FMCG: THE CULTURE OF SUCCESS

An FMCG success is a symphony of perfection, a perfect product at the perfect price, available at the perfect store, at the perfect time in perfectly attractive packaging. Oh! Don’t forget, communicated perfectly with a brand name that sounds well, perfect. The need for such perfection only increases manifold if this success has to be achieved in India.

With its diverse geography, languages, culture, climate, income groups and tough terrain, India, is the most challenging yet exciting market in the world. From “I’m not like those people!” to “We are like this only!” the Indian consumer switches individuality and homogeneity with the same ease as Sachin Tendulkar shuffles a ball from the Off-stump towards Square Leg.

So, a few years ago, when I was given the opportunity to analyze the FMCG sector as a profession, I was both, salivating in excitement and palpitating with nervousness. “Watch for changes, small & big, just watch the changes like a hawk!” is the mantra I started with, and still follow with extreme radicalism.

As time went by, I realized, change of Top Management, is among the bigger changes that happen to an FMCG company’s future discourse. An even bigger change, however, is when an external entity joins at the helm. 

While, each individual has a different outlook & goals toward a company’s growth, some have made a bigger impact than others. On further analysis, the similarities between these leaders who made all the difference were stark. The revelation was – Great FMCG Leaders in India come from “UniPepCad.”

Now, before you start Googling this University for your progeny or your next MD, let me tell you, it’s not one university, but 3 companies from where great FMCG leaders have emerged. Unilever, Pepsi & Cadbury’s. I’ll talk about all these leaders soon, but, come to think of it, these 3 FMCG giants in India have succeeded in all the aforementioned perfections. Some of the deepest & the widest distribution chains, with the most popular & broad array of products, iconic brands at attractive prices, communicated most effectively in ads that would make any of those World’s Best Ads listicles.

HUL is a case study in supply chain management, with so many SKUs and the widest array of products ranging from Ice Creams that won’t last beyond 20 minutes to Soaps, shampoos and detergents that have months of shelf life. Cadbury’s is a Rule Book on how to create a cultural change in a country that is divided by Motichoors, Gulab Jamuns, Sandeshes & Payassams and unite it with “Kuchh Meetha Ho Jaye.” 

The reason I chose Pepsi over Coke is because I believe, during the peak of Cola wars, Pepsi created a strong niche for itself and had a bigger mind share than Coke. Pepsi had some phenomenal Ad Campaigns before Coke came up with the “Thanda Matlab” series. I vividly remember most of their Cricket & Bollywood ads. While, I don’t have the data to prove Pepsi’s supremacy over Coke during those days, I reckon they did very well, and there’s “Nothing Official About It!”

So, Here’s presenting to you, the hall of fame, from the hallowed precincts of UniPepCad: **Drum Rolls**

VARUN BERRY, MD of Britannia Industries

An anecdote before Varun’s story – the city of Mumbai is home to an iconic 95 Year Old Café called Britannia which saw its fortunes improve further due to their iconic selling dish – Berry Pulao. Now that you know that the combination of Parsi, Britannia & Berry is quite lethal, Varun Berry’s exploits at the Wadia-owned Britannia shouldn’t surprise you one bit. Add to that, he’s an illustrious alumnus of the UniPepCad, having worked at both Unilever & Pepsi before embarking upon the cookie journey.

Prior to joining Britannia as COO in 2013, Varun served as the Chief Executive Officer of Food Business at PepsiCo India Holdings until February 2012 from 1993. He also served at Hindustan Unilever in various marketing and sales roles. Under his watch as MD, the revenue of Britannia increased from 6185 Cr in FY15 to 9054 Cr in FY17. The biggest impact he made was on reduction of costs, and improvement in margins which surged from 9.1% in FY15 to 14.1% in FY17.

As a result, the profitability of Britannia increased 2.2X under his watch and the shareholders celebrated this stint as the company’s stock price surged 6X from the date of his commencement to now.

BHARAT PURI, MD of Pidilite Industries

Bharat Puri has distinguished pedigree. His initial learning came from the famous cousin, Aditya Puri (MD of HDFC Bank), thereafter he learnt at the IIM-A and joined Asian Paints in 1982. The UniPepCad leg of his life came in 1998 when he joined Cadbury India Limited.

