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Nikhil Raheja
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Work in the Healthcare Industry. I have an interest in small and mid cap stocks, and buy them for the long term. Been at it for a couple of years.
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seeking alpha
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  • Why Britannia Has A Bright Future Ahead!

    Britannia Industries, Ltd. is one of the world's best biscuit manufacturers, and distributors. The company has continued to grow for over a century, because of its promise towards quality and innovation. The company's biscuits have the potential to compete against the best in the world, and will continue to gain consumption share, as a % of world GDP.

    Quality and Packaging:

    Over the years, Britannia has developed a reputation for quality. Its biscuits are usually superior in taste to the same kind manufactured by Parle and Sunfeast. For instance, many find 50-50 and Tiger biscuits better than Krackjack and Parle-G. In addition, Britannia's packaging is invariably better. Their packets are usually shinier, and more tasteful, while Parle's packaging is more dull, and unimaginative.

    Parle's change in packaging has often been ordered in response to market share gains by Britannia. For instance, Parle was slow to respond to Tiger's quick market share grab in 1997. It then proceeded to renew its marketing strategy.

    Packaging, by itself, can persuade customers to choose a product. As stated in this research paper; Customers consider poor packaging a sign of poor quality. On the other hand, a product with premium packaging can pass off, more easily, as premium. Britannia's better packaging and marketing points to the higher standards it holds itself to.

    International Opportunities:

    Britannia is in a unique position. It is one of the best biscuit manufacturers in a country, reputed for its cuisine. Britannia could easily leverage the Indian know-how in the kitchen, and the familiarity with exotic spices. For instance, Britannia produces the 50-50 Maska-Chaska, which uses more spice than does a usual cookie. Such biscuits could easily corner the market abroad, where most cookies are either sweet or salty.

    Almost every country in the world enjoys leadership in a certain industry. For instance, the Swedish are good designers, the Americans are best at customer service and technology; Indians, on their part, could possibly attain leadership in the food industry. If and when that happens, Britannia Industries will be able to use it to its advantage.

    Britannia's total exports form less than 10% of the company's total revenues. Britannia has recognized the importance of exports, and have decided to "increase sales from international markets to Rs.700 crore within the next 18 months from roughly Rs.400-450 crore." The company distributes its products in 75 countries, at the moment. Their plan is to take this business to Rs.1,000-1,500 crore, in the near future.

    If Britannia were to realize its potential, it would sell more of its products abroad, than in India.

    Leaner Portfolio:

    According to former CEO of GE, Jack Welch, a good business must be ranked number 1 or 2 at all its brands, or else, get out of those businesses. Britannia has adopted a similar strategy. The company has decided to spend most of its marketing money on its 5 leading brands, and less on others. This would help the winning brands gain market share, while the other lesser performing brands would most likely to be phased away.

    For instance, Britannia makes cakes, rusk, dairy, powder-milk, ghee, butter, & biscuits. The company does not do well at all of those products, and may decide to lower or stop production for some of those.

    A leaner portfolio would help Britannia focus its attention on the winning brands, and better predict its financial performance. It would gain confidence when selling these products abroad, and not fear loss of reputation.

    Competition from abroad:

    Britannia's premium products, such as Pure Magic, are world class. As regards taste, many find Pure Magic far better than the Oreo cookie. Although that superior quality is not reflective in the revenue share, Britannia does have the opportunity to be the best in the world.

    Management:

    A lot depends on the quality of management at Britannia. If the company can sustainably hire, and keep the best people, gains in market share would be a surer bet. One good indicator, in that direction, is the chairmanship of Nusli Wadia. He has been hands on, and has hired good managers, such as Vinita Bali. Vinita Bali applied Jack Welch's formula for retaining the best brands, to the people at the company. She only kept the best employees, and let go of the others. She was featured in this book, about the best 'all time' leaders.

    Conclusion:

    Britannia has the opportunity to leverage its large size, experience, and leadership in the biscuit industry in India. The company recognizes the importance of a lean portfolio, and attempts to bring in the best people. With the above traits, and its commitment to world class quality, Britannia could be one of the few Indian companies that compete and win globally.

