- Future of India's broader markets
- Market approach amid frothy valuations
- Opportunities in pharma & dairy
Niraj Shah in conversation with Malabar Investments' Sumeet Nagar on 'Talking Point'. #NDTVProfitLive
- Market approach amid frothy valuations
- Opportunities in pharma & dairy
Niraj Shah in conversation with Malabar Investments' Sumeet Nagar on 'Talking Point'. #NDTVProfitLive
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TVTranscript
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00:17 Hello, and welcome to Talking Point.
00:42 We have with us a very special guest joining us
00:44 in the studios, Sumit Nagar of Malabar Investments,
00:48 more fondly known as, like Neeraj says,
00:51 the man, the Midas touch for the broader markets.
00:53 Sumit, happy New Year, and thanks a ton for joining us
00:56 in the studios today.
00:57 Happy New Year, and pleasure to join you guys.
01:01 Sumit, I'm going to start more broad,
01:03 and then of course we'll narrow it down to stocks,
01:04 because we can't let you leave the studio
01:06 without talking about stocks.
01:08 I want to start by the year that's gone by.
01:10 Nifty is gained, but the broader markets was largely
01:12 the highlight, right?
01:14 With mid and small cap gaining substantially,
01:17 do you think gains into this year for the broader markets
01:19 will be moderated?
01:21 And also, let's not forget that India
01:23 has become significant for the rest of the world,
01:25 and FIs only literally joined the party
01:27 towards the end of last year.
01:28 So what lies ahead for the broader markets in 2024?
01:32 Well, I'll start with a caveat that we're not
01:35 market investors per se.
01:37 We invest in companies.
01:38 We invest in management teams.
01:40 We look at the markets because that's the environment
01:42 we play in, but that's not our primary focus.
01:45 Having said that, I think what we saw in the markets
01:50 in 2023 was sort of rising this wall of worries.
01:54 I think when we started the year,
01:55 I think 2022 wasn't a good year,
01:58 and there were a lot of worries that existed
02:00 in the beginning of 2023, and slowly as they receded,
02:04 the market sort of continued its climb up.
02:08 If you look at today, I mean, we think the market
02:11 is reasonably well poised, right?
02:13 So on the one hand, you have many positives, right?
02:15 You have economy that's doing well.
02:17 It's sort of gathering for the pace.
02:20 Your interest rates that have probably peaked out
02:22 and they will come down.
02:24 Macros are generally good.
02:26 Commodities are benign.
02:27 So these are all sort of good factors for the market,
02:31 but on the other hand, you also have this worry
02:34 of valuations being high globally,
02:36 maybe some sort of correction may happen.
02:39 You've had such a steep rise in interest rates.
02:41 Something somewhere breaks.
02:43 You know, there's slowdown or recession
02:44 that people have been talking about.
02:47 You know, so these are the things
02:48 that are the cause for worry,
02:50 but the biggest one is that the markets
02:53 are always forward-looking, right?
02:55 So last year, even as things weren't that great,
02:58 as they started to improve, markets already moved up.
03:01 So some of this positive is already priced in, right?
03:04 So where does that leave us?
03:05 You know, we think that there's still probably further upside
03:09 because, you know, as you pointed out,
03:11 the rally only started in the last two quarters of the year,
03:15 right?
03:16 You know, just to point out, right,
03:18 in the 18 months that ended in March 2023,
03:23 we saw massive amounts of foreign capital outflow, right?
03:27 More than what we saw during the financial crisis.
03:29 And it's only since April
03:31 that foreign capital has started to come back.
03:33 And what has come back is only maybe, you know,
03:36 two-thirds of what had gone out, right?
03:38 So there's still some of that capital has to come back
03:40 and probably more, right?
03:41 Because as you said, that India is becoming more prominent,
03:44 people want to put more capital in.
03:46 So as, and these sort of flows have a momentum with them.
03:50 They run for a period of time.
03:52 And so that will likely continue for some more period,
03:55 unless something big breaks somewhere, right?
03:58 I think so that's what you're seeing.
03:59 But at the same time, I think the easy money of,
04:03 you know, rising tide, you know, raising all the boats,
04:06 I think that's probably over.
