#FMCGDiaries: The Pidilite Story - A Chat with Bharat Puri.

Yeh Fevicol Ka Moat Hai, Tootega Nahi!

Moat! This four-letter word has had all enthusiasts of value investing obsessed. The term economic moat, coined and popularized by the Oracle, Warren Buffett, refers to a business' ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Now, this sounds very fancy & exciting in theory. For me, the word was a source of insane intrigue and enigma until I entered the Pidilite office in Mumbai. This company & its brands are a textbook definition of the term Economic Moat. 

The few hours spent at their office was the most fun I've had at any interview, on & off air. All the credit for that goes to Mr. Bharat Puri, the MD of Pidilite. Bharat is a raconteur par excellence with rather interesting stories to share from his vast experience at not just Pidilite, but also at Asian Paints & Cadburys'. For an FMCG-Maniac like me, it was like a showreel of your favourite films being enacted right in front of you, by the lead cast, over and over again. In fact, Bharat Puri was responsible for getting Cadbury back on track after the worms controversy. That story is stuff of B-School Case Studies, imagine hearing it from the man himself!  

However, getting back to the Moat bit, Pidilite has this multi-level defence system from competitors! 

#1: Brands, Brands & Brands!

Now, adhesives, sealants, water proofing chemicals etc. aren't products that we should really be caring about, I mean, their excellence lies in being invisible and never reminding you of their presence after application. Despite that, Fevicol, Fevikwick, Fevi Stick, M Seal & Dr Fixit have become household brands. In fact, in all cases, the brand become the generic for the product. Picture a kid going to a stationery shop and asking for Fevicol? Never seen/heard anyone ask for Adhesive/Glue. This isn't a mean feat to achieve. Due credit to Ogilvy & Mather and Piyush Pande (The Ad Agency and the Creative Head) for conceptualising and producing some of the most memorable ads on Indian TV. There's hardly a Fevicol, Fevi Stick or Fevikwick commercial that you don't remember. On a side note, Bharat Puri has been quite fortunate to have been part of companies which O&M has had a huge role to play in growing: Asian Paints and Dairy Milk ads will definitely find spots in any Best Indian Ads list. 

#2: The Company Connects with both, Consumer & Carpenter:

Pidilite has the highest distribution reach in its category, in fact, among the highest, across all categories. Their products are available at all towns above 50000 population & the Company is targeting All towns above 10000 population now. Secondly, they connect with the user of the product: The Carpenter. The Fevicol Champions Club connects over a 100000 carpenters across the country in a manner that's like Facebook, before Facebook. The company works very closely with all participants at the ground level, educates them about things beyond their own products, hears their concerns and actually comes up with solutions to fix those problems, literally. Two instances really stand out:

 - Little known fact: Pidilite has actually revolutionized the Zardozi-work industry! Earlier, pieces of metal were sewn onto the fabric by hand and required painfully long hours. Now with the kind of product that Pidilite has developed through extensive research and on ground feedback, Fevicryl does this job easily for the artisans.

- Secondly, Pidilite has its own design division which is responsible for Packaging & Product Design, kudos to the foresight of Mr. Parekh (the founder). The reason why this keeps them seriously ahead of everyone is, they can immediately implement solutions for customer satisfaction. I spoke about the Zardozi bit in the previous point, now here's another addition to that. So, the women-folk using the existing Fevicryl packaging weren't very adept at adapting to the small plastic squeezies that the company used to sell. The sales rep, though, learnt that the women were also great Mehendi artists and were very comfortable with the Mehendi cone. This prompted Pidilite to take note of this immediately and design an SKU which was the exact same as a Mehendi Cone. This insane focus on the customer's needs & constant innovation keeps the company far, far ahead of all competition. Bharat also mentioned about how loyal the distributors & carpenters were to Pidilite products for generations. This is seriously strong Moat. 

