Westside – A cheaper version of Zara

Trent is one of the leading players in the branded retail industry in India. Trent operates 264 stores across 76 cities in India. Trent operates stores across four formats as below:

1. Westside:
Westside offers branded fashion apparel, footwear and accessories for women, men and children. Westside accounts for around 90% of Trent’s revenues. Westside owns a portfolio of exclusive and differentiated fashion brands.

Own brands are the key differentiators of the business. Own brands contribute 97% of total revenues. Globally retailers who control the entire value chain are relatively more successful. Third-party brands were successfully replaced by own brands without impact on customer experience.

Westside added 27 new stores in FY19. Property selection happens through a rigorous set of reviews.

An average size of Westside store is around 18,000 sq. ft. A new store requires total investment of ₹ 6-7 crores across capex, deposits and inventory.

ClubWest membership has more than 50 lakh memberships.

2. Zudio:
Zudio offers fashion at stunning prices for women, men and children. Zudio focuses on 100% own branded offering. It has presence through 40 standalone stores and as well as 16 Star locations. A new store requires total investment of ₹ 3-4 crores across capex, deposits and inventory. Sales per square feet for Zudio stores crossed ₹ 14,000 per sq. ft.

Zudio added 33 standalone stores in FY19. An average Zudio store size is around 6,000-8,000 sq. ft.

3. Star Bazaar:
Star is a fresh food and grocery retail chain, operating 26 supermarkets and 10 hypermarkets. Star is 50:50 JV between Trent and Tesco UK. Star made a loss of ₹ 85 Crores in FY19.

4. Landmark:
Landmark, a family entertainment concept, operates through 5 independent stores and retailed through select Westside stores.

Zara is 51:49 JV between Inditex Spain and Trent. Zara operates 22 stores in major cities.

India is at an inflection point of GDP per capita of USD 2000. Apparel consumption and revenues in various nations grew exponentially as GDP per capita crossed USD 2000.

The number of urban working women is expected to reach 6 Crores by 2025.

69% of India’s population lives in tier 2 and tier 3 cities. Tier 2 and tier 3 cities contribute 54% to the total retail consumption.

By 2020, it is expected that 120 new cities will emerge with the average household income in line with that of major metropolitan cities.

Domestic consumption has increased by 3.5x in last decade and is expected to grow to ₹ 335 lakh Crores by 2028.

Internet penetration grew from 4% to 34% between 2007 and 2017. It stood at 88% and 22% in urban and rural areas, respectively.

Retail market is expected to be around ₹ 60 lakh Crores in 2019. Fashion & lifestyle market is expected to reach around ₹ 21 lakh Crores. Apparel market stands around ₹ 4.5 Crores.

Over 95% of the Food & Retail market is unorganised.

Trent plans to open 40 Westside outlets every year and hundreds of its mass market Zudio stores across India.

Now that we’re built this capability and this model that’s working so well, it’s time to grow faster.

Trent is increasing focus on building private labels/in-house brands. Private labels have inherent advantages:
– Lower concept to customer time
– Faster execution
– Better control over quality & pricing
– Improved margins
– Differentiated & exclusive offerings

Westside is building a cheaper version of Zara. Westside continue to be a profitable concept.

– Promoter Tata Group hold 32.6% of the company
– MF hold 13.2% of the company
– FII hold 22.2% of the company
– Premji holds 2.8% of the company
– RK Damani holds 2.7% of the company
– Trent has approved issue of ₹ 950 Crores equity shares on a preferential basis to Tata Sons
– Trent is exploring options to raise additional ₹ 600 Crores in FY20

– Sales per square feet is one of the key measures which assesses retail efficiency in terms of space utilization.


Company Annual Report

Invested since 2012

Buffett’s Annual Letter 2017

At Berkshire what counts most are increases in our normalized per-share earning power. That metric is what Charlie Munger, my long-time partner, and I focus on – and we hope that you do, too.