04:07 So now it will be sort of more selective,
04:10 wherever you see good performance,
04:12 companies delivering earnings and cash flows,
04:14 that's where you may see, you may see the upside, right?
04:18 So that's our view on the market.
04:20 - Sumit, the last six, eight months
04:23 has been about government.
04:24 It's been about sectors of the government is big also,
04:27 be it defensive, be it railway.
04:29 It's largely been a top-down approach.
04:31 Now, as we go into a time and valuations
04:34 look slightly more frothy for the broader markets,
04:36 would you advise investors to still,
04:39 or rather now maintain even more so now,
04:42 a bottom-up approach?
04:43 And it's all about companies as opposed to sectors?
04:46 Strategic.
04:47 - Yeah, so again, again with the caveat
04:50 that we are always big believers in bottom-up approach.
04:53 So, you know, I'm just sort of repeating the same thing
04:56 that I've ever said that, you know,
04:57 you're always, you want to think top-down.
05:01 You want to see where the world is heading,
05:02 the trends that are coming through, what will benefit,
05:05 but always invest bottom-up, right?
05:07 Know the companies that you're investing in,
05:09 what are their fundamentals?
05:10 Who are the people behind that business?
05:12 Do you trust them with your money?
05:14 And only then you invest, right?
05:16 So I think from that perspective,
05:18 you can always find opportunities, right?
05:21 So while, I mean, some of the government-related trends,
05:25 I mean, you know, they've actually worked well
05:27 in the past year, but if you look at the long history,
05:31 they haven't given consistent returns, right?
05:33 So we generally stay away from that, but that's our choice.
05:36 There are many other people who do that
05:38 and do that successfully, but our main concern with those
05:42 is that there is lack of clarity, lack of visibility,
05:46 and whenever you're in these opaque situation,
05:49 it's tough to bet on companies for the very long term, right?
05:54 So for a shorter period of time, they may do well,
05:56 and you can always find companies
05:58 that benefit from those trends, right?
06:00 So I think it's important to see the trends
06:02 and see who benefits from that and invest in those.
06:05 - Right, so talking about opportunities,
06:06 and let's go quickly move into stocks
06:08 because that's where your expertise clearly lie.
06:11 I want to start with Newland Pharma,
06:13 Newland, which has been a fantastic company,
06:15 growth in the CMS business has been amazing,
06:17 to say the least, high margin, good growth,
06:19 delivered great returns over the last four, five years.
06:22 Is the future as glorious for Newland,
06:25 and does it look good even for a fresh investment
06:27 at this stage?
06:29 - So I'm happy to talk about the stocks
06:31 with the companies we invested in.
06:33 People sort of know it's public knowledge
06:35 we own more than 1% in these companies,
06:38 and we believe very passionately about these companies.
06:41 That's why we invested our
06:43 and our investors' capital in them, right?
06:46 But everybody should do their own work before they invest.
06:50 When we talk about Newland,
06:51 I think Newland is one of those companies
06:54 where you have to build capabilities and trust
06:59 over not years but decade plus
07:02 in order for global pharma companies
07:04 to trust you with their IP and with their new drugs,
07:09 and that's something that Newland has done quite well,
07:12 and the results of that,
07:14 you're seeing that come to fruition now,
07:16 and while they've had a very strong run-up,
07:20 I would say the earnings have actually done extremely well,
07:23 and so as a result,
07:25 their valuation is still fairly reasonable, right?
07:27 So they're in sort of low 20s PE for this year's earnings,
07:31 and the business momentum is still quite strong, right?
07:34 And if you look at long-term trends,
07:36 I think the trend of newer innovative companies
07:41 which are coming up without manufacturing facilities
07:43 is only going to go up,
07:45 and they will always look for reliable partners globally,
07:48 and there are not that many of them,
07:50 and so companies like Newland are in a very good position
07:53 who have done all the hard work to build the capabilities,
07:56 to build the credibility,
07:58 and now they're reaping fruits of that.
08:00 >> There's this belief, Sumit,
08:02 that the CDMO opportunity,
08:05 while companies have scratched the surface,
08:07 and maybe Divis has been a leader there,
08:09 but Divis, Loras, Newland, et cetera,
08:12 over the next four or five years
08:13 could see significant outsized opportunities
08:16 relative to what they've enjoyed in the past.
