I need a little bit of clarification, doesn’t coffee can mean having a very long established performance (consisent sales growth over the last decade along with high ROE)? If that is the case, then we need consistent YOY sales growth for over a decade, thats why my comment on Biocon. I am actually long that stock, but never thought of it as a coffee can thing. Let me play a little of devil’s advocate here. Feel free to ignore if it looks like a banter.
About biocon, the one thing which they have done well is being early in investing in the first round of biosimilars (which require $50-100 mn/molecule investment and a waiting period of 7-8 years). Others have been caught on the back foot and Biocon is milking this opportunity. But in 10-years everyone will be in this business line making it similar to a generic business line (this is also what happened with Reddy’s in 2000s when they were the first to get a FTF, everyone figured out that business model and now its more or less a commodity). Nobody in India actually has been successful in making a patented blockbuster drug yet.
About global investing, this is a misnomer that India offers higher growth. For example, Suzuki’s EPS growth over the last decade has been higher than Maruti’s. Starbuck’s EPS growth over the last decade has been higher than that of Tata consumers. Your argument is true for consumer staples, but not for every brand owner. I was talking about owning the brands but instead through the international subsidiary because the global parent already owns the Indian subsidiary (eg of Suzuki owning 56% stake in Maruti). Also, Indian growth optically looks higher because of 4% inflation differential, which simply means that Indian rupee is devalued by 4% more than USD. So a 4-6% growing company in USD is similar to an Indian company growing at 8-10% (which is almost all of India’s FMCG and IT).
About Bfin and general qualms in investing, past is not a very bad predictor (atleast better than human intuition). For instance, if you look at 1997 financial crisis, the NBFCs that went bust then again went bust now (eg: LIC housing, DHFL, even CARE ratings went through the same mess in 1997). About Kotak, I can apply the same argument for SBI. Nobody buys a bank because of its franchise value (remember Yes also had/has a very strong franchise value and diversified business lines) but on the quality of their loan book. That’s because banks work on a NIM of 3.5-4%, with Opex and employee costs accounting for 1.5% of costs, so their net return on assets is 1.5-2%. So they need to add ~10x leverage to achieve ROE of 15-20%, so its the leverage book which counts and not other business lines. I will recommend reading about Edelweiss, they also have very good ARC and AMC businesses, but they were butchered because of their corporate and RE book. Its not the other business lines which matter, its the loan book which matters in lending financials. Plus, Kotak is current trading at a higher valuation than HDFC (premium valuation for what?).
About utilities, I am talking about Power grid and not power finance. On one end you are saying that commodity companies cannot create value, and on the other end you are bullish on lending companies. How are lending companies not commodity businesses? Will you ever prefer taking a loan at higher interest rate from a bank just because its well known? About power grid, if this guy is not around and doing well after 2-decades, we will not be having this discussion on an online forum because we wont have electricity. Utility businesses create a lot of value (probably the only real value in the world) as they create the basic infrastructure on which industries are built. That’s why they get regulated ROEs. These are annuity businesses and are valued accordingly. Just for context, one of Berkshire’s large bet is on utility business because this is scalable (can take in a lot of capital) and the ROEs are greater than cost of capital (it has to be to make it viable). Power grid will always be leveraged, otherwise our electricity bills will go through the roof (because of cost of equity is higher than cost of debt).
About Motherson, don’t take me wrong here. My family bought shares of this company in 1996, we have done well here. But an auto ancilliary is dependent on an OEM. Motherson already has annual revenues of ~$8bn, the next 20 years cannot be like the last 20 because they will become larger than OEMs which is just not possible. About Swaraj and Suprajit, these two have been around for 25 years now (look at what anyone would have made if they invested in Swaraj in 1989 IPO). Suprajit has grown sales for 20%+ in last 20 years, I am willing to bet that these guys will be around in the next decade (as they are moderately leveraged unlike Motherson). All these 1 component, 1 country, 1 client non-dependence criteria also applies to Suprajit. They are just less discussed because of size.
In IT business, employee costs are the biggest contributors. These are not manufacturing companies where we should compare asset turnovers. What matters is client concentration, geograhic and industrial diversification, and product stickiness. Once ROE is much higher than cost of capital, its growth which drives value. About dividends, I am happier if my company can redeploy capital and grow at higher pace. HCL is probably the only one which actually acquires IP and tries to monetize it (thats why they have the higest industry sales growth). Also, earnings did not fall for HCL in 2019-20.