that is a great point. First, there is size, then there is need, then there is efficiency.

Ravi Dharamshi: Yes and there are players who can address that need and so dyes and pigments is one area with speciality chemical where there has been tremendous problems in China. It is the most polluting industry and there are thousands of plants that have shut down. They are being incentivised and penalised. So overflow of that is coming to India. India has about 3% market share. We see that going to 4.5% market share in five years. We will still be a small fish in the overall scheme of things but that is a huge 50% growth for a sector. The companies can easily grow at the rate of 15% to 20% over the next 5-10 years. It is a huge good growth rate and a long run way that these companies have. And it does not matter what happens to the global liquidity flows, this trend is going to play out. We might have one year up and down but this is one particular, is an example of one trend that is definitely going to play out.

ET Now: So you like speciality chemical. Within speciality chemical, you like companies which are into the pigments and dye area?

Ravi Dharamshi: There are many companies and many areas that I like but dyes and pigments are the most immediate beneficiaries.

ET Now: Anything else you like in the speciality chemical?

Ravi Dharamshi: Agrochem is definitely one that we have been bullish on but we did not look at it as a speciality chemical initially, that is not... now that we understand that speciality agrochemicals also come under speciality chemicals. There are other niche areas. So the beauty of this space is that it is large but there are small-small niches. There are fragrance and flavours. There are surfactants. There are personal toiletries. There are many, many, many segments within which...

ET Now: It is not a complicated sector but?

Ravi Dharamshi: It is complicated until you uncomplicate it. You will have to go through the rigmarole of getting your hands dirty and understanding it a little bit and once that is developed, the nature of the business is quite uncomplicated.

ET Now: So according to you, there are world class opportunities and speciality chemical could be the next mega trend?

Ravi Dharamshi: It is the next 10-year trend for sure.

ET Now: Let us talk about the second mega trend and you like diagnostics, that is the buzz word and normally money is not made when you buy cheery consensus. If I look at the diagnostics sectors, three companies have just gone public and all of them are trading at PE multiples which are lofty in nature. Why do you like that sector?

Ravi Dharamshi: So it is a huge opportunity. First of all, I think it is about 37,000 crores if I have my numbers right. This is the size of the industry and the top four players combined have about Rs 2000 crore, top four-five players...

ET Now: Highly unorganised...

Ravi Dharamshi: So it is a very fragmented industry .

Stock investing is not only about buying the right stock - S Naren

http://blogs.economictimes.indiatimes.com/et-commentary/stock-investing-is-not-only-about-buying-the-right-stock/

Stock investing is not only about buying the right stock

September 14, 2016, 8:12 AM IST

By S NAREN

Knowledge on the process of investing has been shaped over decades, through incisive communication by various thought leaders like Warren Buffett, Peter Lynch, James Montier, etc. On careful observation, it can be noticed that a lot of the investment theory is focussed on only one aspect of investing — buying, leaving behind the other two crucial aspects i.e. sizing (quantum of buying) and selling.

Aspect I: Buying

When it comes to picking stocks, as Peter Lynch puts it -there are five types of stocks — cyclicals, steady companies, companies based on trends, turnaround companies and asset backed companies. In my opinion, a beginner investor should keep away from both, turnaround and asset backed companies, since the quantum of knowledge required to take a call on either of the types of stocks is quite extensive. In comparison, it is relatively easier to spot companies which are cyclical, steady or are trend based.

Cyclicals: Many of the commodity-based sectors see cyclical trends as can be seen in metals, oil, shipping, sugar, commercial vehicles, capital goods etc. The point to remember while investing in these pockets is that there will be times when these companies will do very badly, which should be the ideal time to buy, and there will be times when these companies do very well, which are times to sell.

The key understanding here is the best time to buy a cyclical stock is when their share price is low and not when their earnings are high. For example, when sugar prices are at their bottom, sugar stocks will be at the bottom, but their valuation in terms of price to earnings, will be very costly.

So it is important to buy cyclicals based on share prices rather than earnings.

Steady Companies: In general, steady companies (consumer, pharma) are most suitable for investors who want steady returns. However, in the last few years, these companies have done well and therefore, as a mutual fund investor, we have been careful about such names, not because these companies are not steady, but because their stock prices are high. When the market was at its peak in 2007, these steady companies were low on valuation and presented an exceptional opportunity to invest.

