Many thanks for sharing such a great template and providing an excellent learning and collaboration platform.
I would like to add few points re Avanti.
In addition to all the positives and negatives/risks as discussed, i believe we also need to look at below triggers that may have an impact in the future:
1). Agriculture status to Aquaculture by Govt. resulting in higher tax benefits. Govt. of India has a high focus on blue revolution.
2). Very low institutional ownership. I believe to have more success, donât want to invest where institutions are, rather invest where they are going to go.
@ Aravind - thanks. Glad you find this useful. Please USE IT!
Everyone please note, this BQ Insights presentation is meant to inspire new learners and old hands both, to use the Template to validate emerging/new high-quality business prospects
IT is NOT a post-mortem exercise on our biggest winners - although we have received feedback on those lines. How do we illustrate the power of the Template -if we do not use it for our best businesses - of which we have come to know and understand a lot over the years.
The way these businesses stand out - should give us active mental models for spotting and valueing that - whenever we see that in any new business, perid. That is the real objective. As a senior investor put it, It probably can be a great tool for those investors who want to help themselves.
How to use this Template for a new business idea - progressively - on which we may not have enough knowledge and understanding - but still form the base investment theme and work towards validating that - will be the next value-addition on this thread.
We are waiting to see more show of hands - atleast 20 saying I want to use this to analyse BQ for x, y, or z
Thanks for your kind words, great that you find it useful.
Also for your inputs, I have the following observations:
1). Triggers (which may or may not playout) never weighs in on our Investment decision. At best they are a bonus, which we are happy to take, if the newsflow becomes actionable down the line> if they donât play out we still have our investment case and margin of safety. Relying heavily/moderately on triggers has that extra risk built-in, which we find avoidable.
2). BQ and its sustainability first, and tthen the Gap between Performance and PE - thats how we weigh our Investment/Capital allocation decisions
>>>Some more food for thought âŚon how to think more critically on what can go wrong, and possible impact on Valuations accorded by Mr Market. Arenât we glad to keep receiving these refinements from Seniors.
Just to illustrate âIntensity of single biggest risk factorâ.____
To take the thought forward in our view this dimension of BQ is actually implied in Valuations that are accorded by Mr Market.____
We alluded to USFDA as single biggest risk factor for few (not all) pharma cos., and now enough of IPCA in last few days.____
Letâs take a different example of say a midcap IT like RS Software which suffers from same dimension of BQ -âIntensity of single biggest risk factorâ in its Valuation. Here it plays out as -Single client dependence risk(Visa) who is reportedly setting shop on their own. And who knows, might ease out RS over time which irreversibly impairs your business. As a result,despite decent (or rather more than decent) financial metrics, Valuation of RS may not gain supposedly âdeservedâ traction.
I donât think a simple earnings call or PE or PB or EV/EBITDA would overtly reveal this aspect of valuation.
Intensity of âSingle biggest risk factorâ needs to be captured back well in the BQ Template. I remember now offhand discussions with Astral on this aspect.
Over dependence on Lubrizol - was the single biggest factor of reluctance of FI/FIIs to participate in the Astral story, till such time risk-mitigation on this critical aspect was clearer. Now with the latest acquisitions - that aspect is mitigated by half- and probably will be insignificant as an impacting risk factor 2-3 years down the line if CPVC share comes down to 30-35% in product/segment mix.
At the same time - its important to investigate for ourselves the ODDS on that single biggest risk factor coming to pass, especially when Instituitions havenât participated, for that may be a real edge over Mr Market - especially if runway is very big - and our business/management is capable of executing the best.
What Seniors are hinting - this should get included in our planned Valuation Template because this is almost always factored in by Mr Market, and may play role in limiting Valuations??
I cannot thank your team and you enough for the amount of effort each one has put in to make the presentation a wonderful template. As always, each and every post is so incisive in your own inimitable style. I wish to also thank you for the generous gift of Valuepickr which have made me a successful investor.
Please convey my personal thanks to everyone who has been instrumental and contributed to selflessly. Do accept my sincere gratitude and appreciation . Truly, grateful to everyone who has worked on this great IDEA.
Buying a company with Durable Competitive Advantage is a Business Quality analysis. Buying such companies at a fair price is very important. Even if the Business is superior, if the investor does not buy it at a fair price, his returns are bound to be average. This has been rightly said in Valuation Spotlight- Perception vs Performance.
I personally feel importance should be given to Cash Flows of a company. A combination of Business Quality Analysis, Key Ratios, along with Cash Flows can help pick multi- baggers.
A little bit of searching on this site has led me to this template. Earlier today I had mailed Donald regarding Mayur Uniquoters and a lot of answers have come from this presentation.
I would like to attempt something similar with Kesar Terminals. But since I am sitting on a 10 bagger i am afraid I will extrapolate wishful thinking into analysis.
After going through the template which Donald shared I have been trying to work on the same for Tasty Bites. With a lot of hand-holding from Donald I have been able to come up with initial ideas on Tasty Bite. Attaching the pdf
Discl. I have a significant position in Tasty Bites.
Many Thanks for being the first one to put your hand up and produce a decently filled-up BQ Template for tasty Bite. I liked your output - itâs a good first-cut, there is more to refine! I would like you to be more critical - more ruthless with the job - still in love (?)
There are many more who have promised in this thread and in emails to me - who are yet to take the bite and produce their initial effort on BQ. I can only tell you, if you work at it and have the guts to put up yur work (just like Anant did) you can only keep improving - and the sky is the limit. I used to produce much more inane stuff - and seniors would still encourage me.
