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25 Years of Investing Wisdom in 50 Mins! | ft. Milind Karmakar | The India Opportunity — Transcript

by Shrishti Sahu · 9,081 words · 1,308 segments · language en · Watch on YouTube

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0:00Hello and welcome everyone to the India
0:01opportunity show. I'm your host Shushi
0:04and today I'm thrilled to welcome
0:06director and fund manager Milan Karmakar
0:08Milan Karmmar
0:09>> Milan Karmmar Milan Karmmakar
0:11>> Milan Karmakar on the show. He is the
0:13director and senior fund manager at
0:15Dalal and Rocha. In today's episode we
0:18talk about why he bet on Indian
0:20consumption as a theme long before it
0:22was discovered. The main thing is that
0:25whether it's Indian markets or
0:26otherwise, [music] everyone says
0:27long-term investing is dead and I don't
0:29believe so for simple reason that India
0:31has just started the growth journey.
0:33[music] It's a very long period of time
0:35that India can give solid returns.
0:37>> Got the EMS trend right identified it
0:39and exited it. So what were the
0:41decisions? [music]
0:42>> So you know what are the key points
0:43which I look in the company. So one of
0:45the key points is that I look at
0:47companies where they have big five as
0:48auditor. The reason being that older
0:50companies or older managements being in
0:52the market for so long, you know the
0:54quality [music] of governance. The newer
0:55managements you don't know the quality
0:57of governance. In case of canes, they
0:59did not have a good auditor.
1:01>> You spoke a lot about what you look for
1:03when [music] identifying these winners.
1:04But what about the decision to sell?
1:12>> Hello Milan, welcome to the opportunity
1:14show.
1:15>> Thank you. Thank you. Thank you Sushi
1:17for calling me. such a privilege to be
1:19sitting across from a market veteran
1:20like yourself. Uh wait mill for those
1:23who don't know you uh what is one
1:25contrarian belief that you have about
1:27the Indian stock markets that maybe most
1:29investors disagree with you about.
1:31>> So I think the main thing is that uh
1:34whether it's Indian markets or otherwise
1:37everyone says long-term is long-term
1:39investing is dead and I don't believe so
1:42for simple reason that India has just
1:44started the growth journey. So it's a
1:46very long period of time that India can
1:49give solid returns like I I have you
1:53know typically whenever I talk of
1:54long-term investing I cannot avoid
1:56talking about trend
1:58>> because that is the one thing my next
2:00question
2:00>> yeah because that is the stock which uh
2:04we started looking at in 2002 when it
2:07was 60 rupees 10 rupee paid up and uh
2:12you know today it's about 4,000 rupees
2:14after considering adjusting for splits
2:17it's one rupee paid up and it had gone
2:20up to 8,000 so very rarely do you get
2:22stocks which are thousand times
2:25>> so and I think there are many such
2:26opportunities I mean especially if you
2:29look at 2002 3 other uh other one was
2:33titan again a similar kind of a story
2:36800 900 times in a span of 25 years so
2:39you need the patience and that's what
2:41most uh investors lack I think that is
2:44what Uh I believe that uh patience
2:49will reward especially when you are in
2:51India which is a growth opportunity.
2:53>> That's so true. And you know your uh
2:56history reveals itself like in terms of
2:58performance uh you know you discovered
3:00trend and titan both at around 200
3:02crores market cap.
3:04>> Yes that's right.
3:04>> But you know to be able to hold them
3:07through these long periods given the
3:09volatility seeing the runup happen to
3:118,000 and then back to back to 4,000.
3:144,000. So you know there are so many
3:16periods of immense volatility where
3:18someone can question their conviction.
3:21>> Absolutely right. Absolutely.
3:22>> And I think Titan also you had this
3:24brief period where you thought that you
3:26know lab grown diamonds.
3:28>> No they did sell diamond
3:30>> you you sold Titan. So let's talk about
3:32building that conviction holding it for
3:34the long term and then deciding to
3:36>> definitely definitely
3:37>> so uh Titan basically we invested in or
3:41rather that time I was on the sell side
3:43so I can't say invested but we uh sort
3:46of uh you know gave a recommendation to
3:49buy Titan. So at that point in time in
3:51fact we gave a recommendation to buy on
3:54organized retail in India and uh there
3:57were virtually no players in organized
4:00retail. So there was Trent there was
4:02Titan. Shoer stop at that point in time
4:04was not listed. It got listed later on.
4:07Uh Pantaloons was listed. We did not
4:10recommend pantaloon at that point in
4:12time because it it was it had got
4:14extremely high debt and we do believe
4:17that any retail business if it has debt
4:20I don't think it can survive for long
4:21term. Unfortunately same thing happened
4:24with uh pantaloon though it did very
4:26well in the short period of time when
4:28trent lagged it by a big number.
4:30>> Yeah. So uh the key here was that
4:34whenever I used to go out of India and
4:36see uh you know my it's my hobby to go
4:39and uh you know observe the consumer
4:43behavior. So I used to go to malls just
4:45to observe. I maybe I didn't buy
4:47anything. Uh and what I realized was
4:49that if consumer has money he will
4:52spend. We have seen that in uh you know
4:55countries around India. So when I used
4:58to go to south Southeast Asia like
5:00whether it was Thailand, Singapore,
5:02Malaysia,
5:03everywhere the mall culture or I can say
5:06large format retail was already
5:08thriving. Mom and pop stores were not
5:11doing so well or rather they were doing
5:14well. But over a period these large
5:16format stores were taking over.
5:19So we thought that same thing will
5:21happen to India. though India was only
5:23at about $400 per capita income at that
5:26point in time. So uh as I said that
5:30mainly two companies and we had looked
5:32at Bata but Bata there was a lot of
5:34issues at that point in time. We did
5:36invest in BA at a later stage.
5:40So that was the main thing that consumer
5:42will drive the economy going forward.
