Value Migration ✈️ | Strategy

Rupeeting
Jul 18, 2022
4 min read

Updated: Aug 17, 2023

What’s in a Name?

The term “migration” refers to movement from one situation to another, while the latter is usually attributed to “greener grass”. This portfolio embodies the shift from obsolescence to innovative efficiency.

Value often shifts - from horses to cars, from kirana stores to 10 minute delivery, from cash to UPI - and the value addition that comes from this transition is something that people pay for.

We scour the markets for companies that are in the process of offering greener grass to people. This migration drives something more efficient, modern, and profit-generating as a business model; and we tag along with them!

Simplify

Simply put, if a company manages to tackle a segment and causes improvement for themselves and the industry they operate in, thereby transitioning from an out-dated system, is said to fulfil the definition of value migration.

These segments/drivers can be broadly classified as:

Technology - Banking services evolving into an eco-system of self-operation and user-friendly interfaces that negate the need for human involvement in grunt work (UPI, net-banking, Robo-advisors).
Cost - Pharmaceutical R&D that has resulted in over-the-counter medication being easily affordable by majority of the population.
Innovation - The advent of electric vehicles and alternative energy sources that have moulded the future away from environmentally detrimental catastrophe and paved the way for sustainable living.

All of these promote convenience, economic feasibility and overall prosperity when compared to their archaic practices.

To oversimplify, it is sort of like when Wolverine got the adamantium claws - made him more lethal, saved him a lot of money on health insurance and if he went to a therapist, it could’ve led to improvements in every field he wished to enter.

Value Migration portfolio is like the X-Men - capitalising on his power upgrade!

Recipe for the Dough 💸

Assess shifts in value in various industries and the subsequent shift in consumer behaviour due to the former, thereby causing a migration towards newfound value
Identify companies that are either triggering said migration or those that who will benefit by this domino effect
Take out your calculator and cherry pick the companies that are valued in such a way that investors can be benefitted from earnings growth and valuation re-rating
Rinse and repeat till a collated dream team is created that ranges across industries, fuelling diversification
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? Maybe this will “migrate” your opinion.

Enter - Titan, a household name among anyone who is a fanatic of fashion and accessorising. The prized holding of the Big Bull of India until recently, Titan has had a meteoric rise, with approximately 30% CAGR of their earnings over the past 5 years.

Although Titan is known as the world’s 5th largest watch manufacturer, we will focus on the timely and opportune growth of a company under their banner - Tanishq.

This is the brand that accelerated the growth of the organised gold market in India. What now is a third of the total market, in 2000 was all of 6%.

Until the late 90s and early 2000s, the gold market of India was governed by small, local, unorganised stores that your family has been visiting for aeons.

But this format of gold shopping had issues - trust around the authenticity of gold, lack of new designs, undefined returns policies, amongst others.

Titan was quick to grab this opportunity and enter the gold market - creating a national brand to fill the market gap.

Here is how they capitalised on this:

Identify the problem: Imported expensive gold purity testing equipment from Germany and allowed free testing of gold. Their estimation suggested that 60% of gold in the unorganised market was impure.
Provide a solution: Their “Impure to Pure” plan offered gold owners the opportunity to exchange their 19-21K gold for 22K and were expected to just pay the making charges!
Branding: Running ad campaigns and plastering the face of Bollywood stars in their starry jewellery added to the luxurious visage of the brand, ploughing through their competition.

With this, Titan was able to drive superior earnings growth for several years consistently: 25% for 10 years!

The result? Titan’s market cap grew at a 40% CAGR over the last 10 years. The stock price has increased by 33X over the last decade.

Value Migration spots these frontrunners, hoping to imbibe the Midas touch, much like Titan!

Meet Your Maker

Presenting - Prasanna Bidkar

He has spent more than 17 years in the equity markets. For a decade, he was the Head of Research at the iconic Dalal Street Investment Journal, where he also launched several successful products.

His rich experience also includes heading research and investment advisory services at Dalal Times and Pentad Securities.

Prasanna has also managed equity portfolios for HNIs, and has conducted more than 200 investor awareness programmes across India.