Josh and Hosh right?
Nilesh Shah: Josh and Hosh both go together. Josh also requires you to be conscious, so yes, those two definitely go together.
But it’s a bit damaging and should puncture the euphoria that we had about a month ago because individual portfolios and individual stocks have lost a lot, I mean 30-40% odd, but it was well overdue I think. . .
Nilesh Shah: Yes, but the damage at the level of indicators is not so great.
No, I am talking about the portfolio.
Nilesh Shah: Yes, I mean individual positions yes, but otherwise I think it is well contained and every quarter, every four-five months we see a situation where the markets correct or there is a 5% to 10% correction which is relatively is short-lived. And it bounces back. Why? Because earnings growth is still very strong. I mean, put aside the top 20, 30, 40 names, which I would probably call Goliaths, put aside the Goliaths, but underneath, the Davids are still performing very strongly and there are pockets where the 30 is still % to 50% earnings growth. It’s not just 5%, 10%, 15%, but 30% to 50% profit growth or earnings growth and when you have that kind of scenario, I think that’s absolutely fine.
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I think earnings will increase decision making.
Nilesh Shah: Yes, but the earnings and I think the other is essentially the kind of populism or dolls that are given, those kinds of programs, where you get 1500 or 2000 rupees a month. Clearly, I think it would be a lot of money. If you just look at India, 140 crore people, half of them women, 70 crore of them, if you cut off 20-30 crore of them and if each of them gets around 1000-1500 rupees per month, that’s 20,000-30,000 crores of purchasing power per month. comes Where is that money going to go? I mean, yes, there will be bread, clothes, houses. Maybe there will be education, health too, but what next? It should be BPC. And I clearly see that markets like China have witnessed that and when you go from $3000 to $10,000 per capita, you’re clearly seeing a huge increase in spending on the BPC side. And if you get the right template, if you have the playbook, I think you could have a potential wealth creator. I mean, we saw this in the 90s where a lot of FMCG companies were riding on the basic staples, which we know as soap and shampoo. I think it’s a mature category now. You have to move now to BPC and that’s where I clearly think is a very big, powerful mega theme that could emerge over the next 5, 10, 15 years.
And I think a big factor that’s going to lead to that is that a lot of women are going to start working out of their homes and that’s where they’re going to spend.
Nilesh Shah: Precisely and it is driven by digitization. I mean, earlier you needed a physical distribution network.
Now, it’s just two clicks and you have what you need.
Nilesh Shah: Two clicks and you are there. So, social media, influencers, all of that.
But not too crowded. You don’t worry about it.
Nilesh Shah: is crowded. But if Sikandar wins. I mean, you have to see Alexander there and ride him.
But in one sense the space has traditionally been dominated by the big boys which is that you’ve got HUL, you’ve got ITC, Tata has tried to get a foot in the door. New entrants, Reliance, Nykaa, new entrants, can they make an impression?
Nilesh Shah: So, here are two plays. There is a platform. So, I think Nykaa, Reliance are more platforms. They are going to sell anything and everything in the BPC category as well. And then there are manufacturing companies. Within manufacturing companies, I think they’re going to have their own growth story and it’s important to determine who’s going to scale and who’s going to continue to grow sustainably, I think that’s basically the opportunity.
Traditional, Goliaths are going to struggle. They’ll probably grow at 2%, 3%, 4%, that’s about it. I think if you can find companies that are going to grow at 20% over the next five-seven years, I think there is a tremendous opportunity because the underlying business is a very capital efficient business. Margins are high.
Spending on advertising is discretionary. And I think the day you increase type, you don’t need to spend as much on advertising and digital promotion. After that, you will see margin expansion, cash flow will emerge and that is where the opportunity really lies.
We’ve covered the beauty and personal care segments, but what about your previous favourites? Liquor companies and Chakna say Nikunj. Do they continue as part of your portfolio?
Nilesh Shah: Oh, sure. Clearly alcohol, alcoholic beverages continue to be a huge opportunity. I mean there’s certainly a domestic opportunity right now where the sector is agnostic to any slowdown and obviously continues to do very well. But I think the emergence of Indian-made single malts in the last one year is very interesting, it’s a huge new category, emerging and finding its way into global markets.
Radico
Nilesh Shah: And just kind of perspective that the global market, the premium whiskey market globally is about $150 billion. India’s exports are only $350 million dollars. It is probably only 1-1.5%. Just imagine if that number becomes 5% or whatever of the global market.
World’s largest population and mostly for malt and whiskey
Nilesh Shah: Of course, so they are looking for new and new frontiers. As they create new products, build new brands and scale new frontiers, growth is very strong.
But would names like Radico or USL or Sula for that matter even be bought at this current level as it hasn’t declined further. I mean, those are the thematic thoughts that you hold together for decades.
Nilesh Shah: Yes, we currently have all three. We currently have all three and the investment thesis has not changed. Obviously, each of these companies has its own growth momentum. Wine as a category is not growing at the same pace as single malt. So, those are variations, but we clearly like the categories and will continue to own the company as long as we believe it is a category-defining company. I think it’s very important to us and we will be as long as it lasts.
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