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The Unusual Billionaires

The Final Checklist

Saurabh Mukherjea has provided us with a checklist. However, he has cautioned us to not expect a company to be the next ten bagger if it satisfies these provided criteria. However, it is destined to be a great company.



1. Industry Attractiveness

  • Is the company’s business heavily dependent on government regulation?
  • How many competitors are present in the industry and how strong is the competitive intensity?
  • What is the overall size of the industry and its growth potential?
  • Is the company in an industry where the proportion of value addition is high?
  • What is the capital intensity and capital efficiency of the industry?
  • Is the industry’s business dependent on India’s overall business cycle?
  • Does the business generate excess returns for the shareholders?

Mukherjea looks for industries which are relatively free of regulation, low on competitive intensity and growing at double-digit rates (examples include heavy trucks, cars, speciality chemicals). Such industries usually tend to have a small number of relatively large companies and in such situations, the top two players in that industry are usually able to generate ROCEs in excess of the cost of capital.


2. Management Quality

  • Does the management have a track record of good governance and clean accounting?
  • Does the owner of the company have connections to political parties?
  • Does the company have a strong track record of efficient capital allocation?
  • Do the promoters have a track record of remaining focused on their core operations?

Mukherjea looks for management teams which maintain a clean set of accounts and allow genuinely independent directors (who can look after the interest of minority shareholders) to sit on the board. He looks for promoters who are humble, hard-working, self-aware of their limitations and are focused on the well-being of their business. He is keen to avoid promoters who build business relationships with politicians.


3. Competitive Advantage

  • What is the company’s track record on innovation?
  • What is the company’s investment in brands and reputation?
  • How strong is the company's architecture?
  • Does the company own any strategic assets?
  • Does the company have ROCEs that are higher than the industry average?

Mukherjea looks for companies which can sustainably drive ROCEs in excess of 15% and in excess of the industry average by deriving sustainable competitive advantages from: (a) a culture of innovation; (b) strong brands; (c) architecture, i.e. unique relationships between people within the firm and/or between the firm and its suppliers or customers; and (d) strategic assets such as intellectual property, physical property or licenses. 

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