During my many conversations with fellow investors, the most frequent response has been to ask me to supply more context and illustrate better with examples and even counterexamples as possible. A few senior VP members have also mentioned that they will respond in detail at this thread itself, but haven’t yet 
.
So here I am back again trying to capture the essence of my 1-1 conversations wherein I supplied more context and there was better unequivocal appreciation on the relevance of this thread.
A. How does the 1-2 line enumeration of say Management DNA (when attempted after proper familiarity) practically help in decision-making?
My earliest experience of this was in my interaction with Shri Chetan Parekh (Jeetay Investments) in 2013/14. As is my wont I had sought time to understand how they view the businesses we at VP were invested in then. I asked him about our current love Poly Medicure.
He said Donald we had visited a year back with my fund Manager, spent a day with them visiting the factory and held extensive discussions. We decided NOT to invest.
I said, Sir Could you tell me why? He replied we came to the conclusion that a plastics device manufacturing business like Polymed can’t have these kind of margins, sustainably (esp. when compared to others).
I said Sir, let me tell you 3 things about VP reading of Poly Medicure from closely tracking the business and our interactions of the last few years, and then let’s revisit.
Poly Medicure Management DNA is extreme focus on Cost Efficiency.
- When I first visited Polymed in 2011/12 there were about 50 people manning the assembly line. Next year that count dropped to 15, and astonishingly in year 3 or 4, that count was 3. And all along it was home-grown automation (not the imported B&D types); they even started exporting these in a small way
- In 2011/12 they suddenly invested if I remember correctly 17 Cr in Power Inverters, when they were still a very small company hardly 100-200 Cr in Revenues). When I questioned the prudence of such a big investment at that stage they re-iterated that every small power shutdown meant a 45 min stoppage for them (wax coagulation & cleanup) before the line could be restarted. Now we are running uninterrupted 3 shifts 24x7
- They successfully reverse engineered a special steel alloy (imported from Japan) used in the safety needles after 4-5 years of persistent efforts. The RM cost dropped to 1/6th of imported, now imagine a million needles!
Sir immediately said Donald, if you had told these 3 things to me 1 year back, we would have invested in Polymed. That impact has stayed with me ever since - and I couldn’t thank Mr D more - for his insistence on us imbibing the “Elevator Pitch” enumeration on a business - highlighting the most important things that set apart one business from the other. As an aside, this was also the year where we could settle the debate on whether Mayur is a better business, or Astral, or Ajanta unequivocally within 5-10 mins of articulation. Rahul Rathi (Purnartha) with a 3% allocation in Mayur Uni then, readily conceded that Astral was better than Mayur, and that probably Ajanta Pharma was one better (as of our reading in 2013/14)
Everyone also teases me on ONLY quoting examples from the past (that’s when I worked the hardest 
). So let me take a current investment HBL and very briefly mention how one could succinctly describe HBL Managment DNA. And probably just how that single 1-2 line description can help us think with lot more CLARITY on the future capital allocation direction of HBL.
HBL Management everyone will define as perhaps one that is focused/driven by hugely superior technology-led competitive advantage. But NOT too many will put a fine finger on that reading as our AJ (@Anant) can, when he further adds “In domains that does NOT mandate Huge Capex”. If one is able to come to that kind of assessment pretty soon in the ride (VP pick from 2022), just think (all things being equal) if that insight wouldn’t make one a much better capital allocator?
B. Can you exemplify better what is meant by “Sweet Spot”
This is another simple aspect that once imbibed, helps us think with much more clarity on where the ODDS are significantly stacked in favour (everything else being equal) in terms of rapid scale up of the business prospect.
At the core of the Scalability Mental Models thread lies this aspect of the Sweet Spot being 80-100 Cr Annual PAT Levels (for some exemplary hardworkers like @rokrdude that sweet spot, starts at 30-50 Cr, he too shall add value here, hopefully soon). That 100-200 Cr PAT transition/migration happens enough times and quite easily. 200-500 Cr PAT transition is another beast though, but very few businesses actually cross 1000 or 2000 Cr PAT levels.
Think through this well. at its simplest nuance, when the PAT doubles to 100 Cr and further to 200 Cr, such niche businesses are NOT known enough of, so someone doing very hard work including on-the-ground scuttlebutts that nail down a lot of unknowns, obviously has a big Alpha. So as the business doubles and triples, so does the reratings. A 3x in profits with a 3x in valuation rerating almost always gets you a 8-10x even in 3-4 years or less - IF the business keeps executing - as read by us. So when someone talks to me about “Ather Energy” ( ~28000 Cr MCap) exhibiting much of what we have articulated in the pictures above - he can when pointed to the Sweet Spot - easily GET IT - on where best to focus on working harder at! I actually had to exemplify that in one of our conversations.
The second nuance - separating the Men from the Boys on SCALABILITY past the 500 Cr PAT threshold - when we find that an Avanti Feeds (a VP 50x) hasn’t doubled its PAT (485 Cr 2020) even after almost 6 years now, and Ajanta Pharma (another VP 50x) (559 Cr 2016) took 8 years before doubling PAT and is stagnating there for almost 3 years now. But an HBL has had a much easier journey sprinting past 500 Cr (2024 PAT 377Cr) and likely doing close to 1000 Cr next year onwards. Should give us food for thought to think through better on the Why’s and is there a pattern for us to decipher/take advantage of while making other investment decisions.
C. Capital Allocation Track
Added this as a new row to the concise weighted-map picture we posted above to aiding us choose better. As my good friend @rupeshtatiya never stops reminding me - Dada aap SBCL ka Capital Allocation track record se kaise khush rah sakte hain? Yes they have been guilty of that in the past (I being biased attribute that to the older generation ; now that newgen Mgmt has effectively taken over, I expect that to being decisively addressed), the next 2-3 years for SBCL are promising to be very different