    Mar 04 10:09 PM | Link | Comment!
  • Coach: Fashioned For Success

    Coach, Inc.(NYSE:COH) is a very well run company. It is a leader in the luxury handbags business and is a beloved brand. The company benefits from its world class management and various other advantages. In addition, the company continues to expand its line of products. The stock of the company is relatively cheap, and has great future prospects; and the balance sheet is well maintained.

    Profile:

    Coach designs and retails modern, fashionable handbags and accessories. The company offers easily recognizable luxury products that are sold at a relatively attractive price. Coach is currently the global leader in the premium handbags category, with a continually increasing market share. Due to the company's excellence in its category, it was listed in Fortune magazine's 'World Most Admired Company's' list, in the apparel field.

    Competitive Advantage:

    The company's stores look modern and sophisticated. This helps improve the presentation of the products, on display. A modern look is necessary for a store such as Coach's since its clientele is more premium. In addition, the store associates maintain high standards of customer service. Such emphasis on elegance and modernity attract and maintain loyalty amongst customers.

    The company stresses fashion forward designs. Coach maintains extensive archives of product designs from the last 70 years, which are used by designers for new product ideas. Coach also spends resources on analyzing market trends and consumer preferences, to follow the fashion trends closely.

    Coach's customers have a special emotional connection with the brand, built over several decades. This relationship helps the company beat out the competition with relative ease. The company's innovative products and high quality service ensure that these connections get deeper each year.

    Innovation and Growth:

    Although Coach has been highly successful in the luxury handbag business, it recently made a decision to branch into other lifestyle products. The company recently started to sell women's and men's apparel and has strengthened its footwear offerings. The company has carefully selected top designers to aid in the new businesses. These new ventures should provide a new source of sustainable revenue, and help increase awareness about the company as a whole.

    Management:

    One of the biggest reasons for Coach's success has been its great leadership. The company's CEO, Lew Frankfort, has been with the company for 34 years. He became the CEO in 1995, and steered the company from a $550 million revenue business in 2000 to a $5 billion business in 2010. Frankfort has been able to grow the business by using his business savvy and careful research into customers' wants. Although he plans to retire next year, he has already helped the company harden its foundation with several business advantages and world class personnel.

    Balance Sheet:

    At the end of June 2012, the company's current ratio was 2.51. Coach has had a relatively high current ratio for the last several years. The company's operating cash flows continue to rise at a rapid pace. The cash reserves have remained high despite rising dividends. For instance, the dividends almost tripled between 2010 and 2012. Also, the company repurchases its stock actively. Below are the diluted shares outstanding; starting on the right with year 2008, at 360,322, and ending with 2012, on the left.

    Stock Price:

    Coach has a relatively low PE ratio(ttm) of 15.25. Compare this with the S&P 500 PE ratio of 18.67. However, the PE ratio seems even lower considering the fact that retail spending has not made a full recovery. As consumer sentiment starts to rise, the earnings of the company should rise along with it, leading to potentially higher stock prices.

    The earnings of the company have been growing at double digit rates since 2009. Even if the growth in earnings slows down in the next few years, the long term growth prospects would remain promising due to the company's world class business model.

    Conclusion:

    Coach is one of the best and most recognizable retail brands in the world. The company has a finger on the pulse of the customers and lays high emphasis on staying fashion forward. In addition, the company offers high quality customer service and benefits from very good management.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: COH
    Jul 05 8:12 AM | Link | Comment!
  • FedEx Seems Strong!

    FedEx(NYSE:FDX) is a well run company with great opportunities for growth. It has some carefully built competitive advantages that help it win business around the world. In addition, the company's stock is relatively cheap and the company's debt levels are low. Long term investors are advised to include this stock in their portfolio.

    Some factors that make this stock a "Buy":

    1. Business Model:

    FedEx is the second largest global package delivery service in the world. It is a very efficiently run company that offers its customers speed and flexibility. Case in Point is its subsidiary, FedEx Express, which is the "world leader in guaranteed time of delivery freight, package and document delivery services." FedEx is deeply admired by its customers and employees, and wins recognition from them each year.

    FedEx operates four primary business segments which are FedEx Express, FedEx Ground, FedEx Freight and FedEx Office. FedEx Express accounts for 62% of FedEx's revenues.

