Mast Kalandar: A North Indian Restaurant in South India

http://www.business.in.com/article/work-in-progress/a-north-indian-restaurant-in-south-india/22502/1

A North Indian Restaurant in South India

Pallavi and Gaurav Jain pulled a rabbit out of their hat by running a successful North Indian restaurant chain in South India. Now, they want to try their luck in the rest of the country

by Rohin Dharmakumar | Feb 22, 2011

In February 2005, a group of 10 restaurant staff couldn’t believe their ears when they heard their new employers talk. They were standing in a stuffy, under-construction restaurant - to be called Mast Kalandar - in Bannerghatta Road, a Bangalore suburb, that would be their workplace when it was ready. But what the chefs, waiters and helpers were thinking was: Were their employers, a young couple, ready for the restaurant business?

"Because our food is going to be just like homemade food, we will use only quality ingredients we use at home, such as MDH spice mixes, Annapurna flour, sunflower oil or Amul butter and cheese," said 34-year-old Pallavi Jain. "Our food costs will be higher than other restaurants by 10 percent," said a chef. "We can’t sustain it."

Gaurav Jain, 37, added, "We will cook all our lunch and dinner meals fresh, every day." Another voice quipped back, "In hotels and restaurants, food is usually prepared once, cooled and then reheated when ordered. Cooking and serving everything fresh, two times a day, won’t work."

Either the couple wasn’t grasping the gravity of the situation, or they were plain suicidal.

Then Pallavi said, "Oh, and we will not have deep freezers in our kitchens because we will only use fresh ingredients in our cooking, like in our homes."

"You’re both mad," said one of the staff, hoping his stark comment would probably knock some sense into the obviously inexperienced couple. "This won’t survive," he said. The staff didn’t think that the Rs. 18 lakh, part of their life’s savings that the couple had sunk into the business, would pay off.

He was wrong. In fact, the next year the couple opened a second outlet in Bangalore. Then a third, and a fourth. After a couple of years, the sunny yellow outlets even started popping up in Hyderabad and Chennai. Hard-nosed venture capitalists committed to investing serious money in the chain, nearly $5 million in all.

Today, Mast Kalandar has 22 outlets and a clear plan to reach 100 before the end of next year. And then, 500 more.

And all this using the almost bland cuisine positioning: "Authentic, vegetarian, homemade style North Indian food." Wasn’t eating out all about escaping homemade food?

Homemade, but not at Home

Well yes, and no. Increasingly, there’s a new category of customers frequenting restaurants: They eat out or order in because they don’t want the hassle of cooking at home. They include working professionals who don’t have the time or knowledge for everyday cooking, or newly married working couples who don’t want to deal with dirty vessels, maids and grocery.

That is the primary market Mast Kalandar is targeting.

"We’d like to think of ourselves in the ‘home meal replacement’ category," says Gaurav. He is from Uttar Pradesh and Pallavi, the company’s COO and food strategist, from Punjab. When their jobs got them to Bangalore, they started looking for regular eating out options, light on their stomachs and wallets. There weren’t many.

Things came to a head one day when, after a night of playing Scrabble with their friends, they decided to head out for an early lunch. "We couldn’t agree upon a single place that served North Indian food that all of us would like. So, we came back home and cooked khichdi instead," says Gaurav.

That incident formed the nucleus for the Jains’ first outlet.

Cracking the Iceberg

A restaurant is like an iceberg. What the customer sees is only the tip. The real factors that are behind the success or failure of a restaurant are the ones behind closed doors: The complexity of preparing the dishes, the real estate costs, the supply chain for procuring and transporting ingredients across outlets or tweaks to the standard menu relative to local customer preferences.

Getting even one of them wrong can scuttle a restaurant’s chances of making it through the notoriously high rate of failure in the industry. Mast Kalandar’s business model rests on four key aspects.

Its decision to offer freshly cooked meals is both its biggest differentiator and its biggest execution risk. "Over 30 percent of our customers dine more than six times a month with us," says Gaurav. The restaurants seat 55-60 people, who spend Rs. 80-100 per person on a meal. This adds up to Rs. 85 lakh to Rs. 90 lakh in revenue at one restaurant annually, delivering cash profits of 25-30 percent in steady state. With 22 outlets, this translates into revenues of Rs. 18.7 crore.

There are enormous demands on the kitchen and supply chain, especially in light of Mast Kalandar’s decision to not have deep freezers in the kitchens.