08:18 Is that something that you concur with as well?
08:21 And rolled into that is the second question,
08:25 that do Newland facilities right now
08:29 have the ability to expand their revenue base
08:32 without incurring too much of CAPEX?
08:35 Is the CAPEX largely behind, or is it still to come?
08:38 >> Sure, so I think on the first point,
08:39 I think the opportunity is clearly there
08:41 and clearly growing, right?
08:43 So I think the number of molecules
08:45 and the size of molecules that are coming into India
08:48 are both are increasing, right?
08:50 And both are very positive trend for the industry.
08:53 But again, I think it's really about each of the companies,
08:56 what their capabilities are,
08:57 who are the clients with whom they have built the trust,
09:00 and then what are the things they're working on, right?
09:03 Because what gives you the result today
09:05 is the work that you've done
09:07 over the last two, three, four, five years, right?
09:10 These are the molecules you've been working on,
09:11 and only when they come up for commercialization
09:14 is when you see the big benefit.
09:17 The great thing about Newland
09:19 is that they have been doing this hard work
09:20 for the last decade plus,
09:23 and many molecules are now sort of coming into that zone
09:25 where they will get commercialized,
09:27 and so they will see the benefit.
09:28 So I think overall, I think for the industry,
09:30 it's definitely a very good thing, and so is for Newland.
09:34 In terms of the capacity-wise,
09:36 they have capacity to cater to the growth
09:43 that's currently there,
09:44 and at the same time, they recently took board's approval
09:47 to expand the capacity quite significantly,
09:50 so they have an existing manufacturing
09:54 where there's one more block that will come up,
09:56 and that's very sizable,
09:57 and so that can drive the growth
09:59 for the next several years.
10:02 But the thing here is that if the demand is there,
10:05 capacity is an enabler.
10:06 You'll always put it up.
10:07 There's obviously some lead time to it,
10:09 but if the demand is there,
10:10 you can put up the capacity, and you can cater to that.
10:14 - Right, moving on from one big performer to another,
10:17 not such a great performer so far, is Hudson Agro.
10:20 Dairy company in the South, they've expanded meaningfully,
10:23 so of course, haven't gone and said,
10:24 "We're gonna capture the world,"
10:25 but gone one step at a time.
10:28 This, though, hasn't reflected
10:29 in the numbers of Hudson Agro, right?
10:32 The stock hasn't done too well either.
10:34 You've been confident for many years now on the stock.
10:37 One, when do you see this turning around for Hudson Agro,
10:41 and also, what makes you so optimistic?
10:43 I mean, if you bet on this one for a very long time,
10:45 and you are unwilling to call it quits, I believe.
10:49 - Yeah, I mean, see, there are certain companies
10:52 that are just great compounders over the long term.
10:55 The only difference is there
10:57 that each company compounds differently, right?
11:00 So there are companies that will sort of eke out
11:02 some level of returns every year,
11:04 but a lot of your staple companies are like that, right?
11:08 And that's why people like them.
11:10 In some ways, dairy is one of the biggest staples
11:13 that you can think of,
11:13 like which family can live without milk, right?
11:16 So dairy is one of the best staples that are on.
11:19 It's just that because of the way milk gets priced
11:23 and sourced and marketed, it leads to certain cycles.
11:26 And so as a result, what we've seen with Hudson
11:29 over the years, that if you're looking
11:31 at any sort of five-year chunks,
11:33 there is a significant amount of compounding,
11:35 but in between, you'll find one, two, three years
11:38 where it doesn't do as well,
11:41 because that's an environment
11:43 where either the volume is impacted,
11:45 or maybe margins are impacted
11:46 because milk procurement prices have gone up.
11:49 But then you'll get one or two years
11:53 where suddenly you'll see a very, very big uptick, right?
11:56 And so that's why we're confident.
11:58 This is one of those companies that we know
12:00 that five years from now, 10 years from now,
12:02 15 years from now, it'll definitely be bigger
12:05 than where it is today, right?
12:07 And so they will keep compounding.
12:08 You don't have any sort of risk of imports.
12:10 You don't have any risk of AI.
12:12 (laughing)
12:13 - Veganism, is that not a real problem?
