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Value Investing

Case 2: Safari Industries

Case 2: Safari Industries (Thesis by Sumeet Nagar, Managing Director of Malabar Investments)

 

Mr Sumeet Nagar managed a fund size of ₹830 crores in March 2018 when he explained his thesis of investing in Safari Industries at the time. 

 

Mr Nagar’s Funda of Value Investing-

 

I.Quality of Business: The business can earn a compounded annual growth rate (CAGR) of 20-25% only if it has a moat. The company need not require outside capital to do so either if they have a strong business. 

 

II.Quality of Management: The management must exhibit the following-

a.Operational capability where they not only know the business well but also the industry and competitors
b.Capital allocation discipline
c.Integrity

 

These two parameters are used as a basic filter to identify good companies by Mr Nagar. Now, in the case of Safari Industries, he explains that it was not a traditional pick for him. He usually invested in market leaders who are No. 1 in what they do. However, Safari Industries was at No. 3 after VIP Industries and Samsonite but that meant that there was greater value to uncover and beat the market. 

 

From 2002 to 2012, the sales of Safari Industries didn’t grow but after that they got a new management who was the former MD of VIP Industries. 

 

This was a major green flag for Mr Nagar and that’s when he started closely watching the business movements. The sales of the company grew at an annualised rate of 30% for 5 years after 2012. 

 

Moreover, there was significant opportunity available in the industry. It was an industry of branded players where, 90% market share was of branded business. He also applied Second Order Thinking to analyse the growth potential in the industry. He connected the growth in the aviation industry and two-wheeler market with the growth potential for the backpack industry. 

 

Learnings: It is important to look at factors likely to impact a business from all domains. At times., macro factors tend to be more important than just micro ones. Connecting things which are less obvious to the general market is what can make an investor a successful one. 

 

Conclusion:

So, from this module, we have completely understood the art of value investing. This is the way through which investment gurus like Warren Buffett and Peter Lynch have earned billions. It is time for you to get started with your investment journey. We also have more modules on ELM School, which you can go through for a better understanding of overall financial markets, investing and so on. 

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Units 11/11