Since 2002 he served as the MD of Cadbury’s and was at the helm of affairs in the Global Chocolate Category in 2008. During this time, the company faced its biggest challenge ever, the worms-fiasco, which Bharat & team handled in a manner that is stuff of B School Case Study Legends.

Bharat has been an Executive Director at Pidilite since 2008 and was anointed as the MD in 2015. With Bharat as MD, Pidilite saw its earnings improve from 508 Cr in FY15 to 863 Cr in FY17. Dalal Street has rewarded the performance with a stock price jump of nearly 50% during his tenure so far.

SAUGATA GUPTA, MD & CEO of Marico

The ever-smiling, shy, engineer from IIT Kharagpur & Management Graduate from IIM-B is responsible for the healthy hair & healthy heart of millions of Indians. Most importantly, he’s responsible for the healthy financials & market position of Marico, the company with stellar brands like Parachute, Saffola and Nihar.

His stint at UniPepCad came in at the start of his career at Cadbury's where he spent 9 years in various roles in Sales and Marketing. Saugata’s been the CEO of Marico since April 2013 & Managing Director since March 31, 2014. Under his watch, the company’s revenues jumped from 4596 Cr in FY13 to 5936 Cr in FY17.

He ensured, higher cost cutting and better performance of premium products led to margin expansion of ~600 bps and Profit growth of 100% in 5 Yrs since FY13. With the company’s bottom line increasing, shareholders have tripled their bounty on Marico from 106 to 320 as I write this.   

ANAND KRIPALU, MD & CEO of United Spirits

Anand has been the MD & CEO of United Spirits since September 1, 2014. Prior to joining USL in 2014, Anand as worked at Cadbury’s in various capacities that include, the President of Asian Ops, President of South Asia and Indo-China, MD of Cadbury Schweppes Asia-Pacific and MD of Mondelez India Foods Private Limited.

He’s got a double degree from UniPepCad as he’s not only worked with Cadbury’s but also Unilever. He joined Unilever in 1983 as a management trainee. He has been with Unilever for over two decades. Anand, like Saugata too, is an IIT, IIM graduate. 

Working in a sector as heavily regulated as alcohol in India, Anand’s biggest contribution can be witnessed in the company’s steady operational performance. The EBITDA of United Spirits has grown to 1429 Cr in FY17 from a loss of 138 Cr just the year before Anand joined. USL has seen a volatile run on Dalal Street, but shareholders under Kripalu’s watch are richer by 52% already.

PRATIK POTA, CEO of Jubilant Foodworks

This, to my mind, is the most phenomenal of all turn-arounds we’ve seen in recent history. When Pratik joined Jubilant Foodworks, the company had just reported it’s weakest ever financial performance, lost market share and the customers and shareholders alike were Dumpin’ Dominos rather than Dunkin’ Donuts. The stock price was at a near record low of 761 a piece, down 60% from its previous peak when the man from Pepsi entered the pizza parlor.

Prior to joining Jubilant Foodworks in April 2017, Mr. Pota He joined PepsiCo India Beverages in September 2005 and later, went on to become the CEO of Nourishco beverages, the JV between Pepsi and Tatas. He too, like Varun Berry served at Hindustan Lever as a Manager of Marketing. Before joining PepsiCo, and after working at Unilever, he also served in Airtel for four years where he played a key role in launching Airtel Mobile operations in Western India.

This electrical engineer from BITS Pilani and Management Student of IIM-C has managed to electrify the floundering Pizza outfit with an improvement in Products, Reduction in Costs and a new found focus towards bringing Dominos’ Glory days back.

In the 9 months that Pratik has been at the helm, Jubilant Foodworks has reported the best financial performance in recent times, improved Same Store Sales growth to multi year highs and the stock price has surged from lows of 761 to above 2350 as you read this. His is the most recent entry into this list of UniPepCad graduates and his journey needs to be watched closely.

As I wind this list down and look back up on the amazing feat these greats from UniPepCad have achieved, I only thank my stars for this wonderful opportunity to have seen a few of these stories play out right in front of my eyes and the honour of having spoken to most of them.