12:15 - In India, I mean, if you go deeper into India,
12:18 India is largely a vegetarian country
12:22 where dairy is the most important source of protein, right?
12:25 And you cannot do without protein.
12:27 If anything, the need for protein continues to increase,
12:30 right, and so people will consume dairy.
12:32 And then over time, they're obviously going
12:35 into more value-added products, right?
12:36 So if you look at their ice cream business,
12:39 I mean, it's been growing gangbusters, right?
12:42 They went from, they were predominantly salt-based,
12:45 but slowly they've been expanding
12:47 into middle of the country,
12:48 and they're top three ice cream makers in the country now.
12:51 - Sumit just simplifies this
12:53 and makes it sound so simple, right?
12:54 - Yeah, that's the idea, but really.
12:56 And just wondering, Sumit, I mean,
12:58 for companies to last for 10, 15 years,
13:00 there are multiple companies which do that,
13:02 but for companies to last 15 years successfully
13:05 is other thing.
13:07 You expect the CAGR growth rates for a dairy business
13:11 like led by Chandramohan to be a significant compounder?
13:15 I mean, higher double digits, or is it, how is it?
13:17 - Sure, so, I mean, if you look at,
13:19 I mean, this is 50 years running,
13:21 Mr. Chandramohan started this 50 years ago,
13:24 and every five-year chunk, it has grown, right?
13:27 And so that's what gives,
13:29 and despite being the largest private sector
13:33 dairy company in India,
13:34 they are less than 2% market share.
13:36 There's such a long runway to grow, right?
13:39 The only thing is that this is not a business
13:41 where you'll see 50% growth in revenue in a year.
13:44 You can see in profits, but not in revenues.
13:47 So revenues will keep chugging along.
13:49 You know, there's a 5% dairy milk consumption growth
13:52 across the country, so that's the base, that's the support.
13:55 There's some sort of milk inflation
13:56 that sort of, again, adds to on top of that.
13:59 And then they're gaining share,
14:00 you know, as they're expanding into other states,
14:02 they're gaining share, right?
14:03 They started from Tamil Nadu,
14:04 now they're in, you know, five states,
14:06 now slowly they're getting into Maharashtra, right?
14:08 So as they keep expanding, they'll gain share.
14:11 And then share of valuated products
14:12 will keep increasing, right?
14:14 So your ice creams, your curd, you know,
14:16 these are better margin products
14:18 growing at a much faster pace.
14:20 So on the whole, they can deliver growth
14:22 which is in the mid-teens or higher than that,
14:26 which is very few FMCG companies are able to deliver, right?
14:29 - It's only a matter of time
14:30 that reflects in the stock price, then.
14:32 - Yeah, so I think it's, as I said,
14:33 I think you'll find, if you go back in the history,
14:36 you'll find two-year periods where it doesn't do it,
14:39 and then suddenly, when you see the performance,
14:41 you'll see a very big step change.
14:43 So that's why we have the comfort--
14:44 - So the step change is down the corner,
14:45 is what's to be indicated.
14:46 - Yeah, and now that I'm predicting, you know,
14:49 that in the stock, but if you look
14:50 at the underlying factors, right?
14:52 The margins bottomed out two quarters ago, right?
14:55 Now they're sequentially,
14:56 each quarter, they're increasing.
14:57 Year-on-year profit increase is quite strong now, right?
15:00 And this is just the beginning,
15:01 because what had happened was coming out of COVID,
15:04 supply of milk had actually come down quite substantially.
15:07 And it's not like a factory that you set up,
15:10 that you can say, "Oh, now from tomorrow,
15:12 "a million more cows will start delivering milk."
15:14 It doesn't work like that, right?
15:16 And so that led to a very high milk price inflation,
15:20 and that's what impacted the company's margins.
15:22 But, you know, as supply slowly increased,
15:25 the milk prices have come off,
15:27 and the margins are expanding.
15:28 So there's no rocket science in that, right?
15:29 It'll just play out like that.
15:31 - Well, on that note, we'll take a quick break.
15:32 We're in conversation with Sumit Nagar
15:34 of Malabar Investments.
15:35 Sumit, very quickly, we've talked stocks.