Trend-based Companies: Trends, as Peter Lynch says, is one of the easiest for a lay investor to identify and invest in. It was very apparent in 2005 that people were moving towards mobile phones. As a result, it was apparent that ecommerce would gather pace.

Similarly, one of the big trends that occurred was that scooters were gaining at the expense of motor bikes in many parts of India. So, investing based on trends is easy for any layman who is able to observe these trends. Going forward, with improving penetration of health insurance and changing demographics, I believe healthcare (hospitals) as a trend provides a good long-term investment opportunity today.

Aspect II: Sizing

Once the stock to be added to the portfolio is decided, the next vital step is the quantum of buying or sizing; this is one of the least talked about areas of investing. When the amount to be invested is small, then Warren Buffett says, it is better to run a concentrated portfolio, something which he did in his initial years of investing. At the same time, one has to be aware that this form of portfolio requires doing better homework. The conviction and concentration of an investment should always be based on risk and potential upside seen.

Aspect III: Selling

What I learnt after a decade of being in investment management is — it is better to convert the word ‘selling’ to ‘switching’, because it is difficult to determine when to sell. If you view every selling decision as a switch and evaluate a switch, it is much easier to take a selling decision. This would ensure that one wouldn’t ruminate whether the selling decision happened at the right time or not.

Bubbles and Bursts In 2013,

In 2013, when Warren Buffett visited India, we got an opportunity to meet him as a part of a group. At that time, someone asked him what he learnt from his decades of investing; the answer presented an interesting insight. In his 6-7 decades of investing, he saw 6-7 bubbles and bursts. He alluded to this fact and said that what you do in a bubble and burst is the most important part of investing.

In India, there were stock market bubbles in 1992, 1994, 2000, 2007 and bursts in 1998, 2002, 2008. My experience has taught me that it is very important to be rational in both the situations as these are the opportunities to make sizeable long term money in the equity market. To sum up, investing is a very interesting area. If you enjoy it and make money, you should continue with it. If you enjoy it and lose money, invest into equities via a mutual fund. If you don’t enjoy investing, then too consider investing in a dynamic asset allocation fund today.

(Author is CIO, ICICI Prudential Asset Management)

Things are looking up for Majesco

http://economictimes.indiatimes.com/markets/stocks/news/things-are-looking-up-for-majesco-use-dips-to-buy/articleshow/53972815.cms

By Ranjit Shinde, ET Bureau | Sep 02, 2016, 08.19 AM IST

ET Intelligence Group: Majesco, a small-sized software solutions company carved out of Mumbai-based Mastek, has lost over 38 per cent on bourses since the beginning of 2016 on account of sluggish business momentum and lower operating margin. 

Its profitability was low since the company was investing to build capabilities for addressing the large insurance market in the US. However, the margin showed signs of revival in the June quarter. In addition, the company is expected to regain momentum in the second half of the fiscal. This may prompt long-term investors to use the stock's fall to make fresh purchases 

The US market contributes nearly 89 per cent to its revenues, while the UK generates 7 per cent of the revenue. The company caters to 164 clients in the property and casualty (P&C) and Life & annuity segments. P&C contributes 80 per cent of the revenue. 

Majesco's financial performance in the June quarter was marred by 1 per cent sequential drop in revenue at Rs 220 crore. On the positive side, the company was able to report operating profit of Rs 1.7 crore after reporting operating loss of Rs 1 crore in the previous quarter. In addition, its net profit was Rs 1.5 crore compared with the loss of Rs 2 crore in the March quarter. 

The company expects to clock revenue of $200-225 million by FY18 compared with $113 million in FY16. It also expects to improve operating margin before depreciation (EBITDA margin) substantially to 12-14 per cent from just over half a percent in FY16. 

Majesco's addressable US market size is pegged at over $4 billion reflecting a greater scope to ramp up busi ness. Also, the adoption of new technologies, including cloud, is rising among clients. Majesco currently earns over one-fifth of business by deploying cloud solutions. 

Since the company is in investment mode, its net profit is yet to reach its true potential. In such cases, the stock's valuation is based on revenue. Its current market cap is 1.5 times sales. Considering its revenue target for FY18, the valuation works out to be less than one. Its larger US peer, Guidewire Software trades at price-sales ratio of 11.8. This leaves a plenty of room for the stock to rise provided the company stays on track to meet targets. 

Stand-out stocks and stand-out companies seldom get noticed in troubled times. ET delves into financial performance of India Inc every week to identify stocks and companies that have bucked the trend to emerge stronger. 

This week, we present Majesco.