Gautham U energised me in takingthis thoughtprocess forward in a formal way - by opening it up to the young ValuePickr turks.
Some of my observations from my direct/indirect experience to get everyone on the same page and excited to finally nail this one:)
1). In early 2010/2011 Fund Managers friends and their ilk - would listen to me patiently as I passionately described some strong emerging businesses with sustainable superior earnings profile like Mayur, Astral, Suprajit and the like
2). They were polite with me and gave me more than an hour each time - mainly due to our passion - and that we would usually surprise them - with a few pieces of X-factor info that would suddenly make them perk up
3). This wouldn’t last for too long, as the discussion would inevitably flow to first size of business and then to Public Float, Liquidity, etc. “Even if we want to, how do we participate”?? the common refrain.
4). In the initial days, I would be stumped at this very practical question - but eventually (6m - 1yr later, again when I met them) I learned to say - “Sir, usually these things have a way of sorting themselves out - if the business keeps performing”. (borrowed wisdom of Mr D!). And now they would all nod their heads, and amazingly be willing to investigate/pay a visit - of course the sustained performance of past year didn’t go un-noticed.
5). Mr D’s aphorism - “These things eventually have a way of sorting themselves out - if the business keeps performing” found a strong resonance with all practiced market hands! As it does now for me - completely (earlier I was just mouthing it:) - as I relive our direct/indirect experience with strong businesses - the likes of Mayur, Astral, Suprajit and…
6). Now apart from sustainable of superior earnings performance and Management walking-the-talk etc, what comes (should come) into sharper focus - is also Management’s thinking/drive and willingness at Value Creation. Sometimes they will be trying to do these things much ahead of time (business size/visibility/performance or scale up) not yet opportune like Suprajit, or just with the right focus at right time (like Astral - now there is over-focus perhaps)), or like Mayur a little slow in the uptake, but sure and steady.
7). Thinking/Drive/Willingness at Value Creation - (when backed up by solid business performance - that comes first of course) - come from a slew of Corporate Actions - first aimed at increasing Liquidity - such as Splits, and Bonuses (also enhancing Equity Cap from Reserves). These may be much maligned as “not really adding anything to the business” - but as Corporates move steadily in that direction - this is what allows larger Institutional Hands a toe-hold - and value creation aspirations of solid emerging businesses get off to a start. The starts will be false starts of course if the business is not moving up simultaneously to the next level.
8). Other Corporate actions that drive this value creation forward - we have seen Mayur and now MPS doing this very very effectively - is by way of strong quarterly Dividends. This role is obvious and should never be underestimated. But without the absence of “Liquidity” it is mostly Retail/HNI strong hands that benefit first. Institutional Hands CAN move in next when the Business moves ahead to creating more liquidity. Obviously it is more advantageous for Retail/HNI strong hands to spot this early and take advantage of - by steadily accumulating - with each leap of business performance. Period!
There lies my Thesis
Now can we have some of the young turks put up their hands -and take this assignment forward. Please present actual data and the sequence of events that led to enormous Value creation in strong emerging businesses that you are familiar with/or want to take up…like Mayur, Astral, Suprajit that I am familiar with and others like TTK, Hawkins and others that I am not so familiar with.
Cheers! All this appears so simple and logical, but to get really clued-in and take real advantage of - requires deliberation, enthusiasm, passion - Hope I have been able to transfer some of my enthusiasm.