5:45Coming to Titan, especially Titan we
5:47recommended at that point in time
5:49because it was moving from uh watches to
5:54jewelry
5:55and what we thought was that in jewelry
5:58what is most important is trust and with
6:01Tata Tata name we expected that trust
6:05would come automatically
6:07and uh that was the business to look at.
6:11It was about 42 rupees at that point in
6:13time. 10 rupee paid up again and we did
6:16uh recommend that uh initially people
6:19were quite hesitant. In fact, I still
6:21remember when it came to Trent lot of
6:24fund managers used to tell me
6:27no one goes to uh you know shop uh every
6:31day. We have uh you know we we buy
6:34clothes uh maybe thrice or four times a
6:37year.
6:38>> Yeah.
6:38>> And uh this is not going to work. But as
6:41I said that it was more to do uh with an
6:44anecdotal evidence rather than anything
6:46that we recommended these two and the
6:49rest is history.
6:50>> Yeah. But like being able to hold the
6:53compounders for 800 900x or,000x even
6:56not many people have had that experience
6:59and that you know obviously there is
7:01this intention to want to sell or maybe
7:04like book some profits. What was that
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7:55>> So my key was to look at uh you know
7:59look at the way company is uh doing
8:02minutely. Now for example uh in case of
8:05Trent uh there were lot of times when
8:08trend did not expand to what everyone
8:10thought it will expand.
8:12When I used to meet Mr. Tata he used to
8:14say that we will expand but we will
8:16expand at our terms only when we think
8:19that a model is successful we will start
8:22expanding and that's what exactly they
8:24did. Same thing was true for Titan also
8:27>> that they went slowly initially. Then
8:30they came with kerattometer
8:32which was I think the game changer for
8:34them because when they started
8:36keratometer so I in fact I tried telling
8:40Ashwini my wife that let's go to Titan
8:44and Tanish and let's check your jewelry.
8:46She completely refused. She said okay if
8:48you're saying from next time onwards
8:50I'll buy from Tanish but I'm not going
8:52to give my jewelry. But what I realized
8:54was that that means that there was some
8:56kind of a doubt in the mind of people
8:58that the jewelry which I'm getting is it
9:00100% pure gold or not
9:03>> and that gave me further conviction that
9:05things are going to work out. Tracking
9:08on a regular basis especially when you
9:10are invested for the long term is the
9:12most important thing you need to do.
9:15Again the management is not going to
9:17give you any kind of guidances like what
9:20they give now. No chance. From that
9:23point in time, I'm just deviating but
9:25that point in time I remember taking a
9:27fund manager to uh a CIO in fact to a
9:31company in Pune and uh I can name the
9:34company. Alpha Law was the company and
9:37Mr. Satish Tundan was the MD and they
9:39also had started just doing pretty well.
9:42So on a closing note the fund manager
9:45asked him that Mr. Tandon how much can
9:48you can I expect you to deliver in sales
9:51in the in this year? So Mr. Tandon
9:54looked at him. He said uh I won't name
9:56the fund manager. He said Mr. Ex forget
10:00about one year. Can you tell me what
10:01your NAV will be in the by the end of
10:04this month which is just 5 days away. So
10:06he said no. He said you got my answer.
10:08So he said I can tell you how the
10:10environment is. I can tell you how the
10:12demand is. I can't tell you how the
10:14company will do. we'll try our best to
10:16do.
10:17>> Now if you whether you look at Titan,
10:19whether you look at Trent, all of them
10:21only talk about what kind of opportunity
10:25is there. They only talk about what kind
10:28of growth and at that point in time they
10:30were still more conservative. So that
10:32was but for that you needed to meet them
10:34on a regular basis.
10:36>> Yeah.
10:36>> And understand that the thought process
10:38by which you have invested continues to
10:40hold. That's all was what was required
10:42because you knew business model was
10:44good. You knew India had got a lot of
10:45opportunity. So what you needed was just
10:48to hold. Of course your patience is
10:50tested many times.
10:52>> So what happened in those situations?
10:54>> Okay.
10:54>> How did you stay invested
10:56>> between between 2010 to 2015? Trend did
11:00not go anywhere. 0% or I think 20%
11:02returns. Market had more than doubled in
11:04those five years. The reason was that uh
11:07Trent was doing pretty well. So in terms
11:10of turnover if I'm not mistaken they
11:12moved from about uh roughly about 500 uh
11:16crores to about 1100 crores at that
11:18point in time but uh their AITA actually
11:22did not go anywhere
11:24and the reason for that was that they
11:26were they had started adding stores. So
11:28because whenever you add stores and I
11:30have seen that and it's my rough
11:32calculation that whenever the addition
11:34of stores more than 20% of your existing
11:37stores the cost hits big time in your
11:40P&L and that is what was happening. So I
11:43realized that so we continued to hold
11:45patiently got a lot of fal from all my
11:48clients everyone why are you holding on
11:50why you don't sell
11:52>> but that happens
11:53>> clear so but that's very interesting
11:55because you know I would love to ask you
11:57how you dealt with those client
11:58conversations because someone who's
12:00sitting on multibaggers like that in
12:02their portfolio is reasonable to ask to
12:05want to sell right
12:06>> yeah yeah
12:07>> so many times clients have asked me not
12:10now but every time that why didn't you
12:13sell especially now recently when trend
12:16came down from 8,000 to 4,000. So our
12:19answer to that was that we did sell
12:20trend. It was not that we didn't sell
12:22trend. We didn't sell trend but we did
12:24not exit. We held on to the say we sell
12:29we sold about 25% we held on to 75% or
12:32something like that. So I said that the
12:35opportunity is large and if you if
12:37you're looking at trend don't look at
12:39trend with only India as a market all
12:43the other like H&M everyone has gone
12:46global why can't they go g they go
12:48global they've done that exactly now so
12:51I think that is basically you need to
12:54have the conviction and of course you
12:56need to pass on that conviction to your
12:58client so that he also says okay I can
13:01hold on. M very interesting because you
13:03know some uh a lot of players in the US
13:06be it Macy's etc. a lot of them did face
13:10a lot of headwinds with the e-commerce
13:12and digitization so that also didn't
13:14influence your judgment in any way.