Infographic: Sameer Pawar

This means the Jains have had to evolve their own supply chain - a centralised kitchen in every city they operate in, where fresh vegetables are sourced and cut, mixed with spices and other ingredients, cooked partially and shipped in an unfinished form to outlets. At the outlets, the meals are put through the final stage of cooking before being served to diners or home delivered.

The food is transported in imported temperature-controlled boxes that can keep food from spoiling for up to 10 hours. Mast Kalandar calls it the ‘hub and spoke’ model.

To stay true to its home-style credo, it strikes partnerships with vendors across India. For instance, its papads come from Rajasthan, pickles from Meerut and Jaipur, jaggery from Hapur in Uttar Pradesh and special curry masalas from Kumaon. For staples, it has tie-ups with the likes of Safal, Amul and MDH.

The final differentiator is Mast Kalandar’s focus on ‘pre-plated meals’: Multiple elements of a meal - salads, breads, curries, vegetables and sweets - bunched into different meal options. While this allows individuals to sample multiple dishes in the same meal, it also allows Mast Kalandar to create more saleable menu options out of fewer ingredients or dishes.

But can it maintain this while scaling from 22 to 100 outlets? Or 500?

Successful restaurants are good sources of profit, but venture capitalists need a few dozen of them in order to justify multi-million dollar valuations that will sway later-stage investors. Caught in the numbers game, new entrepreneurs often end up taking their eyes off the nitty-gritty of daily profitability at a single restaurant level as they rush to put up newer ones elsewhere. Two chains that got caught in this vicious cycle over the past few years were Delhi-based Yo! China and Bangalore-based Kaati Zone. Both were the recipients of multi-million dollar venture investments, from Matrix Partners and Accel Partners, respectively.

Yo! China expanded too aggressively across locations and formats, while Kaati Zone misjudged the sales needed to justify large, restaurant-style outlets. Wiser from their experiences, Yo! China is now following a more sober expansion strategy, while Kaati Zone is focussing on take-away meals.

A Tough Order

For Mast Kalandar to even achieve its short-term goal of 100 outlets, much less the long-term one of 500, it will need to evolve around possible failures.

The first of these will loom when it expands outside South India. Will North Indian food be as popular in Mumbai or Ahmedabad or Gurgaon?

These aren’t hypothetical questions because Jain says these are the cities he is concentrating on for his expansion outside South India. He believes his cuisine will find an audience in all these cities because the primary demographic target - working professionals who want affordable, home-style North Indian food - is present everywhere. It helps that his restaurants start turning in cash profits within three months. Include the cost of investments, and an outlet turns profitable in 14 months.

Expanding outside South India isn’t much of an option if Mast Kalandar wants to grow beyond 100 outlets, says Kanwal Singh of Helion Venture Capital, one of its venture backers.

To make it tougher, consumer tastes evolve constantly. "Every couple of years, consumer preferences change due to their experiences with newer food and retail formats and higher incomes. In order to be relevant, you need to keep reading that correctly," says Ashish Kapur, CEO, Yo! China, who’s had to revamp his restaurant décor, redo his menu every few months and serve food in clay-pots to keep customers coming back.

Assuming Mast Kalandar can pull that off, the next big challenge will be expanding its hub-and-spoke model across the country, while allowing for the inevitable menu localisations that each region’s tastes will demand.

"They will need to reinvent themselves with each new region. Even within regions there will be questions. For instance, can I go to Coimbatore or Mysore? If I do, will I need to open up central kitchens there?" says Singh.

But Jain is confident in being slow and steady. He’s even considering an international expansion in the foreseeable future, along with a move to rope in franchisees at some point (all of Mast Kalandar’s outlets are currently company-owned). "The fact that my wife and I aren’t from the food industry is, in some ways, a plus because we can think differently from them. Of course, the minus is we have no experience of pitfalls," says Gaurav.

SKIL Infra - Nikhil Gandhi

http://epaper.financialexpress.com/FE/FE/2011/03/16/ArticleHtmls/16_03_2011_009_003.shtml?mode=1

Food caFE NIKHIL GANDHI Trading on gods & goodwill

The SKIL Infrastructure chairman tells Shobhana Subramanian how he went from selling brooms to the Bombay Port Trust to building India's first private sector port at Pipavav

Despite a severe cough, Nikhil Gandhi hasn't lost his sense of humour.We're at the Souk on the fourth floor of Mumbai's Taj Mahal Palace in Apollo Bunder, which was opened in the centenary year of the Taj in 2003. The restaurant is known as much for the food that it serves as for the magnificent view of the harbour and lives up to its reputation on this pleasant afternoon, the boats in the bay taking one's breath away . It's Gandhi's favourite restaurant and one he picked without a moment's hesitation when I called to invite him to lunch with FE.