There are four building blocks that add value to Berkshire: (1) sizable stand-alone acquisitions; (2) bolt-on acquisitions that fit with businesses we already own; (3) internal sales growth and margin improvement at our many and varied businesses; and (4) investment earnings from our huge portfolio of stocks and bonds.

Why he didn’t make a big deal in 2017:
In our search for new stand-alone businesses, the key qualities we seek are durable competitive strengths; able and high-grade management; good returns on the net tangible assets required to operate the business; opportunities for internal growth at attractive returns; and, finally, a sensible purchase price.

That last requirement proved a barrier to virtually all deals we reviewed in 2017, as prices for decent, but far from spectacular, businesses hit an all-time high.

Insane to risk what you have….to obtain what you don’t need:
Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need. We held this view 50 years ago when we each ran an investment partnership, funded by a few friends and relatives who trusted us. We also hold it today after a million or so “partners” have joined us at Berkshire.

Despite our recent drought of acquisitions, Charlie and I believe that from time to time Berkshire will have opportunities to make very large purchases. In the meantime, we will stick with our simple guideline: The less the prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own.

Bolt-on acquisitions:
I don’t understand manufacturing operations as well as I do the activities of real estate brokers, home builders or truck stops.

Fortunately, I don’t need in this instance to bring knowledge to the table: Mark Donegan, CEO of Precision, is an extraordinary manufacturing executive, and any business in his domain is slated to do well. Betting on people can sometimes be more certain than betting on physical assets.

Property-casualty insurance, a business I do understand and the engine that for 51 years has powered Berkshire’s growth.

Ever since, float has been of great importance to Berkshire. When we invest these funds, all dividends, interest and gains from their deployment belong to Berkshire. (If we experience investment losses, those, of course, are on our tab as well.)

Berkshire’s insurance managers are conservative and careful underwriters, who operate in a culture that has long prioritized those qualities. That disciplined behavior has produced underwriting profits in most years, and in such instances, our cost of float was less than zero. In effect, we got paid then for holding the huge sums tallied in the earlier table.

Prior to 2017, Berkshire had recorded 14 consecutive years of underwriting profits, which totaled $28.3 billion pre-tax. I have regularly told you that I expect Berkshire to attain an underwriting profit in a majority of years, but also to experience losses from time to time. My warning became fact in 2017, as we lost $3.2 billion pre-tax from underwriting.

This is a business in which there are no trade secrets, patents, or locational advantages. What counts are brains and capital. The managers of our various insurance companies supply the brains and Berkshire provides the capital.

Need to make one or more ‘huge acquisitions’:
Berkshire’s goal is to substantially increase the earnings of its non-insurance group. For that to happen, we will need to make one or more huge acquisitions. We certainly have the resources to do so. At yearend Berkshire held $116.0 billion in cash and U.S. Treasury Bills. This extraordinary liquidity earns only a pittance and is far beyond the level Charlie and I wish Berkshire to have. Our smiles will broaden when we have redeployed Berkshire’s excess funds into more productive assets.

Stock investments are not just ‘ticker symbols’:
Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits. Instead, we simply believe that if the businesses of the investees are successful (as we believe most will be) our investments will be successful as well. Sometimes the payoffs to us will be modest; occasionally the cash register will ring loudly. And sometimes I will make expensive mistakes. Overall – and over time – we should get decent results. In America, equity investors have the wind at their back.

“In the short run, the market is a voting machine; in the long run, however, it becomes a weighing machine.”

Market declines:
“There is simply no telling how far stocks can fall in a short period. No one can tell you when these will happen. The light can at any time go from green to red without pausing at yellow. When major declines occur, however, they offer extraordinary opportunities.”

Warren Buffett on market valuations and much more

[On current market valuations]

Well, valuations make sense with interest rates where they are. I mean, in the end you measure laying out money for an asset in relation to what you are going to get back, and the number one yard stick is U.S. governments.