13:16>> So e-commerce especially e-commerce uh
13:19when it comes to so initially many
13:22people were saying that we buy clothes
13:24on e-commerce or something like that. Uh
13:27what I realized was that if I wanted to
13:30buy a white shirt or whatever or it's
13:33always better to go and have the touch
13:34and feel of the fabric
13:36>> true
13:36>> and if you're okay with that then only
13:39you will go and buy and again coming
13:41back to trend they are omni channels so
13:44you can buy online and you can go and
13:47then pick it up from the store and
13:49return but still it's very small it's
13:5110% that's all
13:53>> you know you obviously everyone always
13:55talks about rent
13:56for you. But another play you got right
13:59very early on was EMS, right? And
14:01betting on Dixon very early.
14:03>> Uh not Dixon but uh it was Kanes.
14:06>> Can
14:07>> we sold off Canes also?
14:08>> Yeah. So let's talk about that as well
14:10because you caught the EMS trend right
14:13identified it and exited it. So what
14:15were the decision pattern?
14:16>> So EMS uh play was uh
14:21you know idea which was uh which came up
14:24from an analyst of mine. it was not mine
14:26and uh we had a detailed look at it. We
14:30found it quite interesting. So it was a
14:32question whether we should buy Serma or
14:34we should buy canes and uh we thought
14:37that Kanes was a good business. The only
14:39worry which I had always had on canes
14:42was so we'll come to that when I say you
14:45know what are the key points which I
14:47look in the company. So one of the key
14:49points is that I look at uh companies
14:51where uh they have big five as auditor.
14:54The reason being that older companies or
14:57older managements being in the market
14:58for so long, you know the quality of
15:00governance. The newer managements you
15:02don't know the quality of governance. In
15:04case of canes, uh they did not have a
15:08good auditor. Good audit I won't say all
15:10I'm myself a chartered accountant so I
15:12can't say good auditor or a bad auditor.
15:14They did not have let's say a big five
15:16as an auditor. Now uh Kale started doing
15:20very well but what uh at a point I got
15:23worried about was that uh they were
15:26taking over companies so that they could
15:29show higher sales
15:30>> and their uh dattors days went on
15:33increasing and that is the reason why we
15:35sold off uh canes it was not a company
15:38which which we held on for a long time
15:41rather I think it was Hitachi which uh
15:44which was into power which gave us uh
15:46huge returns in a period of time.
15:48>> Yeah. But like for your average holding
15:50period because you know trend titan you
15:52hold for decades.
15:54>> So I'll tell you roughly I have got
15:55something. So Ba we hold for 10 years.
15:58We held for 10 years it became 10x.
16:01Trent we are still holding after 18
16:03years it's been 140x. Titan we bought it
16:06on the day of demonetization. The next
16:09day of demonetization, the entire
16:11jewelry pack fell because everyone
16:13thought that uh Titan Tanisk was
16:17basically a jewelry play and people use
16:20uh
16:20>> as we call black money to use that. But
16:23since I had been a customer for uh Titan
16:28uh what I realized was that every time
16:30you buy a jewelry in excess of 50,000
16:33rupees, you had to give your pen card.
16:35So I said these people are not going to
16:36be impacted by that. So we bought it and
16:40then of course after a few days things
16:42went on it went on then so we that we
16:46held for till from 2016 when the
16:49demonetization happened till about 25
16:52end when we sold it no 23 we sold it we
16:55sold it in 23 so almost in about 7 years
16:58again it it was I think 300 to about
17:014,000 so 11 times and uh so that was uh
17:07when it comes to tank.
17:10>> So yes, so bioon in fact people never
17:14asked me about bioon. We have made 10
17:16times money in bioon as well. Again
17:18bioon we bought at that point in time
17:20when they claimed to be the largest
17:23biochemist biotech company in India. But
17:26when I went and I realized it was only a
17:28200 cr company but it was not wrong what
17:32they were saying because that was the
17:33only biotech company in India at that
17:35point in time and they were doing pretty
17:37well. That's why we bought it. We sold
17:39it just before they were thinking of
17:41buying into uh American company. The
17:44front end for that we address. I said
17:46that they're going to take a lot of
17:48debt. It's better to sell. So there
17:50again we made 10 times.
17:52It's basically patience basically
17:54looking at companies and holding on to
17:56the companies but at the same time
17:58meeting the management regularly again
18:00not forgetting any insider information
18:02but just to you know uh get a confidence
18:06that the thought process by which you
18:08are investing continues to hold that's
18:10all
18:10>> you spoke a lot about you know what you
18:12look for when identifying these winners
18:14but what about the decision to sell when
18:17do you know that the uh when do you know
18:19that you have to sell So again there are
18:21three four things there. Uh first and
18:24foremost is that uh of course this has
18:27come out of experience. So I also might
18:29have made or have made similar mistakes
18:31like everyone does getting wedded to a
18:33stock
18:34>> but uh what what happened was that uh
18:38what we have we have prepared a strategy
18:40for that. So ultimately when a decision
18:42of sell comes it's not only my decision
18:45it has to be a collective decision. Uh
18:47so the way we do it is that we have
18:50certain uh targets let's say a if the
18:53company is going to grow at x percentage
18:56year on year over a longer period of
18:58time suppose the company starts
19:00faltering that is the first thing uh we
19:03give it almost four quarters before we
19:06take a call and sell. So sometimes uh
19:08people or my clients ask me why didn't
19:10you sell early. So this is the answer
19:13for that that you know in a business
19:16there is a possibility that sometimes
19:17there is a slowdown but that doesn't
19:20mean that the opportunity is not there
19:22but if three four quarters you know the
19:25company is unable to let's say gear up
19:28or they don't change the business model
19:30like uh you know this book by Asad
19:34Damodaran it's about corporate life
19:37cycle
19:38>> so he clearly says that you know you
19:40make the maximum money when the company
19:42is in a development phase then once it
19:45has developed matured you will make a
19:47steady state but you won't make great
19:48money unless the company rediscovers
19:51itself.
