Why is there no financial name in your top five holdings?
Yes, we are a little underweight on the financials but that is because I do not think we have reached a stage where the capex cycle begins. Some of the consumers in India are still facing the brunt of the Covid and the spending is getting redirected towards other things. MSMEs are also suffering because of Covid. So, there is a little bit of tension on that front. Also the capex cycle has not yet begun and probably is still four to six quarters away is why we are underweight. But that could be changing going forward. I would like to just put that caveat in.
How can one bet on the entire digital wave and bet on a beneficiary because ultimately the benefits will also be captured by the beneficiary or a company which is adopting digital and enabling platforms or services or customer experience using the digital platform?
Absolutely. In the adoption curve, usually it is the shovel sellers that benefit first and for sure the eventual benefit of the technology might be realised by the consumer at some point of time. When I say consumer, I am talking about the companies that are consuming the technology. That benefit will take some time to percolate down to the shareholder wealth creation. At this point of time, we have to look at companies that are enablers and who are riding this wave at the crest. So, we have to go after the shovel sellers or the enablers of this opportunity because the opportunity is still unfolding, the technology is still evolving and the winners are not yet very clearly known in each and every space.
They are much better formed in shape and size than they were probably 10 years back but it is a very fast evolving space in terms of technology and in terms of business model. The good thing for us as an Indian shareholders or Indian investors is that we can see those trends unfolding in other geographies — be it the US or China — and see that a similar kind of trend is going to pan out over here. We have some benchmarks. It becomes easier. We just have to look for companies that are emulating them and one can have a good winner there.
Let us talk about your portfolio companies with a disclosure that you have vested interest in them. You have a large investment in . What excites you as an investor about Laurus Labs?
I would also like to add that we are likely to be acting contrary to whatever gets spoken over here. This discussion is purely for illustration purpose. The decision about Laurus Labs we took almost a year back. What got us excited was that it had invested ahead of the curve. It had leveraged itself, the company and the promoter both were leveraged and it had created the capacities and the costs had been borne but the fruits had yet to come. Now it just happens to be luck that Covid struck and that just accelerated the opportunity for them.
Besides, they are the largest ARV API company and there was a big shift happening in the ARV market where the treatment was moving away from the last gen to the next gen — from TLD to DTG, Dolutegravir and they were very beautifully positioned to take advantage of that. So that was the immediate trigger/
Besides that, we always admire Dr Satya in terms of his technical and his risk taking abilities. So, here was a company that was really positioned to take advantage of the coming wave and the market was very sceptical about it and was not giving any valuation. It was giving low multiples to a very subdued P&L and balance sheet. That is why the returns have been so big because suddenly the P&L as well as the balance sheet has improved dramatically in the last four to six quarters.
Route Mobile is another portfolio company. You have been an investor in Route Mobile right from the IPO day. What gives you the conviction of being invested in a tech company which is a disruptor and where you have the likes of Google and Amazon which are just changing the rules of the game?
Unlike most of the tech companies, Route Mobile does not burn cash and that was the first thing that attracted us. In fact, the company has been set up with barely Rs 6 lakh capital. So, it is a profitable model. The unit economics is very attractive and the strategy was to bolster their balance sheet and try and go for scale. We can never be very sure which way the technology is panning and the twists and turns of technology can end up disrupting the disrupter as well; at this point of time, we are trying to gauge how successfully we are riding this wave.
Based on the management interaction of and Route Mobile which are part of your top holdings, how much of your top five holdings are likely to change in the next two to three years?
I really wish I knew myself. I am going to let it pan out. At this point of time, there is no intention to change this. It will happen as we progress and we will let the fundamentals dictate it rather than trying to anticipate anything. That is an honest answer. I have no idea. I am not looking to sell any of them with a three to five year view but as fundamentals change we will keep changing our view.
