Sanjeev bajaj interview

Your core portfolio looks good and the only thing you need to do is sit on it.

Cupid seems to be a good except that it is a micro cap and I generally avoid micro caps. MPS appears to me as a bet on the fund manager and not the business. Somehow it looks like a Piramal/Holding company bet and I would prefer to bet on a business instead.

I need to study CCL so can’t comment on it yet.

Hi Ashwini,

Though Abhjit has answered your questions, here is my thought process on the same.

• Vidhi, at current realizations, is selling around 3600 MT in the market both from manufacturing and trading. Thus, out of 40,000 MT market, it is commanding around 9% market share. Now, let us for the moment, assume that market actually grows at 5% CAGR for 5 years, market will expand to 51,000-52,000 MT. Thus, if Vidhi is able to sell 8400 MT (as the management claims), it will have 16% market share. Thus market share gain will be around 7%. Now this market share gain can come from either Vidhi capturing new demand/market agressively or taking away existing market from other players or both. Most likely, it is likely to be both. Having said that, I do not want to suggest that we shall take management commentary on face value. However, i am just alluding to the fact that it may not mean Sensient ceding 30% market share and the projections do not factor in highly unrealistic situation

  • Coming to the revenue aspiration of 500 Crores, again we shall consider that the realization may improve over next 5 years as it has in the past (except for substantial strengthening of rupee, which also can not be ruled out). So, with volume expanding to 2.3 times (3600 Tons to 8400 Tons) and realization improvement by 3% CAGR (reasonable assumption in my opinion considering historical realization growth) will mean that realization in 2020 can be 1.16 times current realization. Thus if capacity, as claimed, come on stream and company able to market it, revenue can reach 500 odd crores. (2.33*1.16*180 Crores)

  • Another, interesting thing, which has not been factored in currently and may give fillip to revenue growth is that realization from natural colors is 10-20 times that of synthetic colors. Thus, even if company is able to produce and sell 5% of its capacity for natural colors in 2020 (Again an assumption), can add 150-200 odd crores. Here is the maths

Natural color production: 5% of 2020 Production = 0.05*8400 tons = 420 Tons
Natural color realization: 10-20 times synthetic colors i.e. Roughly (10*5,00,000)/ton = 50,00,000/Ton
Revenue from natural colors = 420 * 0.5 Crore = 210 Crores

• Now as you can see, there are number of assumptions here, as always is the case. however I find most of them reasonable in the context of the industry and business’s past performance. So, I feel that 500 Crore target is a tall task by all means but something which is not unrealistic. The key monitorable is how well company is able to manage increase in production capacity over next 5 years and then create market for it.

• Having said that, I typically am very cautious of management that gives aggressive guidance and have missed many multi-baggers due to that. So, the prudent approach will be to build our own scenarios and see, whether VDSL presents an opportunity where downside is limited with fair possibility of good upside. Such cases, we can analyse

1) 15% sales growth; Margin expansion to 20%
2) 20% sales growth; Margin expansion to 18%
3) 25% sales growth; margin expansion to 20% (best case)
4) 15% sales growth; no margin expansion (worst case)

What can kill the idea?: In my opinion, single factor that can kill the idea is the currency appreciation as it will impact realization thus margins and will make the India’s product less competitive thus slowing/stopping shift from market leaders to Indian players

Firstly, SUPER CONGRATS for forum members for rightly recognising this company in its diaper stage. I’m a late entrant but still the company is sucking its thumb. Barring surprises, I would like to exit when it reaches adolescent stage or middle age.

I have updated my portfolio thread with my entry into CCL Products and here is the link to it (tried copy pasting the specific content but the format is gone, so putting the link here):