The chairman of SKIL Infrastructure, who started out as a small-time businessman and later built India's first port in the private sector at Pipavav, is now excited at the thought of building the country's first warships. We decide to opt for the business lunch buffet. There's plenty on offer in terms of salads and starters, all with exotic names. And while Gandhi stays vegetarian, I pile up my plate with some prawn, fish and lamb starters and also try out the stuffed vine leaves. The cough, I discover, is the result of Gandhi having inhaled clouds of dust at the Bangalore air show, where he ended up signing a couple of agreements with Swedish firms to make defence equipment. He has been quite caught up with the defence space for some time now and lately has been poring over books on warships, admitting that the technical stuff can be quite challenging. But he'll come up the curve soon enough.

Indeed, the fact that he never went beyond school doesn't seem to have been any kind of handicap for the 51-year-old Gandhi who's pulled off a string of projects--whether it's ports, roads or a container service. Gandhi recalls how he was pulled out of Mrs Walton's school in Calcutta after Naxalites set the school bus on fire one day, and was put into the neighbourhood Gujarati medium school because his mother was so traumatised by the event. The result was that when he ended up in an English medium college, he couldn't cope.

"It was terrible; I couldn't understand a word and after 15 days I cried and told my parents, I can't do it."

So he switched to ferrying paan leaves to Bombay, bringing them from Calcutta in cane baskets, in unreserved train compartments, and selling them to vendors between Bhuleshwar and Ghatkopar. He would then pick up toys to be sold back home. Having eked out a sum of R45,000 from his trading efforts, Gandhi managed to win a contract to supply 80,000 brooms to the Bombay Port Trust (BPT) and that's when he first saw the port and fell in love with it.

Even while he continued to supply cleaning cloths to BPT, he managed to get on to the board of BPT, no mean achievement for someone who did not even belong to the city . How did you pull that off, I ask? As it happens, this was the late 1980s and Gandhi managed to win the confidence of a couple of the seniors who inducted him to the board against the quota reserved for members of the "user community'. That was a leg up for the young Gandhi, then not even 30, who used his proximity to the members to learn about ports and the infrastructure surrounding them.

Even as he turned manufacturer of marine equipment and started exporting bulk drugs, the "fiery speaker' in him convinced both the Gujarat and the central governments that the private sector needed to play a role if India's ports were to get going. More important, he managed to coax financial institutions,including IDBI, IL&FS and UTI, to put out money to build a port at Pipavav, which cost R500 crore.

But it wasn' teasy .Gandhi had another near brush with death as he was brutally attacked by the port mafia (a couple of workers were murdered). "I've left that behind but I must say that it was a tough environment and the cobras and leopards didn't help." It was around that time that Gandhi bumped into a devotee of Shirdi Sai Baba who turned him into one too. While the gods are clearly happy with him, Gandhi has been fortunate to have also enjoyed the blessings of both the late Dhirubhai Ambani and elder son Mukesh.

"Dhirubhai uncle always supported me. When I first met him in his office in Maker Chambers IV , and he said I was a member of his zero club, I didn't realise he meant that I was worth nothing. But if I am alive today, and have not been bumped off by the mafia, it is because of him." Gandhi doesn't play down his connection with the Ambanis, saying he still consults Mukeshbhai, two years his senior. "Their doors have been open to me and I have been very lucky to have his support," he tells me.

At the same time, he exudes confidence and is in no doubt whatsoever that he has it in him to take on large infrastructure ventures. Apart from his Kathiawadi business instincts, which include a knack for cost control, Gandhi believes younger brother Bhavesh's ability to implement has played a big part in his success.

I get myself a second helping; my guest, understandably , doesn't have much of an appetite.Gandhidiscovered his love for Lebanese food at Maroush in London and has been a regular at the Souk since it opened. He's also partial to Punjabi cuisine and doesn't mind Chinese food now and then.

