Dissecting Success

Saurabh Mukherjea is a well-known name in the equity market. When someone filters out 1,453 from a list of 1,500 odd companies and comes up with 7 companies that define greatness and have created enduring value, its time to sit up and take notice. Before I get into the book – the recently to be released film MS Dhoni – The untold story has a very catchy tag line –  ‘the cricketer you know, the journey you don’t.’ I think Unusual Billionaires could very easily be described with that tagline –the companies you know but their journeys you don’t. The 7 shortlisted names – Asian Paints, Berger Paints, Marico, Page Industries, Axis Bank, HDFC Bank and Astral Poly are largely household names in the Indian value investing space.

Why should the reader be interested? What’s intriguing is how the author and his team has identified the companies and shortlisted them. In India, books that “quantify greatness” through analytical, criteria based approach and then delve into the details of their journeys of the selected companies are few and far in between.  Mukherjea’s book does exactly that.  Unusual Billionaires defines greatness as the ability to sustain superior financial performance over long periods of time and then does a deep dive into the selected companies. While one can argue that there are alternate approaches to sustained value creation – the fact that the author clearly outlines his framework and then analyses the companies is a laudable effort. Everyone has his favorite value investing idea and story but the book provides an excellent framework and that is a strong positive for the book – the consistent theme being – “past financial performance is a great predictor of future success”

The basic framework for identification is three-pronged. First, only companies with market capitalization of more than Rs.100 crore are taken. Second, to overcome cyclicality, the time period of analysis is fixed at a decade. Third, superior financial performance is defined here as revenue growth of 10% p.a. and ROCE in excess of 15% for each of the 10 year period. In the case of financial firms, the last criterion has been altered to 15% loan growth and with a ROE in excess of 15%. Mukherjea deconstructs the journey of each of the companies thus chosen and thanks to access to the management and a deep understanding of the equity markets; he is able to come up with a lot of interesting insights. There is information on the formative years, the initial struggle, the strategies, management wisdom and eventually what worked (aptly titled – the secret sauce). The book offers lots of interesting stories, whether it is about Asian Paints’ focus on technology and its hiring strategy of hiring or PJ Nayak's bold decisions on ESOPs or how technology up gradation, capital infusion and branch expansion led to Axis bank being where it is today. What is interesting for the reader is that he can easily identify with the journey and get a real understanding of why these companies succeeded and more importantly what kept them successful over prolonged periods. Towards the end, there is a chapter on value investing checklist and this will serve the relatively new entrants to the value-investing club.

Mukherjea’s book is well edited, informative, insightful and analytical all at the same time. It offers and interesting framework for identifying good investments and illustrates the same through the list of 7 companies and their journeys. While people will argue about the simplicity of approach and alternate mechanisms available to identify value – I for one think this is a very good attempt by the author and the book is a must for people operating in the value-investing paradigm in India.