When you get 2.30 on the ten-year, I think stocks will do considerably better than that. If I have a choice of the two, I’m going to take stocks at that point. On the other hand, if interest rates were on the ten-year were five or six, you know, a whole different valuation standard for stocks. And we’ve talked about that for some time now.

Interest rates are gravity. If we knew interest rates were going to be zero from now until judgment day, you could pay a lot of money for any other asset. You would not want to put your money out at zero. I would have thought back in 19 — I mean, 2009 that rates would not be this low eight years later. It’s been a powerful factor, and the longer it persists, the more people start thinking in terms of something close to the rates they’ve seen for a long time. The one thing I’m sure of is that over time stocks from this level will beat bonds from this level. If I can be short the 30-year bond at 3 percent or something and long the S&P 500 and just have it put away for 30 years, stocks are going to far outperform bonds. The question is which variable is going to change. Everybody expects interest rates to change. But they’ve been expecting that for quite a while.

I don’t try to guess the stock market: I find businesses I like. But if I were to guess: if interest rates — if the ten-year moved up to 5 percent, stocks would be somewhat cheaper.

It’s been so wide I’ve written about it in annual reports. Stocks have been so much more attractive than bonds for a long time now and that’s partly intentional on the part of the fed. I mean, they want assets to increase in value and the way to do it was to reduce that gravity force of higher interest rates.

I think they expect it to increase, but the question is how much. If three years from now interest rates are 100 basis points higher than this, stocks will still be cheap at these prices. If it’s 300 or 400 basis points, they won’t look cheap. Janet Yellen doesn’t know what she would do three years from now. She’s got more of a job than –that’s a simple factor of the stock market. It’s interesting because the fed has said that they would like to see 2% inflation. That’s fairly recent. Paul Volcker would not have slept if he’d ever heard that in the 80s.

If the U.S. government is borrowing at ten years from you at 2.3%, and their own instrument, the fed, is saying ‘we would really like money to become more 2% a year or less,’ they’re not promising you very much in terms of real terms for saving.

[On Berkshire Hathaway’s stake in Flying J]

I do like — I do like the products of virtually all our companies. I suppose if we ever bought a funeral parlor, I wouldn’t be as — generally speaking, I like our products.

I like good economics to go along with them too. Well, if you do it, you do it with your own money and not Berkshire’s. I wouldn’t argue against that. I mean, if you had a lot of money and there’s something you like, if it isn’t profitable, you buy it, but you don’t buy it with Berkshire’s money.

[On Flying J deal] We set up a lot of different structures than what the managing party would like to have, and, you know, with the Blumkins in 1983. It’s the same structure. Their situation in terms of their family and their partnership and everything made this logical, and we have this two-step arrangement.

We’ve got other two-step arrangements. Marmon with the Pritzker family we had a three-step arrangement. We try to fit what the seller would like, and with families and everything, you can have different arrangements.

Jimmy is based in Knoxville, and we bought another company 14 years ago: Clayton homes. Their employment has gone from 5,000 to 16,000, and they’ve seen me exactly once. They might have done better if I hadn’t gone down the one time — Jimmy knows and the families know each other, and so they’ve got a chance to check to see exactly how much we do interfere with operations.

The truth is I wouldn’t know how to build a manufacture home or a truck travel center—we depend on management.

[On Wells Fargo]

Well, I didn’t hear all of what [Senator Elizabeth Warren] had to say. She’s absolutely right that you should – same situation as at Salomon — 8,000 people four or five of them had caused the problem. The job is to remain – remove the stain from almost all of the 8,000 and get it where it properly belongs with the people that either performed the act or condoned them after they were performed. That’s what we did at Salomon.

I think that’s what they’ve been working at Wells. You can’t do that necessarily in a day or a week. Well, I proposed, actually, in the annual report of Berkshire — that would be four or five years ago, sometime after 2008 — the problem is that the bank gets fined and the shareholders are the ones that pay for it, and they didn’t have anything to do with it, basically. And I suggested that probably more extreme actions than Senator Warren in terms of clawing back all the directors fees for five years. I think that you really want — you want as much as possible – you want the people that were responsible to pay, and ideally you would have the people that were innocent not pay. It doesn’t work that way in the American judicial system.