19:51>> Yeah.
19:52>> So and if we realize that the company is
19:54not rediscovering itself we will sell in
19:57case of Titan we had been talking to
20:00them we had been telling them that lab
20:03grown diamond is coming and uh it may
20:05not do uh I mean it it's a threat for
20:08diamonds. So they said it will not
20:10happen.
20:12Let me tell you frankly it has not
20:13happened so far. But I still believe
20:16that uh a lab grown diamond and a
20:19natural diamond is like an IVF child and
20:21a natural child. There is no difference
20:23at all.
20:24>> Absolutely no difference. So why
20:26shouldn't the change happen? It will
20:27happen. It may take time. You can't
20:29fight technology. And I think even Titan
20:32has realized that they have set up a
20:34separate uh business for lab grown
20:36diamonds. But that is the reason why we
20:38sold at that point in time also. Uh
20:40Titan was uh had gone on record saying
20:43that they are facing a lot of
20:44competition and because of that they
20:47will have to lower their AITA margins or
20:50they're making charges. So that is the
20:52reason why we thought that Titan the
20:54growth may slow down. It has not
20:56happened but I think the reason for that
20:58is the continuous rise in gold prices.
21:00If the gold prices start coming down
21:02then I would like to see most of the
21:03jeweleries companies they may be
21:05impacted because if you see in the last
21:088 n quarters if you track the gold price
21:12increase and the company's uh you know
21:15sales growth
21:17>> the sales growth is equal to the gold
21:19price increase. So that means that they
21:21are not doing volume growth that is what
21:23worries me. So
21:24>> so your thesis is playing out but they
21:26did get into lab grown dys they have
21:28not. Would you reconsider? I will
21:30definitely why not?
21:31>> Yeah.
21:32>> Then there is one more thing sometimes
21:33what happens is that like uh you know
21:36there is that song which says that I
21:39don't
21:41jubilee.
21:45So that kind of a thing we had invested
21:48in a company which is uh which is from
21:51Kolkata. Again I don't want to name the
21:53company but uh it is into uh
21:56undergarment manufacturing.
21:58uh Deoid was the auditor so there was no
22:01issue there though I didn't know the
22:03management very well it was a uh it was
22:06a midcap company uh but GST was
22:09announced so we thought that whatever
22:10issues they may be doing earlier they
22:13would get it sorted out
22:15>> and uh because of that we thought that a
22:17lot of uh sales growth can come in
22:21addition to that fruit of the loom which
22:23is uh Warren Buffett's company invested
22:27company they decided to set up a joint
22:30venture with them and that I thought
22:31then if that company I mean if Warren
22:34Buffet's company is deciding to have a
22:37joint venture with them I said I'm sure
22:39that uh the due diligence would have
22:42happened
22:42>> though of course like usual I went and
22:44met the company as well so after about 6
22:487 months after investing
22:51one day my analyst came to me and she
22:53said that uh there is a notice on the
22:55Bombay stock exchange saying that uh
22:58auditors have changed. So I talked to
23:00the company. So company said no no they
23:02were you know they were uh you know big
23:04four and they were asking for
23:06significant uh fee increase. So that is
23:09what why we changed them. I accepted
23:11that because it happens. Uh again after
23:15about 3 weeks uh she came back saying
23:18sir the CFO has resigned and then I said
23:21nothing to I didn't even call the
23:23company and sold all my shares. So
23:25sometimes you have to be careful on
23:27what's happening in the company and if
23:29you think that the thought process by
23:31which we invested is not working you
23:33should sell.
23:34>> Yeah. Which like you said you sometimes
23:36get wedded to ideas because if you've
23:39held something for 10 years it's very
23:41easy to keep believing that this will
23:44turn around.
23:45>> How do you stop yourself or how do you
23:47emotionally regulate yourself in those
23:49instances? So [snorts] I think patience
23:51and experience if you ask me experience
23:54and u in earlier in my career I have
23:58also one more of this thing that never
24:00sell too early.
24:02>> Yeah because selling the hurts really
24:05bad too. So what happens is like my
24:07first investment in the stock market was
24:09in Thomas Coke and uh at that point in
24:12time I was absolutely raw and uh there
24:16was this section if I'm not mistaken
24:18section at HHD of income tax which uh
24:21basically exempt uh 100% income of any
24:26company which earned in foreign
24:27currency. Whatever was earned in foreign
24:29currency was exempt from income tax and
24:31Thomas Cook was earning mostly
24:33everything in foreign currency.
24:36So I invested in that. My father had
24:38taken out a policy of some 30 40,000
24:41rupees. I mean it had matured and I had
24:45got some 40,000 rupees. He said okay go
24:47invest. So I invested in Thomas Cook and
24:51within a span of 6 months it doubled and
24:54I thought I was a great investor and I
24:56sold it off and what what I would have
24:59done out of that I bought a secondhand
25:01car which was the worst thing to do
25:04first of all
25:04>> you sold it appreciated asset yeah
25:07exactly and then um time went on in '92
25:1193 I was just wondering if I would have
25:13hold Thomas Cook what would have
25:15happened so it had moved 100 times Wow.
25:18>> So that is the time I realized that I
25:21should not be selling very early but I
25:25should uh sort of wait for it to get
25:29fully uh mature and then sell it.
25:32>> But uh when it comes to even these
25:34selling decisions right like in a
25:36company like for example Titan you
25:37explained how the thought process of the
25:39management had changed. Do you look at
25:41any financial parameters like you know
25:43sometimes the stocks become very
25:45expensive valuation runs up are those
25:47the for you?
