We all have heard “glass half full, half empty” mindset stories. Recently, something similar happened with the Steel Authority of India (SAIL) valuations. Before that, let’s understand how the business cycle affects valuations. There are two ways to see the value of a company. The market cap of the company indicates the value of common shares, whereas enterprise value indicates the value of the entire company. Market cap = number of outstanding shares * current market price Enterprise value (EV) = market value of equity + market value or book value of debt – cash & investments + minority interest. Market cap vs enterprise value Asset-heavy companies are those where generally turnover is close to 1. Also, their general feature is single-digit Return on Equity (ROE) and high debt-to-equity ratios. Such companies are generally affected by industry cycles (demand and supply); hence their operating margins are quite volatile. Technically what happens is when the demand is growing, in order to fulfil them, the companies keep on increasing their plant size, and as a business is not cash-rich, they borrow a lot to expand plants. Now when demand reduces (industry slowdown), fixed cost like depreciation & interest reduces profits to a great extent. This leads to a fall in market cap that makes the company look extraordinarily cheap. But when we see enterprise value, the reduction in EV is not as drastic as the market cap due to the debt pile-up on the balance sheet. For example, if you look at the bad period of SAIL from 2011-2016 you will notice the same phenomena happening. Asset expanded by approximately 3x, sales reduced, margins went into negative, and debt-to-equity increased. Due to this, the market cap was reduced by ~75% from Rs. 69,804 cr. to Rs. 17,761 cr., whereas enterprise value declined by ~31% from Rs. 72,469 cr. to Rs. 50,276 cr. When the cycle turns for good, companies end up repaying a lot of debt due to the burden of debt and interest payments felt in the bad cycle (called de-leveraging). Again, the impact of this is as the balance sheet becomes stronger and profitability improves, the rise in market cap is much faster, while EV is much slower. As enterprise value reduces due to heavy repayment of debt. In fact, the enterprise value might also fall, making the company cheaper, whereas, on a market cap basis, you would see no correction. A similar thing happened in SAIL at the close of FY 2021 and the close of FY 2022. At the end of FY 2021, if two people would see the valuations ratios of SAIL, they would come up with different conclusions. The person looking at enterprise value and EV/EBITDA would say the company has got cheaper as EV/EBITDA reduced & enterprise value hardly changed. In contrast, the person looking at the P/E ratio and market cap would see the market cap getting almost 4x and the P/E ratio getting doubled. Even more interesting phenomena happened at the end of FY 2022. When the market cap increased more than 2021, the enterprise value was further reduced due to heavy debt repayment. The market cap would hide a reduction in the value of the business as; technically, you could buy the whole company for Rs. 49,614 cr., at the end of FY 2022, whereas at the end of FY 2021, it was Rs. 66,070 cr. Hence keep your eye on enterprise value and market cap in case of asset-heavy companies to gauge the valuations of the business with a better perspective.

There has been a ton of bullishness about the Price/Earnings-to-Growth (PEG) ratio being a great indicator to buy stocks. Motilal Oswal’s wealth creation studies did a great job explaining that buying stocks below a PEG of 1 and especially 0.5 lead to good wealth generation. Hence it has become a habit for investors to compute PEG to compare the valuations of two companies. For example, let’s say the P/E (Price-to-Earnings) of ABC Ltd is 30 and its growing Earnings Per Share (EPS) by 25% and the P/E of XYZ Ltd is 20 and is growing its EPS by 10%. On the face of it, company XYZ looks cheap but adjusting for growth, i.e., the P/E ratio divided by growth PEG is 1.2 for ABC and 2 for XYZ, which means A is cheaper relative to B. Contrary to what people believe, the PEG ratio of two businesses are comparable if they are from the same business segment, same industry and comparable capital structure (D/E), but in the real sense, the PEG of two business are comparable if the following is comparable: Length of sustainable growth, predictability of growth, return on equity above discount rate, Competitive advantage (for how long can ROE be maintained above discount rate) and quality of earnings irrespective of what business segment and industry they belong to. Let’s take a look at Divi’s Laboratories vs Alembic Pharma. Suppose we are standing at the beginning of FY 2017, and these are the numbers from the past few years: So, Alembic Pharma grew at a much higher rate than Divi’s Laboratories and still was available at a much lower PEG ratio than Divi’s Laboratories making a compelling undervaluation case for Alembic. Can you guess the returns of Alembic Pharma and Divis from FY 2017- FY 2022? Alembic Pharma has broadly remained at the same level with an all-time high of ~1100, whereas DIVI’s has become a 3.5 bagger from April 2016 with an all-time high of 5300. On the valuation and historical growth front, it seemed that Alembic Pharma by far would outperform Divi’s Laboratories, but the real scenarios turned out completely inverse. (PS: the main reason is Alembic’s growth/margins are not linear as there are one-time gains/losses due to stiff industry competitiveness at the generic level. Whereas Divi’s growth & margin profile is more linear giving market confidence about future growth. However, this is not a comment on the quality of businesses; we are trying to explain how the market reacts in terms of valuations) This is the point we wanted to highlight, blind comparison of any valuation ratio, even if it’s a sophisticated one like PEG, does not make sense. There are fundamental drivers of every valuation ratio. In an article shortly, we will also teach you how to calculate a company’s intrinsic PEG ratio, i.e., the PEG ratio a company should deserve depending on its fundamentals.