#3: Innovation:

Whenever, wherever & however 2 things need to be stuck, sealed or waterproofed, Pidilite will be there. The Company's obsession with innovation is very Steve Jobs' Apple-like. So much so, that they have 2 Sales teams, one focuses on Dealers & Distributors (the regular stuff), while the other focuses on Users, their needs & and new markets that need to be tapped. Ear to the ground, is the Motto at Pidilite.

Add to all of this, the uniqueness of the Products, Minuscule share in the overall cost of the Job & Strong Brand Creates a rather unique Situation in a Customer's mind ahead of purchase, that goes like: "Ummm, I don't save much money by buying a cheaper alternative to Fevicol (given adhesives cost no more than 2% of overall furniture cost), however, the Risk of Not Buying Fevicol is much more than the money I'd save anyway!. If the wood comes off because I used a cheaper alternative, I lose my reputation." 

This makes him/her buy only Pidilite Products. So, the Company keeps competition at bay, protects its long term market share and profitability... and that, Ladies & Gentlemen... is Moat. 

Hope You enjoy the chat.

Keep The feedback Coming.

Much Love.

M

PS: Don't treat that as investment ideas; I personally Don't Invest/Trade.

​

The Imagica Story!

I always wondered, as amusing as a visit to an amusement park is, is running the business itself, so fun?

High Capex, High Maintenance, Insane Amount of Funding & Approvals Required, Safety Standards & Constantly Adding New Attractions which would restart the whole Capex, Funding, Maintenance, Approvals, Safety Cycle.

That’s not all, despite all of this, there’s a limited market.

A market limited by

1) Geography

2) Infra & Approach to the venue

3) Limited Number of Visits (How often do you visit the same park anyway?)

4) Weather

5) Brand, Perception

6) Other/Cheaper Entertainment options.

So, with that as a backdrop, I went with a lot of Questions to meet the man who started India’s first Multiplex Theatre, successfully exited & in his second innings, took up the challenge of making India’s Most Global Amusement Park.

Here’s my key takeaways from a day spent with the Shettys at Adlabs Imagica (Though, I must tell you, I’ve visited the place before in personal capacity & loved the experience).

1)     Mr Shetty is a passionate man & you can see that in every little thing at the park. He set out to make a world class park in India, and he’s achieved a substantial amount in realizing that dream. You must visit the park yourself to see this.

2)     Despite that, I sensed a tinge of disappointment at his passion project not being received as well by the people as he imagined it to be.

3)     The aforementioned difficulties have cast a huge burden of Debt on the Company & that’s the biggest trigger on the Imagica Story. Repayment of Debt would improve their financial health drastically, while additional debt would weaken their backs further. Operating Leverage is the best friend in good times (no pun intended) & the worst foe in bad times.

Adlabs Debt Trajectory:

FY14 – 1140 Cr

FY15 – 1123 Cr

FY16 – 1004 Cr

FY17 – 1048 Cr

4)     The company does have some plans for Debt Repayment  -

Monetization of 170 Acres of Surplus Land

New Theme Parks via JV Options in Hyd & NCR

Debt Repayment Begins in FY19

5)     Increasing Acceptability of the Park and More Visitors would hopefully help their cause, given, the strength in the underlying product offering

6)     As more ppl visit the park, expenditure on Non Ticket Items like Food, Merchandize would further aid the Company’s Cause.

7)     Interestingly, they’ve also started sharing space in the park to advertisers; that’s an interesting way to sweat assets and get free cash.

8)     Finally, Mr Shetty in his earlier avatar hasn’t shied away from selling out in a good deal (sold Adlabs multiplex biz to Reliance), in the interview too, he said would like to look for a strategic partner. So the Big Q is; if Disney/Six Flags look at entering India finally, could there be a potential partnership? Only time will tell.

Hope You enjoy the chat.

Keep The feedback Coming.

Much Love.

M

PS: Don't treat that as investment ideas; I personally Don't Invest/Trade.