25:48>> So uh now this decision again has come
25:51out of experience. Uh basically what we
25:54realized was that sometimes we take time
25:57in selling or rather don't sell when it
26:00is required to be sold. So typically uh
26:04what we have started doing in the last
26:06couple of years is that uh we have a
26:09target on whenever you do an investment
26:11you have a target there's a short-term
26:12target and there's a long-term target
26:14and of course there's valuation so
26:17whenever the valuation goes out of whack
26:20we trim we don't sell but we trim
26:24so what happens is that you have booked
26:26your profits at the same time you're not
26:28losing out if you think that there is a
26:30large up move still possible over a 7 8
26:34year period.
26:36>> Yeah. But uh see in companies like for
26:39example eternal that you've backed the
26:41valuation most of the market veterans
26:44will say that you know we don't back
26:46such companies and if you take out the
26:48other income you know and you look at
26:50profitable
26:50>> even I say so
26:51>> yeah [laughter]
26:52>> yeah but like uh you know so it is true
26:54right like some of these new age names
26:56are very very richly valued and are not
26:59making that
27:00>> they're not making money
27:01>> they are not making money so how do you
27:03assess those kind of investments
27:04>> so they're
27:07I look at why uh a eternal has been
27:10popular
27:12and how what is the total market where
27:15it can be popular. So I'm very clear
27:17that uh quick commerce or uh you know
27:22e-com mainly quick commerce it can work
27:25only in those cities or uh those cities
27:28or metros where there is high population
27:31density and there is high disposable
27:34income.
27:36because all said and done
27:39that's a fact you have to accept that
27:40that sitting at home you're getting
27:42something you know I also do that like
27:44in the for my morning breakfast if I
27:47don't have eggs I'll I'll just call it
27:49on blanket at 10:00 in the night and be
27:51happy about it but I I'm willing to pay
27:53that much more but which is not which is
27:55not what a common Indian does so I think
27:59it will be popular in pockets like Delhi
28:03Bombay Pune or even the uh top 10 15
28:07cities but I think its market is limited
28:10to that beyond that it won't grow so I
28:13do have a certain kind of a uh you know
28:17thought in my mind as to how large it
28:19can become according to me they are not
28:21as large as the players like Titan Trent
28:25or you know other retailers who are
28:28across India so they have a limited
28:31audience but that also they have not
28:33reached yet there is still time for
28:35that. That is the reason why I'm holding
28:36it. I'm fully aware that they don't make
28:39money uh on their business. They are
28:41making money only because of the other
28:43income.
28:44>> But then when you think about the
28:45valuation in this case, the valuation
28:48discipline is not there in this kind of
28:50investment. Right?
28:51>> So, okay. So, let me tell you, you can't
28:54have all 100% long-term stocks. You
28:57don't get them also.
28:59>> Again, you don't buy stocks just to
29:00create alpha. You should be very clear
29:04about what kind of a risk you're running
29:08and whether there is a possibility of
29:11these people making money. Right now
29:13they won't be making money. Fair enough.
29:15Like again going back we bought Voltas
29:18and we bought Thermax in 2000 when
29:21Volultas declared their largest ever
29:23loss. But what they were doing at that
29:25point in time was crazy. They were even
29:27distributors for Pepsi. They were uh you
29:30know they were selling everything. They
29:32were also making water coolers. They
29:33were making air conditioners and they
29:35were also into HBAC business but they
29:38were doing a lot of restructuring and
29:40because of that we bought it. So it's
29:41not necessary that a company which makes
29:43losses will not make money over. So uh
29:47voltage during in those six seven years
29:50went up 60 times. So I'm not saying that
29:54uh eternal will go up 60 times but
29:57because I think a lot of growth is
29:59already built into that but at the same
30:02time we have a target.
30:04>> Can you disclose what the target is?
30:06>> Okay. When they start making money
30:09without the uh without the other income
30:12will sell. [laughter]
30:14>> How long do you foresee that?
30:16>> Couple of years.
30:17>> Couple of years. So it's not a 10year
30:20holding kind of story but it's like good
30:22for a shortterm duration.
30:24>> Same thing I keep telling my analysts
30:26also that uh we are invested in most of
30:30the power ancillaries at the right time.
30:32So Hitachi is a 10 bagger in 3 years. G
30:35Vernova has been doing very well. So but
30:38I tell them that so just today J Vernova
30:41got an order and the analyst came to me
30:44saying that uh you know it's great now
30:48the stock price will move up. I said
30:49yeah it will move up today but I don't
30:51know it's so richly valued because what
30:54happened was that
30:56in 2003 to 2008 there were many
30:59companies uh which went up similarly the
31:02for that matter uh when I looked at the
31:05it was u 300 cr top line
31:09>> wow
31:09>> by 2008 so at that point in time I
31:12remember meeting Mahair uh Maher Padamju
31:15who used to now I don't think now she's
31:17a major her share she's the chairperson
31:21and I used I went to her and I asked her
31:24that uh can you become a thousand cr
31:26company the reason being that government
31:28is putting in a lot of efforts in power
31:30sector
31:31>> so she laughed she said mill to reach
31:34there here we have taken 20 years
31:36[laughter] I've never even thought we
31:37can reach 1,000 crores but when the time
31:40is right it can happen so thermax went
31:43up from 300 cr to 3,000 crores a 10
31:46times sales in a span of five six years.
31:51>> Wow.
31:51>> Profit went up 20 times. Stock price
31:53went up 60 times.
31:56>> So sometimes even the management doesn't
31:57know how good.
31:58>> But if you did not sell uh Thermax in
32:022007
32:05for next 15 years it did not go
32:06anywhere. It came down.
32:08>> Yeah. Did you sell in 2007?
32:11>> Yes we did.
32:11>> What were the deciding factors for you?
32:15>> So again I won't name the company. I had
32:17met a company which is a multinational
32:18in power. So I asked u the MD I said
32:23that uh you know you have been growing
32:27at about 25 30% for year over year and
32:31uh so how long long can you grow like
32:34this? So he said I don't know about
32:36India but China our company our
32:39subsidiary in China has been growing at
32:4030% for like 15 years.