What's he's most fond of is his Bengali food and he indulges himself during his Calcutta trips, which he makes at least once every three months. "I love going to Calcutta because I have lots of friends there; I don't need a reason to go there. And I'm very fond of Bengali food so I make sure to get myself invited to their homes," he chuckles. He recalls how he once flew back, ahead of schedule, from a tour just so he wouldn't miss a Bengali food festival. On every trip, he lugs back a sackful of muri and the masalas that go with it. "I bring parcels of food for my sister and my friends here." It's not just food; Gandhi has brought back more than two dozen friends and classmates who now work with him in his many ventures.

A self-confessed workaholic, he's busy trying to list SKIL Infrastructure to raise around R2,000 crore. SKIL once housed the Pipavav port, the railway container business and the roadways businesses, which were later sold.Gandhi believes it was a mistake to have sold those businesses, saying he did it because he needed to give the private equity players an exit. I am trying to estimate how much SKIL could be worth today , given that it holds a 26% stake in Everonn and a 52% stake in Pipavav Shipyard, which translate into a combined market capitalisation of less than R3,000crore.Pipavav,of course,is still in the red but should turn the corner this year. Gandhi's not willing to talk numbers just yet. That he's always thought big and talked big is somewhat perplexing--he claims it was he who first convinced the government about the utility of SEZs--but there's no doubt he's been able to drum up financial support.

Nonetheless, the $20 billion worth of investments that he'd planned to make, over 10 years, does seem a tall order; he says the global financial meltdown has delayed some of his plans--including for a new port--but is sure they'll come through. SKIL today has only a minority stake in the two SEZs in Mumbai; it's Mukesh Ambani and Anand Jain who are the bigger partners.

Gandhi has to do without his favourite rose petal ice cream today and we share some Oomali--a Middle Eastern dessert somewhat like kheer. Although work is clearly his big love-he calls it his hobby--the stress doesn't get to him. That's probably because he does manage to fit in some time for yoga and also exercises regularly in a small gym that he has built at home. And he finds time to catch up on his reading-his favourite book is Lee Kuan Yew's From Third World to First. Yes, Nikhil Gandhi has come a long way .

SEBI's action against GHCL's promoters appreciated

Published on Tue, Apr 21, 2009 at 09:12 , Updated at Tue, Apr 21, 2009 at 12:39
Source : CNBC-TV18

The Securities and Exchange Board of India (SEBI) has barred Gujarat Heavy chemicals (GHCL) founder and Chairman and Managing Director, Sanjay Dalmia from the stock market. Commenting on this, Udayan said the SEBI's move is welcomed but there is lot of shadiness about GHCL now. Its not a small company, I just hope that there is no Satyam kind of a situation lurking out there somewhere.

Here is a verbatim transcript of Udayan Mukherjees comments on CNBC-TV18. Also watch the accompanying video.

A few months back we were talking to the GHCL promoter, Sanjay Dalmia and we kept on asking him what is going on with the stock holding in your company. And he kept on saying in a very cool manner that this is just inter-promoter share holder transfers that we keep on doing, I cant be bothered to keep you informed what I am doing with my intra-group companies etc and that cockiness has given way to a Sebi ban on him from accessing the markets.

So its always struck us completely shady the way his share holding was changing around with very little information available. And you know what has been going on in any case that one particular share holder is trying to destabilize Sanjay Dalmia though he is not talking about it openly but he has been trying to elbow him out of board in any case. So this is a complete mess out there, in any case there have been very large global acquisitions, I dont know to what end those acquisitions have been made. So I would be very worried as a GHCL share holder, the kind of promoters who are running the ship right now. And frankly I wont be surprised if the next 6 or even 3 months you see some big moves on the current promoters being edged out in some form.

I think there will be quite a bit of shareholder activism; even at the board level that you will see if you are not seeing it already on GHCL. The Sebi move is welcomed but there is lot of shadiness about this company now. Its not a small company either, I just hope that there is no Satyam kind of a situation lurking out there somewhere.

Interview - Rakesh Jhunjhunwala by Ramesh Damani

http://www.moneycontrol.com/india/news/market-outlook/don%E2%80%99t-buy-bizgive-fixed-ratereturn-jhunjhunwala/09/34/382979/0

Before one buys a multi-bagger stock, one has to check out the company’s fundamentals. According to Rakesh Jhunjhunwala, Partner, Rare Enterprises, one needs to check what opportunity the business has, who are the entrepreneurs, how much capital is needed, is the business scalable, and what is the company’s valuation.

Besides checking out the company, there are a number of things one needs to keep in mind before buying.

Raamdeo Agrawal, Director, Motilal Oswal Financial Services, said the best way of buying a multi-bagger is to buy it extremely cheap. However, Jhunjhunwala feels besides being cheap one should also see value when one buys. He said one should not buy businesses which gives fixed rate of return.