Everyone knows they should buy stocks at low P/E and the real way to make money is by buying stocks at a valuation where you are not paying too much for future growth but there is not much literature published on this topic. The right definition of minimum valuation (P/E ratio) is the value a business should get if starting today it is only able to grow its profits at a perpetual rate of 3% (leaving aside highly cyclical businesses like commodity companies). This is also called Steady State Value. The simple formula to calculate the steady state is: Steady State Value = Operating profits after taxes *(1+perpetual growth rate) / (Discount Rate – perpetual growth rate) Steady State P/E = (1+perpetual growth rate) / (Discount Rate – perpetual growth rate) As perpetual growth rate (3%) and discount rates (12%) remain broadly the same for all businesses, the steady state P/E for Indian companies comes out to be ~ 11-12%. Low P/E value If any stock is available for a P/E less than 12% that basically means either: The market is not paying anything for growth which means growth is available for FREE & business is extremely undervalued or The business is going bankrupt in a few years or The business is in a decline stage or The past earnings include some cyclically high earnings (we will explain why the steady state P/E concept does not work in cyclical companies in a separate article). High P/E value Any P/E market that pays above 12% is basically termed as growth P/E (also called Future Value Contribution). A simple framework to calculate growth P/E is: Future value contribution = current market cap – Steady State Value Growth P/E = Future value contribution / Operating profits after taxes To confirm our hypothesis, we applied this framework to some multibaggers of the past namely Maruti, Divi’s Lab, Astral, Relaxo, Britannia, Symphony, Hero MotoCorp and Asian Paints. Some interesting insights that came out are as follows: In the past 12 yrs, 2012-2013 were the years in which the majority of stocks had the least contribution from future value embedded in their market cap. This basically means that you were paying the least for expected growth in 2012-2013. In fact, some businesses like Astral, Relaxo & Symphony were available well below their steady state value signifying NEGATIVE contribution of future value creation and this in spite of having symphony growing its PAT at an average of 10% between 2011-2013, Astral at 49% and Relaxo at 30%. Whenever the contribution of Future Value goes less than 30% in market cap & you are confident the company can grow at least 10% for foreseeable future it becomes an excellent entry point to get aggressive with buying. As the chances of P/E de-rating are significantly low and any earnings surprise will lead to excellent results. When the contribution of future value reaches 85-90% of the market cap you are playing with fire and any disappointment in earnings growth will lead to sharp corrections. Case in Point: Symphony This does not mean that buying stock near a market cap where the contribution from future value is higher or higher than its historical average does not make money. Case in Point: Divi’s lab If someone had entered Divi’s Lab at the end of FY 2018, they were buying it at a market cap which had a future value contribution of 65% i.e., the highest in the past 8 yrs. How did it turn out? The coming three years provided some of the best yearly returns in the past 12 yrs. The reason being the trajectory of growth rates became significantly better for DIVI’s Lab since FY 2019 and the market being a future discounting machine obviously would have analysed that a year in advance in FY 2018 that’s why in spite of profits being down by -12% in FY 2018 stock provided a return of 75% in FY 2018 itself. Hence when the future prospects are clear and there is a significant ramp-up in expected growth you might find today’s future value contribution to be high but that does not mean a stock is overvalued. In such scenarios, we need to apply reverse Discounted Cash Flow (DCF) to understand how many years of growth are priced in at the current market cap. We will explain reverse DCF in a separate article. There is still one enigma we are trying to understand – Asian Paints. In the past 12 yrs, the minimum contribution of future value has been 63% and the maximum (in FY 2022) has been 88% of market cap whereas profits growth rates have slowed down tremendously but still stock keeps on providing reasonable returns. Now with the current competitive intensity heating up with the entry of Astral, JSW Paints & GRASIM this space will be interesting to watch.