32:44I listened to that. I came back I said
32:46that this is not going to work if you
32:48sell Thermax for simple reason that I
32:51don't see the government putting in so
32:53much money as Chinese government is
32:55doing to uh develop uh electricity u you
33:01know infrastructure further
33:03>> very interesting insight because one can
33:05argue we are in that same spot kind of
33:07with defense
33:08>> so that is the reason that is the reason
33:10why I gave you this example so she came
33:12to me and we were generally discussing
33:14ing the valuations. So I said now is not
33:17the time to see how large it can become.
33:22We should now start seeing when we can
33:24sell it
33:26>> for simple reason that take for example
33:28it's today's uh overall uh let's say uh
33:33the order book is six times sales and
33:36it's say 20,000 or 30,000 whatever
33:40getting a 10,000 cr order adds a
33:43significant portion to that but by your
33:46calculation it's growing at say 40% any
33:48company in 2 years time what you're
33:52getting now
33:54if you even if you continue to get your
33:57growth is going to drop.
33:59>> So if it's trading at 50 multiple today
34:022 years down the line it will it would
34:04have grown at 50 time 50% yearon year
34:07but the multiple would fall to 25.
34:10>> Yeah.
34:10>> So you won't get any appreciation from
34:13between now and so now our focus is when
34:15to sell. M so with the common themes
34:19that are hyped up in the media now
34:20>> I think so you should be when to sell
34:22now
34:24>> yeah and this is true for defense power
34:27and which other sectors would you apply
34:29that for
34:31>> so defense I think there is still
34:33opportunity again what has happened is
34:35that in um defense or uh lot of mid and
34:40small cap companies have come which are
34:42valued crazily
34:44>> the slightly larger ones I think they
34:46will continue to do well. That's not an
34:48issue. Valuations are rich. There is no
34:50doubt. So in all probability now that uh
34:54you know that P expansion is over.
34:57>> You have to look at P deflation.
34:59But as long as they continue to grow,
35:02you can still make money even if the P
35:05deflates. But in case of small and
35:07midcap, a lot depends on whether they
35:09get a order or not. One quarter they
35:11won't get a order and stock will be
35:13hammered down. So I'm quite careful
35:15there in defense especially but I think
35:16the growth opportunity still Raj
35:19especially if you consider the overall
35:21export uh scene.
35:24>> So you have exposure in defense.
35:26>> I do.
35:27>> And what about power?
35:28>> Yes we do. We we played through power
35:30ancillaries.
35:31>> So mainly HBDC uh transformers.
35:35>> Right. So uh what kind of uh when did
35:37you start buying there? What did you see
35:40in terms of inflection points? Was it
35:41the budget announcement or
35:43>> no? So yes, budget announcement was very
35:46important. Also my reading suggested
35:49that globally
35:51most of the transmission lines are being
35:53revamped. M
35:55>> India was also doing that and then we
35:57realized that HBDC transformers was a
36:00necessity for this especially when
36:04you are adding a significant renewable
36:07power to the grid you need HVDC
36:10transformers. So that is the reason why
36:12we invested in HVDC transformers.
36:16It was also a classic example of a relay
36:19race as I call it. We sold Titan at
36:22about 4,000 or 3,900 and we bought
36:25Hitachi at 3,100. Today Hitachi is at
36:2833,000. Titan has also gone up but it's
36:31at 5,000. [laughter]
36:33>> So in comparison obviously that looks
36:36much better.
36:36>> I'm looking for another candidate now.
36:38[laughter]
36:39>> So that's an interesting point of view.
36:42Then which sectors do you think you'll
36:43find this opportunity in?
36:46So still looking at I think um
36:49technology could be the technology has
36:51been beaten down quite a bit. We have
36:53been meeting technology companies. Some
36:55of them look interesting. We are still
36:56working on them. There could be still 6
36:59months to one year time for you to
37:01accumulate by but I think some of them
37:03will do pretty well.
37:05>> You mean the traditional IT companies or
37:06the new age platform?
37:08>> So there are people who are changing.
37:09There are people who are changing. So
37:11you need to look at them.
37:12>> [laughter]
37:13>> That's a very mystery.
37:16>> Yeah. But as of now, I can't disclose.
37:17We are still we're working on it.
37:18>> Okay. So, but any of the new age
37:20platforms look interesting to you or do
37:22you think the
37:23>> Yes, new age platforms also we are
37:25looking at.
37:26>> So, uh yes, we are looking at those
37:28also. I can't again disclose the name
37:30but yes they also would fit under
37:32technology.
37:33>> Yeah. But uh then sectorwise do you have
37:36any preferences?
37:37>> No, retail continues to be a good
37:39sector. like few months back we invested
37:42in VMAT. Earlier I had discarded it.
37:46>> The reason was that there were a lot of
37:48inventory issues at that point in time
37:50because they were not changing in in
37:52retail or especially in apparel. You
37:54need to be quick on you know turning the
37:57inventory because uh fashion changes
38:00very fast and you need to have that
38:03balance between fashion and inventory.