#FMCGDiaries: The Emami Story - A Chat with the Families Behind Some of India's Most Iconic Brands

Understanding Emami: Part 1

Emami's Market Dynamic: Part 2

Family Matters & More for Emami: Part 3

This was a very special chat. Travelled all the way to my favorite city, Calcutta, for this one. In 2 Days, I packed in a meeting with ITC (The Giant, more on that on another post, later), a meeting with Century Plyboards, Market Master Basant Maheshwari & a visit to the Emami Home for a chat with members of the founding families of Emami.

To know Emami well, you gotta know how they started, two friends, RS Agarwal & RS Goenka started a company way back in 1974. The friends, not only share their names, but also their passion for great consumer biz. The company mfgs & sells some of the most iconic brands in the country, an enviable portfolio of  household brand names such as BoroPlus, Navratna, Fair and Handsome, Zandu Balm, Mentho Plus Balm, Fast Relief and Kesh King.

The thing that’s common among all great consumer companies is the strength of the brand. Be it Marico’s Parachute, Emami’s Fair & Handsome, Zandu or Pidilite’s Fevicol, all of them have become synonymous with the category itself. The Brand is a Company’s biggest moat & servicing the brand, its biggest responsibility.

So, back to the Goenka-Agarwal Story: What struck me most was the bond b/w these families, not related by blood but love & respect for each other. Love & Respect, further strengthened by Non-Binding suggestions from Various MNC Consultants to only keep the bond intact.

Here’s an excerpt from an article about the Emami Story:

“The two families have formulated family governance rules consisting of code of conduct. The rules running into about 50 pages are mostly recommendatory, though some are obligatory. While preparing the rules, views of the younger generation were taken into account and professional advice from Barclays and Ernst & Young also was sought.

The elders, for instance, want the family to eschew businesses involving non-vegetarian food, tobacco or pan masala, and alcohol. This ruled out the possibility of the hotels business. There were a lot of discussions and it was decided that such businesses can be outsourced. The constitution, as the rule book is known, does not attempt to codify every detail. Care has been taken that the book should not look like a legal document.

The dos and don’ts cover everything from investing in shares, perks, travel, investments in new ventures, pocket money for daily expenses, and the number of holidays allowed in a year. All members are only eligible for economy-class air travel. For purchasing expensive cars like Mercedes a work experience of at least 13 years is required.

The two families are thinking that why should they not change their surnames from Agarwal and Goenka to Emami or Emamiwalas, as is the norm among many families in India. It will remove the duality in identity. The two are also talking to their advisors to set up a trust that will manage the two families' wealth, including their shareholdings in Emami Group. Some of the details have already been firmed up, including limiting rights of family members to sell shares in companies unless they have signatures of approval from at least two other members of the trust.”

I recommend you Read the whole Article: http://www.globalrecorder.com/business-hidden/317-emami-group-an-empire-built-by-two

Things I Found most Interesting During The Chat:

1)      The Bond b/w the families was for real, not for camera or on display for guests.

2)      The company’s focus on advertising & the power of Cinema: Most Star Studded Line-up

Emami’s brand ambassadors: Amitabh Bachchan, Shah Rukh Khan, Hrithik Roshan, Kangana Ranaut, Shruti Haasan, Malaika Arora. etc  There’s also an interesting story of a Film based on Emami, way back in the 70s.

3)      Focus on Youth Portfolio & Ayurvedic Pdts – He (Deos, Waterless facewash etc) and Kesh King

4)      Focus on Distribution

5)      Revamp of Brands: Zandu, Fast Relief, Fair & Handsome

Here’s some key takeaways:

Immediate Goal: Double-digit Volume Growth & 15% Revenue Growth

International Revenue to Grow 20% CAGR till 2020

Target `5,000 Cr Revenue In The Next Three Years

Margins To Sustain At 27%; Don't See Margin Pressure

Intend To Spend 19-20% of Sales On Advertising

Expect 12-15% Growth in Power Brands

Power Brands: Zandu, Boro Plus, Fair & Handsome, Kesh King

Zandu To Grow Above 18-20% For The Next Three Years

Expect Zandu To Be A `1,000 Cr Revenue/Year Brand In The Next 3 Yrs

Fair & Handsome To Be A `1,000 Cr Revenue/Yr Brand In The Next 5 Yrs

Expect Kesh King To Generate '500Cr By 2020

Hope You enjoy the chat.