Markets talk in the language of expectations and not Hindi/English etc. At any point of time in the market cap of a company, there is an inherent expectation embedded about future cash flows and discount rates. For discount rates, also called the opportunity cost of capital, it’s reasonable to take a common number i.e., the average of past after-tax 10-yr NIFTY rolling returns. This is 12%. See the below image for calculations: The discount rate is not static. It changes as businesses mature or there are changes in institutional holdings (FII/DII/Weightage in index) or capital structure or rolling betas. (We will discuss this in a separate blog). Now, some important connections between the financials of a company: Operating Profits = Revenue – all expenses excluding interest and taxes Expected Net Operating Profits After taxes (NOPAT) [EBIT*(1-tax rate)] = Current NOPAT * (1+NOPAT growth) NOPAT growth = ROCE (Return on capital employed) * Reinvestment rate Reinvestment Rate = NOPAT growth / ROCE Expected Reinvestments = Expected NOPAT * Reinvestment Rate Future Free Cash flows (FCFF) = Expected NOPAT – Expected Reinvestments (WC + Capex) ROCE = NOPAT / Capital Employed Capital Employed = Shareholders Equity (share capital + reserves) + Debt Debt = Long term borrowings + short term borrowing + current portion of long-term borrowing + leases Through the above equations, we can see that NOPAT Growth and ROCE are two inputs that drive FCFF. Also, remember that the current market cap is the present value of future cash flows. In other words, at any point of time when you see the market cap of a company, it is speaking something about: Expected NOPAT growth Expected ROCEs For how long Growth above GDP can continue For how long ROCEs of business can be maintained above discount rates Hero MotoCorp valuation Let’s dive deep into a detailed case study of Hero MotoCorp and what the market is conveying at the valuations as of 27th June 2022. Historical numbers Even if we don’t take into account the past two very poor years (2021 and 2022), the average operating profits (EBIT) growth rate is 7.06% and the average ROCE is 34% leading to a reinvestment rate of 21%. Low reinvestment rates mean a lot of money would be invested into non-core assets, which seems to be the case as investments and cash account for 50% of the consolidated balance sheet. The majority of this is into mutual funds (as per footnote 9B of FY 2021 consolidated balance sheet). Assuming Hero MotoCorp is a great company with long-term competitive advantages due to which it will be able to grow at its historical rate of 7% for more coming 20 yrs and then at a perpetual rate of 3% while maintaining a ROCE at 34% FOREVER (yes, till infinity), the fair value of Hero MotoCorp today comes out to be an approximate Rs. 4,500 cr. with an intrinsic P/E ratio of 20. (Please note to calculate the historical growth rate and ROCE, we excluded the last two poor years else growth rate was JUST 2% and ROCE at 31%. So, we are trying to be bullish with the above assumptions.) The current market cap is approximately Rs. 55,250 cr. with a P/E ratio of 23.85. (Refer to Annexure 1 to understand calculations in the above table and Annexure 2 to understand the effect of Ather Energy and Hero FinCorp on the financials of Hero MotoCorp) In order to justify the current market cap of roughly Rs. 55,000 cr., the expected NOPAT growth needs to be 10% and Hero needs to maintain 34% ROCE perpetually (current ROCEs are 19% FY 2021 and 14% FY 2022). At 10% NOPAT growth even with a 30% ROCE forever the intrinsic value and P/E move fairly close to the current market cap. Also, if you observe if we keep the growth at 10% if ROCE shoots up to 45% the valuations hardly move. This signifies an important and unique thing regarding Hero – the market can digest volatility in ROCE and improving ROCE won’t create much effect on Hero’s Valuation but the company needs to deliver on the growth of approximately 10% in operating profits to justify its current valuations. Some might argue that a discount rate of 12% seems high for a mature business-like Hero MotoCorp. We have tried to address this also below: If we drop the discount rate to 10% (for both the growth period and perpetual period), then the intrinsic value will come almost equal to its market value. So, at the current market cap of approximately. Rs. 55,000 cr. the market may be communicating either of the following for Hero MotoCorp: Operating profits will grow at 10% for 20 yrs and the company will be able to maintain a ROCE of 34% forever with a discount rate of 12% Operating profits will grow at a historical average of 7% for 20 yrs maintaining its ROCE of 34% forever BUT with a discount rate of 10% A discount rate means the minimum return you expect from a stock. Now being a retail Indian investor with portfolios ranging from a few lakhs to a few crores we would like to compound our wealth at 12% at least (the long-term average of NIFTY after-tax returns). So, reducing discount rates gets out of the picture for Hero MotoCorp. That leaves us with the first scenario. The most realistic expectations implied at the current market cap seem that Hero MotoCorp will be able to post a 10% growth rate in operating profits for the coming 20 yrs and improve current ROCEs of 18-20% to 34% and maintain them forever. Even if you agree with this, the market has already priced it to perfection and the only returns you will make is due to earnings growth but that will reduce due to slight P/E de-rating. Let’s assume you have a decent holding horizon and you may want to exit the business either 5 yrs or 10 yrs from now. What possible returns can you make by holding Hero MotoCorp? (Assuming you agree with 10% growth 20 yrs with 34% ROCE perpetually) Expected Returns = (Expected Market Cap/ Current Market Cap) ^ (1/number of periods) Expected Market Cap = Expected PAT * Exit P/E Again, the expected return comes out to approx. 