38:05So initially they had issues with that
38:08and they expanded very fast and because
38:11of that there were lot of problem
38:13but last three four quarters I've been
38:15seeing that they have changed
38:18uh though I always say that you know
38:25but but still it was not as bad let me
38:28put it that way. So uh it uh it did uh I
38:34I realized that they had changed uh
38:36their inventory had come down quite a
38:38bit and now they were at par with
38:40someone like a Trent or any other
38:42fellow. The other reason was that it was
38:45a uh let's say it was not a competitor
38:48to Trent but uh it fit perfectly because
38:51they were into tire three and tier four
38:53uh cities or uh towns where Trent was
38:57not pres present. Their uh average bill
39:00size was also very low and that is the
39:03reason why we bought it. We bought it
39:05recently. We done okay but we continue
39:07to hold. It's very interesting that you
39:10were so bullish on retail but on FMCG or
39:13the traditional consumption stocks
39:14what's your point of view? So FMCG I'll
39:17tell you when I was a kid uh what was
39:20available uh for let's say surf there
39:23was no surf there was I don't know what
39:25it was was it psoigbar sabun I think so
39:30you used to wash your clothes with that
39:31it it came in a form of cake and if you
39:34wanted to soak the clothes you used to
39:36have shavings of that which which you
39:38dissolve in water and put your clothes
39:40there from that time to now we have seen
39:44that you get sashes of surf even in the
39:46smallest of towns. So according to me,
39:49FMCG especially is deeply penetrated and
39:53that is the reason why I'm not so
39:54bullish on FMCG. Uh food is something
39:57which can still be interesting
40:00>> because that is not so deeply
40:01penetrated. So there is a lot of
40:03opportunity there and uh but FMCG and
40:08beauty again lot of opportunity in
40:10beauty. I think India has got a uh a
40:13very 50% of India is women and now I'm
40:17told that even men use cosmetics
40:19>> a lot.
40:20>> So yeah [laughter]
40:23so uh that is so when I was in college
40:25uh using even a face powder was
40:28considered girish now that is not the
40:30case everyone uses everyone uses
40:32perfumes everyone uses uh creams and so
40:35on and so forth. So I think there there
40:37is still a lot of opportunity.
40:38>> Yeah. So then do you look at players
40:40like Nika that are listed or
40:42>> so? Yes, we are looking at Nika as well.
40:44We have not bought it so far but we are
40:46looking at it. But uh so that is the
40:49reason I come back to Trent again and
40:50again why we are bullish on it because
40:52they have got a beauty line which is
40:53doing exceedingly well.
40:55>> What would need to change in Nika if you
40:57were to look at it?
40:59>> Uh
41:01nothing really. I just want to see
41:03whether their large format stores which
41:05they are setting up become a drag on the
41:08company or do well. That's the only
41:10thing which I'm waiting for.
41:11>> Interesting. And then any other sectors
41:13that you don't look at or you think are
41:15not
41:16>> commodities
41:18>> because a lot in commodities depends on
41:22global uh you know price movements which
41:25I am unable to track and that is the
41:27reason why I don't look at commodities.
41:29>> Interesting. So then after so many
41:31decades of investing and many
41:33multibaggers, what are some of those
41:35evergreen and timeless principles that
41:37you would teach a 25 30 year old
41:39investor today?
41:43>> I think that uh long-term investing is
41:47not out of fashion.
41:50But uh what is extremely essential is
41:52that you need to understand the company
41:55very well
41:57[clears throat]
41:58because understanding the business is
42:00the most important thing and any uh
42:04young person because analysis is not
42:07about only about spreadsheets.
42:10In an in analysis or in equity
42:13especially your left side of the brain
42:15and right side of the brain both have to
42:18work together because you should have a
42:20good analytical mind and you should have
42:22great vis visualization
42:24and you need to develop that. If you
42:27develop that then you will have
42:28multibaggers and believe me multibaggers
42:31can create phenomenal wealth
42:34irrespective of the fact that it takes
42:35long then you realize that okay if it's
42:38taken 15 years but what it has delivered
42:40in 15 years I would not have been able
42:42to get by trading alone
42:45>> so you
42:46>> how did you have to evolve personally to
42:49come to this stage
42:51>> almost 10 15 years
42:53>> given the changes you made in your own
42:55thinking So I told you so Thomas Cook
42:59was just one of them. Infosys was the
43:01second one. So in 2000 I was just uh
43:05sort of uh reminiscing as to what uh
43:10what have I done so far and I realized
43:12that if I would have just held on to my
43:15winners I probably did not have to did I
43:18work is not fair because uh equity is my
43:21passion. So I would not have retired but
43:24uh I missed a lot. I have missed a lot.
43:28So from then onwards
43:31I have been you know investing for long
43:34term. So that's almost 26 years now.
43:36>> Wow. So Infosys was a miss for you.
43:40>> Infosys was a miss in the sense I sold
43:41it after it tripled. So again, same
43:44story as thoscope
43:46>> but you know sometimes companies can
43:48still deliver returns 2 3x but they
43:51might not be the ones that will take you
43:53to that 50 100x. Absolutely. So how do
43:55you differentiate between the two?
43:59So our basic theme so in our PMS is uh
44:06rising per capita income
44:09and I think that is going to drive the
44:10Indian economy over a longer period of
44:13time. So uh anything which
44:18relates to rising per capita income is
44:21likely to do exceedingly well going
44:23forward.
44:24So whether it's auto, whether it's
44:27pharmaceuticals, whether it's hospitals.
44:29So if you look at countries around us,
44:32whether it's Singapore, Malaysia,
44:33Thailand, China or even for that matter
44:36Japan in the early60s
44:39as its per capita income has crossed
44:41$2,500.
44:43The move from $2,500 to about $7,500
44:47has happened in a span of 6 to 8 years.
44:51And that is the reason why because we
44:52have just crossed $2,500. We as India.
44:56So that is the reason why I think that
44:58Indian economy will be driven by
45:00consumption. So anything to do with
45:02consumption whether it's banking and
45:04finance which we hold a large percentage
45:06and which is not performed. So but we
45:08continue to hold. So whether it's
45:10banking and finance, whether it's
45:12retail, whether it's hospitals
45:16like hospitals for example. Uh when I
45:18met Dr. Dvi Shetty uh way back in uh
45:23when the IPO had come. I don't remember
45:24the date. So I asked I asked him Dr.
