What’s in a Name?
Mark Zuckerberg cleverly phrased that "Unless you are breaking stuff, you aren't moving fast enough”, and that is the essence of this portfolio. Ever so often in the market, there comes a player that shatters their industry with impeccable innovation, technological advancement and competitive edge, that changes the course of their field.
We scout for those all-stars that “disrupt” the market, and capitalise on the ripples they make across the board.
A quick glance around you or at the apps on your smartphone would result in you identifying various disruptors. If you went back in time by a mere decade or two, and told your younger self about the marvels of tomorrow, and had to simplify it, it would be something like this:
You can call a random stranger using your phone and they’ll agree to drive you around (Uber/Ola), bring you food & groceries (Swiggy/Zomato), and you can monitor their movements.
Watching a movie or sitcom doesn’t require you to go to the theatre or wait for it to turn up on the TV. By paying a sum of money, you can watch seemingly limitless content, and the best part - you can watch it at home (Netflix/Amazon Prime).
To put the quantum of Netflix’s disruption into numbers, for every Rs. 100 you could’ve invested at their inception, you would’ve made Rs. 44,000 at their all-time highs, in just 10 years!
Disruptors by Rupeeting finds oysters like these and waits for their pearls to emerge, making you a tonne of money in the process.
Recipe for the Dough 💸
Identify a potential disruption - whether it is technological advancement, product innovation, penetrative pricing, process improvement, etc.
Assess the scalability and potential success metrics around disruption. The disruption should ideally shake the market up over the long term, and result in significant competitive advantages.
Quantify this potential in the form of market share, revenue growth and profitability.
Find companies from various industries that are closer to achieving said disruption.
Mitigate the risks involved in the potential investment by conducting extensive research about the sustenance of the disruption, return on incremental capital invested, and ability to pull off the disruption successfully.
Focus on the probability of long-term wealth creation and continuous outperformance displayed by the prospective candidates.
Prove that our strategy will flourish by collecting empirical evidence and testing it against a decade-long historical dataset.
Ascertain how many stocks of each company to invest by a process called weighting. We do this on the basis of market capitalisation, management quality, and their vision for excellence, backed by earnings.
Monitor their progress, or lack thereof and make adjustments to the portfolio accordingly (Rebalance).
Skin in the Game
Still aren’t convinced? Let’s take an example of one of the stocks that Disruptors used to “move fast and break things” - Shree Cement.
The 1979 incorporated, Kolkata-based cement manufacturing company that beat odds at every turn, they are now among the top 3 cement manufacturers in the nation.
Shree Cement disrupted the cement market - which is a rather commoditised industry. In the last 10 years, its capacity (and sales) quadrupled to 47 million tonnes per annum. This rate was double that of the industry, where overall sales only doubled over the same period.
What did they disrupt to achieve this?
Shree Cement focussed on bulk sales (to the government, to infrastructure companies, and others) instead of investing in building a premium brand for consumers
For bulk sales, price becomes a critical decision maker - after all cement is a commodity with little difference in quality across players
Shree focused on severely cutting their production costs by introducing some cutting-edge innovation and improvement in processes
For making cement, high temperatures are necessary. Fuel and power are the major contributors of cost. Shree started using petcoke instead of coal. Petcoke was available at much cheaper prices than coal in India until some time ago.
Since the process generates a lot of heat, Shree started trapping the excess heat generated rather than letting it go waste. They re-used this heat so that less fuel is required to maintain temperatures. This process is called Waste Heat Recovery.
They also started separating their clinker production and cement production. Making cement in one place and then transporting it to points of sale is rather inefficient. Instead they split their production - clinker would be produced at ‘hubs’, transported to mixing facilities ‘spokes’ close to major sales hubs, and cement would be produced there instead. This ‘split’ increases the total cement production capacity with much lesser investment.
Shree Cement rapidly doubled its market share from 8% to 15% in 10 years
It produces their cement at the lowest cost and with the least power consumption
It’s profitability is the highest amongst peers
The stock prices has jumped up 15x in the last 10 years - 4x increase in profits, and the rest led by a massive valuation re-rating as it became an investors’ darling
Picking companies that fit this bill is what Disruptors is all about, resulting in the possibility of monumental gains in the long run!
Meet Your Maker
Presenting - Mehul Parikh
Mehul has been heading research at S&A Ventures, which is one of the largest brokers and money managers in Gujarat.
He has worked in Motilal Oswal’s institutional research team, in the areas of special products and forensic analysis.
He was has also worked in the core strategy and corporate finance team at Mahindra Group, working directly with the CFO.
He is a CA, who has also articled at DJNV & Co.
Piece Of The Action 🍕
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