After identifying the opportunity, Jhunjhunwala feels, one needs to be decisive and not get stuck in a trap where one is perpetually seeking extra information.

Sanjoy Bhattacharyya, Partner, Fortuna Capital, agrees with Agrawal and Jhunjhunwala. However, he is quick to add that one should buy businesses that are scalable. “First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.”

He also feels that one can never have a multi-bagger if capital is irrationally allocated by the people who run the company.

He feels investors should be able to figure out change and know how to capitalize on it. "If someone who has experience and has been around in the market laughs at you for buying a particular stock, it should be a great source of encouragement for you." Agrawal seconds Bhattacharyya’s thought, but Jhunjhunwala feels that if both persons agree that doesn't mean one does not buy the stock.

Here is a verbatim transcript of the exclusive interview with Raamdeo Agrawal and Rakesh Jhunjhunwala on CNBC-TV18. Also see the accompanying video.

Q: You had more than 10 multi-bagger stocks, what are the characteristics? How does one find 10 multi-bagger stocks? How does one start the process of thinking that the stock is going to be a 10 bagger?
Agrawal: You don’t pay anything to have multi-baggers. If you want a multi-bagger literally you have to buy free of cost, your purchase price decides your rate of return. That is a simple method.

Jhunjhunwala: That doesn’t mean that if Infosys has Rs 30 crore market capitalization, then at Rs 90 crore I should not buy it. We don’t buy it just because it has doubled. You have to see value when you buy.

Agrawal: The first fundamental thing is that you have got to buy extremely cheap and it is non-negotiable. If you want a multi bagger, it has to be bought literally free of cost. Like I could have bought Bharti Telecom around Rs 4,000-5,000 kind of valuation, today it commands a valuation of Rs 1,50,000 crore in just five years. So, when you buy these kind of things at those prices literally, the purchase price is insignificant to whatever is the expected value in the next 4-5-6 years. That is a non-negotiable kind of a trade for finding a multi bagger. Now, the market must become irrational about that stock. So, from under valuation it goes to a fair valuation and from fair valuation it goes to irrational valuation.

Q: You are too modest to say this but I know you have had 700 baggers. Where have you looked for your 100 baggers, give us intellectual hypothesis?
Bhattacharyya: Between being smart and being lucky, I know it will hurt your ego like hell because all you guys are IIM-A always ought to be lucky not smart. It seems that there are two things, which are very important. Agrawal spoke the need to buy cheap, so valuation is very much in your favour.

But two other things you must buy a business, which is of very high quality. What do I mean by high quality business is that a business which is capable of growing over time. I think in the modern lingua franca it is called scalable. I hate words like that. But I think that is what they teach you here, so scalable and the scalability doesn’t require linear inputs of capital.

In a really high quality business, which is disproportionate and where you don’t need to have equal amounts of money to finance incremental growth, that is a wonderful business. The cigarette business, the biscuit business are also highly predictable. What destroys most people is their inability to foresee change. Most of us are not as smart as we think and change can be very rapid and very destructive. So, you have got to be able to figure out change.

Unless you are Rakesh Jhunjhunwala, you are usually a minority holder.

Then, it is very important to understand, what is the agenda and the interest of the majority holder or management usually. If it’s a private equity firm which has the majority stake in the company, what is their agenda? What do they want and how well do they allocate capital? You can never have a multi-bagger if capital is irrationally allocated by the people who run the company. If they have this wild ambition that I am going to spend and earn lots of money, but I will spend even more in terms of capital expenditure and financing growth, you will have very high reported profit but zero cash flow or negative cash flow. You can never get a multi-bagger out of that situation. But you have obviously got to search for a management which has competence and then make sure that you sort of super-impose a huge dose of integrity on that and rational capital allocation. The minute that is missing you will be at risk. Your 10 baggers could reduce back to being a 2 baggers because you could wipe out 80% of your gains.

Q: Are Titan, Praj, Nagarjuna some of the great multi-baggers?
Jhunjhunwala: Titan was a retailer, it was a brand company, it always had a great business. That was a reality. So, it was a great business. In a moment of crisis and when they went into Europe, they lost money. That was a crisis primarily. To my mind what is most important for Titan is India’s prosperity. I envisaged the future and I thought Indians are going to buy far many watches, so that is how he said that the business should be great. So, in a moment of crisis you get great valuations and you envisage the future where the product could have great demand and great growth and that business doesn’t need money.