45:28Shetty when do you think that uh
45:32hospitals will be a good business in
45:33India. So he said that I'll give you an
45:36example. I think he has said that in his
45:38uh TEDex uh this thing also. So he says
45:41that every day I meet at least 20
45:43mothers with a child in their arms. So
45:45they at that point in time used to
45:47specialize in uh pediatric heart
45:49surgeries. So he said that uh you know
45:53the mother has only two uh questions in
45:56her eyes. The first is whether my child
45:59will survive for which I have a
46:01definitive answer. The second one is
46:04that will I be able to afford it. So he
46:06said that despite 50% of the cost of the
46:10operation being taken care of by a
46:13private charitable trust we doing the
46:15operation for 50,000 rupees I'm still
46:18not certain whether she will be able to
46:20gather the balance 25,000 rupees which
46:23is very unfortunate but he said that
46:25only when insurance or government
46:28insurance becomes quite common in India
46:31and per capita income goes up that is
46:34when the hospitals business will do And
46:36that is what has exactly happened and I
46:38think we have a still very long period
46:40to go.
46:40>> Yeah. Yeah. Absolutely. And talking
46:43about banking and financials that have
46:45haven't performed because you know most
46:47Indians I think by the nature of mutual
46:49funds etc have a large exposure in some
46:52of the banks commonly absolutely you
46:55know HDFC darling stock underperformed
46:58hasn't performed alltime lows. How do
47:00you make sense of that and why do you
47:02continue to stay bullish? Okay. So I
47:06always believe in understanding through
47:08examples. So uh I I used to stay in
47:13Vipari earlier
47:15and we had a a maid who worked with us
47:19and uh we used to pay her about I think
47:225,000 rupees. She used to work for 2
47:24hours but she also worked with a
47:27with a school in parlay which was called
47:30parlayal
47:31and there uh she was getting about
47:3320,000 rupees. So one day in the month
47:35of July she came with this is about 6 7
47:38years back
47:40she came with a box of sweets. So I was
47:42wondering I said what is the occasion?
47:46So because I knew that there were no
47:48results which had come out or there was
47:50no festival which was happening. So she
47:53said that uh dada and in Mari it means
47:58that I got a gadi. Now in Maharashtra
48:02Gadi is sometimes people call a two-heer
48:05also a gadi. So I asked her that which
48:07one did you buy? Did you buy her Honda
48:09or did you buy a baj? So she smiled. She
48:11said no that I bought a secondand ile
48:15and that really stumped me completely.
48:18So then I started doing calculation and
48:20I realized that she was getting about
48:2225,000 rupees between me and the school.
48:25Her husband worked as a supervisor with
48:27a builder. He was being paid about
48:2830,000 rupees and her two daughters who
48:31were uh graduates and who were working
48:34as a data entry operator were getting
48:36about 25,000 rupees each. So together
48:38the family already earned more than
48:40100,000 rupees. So for them buying a
48:43secondhand car was not very difficult.
48:46by paying down say 100,000 rupees and
48:49taking balance as loan
48:51>> whether it was a good financial decision
48:53or not was a different thing but what I
48:55realized was that as your per capita
48:57income goes grows your aspirations grow
49:00far beyond
49:02>> and that is what is likely to drive
49:04banking and finance going forward. So
49:05what we have is mostly all banking and
49:08finance companies which are related to
49:10or which directly benefit out of retail
49:12loan expansion. So that is the thing.
49:16>> One can only guess which ones are.
49:18>> So so far uh they have not gone as well.
49:22ICSA has done well. We we do have ICSA.
49:25HDFC has not done well at all. But again
49:27there are some reasons for that merging
49:29of HDFC with HDFC Bank that has brought
49:32them down and there are a lot of other
49:34issues which are going on but I think it
49:36has got a great franchisee and going
49:37forward uh I do expect most of the
49:40banking companies to do well.
49:42>> So it's just slight turbulence. You have
49:44to hold on like we held on to trend
49:47between 10 to 15 with 0% returns. I
49:50think we'll hold on to these as well.
49:52>> Absolutely. You know, you've made so
49:53many of these names so relatable with
49:56these insightful stories. Thank you for
49:58coming on the show today. I think the
50:00audience will love your stories and
50:02insights and how you came up with those
50:04insights. Also, we'll just do a quick uh
50:07rapid fire to wrap up episode. Uh the
50:10worst stock call of your career that you
50:12still think about
50:13>> pentamed graphic I bought it at 2700 I
50:16still hold it in my demand account it's
50:1925 p say to to you know keep on harping
50:22what mistake I made at that point in
50:24time
50:25>> that's a reminder
50:27>> absolutely
50:27>> one sector everyone in this business
50:29currently overrates
50:31>> I think midcap industrials and defense
50:35>> cash or equities if the market falls 20%
50:37tomorrow
50:38>> 100% equities is
50:40>> one number on a balance sheet you check
50:42before any other.
50:44>> Uh
50:46I think uh one of the most important is
50:49inventory and datas together as a
50:52percentage of sales.
50:52>> Charali manga also says that the client
50:55question you dread the most
50:58>> saf [laughter]
51:03and of course why didn't you sell
51:04earlier? A fund manager working or
51:07retired whose mistakes taught you more
51:09than their wins.
51:10>> Again won't like to take name but uh
51:13someone who doesn't listen to others
51:15>> because because it's very simple that
51:17this market always humbles you.
51:20>> It's true.
51:20>> There are so many people who are looking
51:22at this market that you need to look and
51:26talk to others and understand where you
51:28are going wrong.
51:29>> The consumption category you would not
51:31touch at any price.
51:33>> Hotels.
51:35Interesting. One thing success made
51:37harder.
51:38>> Trying to find more multibaggers.
51:40[laughter]
51:41>> Yeah. The human will, right? But keep
51:44doing it again and again again. But
51:45thank you so much, Milan. This was
51:47>> Most welcome. Most welcome. It was
51:49lovely. Such a pleasure hosting. Thank
51:51you for tuning in to today's video. Hope
51:53you enjoyed this fantastic conversation
51:55with Milan. He had so many nuggets of
51:57wisdom laced with beautiful insights
51:59conveyed in a very relatable way. Thank
52:01you for watching today and please
52:03remember to subscribe to our channel. It
52:05really helps us in bringing you better
52:07and better content each time.
52:09>> Investment in securities market are
52:10subject to market risks. Read all the
52:12related documents carefully before
52:13investing.

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