    FedEx has earned itself several accolades over the years, such as Fortune's "World's Most Admired companies" list, where it ranked 10th. Since 2001, the company has found a place amongst the top 20 every year. Making this list demonstrates the love of the company by its customers.

    In addition, the company found itself listed in the "2013 Best Places to Work for" list, also published by Fortune Magazine. FedEx is adored by its employees for its generous contribution to their work and personal lives. Managers at the company are evaluated annually by both bosses and workers to ensure good relations between all levels of the company. Amongst other benefits, the company offers specialized training as well as tuition reimbursement to its employees.

    FedEx's largest customer is the United States Postal Service(USPS), which has designated FedEx to provide domestic air transportation service for Priority and Express USPS Mail. FedEx has provided these services for USPS for the last 12 years, and was recently rewarded with a contract for another 7 years, which is a nod to FedEx's superior services and lower prices.

    FedEx is one of the most admired companies in the US, owing to its high quality service, including the guaranteed speed offered by its FedEx Express brand. It also operates in a very safe industry, which is linked to the economy in general. So, a bet on FedEx is a bet on the world economy as a whole and not on an individual country. FedEx should continue to do well as long as its maintains its high standards of performance, retains its efficient management, and keep employee satisfaction high.

    2. Acquisitions:

    FedEx has been focused on making acquisitions around the world. In most emerging markets, where the national companies are more established, it may be difficult for FedEx to start from scratch. Acquisitions of those national companies is pivotal to FedEx's growth and higher operating incomes. In addition, FedEx competes with UPS(NYSE:UPS) in the same countries, and must make the important deals before UPS does so. One advantage FedEx has over UPS is its better Balance Sheet.

    FedEx recently made strategic acquisitions in Mexico, Poland, France and Brazil.

    3. Management:

    Fred Smith, the founder and CEO of FedEx, has been with the company throughout its life. He founded the company after having raised capital from Venture Capitalists, and saw the company through near bankruptcy in its infancy. He saw the need for overnight delivery during college and was the first to offer it in the industry.

    He wanted to market the company as an express delivery option. For instance, this 1981 commercial that promised high speed delivery. This was very early on in the company's life, but showed that the company knew exactly how they wanted the company perceived.

    Fred Smith is a huge asset to the company, and his presence makes it easier for the company to maintain its course and philosophy. The next 10 years in the company's life would be vital as it attempts to gain a greater market share in Asia. The company's able management will be great help in doing so.

    4. Cash Reserves:

    By the end of 2012, the company's Current Assets were $9 billion while the Current liabilities were $5.3 billion, giving the company a current Ratio of less than 2. This can be a huge problem for the company since a further downturn in the economy would cause their business to fall. Even though the Current Ratio is not low enough to cause major alarm, it is low enough to make a long term investor cautious about the company's liquidity strategy.

    Thankfully, the debt was low relative to the Equity. The Long term Debt was $1.2 billion, while shareholder's equity was $14 billion. The company's Debt to Equity ratio was less than .1, thus making the company one of the least leveraged in the market.

    The cash reserves seem marginally low relative to the Current Liabilities and the company must make an effort to raise the Current Ratio.

    5. Stock Price:

    The PE ratio of the company is relatively attractive at 16.47. This makes the company a "Buy" for the long term investors, especially because its good business model and low price. The company does pay a dividend, and has a dividend yield of .59%.

    Compared to the mean S&P PE ratio of 18, FedEx does seem inexpensive, but when looked at by a long term investor who is hunting for stable businesses, this stock becomes really attractive.

    Conclusion:

    FedEx is an excellent stock for Long term holders of equity. It is intrinsically linked to the world economy and can be expected to grow at high rates in the Asian countries. In addition to its very good business model, other attributes such as its low debt to equity ratio, high employee satisfaction, and a focused management make the stock a good purchase.

    Note of caution:

    FedEx must be very careful with its new acquisitions. It needs to acquire the national companies in emerging markets, which are well settled and relied upon by the local populations. If FedEx does not do a good job of acquiring bigger companies in these markets, it may lose to the competition. Case in point was the almost completed acquisition of TNT Express in Europe. that combination would have made UPS the largest delivery company in Europe, thus dealing FedEx a huge blow.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Apr 29 1:07 PM | Link | Comment!
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