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Prior to Atyant, Rahul spent four years leading Meridian Investments, generating a 430% absolute return for the firm’s high net worth clients.
Rahul graduated from the Wharton School of the University of Pennsylvania with a degree in economics. Rahul spoke recently at The Value Investing Congress in Pasadena, Calif.
Outside of Atyant, he practices Vipassana, a 2,500 year-old meditation technique that helps people see things as they really are. Rahul lives and works in Chennai, India.
You can read Rahul’s latest thinking in the Atyant newsletter (http://atyantcapital.com/newsletters) and blog (http://atyantcapital.com/perspectives), and connect with him on Linked in (http://in.linkedin.com/pub/rahul-saraogi/7/52/6a8). Rahul also spoke at the last Value Investing Congress in Pasadena, Calif.
Concentrated portfolio, long only and no leverage.
I do not have a specific style when it comes to value investing. For example it made no sense in early 2009 to do merger arbitrage for a 10% return, when there were stocks that offered far higher returns.
Originally from India, lives in China now.
Post WWII we had free market growing ahead, and three billion people not participating.
For 150-200 years, we had a system where half the world was not in the global trading system.
Then we had a shock in the system, with the growth China and other emerging markets.
China did manufacturing and India the services.
Innovation is not exclusively in developed markets.
In the past we have grown out of debt, but now it is not working; I think development will remain stagnant. Birth rate is low, and there is a loss of competitiveness due to globalization.
In India they have the same aspirations for a good future and now with the increase in technology, they will also have the access.
India 1.2billion people, 50% under 25, 75% under 45; India will inject $200 million into force in the next 20 years.
Many people now are earning more in their first year of work than their parents earned their whole life.
India is the land of entrepreneurs.
The Indian market is a great place to look for investments. There are 9,000 listed companies, and besides for 200-300 big names, the rest have NO coverage.
The accounting standards are superb.
High returns on equity, the British came as traders to India. In India, they understand capital; they have the desire to grow it.
India’s growth has been driven by private sector, while China’s is driven by the government almost entirely.
What makes a company become a winner on the global stage? What we are finding today, is that the Siemens of the world need to come to that economy.
Demographics are driving demand.
We take a long time approach. Most money coming into India is from institutions that need emerging market exposure, and are in and out quickly.
We do not think volatility is NOT risk. Volatility becomes risk if you are forced to fold your hand before you are able to play it, like someone who has a short-term time horizon.
There are thousands of companies; most companies are cheap for a reason, you need to be on the ground to see what the value plays are and what are value traps.
If you are willing to wait the time you have a big advantage.
Warren Buffett, Charlie Munger, all talk about good businesses with moats, but that is geared toward analysis, but in India you first need to cross corporate governance. Not outright fraud, but to see if the company is treating shareholders like partners.
We will not invest in a company despite how many private equity or large famous investors are backing them, because we have seen large funded companies which do not treat shareholders right.
Godrej Industries:
Holding company of the Godrej group, has a gold standard of corporate governance. They have even done things bad for large shareholders in favor of small shareholders!
They are very good allocators of capital.
Each business is a silo; it is not to maximize return on capital to shareholders. Godrej sells diversified products including; hair color, food processing, animal feed, agricultural inputs, confectionery, retail and real estate.
They have a huge brand name in India.
470 million use their products EVERY DAY.
They are now expanding into Indonesia, Africa and Latin America.
All the businesses have high growth initiative.
Market cap: USD 1550 MILLION
Net LT Debt: USD 85 MILLION
Value of listed holdings: USD 1560 MILLION
Godrej Consumer Products + Godrej Properties
Unlisted holdings FREE (> USD 1770 MILLION):
More than 300 acres in Mumbai: > 1000 MILLION
Godrej Agrovet: > USD 400 MILLION
Godrej Chemicals: > USD 200 MILLION
Godrej Hershey: > USD 100 MILLION
Godrej Tyson Foods: > USD 50 MILLION
Nature’s Basket: > USD 20 MILLION
Big margin of safety: attractive valuations, strong balance sheet, low downside and high upside proposition.
There are lots of net nets in India, but I look for catalysts.
The animal feed businesses, retail meet is growing at 35-40%. They have incubated businesses.
Consumer products cash machine, are net negative capital, 25% compounded.
Goldrej is a very trusted brand.
An investing mistake I made: India Glycols
They make raw materials from petro chemicals that make...
Good corporate governance, good allocators of capital.
In late 2007, early 2008, ethanol was low and oil went super high; India Glycols made huge profits 5x, in Q1 2008 they made 110m rupees within 15 months and the company went up to 500 rupees.
We bought what we thought was a low cost producer, and this was a good price because as fuel prices would go up so would glycols. But what we found out is that it really was a sugar/oil play.
They started losing money, and especially with the price of ethanol going up.
We realized we need to evaluate company over several cycles to invest in it.
You cannot put a multiple on a windfall, we bought at $80 and exited position around $110, but we only made money because we bought with a huge margin of safety; but we still made a big mistake.
India the key question is: I am optimistic that there will be more wealth in 21st century like Warren Buffett said the question is where?
A realistic prospective and a prospective as an investor, India is extremely political place. Regime change does not skip a heartbeat. All the dirt comes to the surface and it is a very positive development. All the problems are in the open and are growing pains; it is not swept under the rug like in China.
Of course the economy would work better if there were fewer of these problems.
India will never have the infrastructure like China, because a lot of infrastructure is negative in the short end and positive in the long end, but the long end is very intangible.
But here the private sector develops it.
We live with issues every day. In many parts of Europe and US people live with a type of institutional bias.
The value for these acquisitions is that it gives them brands and acquisitions. I do not like Tele-com, but a company like Harpee has brought down the costs in India, and is trying to replicate that success in Africa.
Disclosure None
http://www.valuewalk.com
About the author:
I am VP of Business Development for Sum Zero (http://sumzero.com), the largest community of buy-side analysts; consisting of over 5,900 hf and mf analysts, and over 3,600 extensive investment write-ups. I have prior experience in a value based pe firm focused on PIPE transactions in micro-caps, and at a value based research firm, which focused on smid caps. In my personal portfolio I have outperformed the market by a cumulative ~48% since 3/2008 (inception date). I can be contacted at jacob(at)sumzero.com for sumzero related inquires. My website is http://www.valuewalk.com/ Visit Jacob Wolinsky's Website
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