By the way, I’m also watching out for any signs of a new induction in this phenomenal UniPepCad List. The Hawk-Eye has spotted a certain Mr. Navneet Saluja, who’s been appointed the MD of Glaxo Smithlike Consumer effective Jan 2018. This is a company that makes Horlicks, Boost, Crocin, Iodex and Sensodyne. It has strong brands, which have underperformed for a while. Mr. Saluja’s official profile says - He has over 30-year experience and worked with several organisations including Cadbury, Gillette, Kellogg's, Infocom and Reliance Retail, among others. So far, the analyst community is excited about the prospects of the company and they’ve also launched a new campaign to assert Horlicks’ place in the market of good nourishment.

Whether this culture of success from UniPepCad continues or not, only time will tell. But for FMCG hawks, it’s a chapter that’s being widely read.

Keep The feedback Coming.

Much Love.

M

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

Pizza Wars: A day in the life of an FMCG Analyst

On a slow Thursday afternoon, I was scrolling through my Twitter feed and unknowingly started a Pizza Battle. Here’s the series of events and how Dominos won the Pizza War along with the hearts of a hungry bunch of people in an inaccessible part of our country. These are what great stories are made of. #FMCGisLife

 The Bait

The Catalyst

The Challenge

The First Shot

Another One Enters In The Ring

The Move To Assert Dominion

Running Commentary

Game, Set, Match.

INDIAN MACROS - ARE THE WHEELS TURNING?

MACRO WHEELS BEGINNING TO TURN?

COMMERCIAL VEHICLE SALES IN DEC PICKING UP

-          ASHOK LEYLAND

M&HCV Sales +82% at 15950 Units

LCV Sales +69% at 3,303 Units

-          M&M

Domestic Tractor Sales +32% at 16671 Units

-          TATA MOTORS

M&HCV Sales +83% At 15828 Units

-          BAJAJ AUTO 3 WHEELER SALES

3-wheeler Sales +187% At  63785 Units

-          EICHER

CV Sales +50.4% At 6,087 Units

CORE SECTOR DATA IN NOVEMBER STRONG

(Low Base, High Commodity Costs, but up, nevertheless)

NOVEMBER 2017 CORE SECTOR GROWTH AT 6.8%

Core Ind growth at the highest level since April 2016

What Did Well  

Steel                  +16.6%

Cement             +17.3%

Refinery Pdts     +8.2%

Laggards:

Coal               -0.2%,

Crude            +0.2%

Fertilizers     +0.3%

Electricity     +1.9%

Natural Gas  +2.4%

In December So Far

Coal India December Offtake Strong at 53.44 mt vs target of 53.84 mt

Crude at $67/bbl Higher from Nov Levels of $60-63

Iron Ore: Strong Demand in Pellet Mkt. NMDC Has Hiked Prices

December 2017

Nikkei Mfg PMI @ 5 Yr High

GST Blues Settled?

2017   MFG PMI 

DEC      54.7

NOV     52.6

OCT      50.3

SEPT     51.2

AUG      51.2

JUL        47.9

Key Things To Watch –

Q3 GDP Data

Q3 Advance Tax Collections

GST Collection

BIGGEST WORRY

GST Collection is the biggest worry –

Declining since implementation, can this turn?

Jul:    94063 Cr

Aug:  90669 Cr

Sep:   92150 Cr

Oct:   83346 Cr

Nov:  80808 Cr

Reason why data needs to be watched -

The Biggest Confirmation of Growth would reflect in Tax Collection and the biggest visibility of growth would be witnessed in Credit Growth. Commercial Vehicle Sales have picked up, that means companies believe they can do more business going forward. To confirm that further, it’ll be interesting to watch if they’re putting their money where their mouth is and taking more loans to fuel CapEx.

Tax Collection – In my humble opinion, it’s the actual measure of growth. Why?
Consider this analogy, it’s akin to finding the parents of a child. There is a child you’ve found, only his mother can confirm she’s given the birth, while his father can at best only suggest/claim his fatherhood. Fatherhood is implied, motherhood is confirmation. The very same way, Revenue, production growth is the Father & Tax Payment is mother of growth. 