I think that if you have a very large company — Berkshire is large — you have a hotline. I think the CEO has to be very attentive to what comes in on the hotline.

Now, most of its silly stuff, but there’s real stuff too. And you get anonymous letters. You’ve got to follow through on the ones that actually sound like they have real meaning, and clearly you couldn’t have activity as broad as it was at Wells without the hotline here Somebody messed up on the job as to find out who messed up and ideally to make the penalties be such that it discourages other people in the future from doing similar things.

I say when you got a problem — and you are going to have problems — I mean, if you had a very big — You can’t have 280,000 people working without something, and most things are minor, but you get something systemic, you have a big problem. Once you find out about it, you have to get — get it right, get it fast, get it out, get it over. Getting it right is hard: I mean, because you turn over rocks, and sometimes you find dome things, and it’s very seldom there’s just one big thing going wrong in a big institution if something like that is going on you’ve got get it right, and the one thing you don’t want to do is be wrong about it.

Yeah, like I said it happened to me at Salomon. Salomon had my faith: It doesn’t mean every person at Salomon had my faith after I got there. I had some surprises I mean, I was worried about surprises every day. But the truth was that 99% of the people were perfectly decent people, they were just like the people working at Goldman or some other place, and somebody had gone off — totally gone off the — gone haywire and other people didn’t report it.

When you find a problem, you have to jump on it. I mean, that is – that’s just basic.

I was in Las Vegas last week talking to about 400 wells people and Tim was head of this. It was there top group from around the country. I did the same thing about five or six years ago for wells in Chicago. I did it for B of A maybe seven or eight years ago. I mean every now and then they ask me to come around just so that people can see who owns a lot of shares. So I must have talked for at least an hour last week.

I mean, [Sloan] knows that I testified many years ago in connection with Salomon. Both to the House and the Senate, and I told him something of my experience, but it’s all on tape, in terms of being able to see it anyway.

I gave him — I told him what I would do.

[On his favorite bank]

What’s my favorite bank?

I’m not so — what’s your favorite child? Bank of America has done a sensational job under Brian Moynihan.

Brian had all kinds of problems when he came in. They were not of his own doing. But he had a ton of problems and

He had a lot of rocks to turn over, and it cost a lot of money. And he just set out step by step to bring the bank back. He’s gone from 280,000 people down to 210,000 people. He gone from a run rate of expenses in the $70 billions down to $54 billion.

He has really done a job, and we will be holders of B of A stock for a long, long, long time.

[Passive management] will absolutely kill every one of the fund to funds and bear in mind, each one of the fund to funds add a strong financial incentive to pick the best funds they could find, ten years ago, meant real money to them so it was overwhelming and passive investment, I’ve written about it, passive investment and aggregate will be active investment because of fees. And they didn’t have to pay 2% or 3% a year to somebody to get those, average results were going to be very good. And they were good, they have been good all my life and these ten years they have been good. You’ve done perfectly okay with passive investment.

I get letters all the time from people who say I would like to do it, I’ll put up $100 or something, become famous they love the idea of me giving them a lot of publicity — if anybody wants to put up a significant percentage of their net worth – If they want to put up a significant percentage of their net worth, their family’s net worth and want to make a bet on ten years, on active versus passive, maybe my estate has to be the one to settle with them. At 87, anything involving ten years is kind of a triumph of hope over statistics, but nevertheless, the ones that have written me, they really want to Get their name in the paper.

They can pick a group, got to pick a group, you know, I’m picking a group of 500 in the S&P 500, and they can pick the date of the start. The date of the start has nothing to do with it. The truth is, the market behaved fairly typically in terms of aggregate return for the decade. This is not some extraordinary period in the least. Nothing unusual about this the thing that was unusual is the size of the fees that ate them alive, basically. The managers of the funds did very well during this period and the managers of the underlying funds did very well and investors got killed compared to something they could have done.