15:37 You want to just give us a disclaimer?
15:39 - Yeah, of course.
15:39 You know, these are stocks that we own
15:41 in our portfolio for our investors.
15:43 So we have, you know, we're biased towards them.
15:46 And as I said earlier, I think every investor
15:49 should do their homework before they invest
15:51 or evaluate investing in these companies.
15:52 - Right, on that note, we will take a quick break.
15:55 We'll come back and continue our conversation.
15:57 Stay tuned.
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18:21 - Back with Talking Point on NDTV Profit
18:32 in conversation with Sumit Nagar of Malabar.
18:35 Sumit, it's great to identify businesses.
18:39 I think that's what you identify yourself.
18:41 So we'll stick to that.
18:43 We were looking at some of the ideas
18:45 that you've held for a while.
18:47 I don't know your current status there,
18:49 but one of the things that we've discussed in the past
18:51 is Aptos, Aptos Home.
18:54 And considering the fact that everybody talks
18:57 about real estate being in the mid of a multi-year cycle,
19:01 home finance largely should do well.
19:03 Has Aptos delivered as per your expectations
19:06 from the time that you invested?
19:08 If yes, then great.
19:10 What do you expect it to?
19:10 If no, then why not?
19:12 And what's the way ahead?
19:13 - Sure.
19:14 So Aptos is a company that we invested in early 2019.
19:18 We'd been tracking since 2017.
19:21 The company was still private then.
19:23 So we invested while the company was private.
19:26 And thereafter, a couple years later,
19:28 two and a half years later, the company went public.
19:31 Since we've invested the law,
19:33 the company has delivered phenomenal results, right?
19:37 Both in terms of its operating performance
19:40 and also in terms of the returns over that time
19:42 that it has generated.
19:44 But again, just like we were talking about Hudson earlier,
19:48 those returns have come in chunks.
19:51 So from the time that we invested until the listing,
19:55 the returns were phenomenal
19:56 because we invested a fairly reasonable valuation.
19:59 When it got listed in late 2021,
20:02 the market was very jubilant.
20:05 So we got very good returns in that phase.
20:08 Post that, the company's operating performance
20:11 has been nothing short of superb, right?
20:14 So in the eight plus quarters since going public,
20:17 they have delivered better returns
20:19 than most of the financial companies in the country, right?
20:22 Even during midst of COVID,
20:24 they were able to grow their earnings
20:26 in strong double digits,
20:27 while pretty much every financial that you saw
20:30 in the country saw a decline in their earnings.
20:33 It was a very tough time.
20:35 Most borrowers are not able to pay back and so forth, right?
20:37 So it's a company that has had superb record of performance
20:42 and resilience even during very tough time.
20:45 And even now continues to deliver
20:47 revenue and earnings growth
20:49 north of 25% year on year, right?
20:52 So it's a very solid performance.
20:54 But what happened is because it got listed
20:56 at an elevated valuation,
20:59 and post that, once the lockup expired,
21:03 so the early investors were selling,
21:05 it created the downward pressure.
21:06 And when the downward pressure happened
21:09 at a point in time, and in 2022,
21:11 when the market was depressed,
21:13 it resulted in the stock price coming down.
21:16 Not related to the operating performance,
21:18 which continued to be very strong.
21:19 And so as a result,
21:20 it got cheaper and cheaper and cheaper, right?
21:24 And once that overhang got removed,
21:27 sometime towards the end of last year,
21:31 and people saw that the performance was so strong,
21:33 this is a company that can grow at 25%
21:35 for many, many years,
21:37 available at 20 times the current year's earnings,
21:40 and then the buying started to come.
21:41 So now we have had some very well-reputed
21:45 domestic or global mutual funds which are buying.
21:47 And since that supply overhang is gone,
21:52 you're seeing the pricing sort of move up
21:54 in the last nine odd months.
21:57 They've moved up from that bottom.
21:58 But even now, they're trading at about 25 times
22:01 this year's number.
22:03 Not extremely cheap, but even their fundamentals,
22:07 this is one of the most profitable
22:09 financial companies in India, right?
22:11 They have 16 plus percent ROE,
22:14 even with one plus X leverage, right?