The Child = Growth,
Revenue/Income is the Father i.e, Implied Growth (Revenue is growing, which is why I’m the father of growth). That’s great, but the confirmation can happen only if Tax is Paid. That is, the Mother (I have paid taxes only cos I made profits, hence growth). 

E-Way = Easy Way?

On a sleepy Saturday afternoon, while most of us were rubbing our eyes and wondering what to order for lunch, a bunch of ministers & members of the GST Council were furiously debating & discussing on videoconference in the 24^th GST Council Meet that was urgently called for one day in advance.

As the restaurant you ordered from dispatched your meal, the GST Council too disseminated an important piece of information that read on the news ticker as follows:

Outcome of GST Council Meet -

Council OKs Mandatory Compliance Of Bill For Inter State Mvmt From Feb 1

Council For Uniform e-Way Bill For Both Inter & Intra State From June 1

Facility For Bill To Be Available From January 15 For Trial Runs

Now, before you accuse me of spoiling your lunch plans, I must tell you, this ruling does take the taste away from a lot of people’s lunches. Here’s why -

“The E-Way bill is, essentially, an electronic document generated on the GST Network portal; required for movement of goods worth more than Rs 50,000. So, come June 1, transporters will have to procure e-way bill from the GST Network portal when hauling goods worth more than Rs 50,000, within or outside a state.  To generate an e-way bill, the supplier and transporter will have to enter details of the haul in the GSTN portal. This will create an unique e-way bill number which will be sent to the supplier, transporter and the receiver. The e-way bill thus generated will be valid for a period of 15 days, with one day of travelling for 100 km and 15 days for more than 1,000 km transit.” Phew…you just read that. Now imagine having to do this, every time you have to send goods across the country.

The Brokerage Edelweiss – has enlisted the Key Features of this E-Way Bill, They Are –

Under the proposed rules, movement of goods worth more than INR50,000 by a registered entity will require an “e-way” bill wherein entity will be required to upload prior information of the consignment on the GST portal online.

• In case the e-way bill is not generated by the registered entity and the goods are handed over to a transporter, the registered entity shall furnish the information relating to transporter and an e-way bill will be generated by the transporter.

• The registered entity will also be required to furnish information and generate the e-way bill for all inward supplies from an unregistered player.

• The entity carrying the goods will be required to carry the e-way bill along with the invoice/bill of supply/delivery challan. The facility of generation and cancellation of e-way bills may also be made available through SMS.

• Details of e-way bill shall be made available to the registered recipient on a common portal and will have to be approved or rejected by the registered recipient within 72 hours, else it would be deemed to be approved by the recipient.

• E-way bills will have a validity period of 1-15 days, depending on the distance to be travelled. The authorised tax officials can intercept conveyance during transit to verify e-way bills to check tax evasion.

The objective is to streamline movement of goods across and inside state borders and keep track of inter- and intra-state goods transport for taxation purposes. However, the cumbersome procedure requirement of yet another document empowers inspectors to stop vehicles at will and conduct checks.

The introduction of the e-way bill has been a contentious issue, with businesses protesting against the burden of additional paperwork and processes that would come along with it. So much so, that the law advisory panel set up to advice changes to the GST laws and rules itself, has recommended deferring the e-way bill till 2019. But, with the Government’s GST collection declining to Rs 83346 crore in October, from the Rs 90000 crore plus, in each of the first three months after the new tax regime was rolled out on July 1, something had to give.

Just a few questions that need to be answered -

1)     Will the e-way bill actually help in increasing GST revenue?

2)     Is the Rs. 50000 threshold too low? There’s been a request to increase it to 2,00,000

3)     E-way bills will have a validity period of 1-15 days, depending on the distance to be travelled. Hard-coding this may take have an adverse impact on exceptions (heavy machinery that may take more than the stipulated time for travel)

4)     Multi-Modal Logistics? What if something is sent via plane, truck and then mini-van? Would that require more bills?

5)     For Logistics Companies carrying goods from multiple clients – will they require separate bills along with an additional consolidated e-way bill? eComm Players will be very confused, no?

6)     Is the system ready for the massive influx of data w.r.t e-way bills? The GSTN portal itself has had issues; who’s to say this will be fool proof? Also, are 15 Days (Jan 15 to Feb 1) enough to test the e-way bill platform?