Anant - Think it will help everyone if you can share more on what you learnt from the exercise on the lines of
a) you thought you knew the business - before you started filling in
b) what were the new directions you were prodded to think - while filling up
c) how did your (initial) perception of the business change as you were completing the first-cut
d) any other learning/feedback on the exercise
Are you energised to attempt more of the same with your other businesses/new ideas, or are you de-flated?
It has been a hugely humbling experience about a business that I thought I know a lot.
a) you thought you knew the business - before you started filling in
I thought I know the business pretty well and yet when I started filling in the template I could hardly fill a few lines here and there. Distilling the information to this template is an extremely arduous task even though you might have tones of information about the company, read ARs and other reports, done a decent amount of scuttlebutt. Very quickly it made me realize that I know a lot about the company but not a lot of that is relevant to BQ.
b) what were the new directions you were prodded to think - while filling up
To begin with I was mixing MQ and BQ all the time. I think it is very difficult to separate the two for lesser experienced investors when you see a great management. You have to pen it down for things to become clear. I was focussed on the runway, growth, clean balance sheet, excellent cash conversion cycle, inventory turnover times etc. During the course I started looking into things more from an economic profit perspective. I started analyzing growth from capital turnover and ROIC view. I also started to think that how much capital will next growth phase require and started hypothesizing around return on incremental invested capital.
c) how did your (initial) perception of the business change as you were completing the first-cut
It changed quite a bit. I realized that the business is asset heavy which on the surface did not appear so (may be I did not look deeply). It also became clear that the business will require new capital on a regular basis. Further looking at capital turnover and the nature of business it became quite clear that it is a business where ROIC levels would remain rangebound unless management moves to more value added products. From a business rating perspective also it slipped to B from an A that I had in my head. Also my ideas about disproportionate growth changed completely.
d) any other learning/feedback on the exercise
Lots. We tend to love the business that we own and justify to our mind the reasons for owning it. Doing this exercise helped me become more objectify. A lot of theory that I had read was put into practice and it is way different putting it into paper. Tasty Bite is still a significant part of my portfolio but the reasons for owning it has changed.
It has been a long drawn exercise but I am highly satisfied that I have done it. I would love to do the same with a newer business at the same time continuously refine Tasty Bites, look at it more critically.
I have always believed the first step to knowing - is to acknowledge openly what we donât know. That ensures we make the effort to knowing more, and upping the curve every time. This is not easy. I want to congratulate you again for making the effort, persisting through it when it was getting tedious, and coming out of the exercise,a better thinker, and hopefully a better investor - who can be more and more objective about teh businesses he owns/ or would like to own.
I can admit freely, I had an equally hard time doing justice to these businesses - putting them down in the BQ Template/hierarchy if you will. It was tough going, but we scaled that slowly, methodically. Even now I am struggling to capture some businesses like Shriram City - I just know its v v special business - but putting it down objectively for everyone to agree - is a different matter :).
I believe every methodical, passionate learner can do a decent job of this - you just need to persist and seek help.
Those who havenât bitten the bullet, yet )- let me give you some extremely encouraging news - couple of very highly respected Value Investors/Fund Managers in India - want to collaborate with Team VP in creating more such BQ Templates for businesses of common interest - mutually agreed first step for us, to collaborate more concretely!
Names as above, are of folks who volunteered in this thread and/or have written to me expressing interest. The enthusiastic response/appreciation from Anant Jain for the BQ exercise has emboldened me to give this exercise a PUSH again - even if it means putting enthusiastic volunteers in the limelight, nay spotlight! :)
Anyone who knows some of these businesses opted for above (n the Table), please shake off your shyness and approach the main guy and offer to work together. You will be amazed at how much growth there can be in collaborating together on a pet project.
Anyone who thinks he knows a business well and wants to become a better business quality thinker, please put up your hand NOW to completing the BQ exercise for it. I can assure you you, you will have enough folks to help you once you show up with the initial effort - which will take some determination - I know how much I procrastinated on the job:).
Make the start today. Demonstrate some public guts :) if you wanna be wealthier :) in every way!
Some have written privately to me. Urge all to make commitments here at the thread - pressure to deliver is higher for public commitments
Enclosed Excel that everyone can use. Good to leave it as Excel during the collaboration phase. Once finalised feel free to upload as PDF in the individual thread, or your own blog, or elsewhere
You can reach out to those you want to collaborate with - by clicking on username in post, and send an email. Happy collaborating!
Thanks Ananth and Donald for, re-energizing this thread.
Ananth, the BQ template on Tasty Bite is indeed an excellent start and it does give lot of pointers in understanding the business quality. I too had studied Tasty Bite and quite agree with your assessment of the business quality. Thanks for sharing the filled up template.
Donald, as usual, you have done an excellent job of motivating VPers to collaborate and work on this extremely useful tool. Your comments prodded me to stop procastinating and finishing the last few aspects of analysis for ENIL. I have been using this tool (or rather the right word is âtrying to useâ as am still working on doing full justice to it!) for analysing new businesses or validating/categorizing existing businesses in my portfolio and my experience with it is nothing short of spectacular.
It prompts one to collect the relevant information for understanding the business ( and sometimes avoiding the loads on irrelevant data points), points out the information gap, helps one analyse the business with more âbusiness-likeâ approach and most importantly puts the most important aspects of decision making for investment in structured and logical format. My experience on working with this tool, most of the times, is quite similar to what Ananth has described.
I am putting up the filled up template for ENIL. Would be happy to corroborate with VPers who want to further refine this.
saying I want to use this to analyse BQ for x, y, or z