22:17 Their ROE is somewhere near 8%,
22:19 which is just, you know,
22:21 it's not even sort of,
22:22 it's tough to even call it best in class
22:24 because it's so horrible, everybody else, right?
22:27 So that's why we're very comfortable
22:28 with a company like that.
22:30 I think, you know,
22:31 it's a reasonable valuation today.
22:34 Growth is quite strong.
22:35 So the return should be in line,
22:37 at least with that earnings growth.
22:40 - Which you believe is, sorry,
22:41 which you believe is 25%.
22:42 You expect it to be 25% cash.
22:45 - And that 20 to 25% for next many years, right?
22:48 - Got it.
22:48 - And again, it's very underpenetrated, right?
22:50 That's the thing, right?
22:51 So we're talking about real estate and home finance, right?
22:55 This is at three levels below, right?
22:57 You're talking about affordable home finance, right?
23:00 This is a home that average ticket size
23:02 is eight lakh rupees, right?
23:04 And this is in tier two, tier three,
23:06 tier four of the country.
23:08 It's also one of the segments
23:10 that doesn't see the volatility
23:11 like residential real estate in big cities, right?
23:15 And so it's a,
23:16 and you find the borrowers who are very credit worthy
23:20 that the banks just don't understand, cannot underwrite.
23:23 So they're this unique position
23:25 where they can get,
23:27 they can lend at high enough yield
23:29 to borrowers whose credit quality is actually on par,
23:33 if not better than HDFC, right?
23:36 And so that's where they earn very high level of spreads
23:39 and that's what leads to higher ROI.
23:41 - Would you look to add more to Aftis?
23:43 - We added some during the past few quarters, right?
23:47 So one of the funds we had to sell
23:49 because we are returning capital to investors,
23:52 but in all the other funds we bought during this,
23:55 when, as I said, a few quarters ago,
23:57 when it was really so beaten down,
23:58 it was a no brainer, right?
24:00 - Let's move on another multi-bagger, Orion Pro.
24:02 This one again is for the books, right?
24:05 30% growth over the last three years.
24:08 You've also seen the stock to what, 500 odd percent this year
24:11 so it's defied logic in many ways.
24:13 Management is talking about transformation,
24:16 corporate banking is their big bet.
24:18 I believe also cloud service data centers.
24:20 That's the other sort of big investment they're looking at.
24:23 What are your thoughts on this one?
24:24 What is the outlook on Orion Pro?
24:26 It still looks great after such a sharp rally.
24:29 - See, we like banking software plays.
24:34 You know, we had been an early investor in Nugen
24:37 and still invested in that.
24:38 That's been a great journey for us over the years.
24:41 And what we realize that these companies
24:43 are so deeply entrenched, right?
24:46 That once you're in, you never would take them out, right?
24:50 And unlike, let's say, you know,
24:53 software on your personal computer,
24:55 these things actually require regular level of support
24:57 and that support actually goes up over a period of time.
25:00 So once you're in, you have this annuity revenue
25:03 that keeps continuing for many years to come
25:05 and that's the beauty of that business, right?
25:08 Orion Pro is sort of in a situation
25:13 where perhaps Nugen was five, six, seven years ago, right?
25:16 So it's still relatively small.
25:18 It has had good products that are well-liked by the banks
25:23 and used by the banks.
25:25 But very importantly, I think the transformation
25:28 that's taking place, it's with the management change, right?
25:30 So you had, you know, Paresh who took over as chairman,
25:34 Ashish who came in, you know,
25:36 from one of the largest global companies.
25:38 He was running their Asia sales.
25:39 He came and took over as CEO.
25:42 And with that change, they've brought in
25:44 a very high caliber team to the companies.
25:46 If you look at the team,
25:48 that has evolved quite substantially.
25:50 Existing team members have been empowered.
25:53 They are going with much higher rigor to their customers.
25:57 They've been able to partner with global guys.
26:00 And in that process, in the software business,
26:02 your cost, a lot of the costs are actually fixed costs.
26:04 So if you can drive high sales growth,
26:07 it can lead to very high profit growth.
26:09 And that's the journey that has just started for Orion Pro
26:11 and it can last for many, many, many years to come.
26:14 >> And that's not in the price.