7)     What does the e-way bill have; that an invoice doesn’t? Why the need for yet another document?

I gather, these are the very issues which the Government, Tax Planners & Consultants are working overtime towards addressing. On the sidelines; I'm sure, there’s a totally different bunch of people who are addressing how to circumvent this regulation. Meanwhile, the businessmen are sweating and the organized logistics industry is licking their fingers on prospects of more business share from the unorganized sector. Only time will tell the answer to this key question – Is the E-Way Bill an Easy Way of Doing Business; or is it the Inspector Saying, It’s My Way on the Highway!

Hey FMCG, Where's my Ad?

Hey FMCG, Where's my Ad?

Yeh Dil Maange More, Daag Acche Hain, Har Ghar Kuchh Kehta Hai, Kuchh Meetha Ho Jaye, Thanda Matlab Coca Cola, Yeh Fevicol Ka Jod Hai, Ting Ting Tiding!!!! 

What's common? Well, apart from being immortal taglines of Iconic FMCG companies, the common theme is these are all really old!!!! What's the most recent campaign from the erstwhile giants of great advertising, that you remember, off the cuff? I can't remember any!

Maybe, I'm not that tuned to the tube as much, maybe I'm not attentive enough anymore, maybe it's not the right environment or maybe, the industry wants something else and there's more media & more screens to address! But, I am, by all means, still a consumer and I really miss Good Ads from FMCG companies. Ironic that we have screens everywhere, and not one memorable campaign in recent times.

The most recent, interesting ad I remember from the FMCG space belonged to Asian Paints, with Ranbir Kapoor. Other, than that, all the other ads I like belong to the non FMCG pack - Motilal Oswal services, some from the EComm players, MP Tourism & even Sports Events (Cricket, Tennis, TT, Kabaddi etc) and some app manufacturers.

As an FMCG analyst, it's a joy to witness a great campaign from an industry leader & it can actually do wonders for brand sales. While, it's difficult to pinpoint the exact correlation between a successful campaign & rising sales, it's anecdotal evidence that suggests the best years for Pepsodent were during the Dishoom Dishoom campaign, for Jubilant Food during the Paresh Rawal 30 mins Nahi to free ads and for HUL during the various Surf, Lux & Dove ads. 

There was a time, not too long ago, when a new Pepsi, Coke, Happydent or even Maggi Ketchup ad was an event in itself and I'd look forward to ad breaks during cricket matches or news events. Now, I find it extremely difficult to differentiate a Garnier ad from a L'Oréal or a Cinthol ad from a He Deodorant. Try this, cover the brand names and ask 10 people around you to differentiate between an Oppo and a Vivo mobile ad, and you'll know for yourself what I mean. 

Though, credit where due, a couple of companies are pushing the boundaries a bit, Nestle with the Maggi Relaunch, Navratna Oil with Amitabh Bachchan, Durex with Ranveer Singh and Pidilite, while it does well with Fevi Kwick & M-Seal ads, can't say the same about Dr Fixit. 

Big laggards in this space, and I feel bad as a consumer, have been Unilever, Marico, Britannia, Cadbury's, even Pepsi and Coke! These are companies that are known for great ads for their products & brands, so much more is expected of them. Even ITC's Bingo Mad Angles ads have disappeared just like the sound they made at the end "poinnnng." Which was the last memorable ad from any of these guys? 

So here's a plea to all the moguls of FMCG and Sultans of Advertising - The Ogilvies, the Mathers, the Prasoons, The Piyushes, The Lowes & the Lintases!!!!  Bring out a great campaign! 

The FMCG Companies we speak to talk about great tailwinds for the sector, especially post the current DeMo & GST disruption. They say - Rural Recovery, Monsoons, GST and Increased premiumisation are going to sail us through. I say, get a great campaign going and blow some wind beneath those sails! 

The last time a great campaign took away the nation's breath, resulted in Mr Modi garnering the biggest electoral mandate in recent times. So for the next leg of great campaigns I'd say, "Abki Baar, Good FMCG Ads, yaar!" 

This One's For the Old Times' Sake - 

#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.