I think the trigger lies in this line. Moat does not always mean a big brand it could also mean lower costs; A steel company with a iron ore mine is very different froma pure converter of iron ore to steel, normally price of steel goes up because price of the ore has gone up but markets start ramping up all steel stocks similarily we need to consider where the moat in term sof costing is coming from if it is from. Is it resource based or conversion based? Sometimes companies own a lot of cash and save on interest costs that kind of a moat is temporary!!!

 

Can you specify the commodity this company is into and where is the moat coming from?

 

 

I attended one lecture few days back and that person told us that branding on its own is not enough to generate value.

 

Branding without moat is not imp. And building moat is very very difficult.

 

It takes years of efforts and in many cases is illussory. Many times what appears to be margin of safety is a value or growth trap.

 

Creative destruction is many times a destructive creation. Think about Nano. OEMs are scared that Ratan will come out with other variants in high end now as soon as their Nano is stabilised. He just changed rules of the auto industry.

 

U r right that many times moat is temporary. Sometimes many factors combined becomes a moat. And protecting moat is also very difficult. But once u get to that level u have lots of flexibility. Coke and Gillete come to my mind. Here Fevicol is in the same league.

 

Best wishes

Very interesting situation but even in listed companies the problems originate because:

 

Dear Basant, Trent will have to hold that cash for their future expansion. Same is the case i feel is with 3M. 3 M has plans to set up manufacturing base here when they get enough volumes. Otherwise it does not make sense to manufacture here. And they do not want to borrow at the time of expansion.

 

Management has to look at things differently. What you said abt lack of transparency in RE deals is fact which we have to accept.  You are also right abt co becoming rich and not shareholders as there might not be one time dividend etc. So our view as outside investors wud be different than the promoters. I agree with you abt what u have stated.

 

So basically we are at the mercy of their decisions. But if u know what they r doing, then to a certain extent we can make out what thay are doing with cash. I am refering to honest managements. Who are holding majority of the shares and are shareholder oriented.

 

Lets us c this situation: The real one. Capacity 6000 tonnes, about five years back. Free cash flows all these years. Cash accumulated and invested in MFs. Capacity has slowly been built up from 6000 to 40000 recently during 2007-8. All the cash accumulated has now been put to use for the core business expansion. Share was quoted 24 when i bought it. It went down to 18. Now 150.  All these past five six years, co kept on accumulating cash. I recommended them to go for buy back as market was not realising that intrinsic value was going up. Not becoz of cash getting accumulated but capacity was silently being ramped up without getting reflected on the A Report. Co did not want to borrow funds for their aggressive expansion plans.

 

They are targetting 200 crores sales within next two years. Capital is 6.5 crores. Products to a great extent are commodity type. But costing is their moat. MArgins will be under pressure as they also do not expect to maintan them. Now coming to the right point, they do not have any need for capex as their capacities have already been enhanced to the desired levels. So on 200 crores sales, if they make 8 % at the net levels, it wud mean 16 cr profits. Free cash flows are imp factor here. Since no major capex is expected, they do not need it, cash wud again go up.

 

How do u view this business developments? Wud u invest in this co tho products are of commodity nature? They have 12% all india market share. With added capacity that wud go up. Market share is not imp but it just gives idea abt the small overall market.

 

Your view wud be highly appreciated.

 

Best wishes,

 

 

 

 

 

 

 

Are you talking about plastiblends here????? Mr. merchant, i generally dont look beyond three pages of Annual report to base my decisions, but sometimes I get into a stock for the management as well. If the company you were talking is indeed Plastiblends, then I think you should attach a good deal to the management quality. I came to know Plastiblends through the Annual report of Kabra extrusiontechnik, and Kabra was the first company I did an independent analysis in my undergraduate days. this company has done everything in creating 'value' for its shareholders, and i think Plastiblends should also go on its way.....