In MBA language, price is equal to EPS multiplies by P/E, so circumstance should arise where the P/E should grow and the EPS should grow. Suppose I buy a stock, which earns Rs 5. At 5 P/E and I pay Rs 25, if the earnings becomes Rs 15 and the P/E becomes Rs 20, that Rs 25 goes to Rs 300. So, the basic methodology is that can this EPS grow year-upon-year and will the P/E expand. P/E expansion is function of so many items. It is a function of size. So, many of my companies I don’t sell because I feel that P/E will expand, as their size increases and liquidity increases.

Q: Your favourite multi-bagger in your career?
Agrawal: Vysya Bank that was a very first one, second one was Hero Honda, and third one was Bharti.

Q: What has been your multi-bagger historically?
Jhunjhunwala: For me anything that gives me money is my favourite one. There is no emotion. But I think as I judge myself some of the finest investment decisions which I have taken in my life is the decision to invest in Titan, decision to invest in Crisil, decision to invest and retain my holding of Karur Vysya Bank. Now, it is14-15 years since I have bought them. But I think some investment of Rs 2,000 is worth sum I don’t know how many crores today.

Bhattacharyya: The important thing is to identifying the opportunity and then as Jhunjhunwala said is acting on it, being decisive, not getting stuck in a trap where you are perpetually seeking extra information. If you are looking to identify great opportunities, one other thing that all of you will do well is to make friends or associates with people who are called in the language of Dalal Street smart money. You have three of the smartest guys sitting here. But to say this if you have guys, who are really smart serious, thinking investors, one of the ways you will find 100 baggers is by talking to them frequently. I am not joking.

Jhunjhunwala: One important trade of any 10 bagger is there should not be any institutional ownership, it should be under research, nobody should know about it. Today also I was asking Mr. Bhattacharyya that have you researched Titan. Even if the stock have gone up 30 times, Mr. Bhattacharyya has not researched it, which is very good for Titan. I have not researched Bharti, which is very good for Bharti. The stock has appreciated so much but the amount of interest remains in the stock remains at low level. So, it should not be one of the popular not by rule but generally it is not a popular stocks and there should be deep scepticism.

Bhattacharyya: In fact one of the good test to follow is go and tell it to someone else who has experience and has been around in the market for a long time. He will laugh at you. The fact that he is laughing at you should be like a tremendous source of encouragement.

Jhunjhunwala: There are no rules. If two agree, it doesn’t mean that you don’t buy.

Agrawal: What Mr. Bhattacharyya said is a truest thing, when I like something very deeply and when he disagrees ‑ because he is my friend, I go and test with him – and when he disagrees that is going to be a multi bagger.

Q: When you look at buying stake in a company, what is the most important factor or criteria that you look at?
Jhunjhunwala: I cannot say whether the leg or head is more important or the brain is more important or the heart is more important. There are equally important factors, and any successful business is a combination of factors.

When I look at any investment or any business, I look at three-four factors. First, the external opportunity which is demand. For instance in Praj maybe because of the need of alternative fuels the demand for ethanol plants went through the roof. So, I look at the opportunity the business has.

Then I look at the entrepreneurs, I look at the capital needed, and I want to judge scalability. We could make money in Pantaloon because Kishore Biyani could scale the business. Then, it is important what you buy, it is important at what price you buy. So, I look at the valuation. I have no analysis paralysis. I judge very fast.

Q: Which are the sectors that one should invest in say for a period of one year given the current market level and fluctuations?
Bhattacharyya: My answer is not going to be a happy answer. First, you don’t buy a sector, you buy an individual company. Secondly, I don’t think one year is necessarily the ultimate timeframe because you have no idea 12 months later what the world will look like.

You are buying a business with specific players, a cast. You are buying the people who run that business; you are buying the assets and liabilities of that business, you are buying the balance sheet of the company. Within the same sector, different people have different opportunities.

So, if I were to say that the pharmaceutical sector is a great opportunity, there are different pharmaceutical companies. Say if you were buying Sun Pharma as opposed to buying Lupin, you are buying it at completely different valuations. Some sectors that are hot right now, I mean the whole world knows they are hot right now. So, the prices at which you are buying that sector reflect the hope and the enthusiasm that people have for that now.

But I don’t think that I understand anything other than what is called bottom-up. That means god lies in the details. There are specific opportunities or companies that I can tend to buy.

