DNA - Mumbai

Wednesday, 23 Mar 2011

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Buffett may not find a suitable

Indian co to invest, feel experts

Akhilesh Ankala.

Nestle, Colgate, HDFC may suit his portfolio, but the price may not be right
Nltin S h r i v a s t a v a

MUMBAI

Warren Buffett, one of the most successful investors in the

world, is well-known for his value-investing philosophy
which has reaped huge r e t u r n s for him. On his first visit to India this week, apart from launching his firm's (Berkshire India) insurance selling portal and having a charity
dinner with select people, he may also be looking at making
some investments in India.
On the eve of his visit, DNA Money asks market gurus, who
are known to follow his style of investing, regarding the kind
of companies that they think Buffett would look at for making
his investments. Though almost all the m a r k e t experts agree
that it is difficult to find a company in India which meets all
the criteria at this point of time, there are certain companies
which he may prefer, provided the valuations are right. Here are
a few voices:

Some of Buffett's well-known

Investment principles:

K I

$ Never buy stocks, buy companies

Invest In simple businesses which are easy to
understand

i l Invest in companies that have pricing power and high

entry barriers
K I The company should have ethical, competitive and
sound managers who run the company as if It is their
own business
G

The company should not have too much debt and it

should have good cash flow and return ratios
The company should have reasonable price tag
which lends high margin of safety for Investment

Considering the longevity, sustalnablllty and predictability of earnings in consumer goods' businesses, he may look at Nestle, Asian Paints or Titan, although these are not cheap at this point of
time. Even though he has not invested in pharma and IT companies in the US, he may also look at
Indian companies like Sun Pharma and software service providers which have different characteristics from those In the US. The Indian counterparts have more predictable earnings and efficient balance sheets with cash on hand. He may also consider some sound auto companies like Bajaj Auto
which have a huge opportunity to grow. Consumer franchise companies like Castrol may also fit the bill.
Bharat Shah, Director at ASK Investment Managers
Warren Buffett is different from other investors as he does not
believe in buying small, but looks at big elephants. When he
buys, he looks at investing $8-10 billion and get a major stake in
the company. Although there are some PSUs which look great, he
wouldn't invest in those because he looks at free pricing and monopolistic situations.
He likes businesses which have got anything to do with consumers. From that perspective, Nestle India is one company which
fits his bill as it is a consumer-product company having great brands,
requiring very little capital and has fantastic cash flows and return ratios. However, valuations at this point of time over 35-37 times earnings per share do not look good, but if he were to get 100% stake in
the company, he may think about the same. There are some franchise companies like Asian Paints, Castrol and Titan which are iconic,
but valuations are not suitable for him to invest in these.

It's difficult to understand Buffett's

investment rationale as he is quite
versatile and has jumped from quality value investing to buying cheap
stocks to investing in commodities and
benefiting from arbitrage business. If he
were to look at companies In India with
high quality businesses with high pricing
power and high incremental returns on
capital employed, those are certainly not
cheap. Though companies like Nestle, Colgate, HDFC, HDFC Bank or companies into
gas distribution look good, they are not
available at reasonable valuations for him
to invest.

We cannot think like him. He is different

from any other investor and it's difficult to
pick any Indian company which would find
a place in his portfolio. To do what he says,
you need to have a strong temperament. He
believes in dedicated managers running the
company who build businesses with hard work
and Integrity, butfindingsuch a company in
India would be difficult. There are some companies like Marico which have outstanding managers, but then the price is very high. Vesuvius is
another company into supplying refractories
which he can consider from a 10-15 years' perspective. However, here again the price is not
right.

Raamdeo Aggarwal,
Joint MD at Motilal Oswal Financial Services

Chetan Parikh,
Director at Jeetay Investments

The head of an investment firm who did not

wish to be named

Typically, he looks at businesses which have some pricing

power and have good management. If he were to pick some companies, he would look at companies
like Container Corporation of India
which provide rail transportation for
containers and has the largest network of Inland container depots and
container freight stations. Buffett
believes that rail transportation
would be the preferred mode of
transportation in days to come as
high crude prices would make transportation by road more costly. GAIL
could be another company he would
love to buy as he is also bullish on
gas pipelines which Is kind of an an----nuity business. United Spirits, which
-------is a consumer company with dominant market share in spirits and has
strong brands, could be another
company that fits his investment
principles as he likes recessionproof businesses.
Ramesh Damanl,

Member of BSE

Seth Klarman and may be Howard Marks

invest in cigar-butts, 52-week lows and
contrarian cycle timing.
Don't worry if there are limited opportunities in India.
Howards Marks invests worldwide incl.
Bermuda, here, there so much. Also distressed
debtand so on.Offices all through the world.
You'll become like Howard Marks one day,
don't worry.

Remember Ray Dalio also. Also Iachn, in case

u can acquire board seat and pressurize mgmt.

GSPL
Bliss GVS
Vinyl Chemicals
Dolly Khanna picks:
{RS Softwares
Hawkins pressure cookers
Prestige TTK
Manjushree Technopak
MoldTek Packaging}
WABCO
Yes Bank.
...are these all not good franchise businesses?