Apologize upfront for deviating from the purpose of the thread significantly. I don’t agree that any great investor would be following single method for investment. From what observed from his lectures, what he says is he looks for at least 2x (i.e. stock is trading at 50% of it’s intrinsic value) in 2-3 years. If the discount is more, it would lead to 3x or 5x or 10x or more. Rarely he finds an investment which is trading at 70%-90% discount (i.e. 10x if proven right). Most of the times this happens in a troubled company in troubled sector. It doesn’t mean he invests only in potential 5-10 baggers (although he said in one video that he aims for at least 5x; in another video he mentioned that initial 75% of new fund cash in potential 2-3x baggers in 2-3 yrs).
He is by no means god. If he is sure that he is going to be right 100% of times, he would not follow strategy of 5% max allocation per stock; he would be putting money 2or3 stocks. He moved from 10% allocation per stock/investment(basket of same type of stocks) to current 5% allocation due to some investment going bust in 2009. After 2009, he came up with a check list of abt 20qns (if I am right) based on his & other great investors’ wrong investment choices.
Coming to KRBL, i agree with forum members assessment that it has strong moat, great financials, great runway ahead and trading at reasonable valuations. As, the business grows, the capacity utilization would reach about 90-95% few years down the line & the share of power business would shrink. This duel change of rising share of basmati rice (thus increasing capacity utilization) and shrinking share of capital guzzler power business would make ROCE to probably inch higher towards 25-26% or more (this is just a blind guess). Another important point I observed in KRBL’s ARFY17 is, the advertisement costs are abt 40cr and there were significant power costs due to use of diesel generator. In few years down the line, these would also decrease significantly. If they stop investing in power business (which I believe is what management said, if I am not wrong), it would increase the cash flows. All, these factors, would make the stock lot more attractive than now. As they used demon as tail winds for taking market share from unorganised players (who still command 40% market share), the management would surely use GST as advantage to gain market share.
Like Samsung beat Nokia by bringing in mobiles in all price ranges from premium to cheapest mobile, KRBL too is doing the same thing. They are bringing products at all price points, to gain market share from competition. As e-commerce business grows, it would aid the margins as lot of middle points would be cut out (this is my uneducated guess; in Amazon, the seller is noted as India Gate, so I assume no middlemen involved). Lot of things going good. The major risk, I see is, somehow LT foods or other brands giving tough competition thus causing premium margin erosion.
Disc: invested after Doing basic study after Mr Pabrai’s investment.