Agrawal: I would approach the financial sector, the large banks, which have large bond portfolios like SBI has Rs 2-2.5 lakh crore worth of bond portfolio, mark-to-market. When the yield drops you know what happens to bond prices and that goes directly to the P&L. In any case, you are buying that stock at 1-1.2 times book, insurance free thrown with the SBI stock. So, I would like to buy that for maybe 25-40% case for the next one year.

Secondly, I would say telecom. I think god communicates wirelessly. I think the telecom penetration in India is just about 25%. We are headed for 75% if not 100% in the next 5-6 years. We are going to see more than 10-15% compounded quarterly growth for the next 20-25 quarters in this country. Hence, we have a great opportunity in buying Bharti Telecom.

Q: Is there any sector you like?
Jhunjhunwala: I think that India-centric sectors will do well whether it is banking, retailing, infrastructure, all sectors that are related to India – SBI, Bharti, and Hero Honda.

Q: You were talking about recognising value in a stock. If you look at the power sector in India, there are some stocks like Tata Power and NTPC have significantly high ground assets, or whether some new companies like KSK Energy who have captive coal reserves. How do you compare these and what are the parameters that you use to identify value?
Jhunjhunwala: The first multi-bagger of my life was Tata Power. But after having earned a lot of money in Tata Power, I have promised myself I am not going to buy any power companies because after all it is a fixed return rate of return and the rate of return is 13-14%. It is a capital intensive industry. So god bless NTPC and KSK Energy. But that is not where my interest is, because I can’t think of any industry in the world where the rate of return as fixed, if it is going to give you multiple returns.

Bhattacharyya: In fact, I would like to endorse what Jhunjhunwala said. But I think of your question and I suspect it may be that how do you distinguish between companies that are asset plays, which don’t have at this stage earnings that you can identify with and see and therefore put a multiple to them as opposed to companies that have a stream of earnings.

Jhunjhunwala: But market will value them if within a comprehensible period those assets can return a stream of earnings. If I have a company whose office is worth Rs 5,000 crore, what can I do? I will wait for earnings for one, two, or five years. Nobody is going to buy that company because their office is there. Don’t forget all these coal reserves. You know what is the average value for oil reserves ‑ about USD 10-15 or maybe USD 20. You first have to say in what time period KSK Energy will get the coal reserves. If it gets it 15 years later and you bring it to present value, you come to 3% of the current market price. Then, you have value in the current coal prices. Are these prices going to last? So, therefore they may appear cheap.

Q: In the present market scenario both from an investors’ perspective and a speculators’ perspective, where would you put your money – in real estate, in fixed income, equities, or gold?
Agrawal: To tell you the truth, I don’t know any other trade. I know only stocks. So, I don’t have any other option but to buy stock.

Jhunjhunwala: We never allocate capital. We have money means it is for equities.

Agrawal: Just equities, not even cash and equities, only equities. So, when I wanted to play real estate, I bought hotel shares. I am not going to buy 100 acres here and there. I said let’s go and buy earning real estate, i.e. hotel shares.

Jhunjhunwala: I have allocated some part of my trading portfolio to debt – to buy bonds. Long-dated bonds with good yields are very good.

Q: How do you decide when to sell a multi-bagger?
Jhunjhunwala: I will sell a stock only in two circumstances: when I have limited capital and when I get an opportunity that is better than what I have now. So, if comparatively I need capital, I will sell it.

Secondly, when the perception of earnings peaks and the P/E is unsustainable. I think that is a time to sell. The earning may not peak but the expectations of hope like in 2000 everybody said Infosys’ earnings will double every year for the next 10 years. That was the expectation in the market and its P/E was at the current earnings, it was 100-150 times. So, when the expectation of earnings peaks and the P/E is unsustainable, I think that is a time to sell.

Agrawal: There are two types of stocks. One you buy forever and one you buy for a trade.

Jhunjhunwala: I strongly contest this. There is no stock forever in the world.

Agrawal: I contest that. There are clearly two types of stock. One you buy for selling and one you buy forever.

Learning Curve

Ramesh Damani is hosting a new series called Learning Curve wherein the D Street experts meet the B School Students and explain and answer their questions.

Yesteday the D Street was represented by RJ, Raamdeo Agrawal of Motilal Oswal Securities and Sanjoy Bhattacharya, Founder and Partner, Fortuna Capital and B School by IIM ( I think IIM A). RD asked the trio about the hunt for 10 baggers.