Source: CNBC

US Fear & Greed Index

The investors can be emotional and you can profit from that. CNN’s Fear & Greed index reveals when the traders are too bullish or too bearish.

When stocks fall the index swings towards fear, when stocks rise the index swings towards greed.

Lower number signals fear and higher number indicate greed.

Extreme fear could be a buying opportunity. When investors get too greedy that means the stocks are due for a dip.

As Warren Buffett famously said,

“Be fearful when others are greedy and greedy when others are fearful”

Read more: [CNN Fear & Greed Index]

Howard Marks: This is a time for caution

Billionaire investor Howard Marks things the market’s current valuation if “lofty”.

Marks, who called the financial crisis, just told his clients in a note that now is “a time for caution”.

The investment expert advised that his clients move into lower-risk investments.

Mark did emphasize that he isn’t exactly sure when a correction will happen, saying “it feels like we’re in the eigth inning, but I have no idea how long the game will go no”.

In that same letter to clients, Marks said that the surge in bitcoin is just another sign of a bubble brewing.

Marks’ firm Oaktree Capital has $99B of assets under management as of June 2016.



Watch video: [OakTreeCapital]

Source: CNBC

Honda Siel: Kenneth Andrade bought this rural franchise

On Jul 25, 2017 Old Bridge Capital bought 64,503 shares of Honda Siel for ₹8.7 crore, or ₹1348 per share.

On Jul 20, 2017 Reliance Capital bought 89,800 shares of Honda Siel for ₹12 crore, or ₹1350 per share.

As of Jul 2017, Reliance Capital holds 4,98,270 shares of Honda Siel. It is worth ₹67 crore at ₹1350 a share.

Honda Siel Power is a quality MNC available at a reasonable price and has not moved up in the last two years. I think Kenneth and Sunil are betting on the rural themes.


Honda Siel Power Products (HSPP) is a subsidiary of Honda Motor and was incorporated in 1985. It is engaged in manufacturing and marketing the portable gensets, water pumps, general-purpose engines, lawn mowers, brush cutters and tillers. The Company caters to both domestic and international markets. It is also engaged in the marketing of lawnmower, brush cutter, long tailed outboard motors and power tiller.

HSPP has the state-of-art manufacturing facilities at Noida. It has over 600 dealers and 15 area offices spread across India.

HSPP benefits from the rich experience of Honda Motor which is the second largest engine manufacturer in the world.

The business of General Purpose Engine and Water Pump sets is expected to contribute significantly to the company’s future growth plans.

A Quick Analysis of Honda Siel [BloombergQuint]

For next 10-15-year cycle, rural is the biggest play: Kenneth Andrade [EconomicTimes]

Kenneth Andrade likes rural franchise in the long run [CNBC]

Stock Picks: InterGlobe Aviation Ltd

InterGlobe Aviation Ltd (IndiGo) is the leader in the Indian domestic airlines industry with a market share of 42.6% in 2016. Indigo serves 36 destinations across India and 5 international destinations in Southeast Asia and the Middle East. The company has 109 aircrafts and employs over 12,360 professionals across regions.

Key Facts:
– Indigo adopted the most successful Low Cost Carrier (LCC) model
– 90% of its revenue comes from domestic operations
– Most profitable airline in the country. Indigo posted the highest ever annual profit of Rs. 1990 crore in FY16
– Indigo’s main competitors include Spice Jet, Go Air, Jet Airways and Air India
– All of the 100 A320 planes (narrow body) ordered in 2005 have been delivered
– Indigo ordered 180 A320neo planes in year 2011 and 250 more in 2014, the largest order among LCCs globally. The company expects to receive all 430 A320neos by 2022
– Highest load factor of 77% for the last 7 years, i.e. carries more passengers on its plane
– Its planes make more trips per day than any other airline in the country because of its best turnaround time of 30 mins
– Only airline in the world that uses step-less ramps for entry and exit in its planes – this makes it easy for customers to embark and carry their luggage which ensures on-time performance
– 42% of Indigo’s workforce comprises women and 12% of Indigo’s pilots are women

