I had very interesting conversation on this topic with Harsh Beria. Some interesting arguments which came out of that conversation as below
- Good investible business has to be scalable and scalability comes via market share gain. At the same time scalability is of no use if business model is not granular
- Therefore good capital allocators tries to achieve - 1) Higher gain in market share and 2) Better granularity in business - per unit of unit of capital employed
- Ajanta pharma is may be only global pharmaceutical company which focusses only on formulations. There is always a tendency to diversify in CRAMS or API or other segments. Ajanta Pharma decided to solely focus on formulations and extended that idea over 50 geographies which made their business model granular without entering in CRAMS or API saving per unit of capital employed
- Suprajit eng with just two products since inception managed to create granularity in their business model because of the versatility of the mechanical control cable, which finds application in two wheeler, 4 wheelers, tractors, CVs, outdoor power equipments, construction, aviation, defence, medical, marine and many more industries. Capex requirement for mechanical control cable is one of lowest in auto component industry and they have cracked the code to etch out 16% EBIDTA margin from the product as humble as cable. Therefore focussing on only one product - mechanical cable for almost 30 years ( from 1985 to 2015 ) helped Suprajit to achieve desired granularity with lower per unit capital employed
- Cera focussed on only sanity ware and bath ware but built consumer franchise unlike most of the building material companies ( more than 60% ) to achieve scale and granularity with lower per unit capital employed
- Almost 55- 60% of the Vinati’s Revenue comes from ATBS but ATBS is very diverse molecule and find application in various industries - water treatment, oil field, construction, textiles etc
Therefore focussed aggression does not mean business model is not diversified but it means - making business model granular by focussing on …… ( trying to find a right word )
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