Here were their views (or what I thought I remembered)
Raamdeo Agrawal : Get the stock very cheap. He spoke about the mcap of Bharti Airtel now and 5 years ago. His 10 bagger was Bharti Airtel

Sanjoy Bhattacharya : 1 Scalability of business
2 how well the promoters allocate capital
3 true agenda of the large stakeholders
4 predictability of the business / products
5 When told to others in the mkt for some time, they should not be optimistic of the stock being a multi bagger()


RJ :
1 Scalability
2 Institutional interest should be less
3 less covered
His favourite 10 bagger was Titan

They were couple of other sub topics.
RJ & Sanjoy felt they should not be married to stocks while Raamdeo felt there were 2 kinds of stocks - stocks which can be held forever and stocks which were to be traded

Raamdeo was optimistic about the telecom sector in future while RJ felt anything India centric would do good.

JVL Agro 3rd Qtr results 2009

Economic Times 20 Jan 2009

Interview - Ajay Bijli, MD, PVR Ltd

We may do 2-3 more films with Aamir'
DNA India 13 Jan 2009
Arcopol Chaudhuri

PVR Ltd's subsidiary PVR Pictures has struck gold twice at the box-office through its two co-productions with Aamir Khan. Currently, the company is sitting on a slate of independent low-budget productions which will release in the coming months. In this interview Bijli, Ajay Bijli, chairman and MD, PVR Ltd, told Arcopol Chaudhuri that the company is confident of beating this financial year's growth rate in the coming FY.

Excerpts:

You recently launched PVR Cinemas at Phoenix Mills. Do you have a 3D screen in place, considering a long pipeline of international 3D releases in 2009?
We'll make one screen 3D-enabled here. We have to spend more on it, because it is supposed to have a curvature. With 7 screens, PVR Phoenix is the biggest multiplex in Mumbai. PVR's biggest property is in Bangalore with 11 screens at Koramangla. Another 11-screen property is coming up in the city.

The launch of new multiplexes must have been affected by the economic slowdown...
In the multiplex business, expansion is a function of a real estate. If we were dependant on one or two developers, and if their plans get stalled, then we get affected. Our strategy was always not to tie up with one developer. Fortunately, most of our developers aren't financially so stressed that they've had to put off their projects. Wherever they are doing multiple projects, our growth has been impacted — some pockets in Bangalore, Chennai, Udaipur and Amritsar. This has meant that our projects have got postponed to the next financial year. This means, we'll be growing faster in FY09-10. In FY08-09, we targeted launching about 40 screens but managed only about 24.

How many will you launch next FY?
If all goes well, we'll launch about 50 screens at about Rs 2 crore per screen. We've signed enough projects so that even if 20-30% of projects do not materialise on time, then the rest are enough to see us through in the next FY. Multiplexes add value to a mall. For example, on any Sunday, Phoenix Mills gets 22,000 visitors. Last week, after PVR launched, the number rose to 41,000.

Has the nature of the deals changed with developers?
We're doing revenue sharing deals, rather than fixed rental deals. Some of our existing properties already have it in practice and most of the new ones are using revenue sharing deals.

How are you utilising the PE funding of Rs 120 crores that PVR Pictures received?
We'll produce about 4-5 films projects in a year. Annually that'll mean about spending about Rs 60-70 crores. Taare Zameen Par, Jaane Tu Ya Jaane Na, Contract were low budget films and the plan is to continue the trend. We even have a movie at a Rs 2 crore budget. It's logical. It hasn't been practiced in the industry, so we want to put it into practice. In distribution, we'll do about 20-25 films in a year, wherein we'll invest in prints and publicity.

With successes like Taare Zameen Par and Jaane Tu Ya Jaane Na, it seemed like you found a perfect co-producer in Aamir Khan. Why haven't you signed more projects with him?
We may do more films with him. He's got 2-3 ideas that he wants to discuss.

As a multiplex business, have you thought about ways to combat something like IPL?
Both forms of entertainment have to co-exist. This year, I'm hoping the film industry to continue releasing films. Secondly, I hope the organisers give multiplexes telecast rights for the matches.

If the latter doesn't materialise, how do you save yourself from poor occupancies?
I think Bollywood must take IPL head-on. Last year, during IPL, occupancies were low because there wasn't good content. Tashan was the biggest release and it did not fare well because audiences did not like it. But if say, a Ghajini releases during IPL, it'll still do as well.
c_arcopol@dnaindia.net