Keep The feedback Coming.

Much Love.
M

PS: Don't treat that as investment ideas; I personally Don't Invest/Trade.

#FMCGDiaries: Chat With Saugata Gupta, Marico

Part 1: Saugata Gupta, Marico

Part 2: Saugata Gupta, Marico

Part 3: Saugata Gupta, Marico

Time to be honest, was very apprehensive about how Saugata Gupta (MD, CEO of Marico) would approach this chat given my earlier interaction with him was limited only to post Quarterly results, and I perceived him to be a reserved person. 

However, that was also my biggest challenge. I really loved this chat cos, towards the end, I’d managed to crack open the IIT, IIM student side of Saugata Gupta and managed to get some really candid admissions from him: “wishes to write a book some day, has learnt how to play the Keyboard & how the Gupta family oils their hair every Sunday.” Though the fun ends, at that. 

When it comes to Biz, Saugata Gupta is razor sharp & knows exactly where he wants Marico to go:

Here are a few key things he said about the Company going forward:

Focus Is On Innovation, Cost Management & IT

See A Higher Value Added Contribution In The Revenue In Next 4-5 Years

There Is Room For Growth In Rural Biz

Foods To Contribute `300-500 Cr In The Next 4-5 Years

Will See A Significant Contribution From Male Grooming Products

See Organisation Blended Margin At 18%

India Business Margins Seen At 20%

See M&A Opportunities In  International Business

Will See 15% Constant Currency Organic Growth In International Business

Immediate Target Is To Get Back  To 10% Volume Growth In India

See 14-15% Revenue Growth In India For The Next 4-5 Years

See Rs. 10,000 Cr Revenue In The Next 4 Years

Hope You enjoy the chat.
Keep The feedback Coming.

Much Love.
M

PS: Don't treat that as investment ideas; I personally Don't Invest/Trade.

#FMCGDiaries: Chat with Varun Berry, Britannia

Part 1: Chat with Britannia
Part 2: Chat with Britannia
Part 3: Chat with Britannia

Fairly Insightful Conversation This; in Feb 2017; with Varun Berry (Ex-Pepsi) Current MD of Britannia.

Few Things that Really Stood Out & Caught My Eye:
1) Unwavering Focus on Cost Reduction: Will continue to Focus on Reducing Costs: Varun's experience at Pepsi may come in handy here, given the strong operational inefficiencies these Cola Companies work at.

2) Built for Competition: Again, Varun's Experienec at Pepsi vs Coke wars "bloody" according to him, has made him battle ready. Biscuits Space is heating up with ITC, Parle, Patanjali & even Kraft and Priyagold looking at their share of the pie ..eerrr. Cookie.

3) Total Foods Co: Very interesting development this, where the idea of the future Britannia is that of a Total Foods Co. They will get into all snacking categories where they believe they have a Right to Win. Varun Spoke about getting into different variants of Rusk, Breads & even Croissants. Interestingly, a few days after this chat, Britannia did go ahead and entered into a JV with Greece's Chipita, A Croissant maker (http://www.chipita.com/el-en/ Stuff they make looks delicious; I hope these are available in India too.) I gather, they'll roll out the first product in Jan 2018.

4) Stability at the Top: Varun categorically stated, not looking at leaving Britannia, will stay here and also, his relation with the promoters is absolutely perfect. More importantly, Wadias are not looking to offload any stake in Co.

5) Ear to the ground, learning at home: This was my favorite part where Varun candidly admitted that it was his son's choice of Parle's Hide & Seek over Britannia's Good Day, that got them to change the product & re-work on Britannia's Chocolate offering. Vindication at the end, when Britannia Good Day Choco Chip Outdid Hide & Seek.

Hope You enjoy the chat.
Keep The feedback Coming.

Much Love.
M

PS: Don't treat that as investment ideas; I personally Don't Invest/Trade.