Kalpesh’s Portfolio

Business models that I like –

1. Businesses which are lowest cost producers where retailers/dealers decide what is best for customers, customer buy’s whatever dealer/retailer suggest.
   In this model brand name is not that important but an end users trust on dealer/retailer is.
   a lowest cost producer can grow fast for long long time, when their products are of good quality.
   Retailer/dealer will naturally sell where they have better margin’s and product quality is good, and who can give then better margin’s sustainably? off course lowest cost producers.
   As the business grow moat of producers further strengthen by economies of scale.
   they just need to sell at reasonable price and give good margin’s to retailers.

Find such companies where management understand real moat of their business is lowest cost production and take continuous efforts to be that way and increase the scale to such a level that competitors cannot think of competing.
Keep the pricing such a way that competitors production cost is higher or equal to your selling cost.

Risks : Management goes other way, Switching is easy for retailer/dealer

e.g. DHP India, Satia industries, Relaxo footwears etc

Moat of DHP is improving with scale and their cost cutting initiatives, it will keep gaining market share.

Satia can scale up almost entire capacity expansion immediately, by gaining market share even when prices are market driven, why? because it is one of the lowest cost producer and it’s financials provide it ability to provide better margin’s to retailers.

Suppose one Stationery shop owner in Gujarat sells WPP of 3 companies, and he is getting 15% margin from satia & 10% from other 2 companies, he will naturally push satia products to customers, as customers don’t care about company(most don’t in WPP) they just want paper to put in printer.
As cost structure of other 2 manufacturers don’t give then ability to provide more than 10% margin to retailer Satia is winner here even when customer is getting same price for all 3.
Things are not that simple in marketplace, there are other factors also involved.

But that is the reason Satia can put up new capacities very fast, and scale up them immediately as long as they know what their real USP is, and management don’t take any irrational decisions.
There are many hurdles in paper industry in supply side and production side like, availability of raw material, water, power, manpower etc which makes paper industry a difficult place for manufacturers but managements like JK and Satia know how to use these hurdles to their advantage(rational managements).

Will compete thepost later on as & when time permits