My name is Amit Sharma. I couldn’t locate any “Introduce Yourself” page on this forum. I have been a member of this forum for long but was never active. I will try to be active from now on.
I met Mr. Achal Bakeri, Chairman, Symphony Coolers in Ahmedabad. We had some conversation on discussions related to value creation in the business of Symphony Limited.
Mr. Achal Bakeri stated that the value creation in a business happens when the market capitalization of the business grows/increases. I didn’t find this statement rational. In my opinion, the value creation in a business happens when the business is able to generate free cash flows for the shareholders of the Company, or RoCE improves and the business is able to create entry barriers.
If it comes to analysing Symphony Limited, they are a negative working capital business. They are asset light, no debt, good Profit margins and RoCE. The Company has design copyrights and they have a good design team and they come up regularly with innovative designs creating entry barriers. This way the business is creating value for the shareholders.
I just couldn’t understand as to why he was placing much emphasis on market capitalisation rather than these elements. In my opinion, market capitalisation is the work of the market and it goes up and down in a moment. But the strengths of the business don’t wither out easily and they result in healthy free cash flows for the shareholders of the Company. For me, the value creation is these strengths of the business.
May be, he got influenced by the crazy valuations of the start-ups…!!!