– Mr. Rakesh Gangwal, promoter of Indigo, has over 32 years of experience in the aviation industry. He has previously worked as CEO of US Airways. He has also held executive management positions at United Airlines and Air France
– Mr. Gangwal is a mechanical Engineer from IIT, Kanpur and an MBA from Wharton
– Mr. Rahul Bhatia, promoter of Indigo, has 25 years of experience in the travel industry. His understanding of the Indian travel industry and customer behaviour is unique
– Mr. Bhatia holds a degree in electrical engineering from the University of Waterloo in Ontario, Canada
– Mr. Aditya Ghosh is the president and whole time director of Indigo. He heads all operations and management of Indigo. He has been with the company since 2008
– Attrition rate is one of the lowest in the industry
– The management is good at capital allocation
– High dividend payout
– Able and good management

– Mr. Bhatia & Family holds 43% of the company
– Mr. Gangwal & Family holds 43% of the company
– FIIs hold close to 5.2% of the company
– Mutual Funds hold close to 1.8% of the company

Diageo India: The largest spirits company in India

United Spirits Ltd (USL), a group company of Britan’s Diageo Plc, is the largest Indian spirits company involved in the manufacture, sale and distribution of beverage alcohol. USL produces and sells around 120 million cases of Scotch whisky, IMFL whisky, brandy, rum, vodka, gin and wine. It has 88 manufacturing facilities across 23 states in India.

Key Facts:
– USL is the market leader in the spirits category with 40% market share
– Diageo is the global giant in beverage alcohol
– USL’s portfolio includes brands such as McDowell’s No.1, Royal Challenge, Signature and Antiquity
– USL imports, manufactures and sells Diageo’s iconic brands such as Johnnie Walker, VAT 69, Black & White, Smirnoff and Ciroc in India
– USL enjoys strong brands across categories and price points
– USL operates in three segments such as popular, prestige & above and super premium
– The popular segment includes brands like McDowell’s Brandy and Rum, Bagpiper, Old Tavern and Director’s Special Whiskey
– The prestige & above segment includes brands like McDowell’s No.1 Whisky, Royal Challenge, Signature, Antiquity and Black Dog
– The super premium segment includes brands like Johnnie Walker, VAT 69, Black & White and Smirnoff
– 49% of its revenue comes from popular segment, and the remaining 51% comes from prestige and super premium
– USL has 4 brands that sell more than 10 million cases annually
– USL has 14 brands that sell more than a million cases each year
– USL’s top 21 brands have grown at a CAGR of 8% in the past 5 years
– USL exports its brands to 37 countries across the globe
– USL has a strong distribution network of 81,000 outlets across India
– USL is a major contributor to state excise revenues with a contribution of over Rs 35,000 crores annually
– South India prefers Brandy & Rum whereas North India prefers Whisky
– USL is moving towards a franchise based model similar to Pernod Ricard (PR)
– USL is focusing on more profitable premium and super premium segment

– Mr. Anand Kripalu, MD & CEO of USL, has a Bachelor’s degree from IIT, Chennai and an MBA from IIM, Kolkata, and has completed the Advanced Management Program from Wharton Business School. He was formerly president of Mondelez and MD of Cadbury India. He worked at HUL for 22 years. Mr. Anand is leading USL’s transformational journey
– Mr. Mahendra Kumar Sharma, Chairman of USL, has completed the Advanced Management Program at the Harvard Business School. He worked at HUL for 33 years. He is on the board of reputed companies such as Wipro, Asian Paints, Blue Star and ICICI Bank also member of the Executive Board of the Indian School of Business
– Diageo is bringing in better processes, better control and better corporate governance
– Able and honest management

– Diageo Plc holds close to 55% of the company
– FIIs hold close to 23.7% of the company
– Mutual Funds hold close to 5.3% of the company