26:16 >> It's, again, I think it's moved up a lot,
26:18 no question about that,
26:20 but the earnings are also growing quite rapidly, right?
26:22 And so if you look at this year's earnings,
26:26 maybe a little bit more expensive,
26:27 but if you fast forward by a year,
26:30 they're still trailing sub 20X multiple, right,
26:33 for next year.
26:34 And the growth will continue beyond that.
26:36 So that's the interest and excitement
26:38 in companies like that.
26:39 >> One quick thing there.
26:41 By the way, it seems like you're betting on companies
26:43 which allow multi-decades of growth
26:44 and you don't have to do any work on a given day.
26:46 >> He's a strategic investor.
26:47 >> Yeah, just strategic investing.
26:48 But yeah, why about global?
26:49 Very quickly, Sumit, we have about a couple of minutes.
26:52 A business that is from amongst all the others
26:55 has kind of flattered to deceive, you would agree?
26:58 I mean, the numbers don't quite do justice,
27:00 especially in the bottom line.
27:01 >> Yeah, so this is, again,
27:02 very similar story as Hatsom, right?
27:04 If you look over long term,
27:06 they've created a lot of value,
27:08 but again, it has tended to come in chunks of time, right?
27:11 Last two years have been quite tough
27:12 because you saw during and post COVID,
27:16 they had phenomenal performance
27:17 because everybody wanted to buy things online or remotely.
27:21 And it led to an artificial high, right?
27:24 And from there, sales have sort of come off a little bit,
27:28 and it's a business with very high fixed costs, right?
27:31 So even a small decline in the top line
27:34 results in a very magnified impact on the bottom line, right?
27:37 And on top of that, they made two decisions
27:40 which were negative in the short term,
27:42 but very beneficial in the long term.
27:44 One was to put a robotic distribution system,
27:49 which obviously in the beginning
27:50 resulted in additional cost,
27:51 but it's now leading to much better productivity
27:55 and much better sort of cost optimization.
27:58 But in the short term, it led to a hit on the earnings.
28:01 And the second one was expansion into Germany,
28:04 which again, because it's a business
28:05 where you don't buy capacity, right?
28:07 You invest through OPEX.
28:09 It resulted in a hit on P&L, which you take up front,
28:12 but it has resulted in expanding
28:14 companies' addressable market quite significantly, right?
28:17 So I think those two steps,
28:18 which we believe are good long-term steps,
28:21 created an impact on the short term.
28:23 Those things will recede, and eventually they will perform.
28:25 - Because over the last five years,
28:27 it's compounded profit growth
28:28 has been a mere one and a half, 2%, right?
28:31 - But it's just, again, it's because the profits
28:33 declined quite substantially in the last year plus
28:37 on the basis of a very minuscule drop in revenues, right?
28:41 So the profits can actually expand
28:42 very, very significantly on the way up, right?
28:45 It takes, even with 10, 15% revenue growth,
28:48 they can deliver 30, 40, 50% revenue growth.
28:51 And again, just like I was saying in case of Hudson,
28:54 you can see this sequentially,
28:55 that the margins have started to improve, right?
28:58 So we believe the worst is over,
29:00 and now you will see that uptick coming up.
29:02 - Very quickly, on existing portfolios,
29:04 are you sitting on cash at all,
29:06 or are you fully invested, not new money?
29:08 - We have a little bit of cash,
29:09 but it's on the lower side, right?
29:12 So it's maybe in that 5% range,
29:15 depending on the funds they're in,
29:17 but it's still on relatively low side,
29:20 because we're finding good opportunities, yeah.
29:22 - So finding value still--
29:23 - We're still invested, you know, in the past year,
29:26 we have made several investments, right?
29:28 Some of which we discussed.
29:30 Some existing portfolio companies--
29:31 - And some that we'd like to discuss,
29:33 but we don't have time, which is Ami Organics, PDS,
29:36 those are a few recent buys as well,
29:39 that you've increased your stake in those companies.
29:41 But great having you in the studios, Sumit.
29:43 Pleasure talking to you about a few of your investments.
29:46 - Pleasure's mine, thank you.
29:47 - Most certainly, thank you for joining in.
29:48 - Thank you.
29:49 - And viewers, thanks for tuning in.
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