"Brand: Asian Paints is the only paint company which has strong brand recall even for its sub-brands, both in economy, like Gattu and Utsav, as well as for premium products, like Royale and Apex. All the other paint companies have been able to create brand recall for only the mother brand, like Nerolac, Dulux, and Berger.
Dealer Network: In 1969, Choksey decided to bypass wholesalers and distributors and directly dealt with the dealers. Choksey removed distributors from their supply chain as they were taking 20% of the margin. It promised dealers to deliver goods 3-4 times daily. The local dealers do not know what will sell at 8 pm today. Asian Paints trucks come 3-4 times a day, and everything gets sold within a few hours. Even though the margins are lower, the high inventory turnover generates a decent return on investment for the dealers. It is a win-win arrangement for Asian Paints and all its dealers. It does 2.5 to 3 lakh daily deliveries. Berger, 2nd best player, does 40,000 deliveries. It has a cash conversion cycle of 20 days, compared to 45 days for Berger paints."
Ability to create new brands and generate demand: Titan knows how to create new product categories and sub-brands within a category to cater to the needs of different demographics. For example, Tanishq is a jewelry brand. Caratlane is an online jewelry brand. Mia is an affordable jewelry brand. Zoya is a high-end jewelry brand. In the last 25 years, it has created over a dozen successful multi-million dollar brands.Titan’s playbook is to develop the brand and take the franchisee route to scale it. The franchisor must have a strong brand and be trustworthy for franchisees to sign up. Titan has both brand and trust, giving it an asset-light business model and high ROCE.
D Mart Competitive Advantages
DMart low cost advantages stem from the following: Cluster expansion: It uses Walmart's playbook by creating a cluster of stores within a region where it has a deep understanding of customers and serves their needs well. You get supply chain efficiency when you open multiple stores within a 50-kilometer radius. Neville Noronha, CEO of DMart, says that "If you have a good concentration of stores and if you have your own fleet and if you can push your truck to do more trips per day, that is where you get the benefit of logistics which globally all retailers do. In India the ef iciency is only 50 kms due to traf ic, compared to foreign countries which have a reach of 200-300 kms.”
"Patience, Assortment, Empowerment, and Tinkering: DMart is a conservative company. They focus on making their stores profitable before expanding further. This is why they haven't closed a single store in the last ~18 years. Its sales-per-square-feet of ~36,000 is 2.5x compared to its peers. It has mastered the art of assortment with broader categories but limited SKUs in each, leading to better utilization of shelf space. Its inventory turn is ~30% higher than that of the best-in-class players like Costco"
"Technology and Innovation: It pioneered in vendor and dealer financing by accessing the suppliers and customers of big corporate customers. For example, branded companies like Tata and Asian Paints don’t have issues in borrowing money. But, their non-branded suppliers and customers found it hard to borrow money at reasonable rates. HDFC Bank navigated the relationship tree to acquire more borrowers. Through micromarketing, it was able to grow horizontally and vertically. "
Culture of prudent underwriting: To best way to find out is to time travel and see which banks didn’t change their NPAs much, when their books got audited by the RBI. In 2015, Raghuram Rajan, former RBI governor of India, decided to clean the balance sheets of all commercial banks. After inspecting their loan books, RBI asked all the banks to make three kinds of provisions: (a) NPA that were earlier not recognized by them. (b) loans given to various projects, where the dates of commencement of commercial operations have passed, but the projects have not yet taken off. (c) restructured loans. How did HDFC Bank perform in the RBI test?
Lending is a commodity business, and customers don’t care from whom they borrow. They will go to someone with low lending rates. In spite of being a commodity business, there are a few qualities that make HDFC stand out from other players.
1. Conservative: HDFC always provisions more than what is needed to cover its stressed assets. It reserves 30% of one-off gains from the sale of subsidiaries to shore up its provision and contingencies account thereby building an additional buffer against any unexpected risk in the future. Asset quality is top notch with total loan write-offs on cumulative disbursements since the inception of under 4 basis points.
2. Running the ship tight: HDFC has a super low cost-to-income ratio of 7.5%. It is the lowest in the financial sector in Asia. This is possible due to its distribution network and its ability to source 84% of its business by themselves or through its affiliates. Indiabulls has the 2nd lowest cost-to-income ratio, and it is almost 2x higher than HDFC. Running the ship tight allows HDFC to operate with a thin spread of 2.3% and be highly profitable with ROA of 2.5% and ROE of 20%
3. Tinkering and capacity to suffer: HDFC didn’t restrict itself to home loan business. It realized the potential of the Indian economy opening up in 1991. Over the years it pumped in the capital and developed multiple line extensions including banking, life insurance, general insurance, asset management, and lending to the self-employed. Line extensions generate 33% of its profits. The market value of line extensions is 1.9 trillion rupees more than what's on the balance sheet