The BUDGET- So, finally, we have the Budget & all the analysis paralysis related to it.
How much impact it had on your investment portfolio?
If the answer to this question is MAJOR IMPACT, you are in trouble. Because, if subsidies/ duties/ bills/ service taxes can have a major impact on your investments; then, in all probability, it means your company is lacking Pricing Power; one of the most, if not the most, important attributes that a business must have to become a long term investment. (Minor Impacts are fine and Margin of Safety is supposed to take care of that.)
ITC is a good example in this case. It tends to underperform the market before the budget due to fear of increase in duties on cigarettes. But, even a simple historical analysis/ personal use of cigarettes can tell that ITC has Pricing Power & will be able to pass on any hike to its customers without having any effect on the demand.
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Talking of Pricing Power, comes an important question- What kind of companies have Pricing Power?
Out comes a quick response: Companies that provide some essential good/ service and they are the only providers will have the best Pricing Powers. In business jargons, it would be Inelastic Demand met by Monopolies. Right?
Not always. What better example of a business monopoly catering to Inelastic Demand than Indian Railways? :) Saw what happened after Rail Budget? Poor CEO (Mr. Trivedi) thought of verifying his business' Pricing Power but lost some Mamta in the process.
Coal India supplies more than 80% of required coal to the country & power plants that want coal only want coal.... Inelastic demand + Monopoly. Pricing Power? Again, No. They increased prices recently but again went back to earlier prices. The company's decision to go back on the recent price hike has angered a minority shareholder (UK based Hedge Fund). Helpless Minority Shareholders!!!!!
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Talking of Minority Shareholders, I had written some time back, that as a minority shareholder, you should love your stocks but after knowing Till When. OCCL answered Till When part too soon for my liking. How? This way..... I love you OCCL until You make a STUPID ACQUISITION. Details are here.
Basically, they are acquiring a loss making company having terrible business dynamics and high debt for 15 crs at a time when their own balance sheet is not that strong and is filled with capex driven debt.
Why? In M&A whenever in doubt, call it SYNERGY. (Man is Rationalizing Animal, afterall)
How much impact it had on your investment portfolio?
If the answer to this question is MAJOR IMPACT, you are in trouble. Because, if subsidies/ duties/ bills/ service taxes can have a major impact on your investments; then, in all probability, it means your company is lacking Pricing Power; one of the most, if not the most, important attributes that a business must have to become a long term investment. (Minor Impacts are fine and Margin of Safety is supposed to take care of that.)
ITC is a good example in this case. It tends to underperform the market before the budget due to fear of increase in duties on cigarettes. But, even a simple historical analysis/ personal use of cigarettes can tell that ITC has Pricing Power & will be able to pass on any hike to its customers without having any effect on the demand.
**********************************************************************************
Talking of Pricing Power, comes an important question- What kind of companies have Pricing Power?
Out comes a quick response: Companies that provide some essential good/ service and they are the only providers will have the best Pricing Powers. In business jargons, it would be Inelastic Demand met by Monopolies. Right?
Not always. What better example of a business monopoly catering to Inelastic Demand than Indian Railways? :) Saw what happened after Rail Budget? Poor CEO (Mr. Trivedi) thought of verifying his business' Pricing Power but lost some Mamta in the process.
Coal India supplies more than 80% of required coal to the country & power plants that want coal only want coal.... Inelastic demand + Monopoly. Pricing Power? Again, No. They increased prices recently but again went back to earlier prices. The company's decision to go back on the recent price hike has angered a minority shareholder (UK based Hedge Fund). Helpless Minority Shareholders!!!!!
**********************************************************************************
Talking of Minority Shareholders, I had written some time back, that as a minority shareholder, you should love your stocks but after knowing Till When. OCCL answered Till When part too soon for my liking. How? This way..... I love you OCCL until You make a STUPID ACQUISITION. Details are here.
Basically, they are acquiring a loss making company having terrible business dynamics and high debt for 15 crs at a time when their own balance sheet is not that strong and is filled with capex driven debt.
Why? In M&A whenever in doubt, call it SYNERGY. (Man is Rationalizing Animal, afterall)
