Case study : Valuations
These are scenarios of 4 famous companies. which it’s not important to name.
Scenario 1 : Your grocery/consumables bill purchase for the month is 10000 Rs. And you buy at a low-cost famous supermarket. Assume, that someone else offers the same set of goods for Rs 9500/- . What would you do. Most probably, you will buy from the 2nd store.
Scenario 2 : Let’s say you want to buy a TV. Price is 1 lakh and Rs. 30000/- is your down payment. Rest is 0% EMI (financed by store/manufacturer). There are 2 counters of the financial lenders. First one, who is a very well-known and famous lender, offers 24 month EMI, 2nd one, is not a well-know name but offers a 30-month EMI. Majority of users would use the 2nd option.
Scenario 3 : You want to buy undergarments. You go to a store which offers it for Rs. 300/- and is a famous brand. There is/are also other brands, which gives same fabric, elastic, finish but sells the product for Rs 200/- . Most will still go with the 1st option due to the brand pull.
Scenario 4 : You want to buy a cruiser bike. You go a showroom of a famous player in this segment who sells it for Rs 2 lakhs. There is an adjoining showroom, which sells a similar cruiser bike with same engine option, etc. and prices it at Rs 1.5 lakh. Most will go with the 1st one as they had their eyes set on that one.
The first 2 in this example, are superb companies, with superb execution, but point to understand is that there is no moat. One should not confuse great execution with moat. These can be disrupted in a short period, let’s say 2 years. The 3rd and 4th are also great companies, with great execution, but have a superb moat. Disruption, if it has to happen, will take much longer time, maybe 5+ years.
The point, I am trying to make is on valuations front. Do all 4 companies deserve similar kind of valuations ?
Just my musings on valuations in some stocks currently in the market.
Disclaimer : These are personal thoughts. None of these are recommendations/thoughts by Aurum Capital.