8% even withholding period of 5-10 yrs To calculate exit P/E at the end of 5 yrs, we need to discount the remaining 15 yrs (FY 2028 – FY 2042) of cash flow and terminal value. In this case, the cash flows will be different as profit growth is 10% with 34% ROCE unlike the original scenario presented where growth was 7% and ROCE 34%. (Please note: Expected cash as of FY 2027 = FY 2022 cash and investments + Free cash flows of FY 2023 till FY 2027 – Dividends of FY 2023 till FY 2027. Dividend payout taken on an average of the last 10 years i.e., approx. 50% and current debt has also been paid off from accumulated cash.) To calculate exit P/E at the end of 10 years we need to discount the remaining 10 yrs (FY 2033 – FY 2042) of cash flow and terminal value. (Please note: Expected cash as of FY 2032 = FY 2022 cash & investments + Free cash flows of FY 2023 till FY 2032 – Dividends of FY 2023 till FY 2032. Dividend payout taken on an average of the last 10 yrs i.e., approx. 50% and current debt has also been paid off from accumulated cash.) In a nutshell, the only way we can expect decent double-digit returns (15-18% CAGR) from Hero MotoCorp is if your expected growth rates are way higher than 10% OR there is a short-term cyclical demand boost like the periods of FY 2018, FY 2016 and FY 2017 where growth rates were 15%, 33% & 12% respectively, (in this scenario you will have to enter and exit at the right time). For the above consistent higher double-digit growth rate (18-20% in revenue & PBT) to happen their scale up in the global market should continue at the current speed, their strategy of premiumization through Xtec, Xtreme and XPulse models needs to succeed even further, LEAP programs for cost saving should continue, market share in scooter needs to improve and Hero Fincorp should be able to double its Assets Under Management (AUM) as claimed by management and also Ather needs to reduce losses. Also, progress towards evolving the EV ecosystem through Ather, its own product launches and Gogoro (battery sharing Systems), exclusive dealers and ICE cum EV dealers should continue. Annexure 1: WACC = weighted average cost of capital = Discount rate = opportunity cost of capital EBIT FY 2023 = EBIT FY 22 * (1+EBIT growth rate) and so on for FY 2024, 2025 etc NOPAT FY 2023 = EBIT of FY 2023 * (1-Tax rate) and so on for FY 2024, 2025 etc RR FY 2023 = Reinvestment rate = NOPAT growth FY 2023 /ROCE FY 23 and so on for FY 2024, 2025 etc FCFF (Free cash flow to the firm) FY 2023 = NOPAT FY 2023 (1 – Reinvestment Rate FY 2023) and so on for FY 2024, 2025 etc Terminal Value = Terminal FCFF / (WACC – perpetual growth) Terminal value means at the end of the growth period i.e. FY 42 in our example what will be the present value of all the cash flows left till infinity. Total FCFF = FCFF + terminal Value (now as the terminal value will only come at end of the growth period i.e., FY 2042 in our example for initial yrs from FY 2023 – FY 2041 total FCFF is the same as FCFF) Discount Factor = 1/(1+WACC) ^ number of period of discounting – as FCFF of FY 2023 needs to be discounted back for 1 year the formula becomes 1/ ((1+0.12) ^ 1) similarly for FY 2042 FCFF needs to be discounted back by 20 years so formula becomes 1/ ((1+0.12) ^ 20) Present Value = FCFF/Discount factor Enterprise Value = sum of all present values Equity Value = Enterprise Value – Debt + Cash, bank & Financial Assets Implied P/E means what P/E should be today as per your assumptions of future Current P/E means P/E calculated as per the current market cap of the company. Annexure 2: For people who might think that the current PAT de-growth and ROCE dip effect may be because of Hero FinCorp (an NBFC) and investments into Ather as one being a Non-Banking Financial Company (NBFC) inherently has much lower ROCEs and another being will be burning capital is not correct. As both of them are associates and not subsidiaries hence effect on accounting is only limited to their contribution in Investments on the balance sheet and share of associates’ profits and loss on the P&L account. Now if we analyse this the combined loss due to Ather and Hero FinCorp on P&L of Hero MotoCorp (as per FY 2021) is – 1.2% (associates loss is Rs. 46.56 cr. and PBT from 2 wheelers business is Rs. 2,895 cr.). Also, total investments done by Hero in Ather & Hero MotoCorp combined (till FY 2021) is approx. Rs. 2,407 cr. representing approx. 10% of the balance sheet. As per FY 2022 stats, the losses for the full year are Rs. 200 cr. from associates that make up approx. 8.5-9% of PAT.

NEVER sell your house to buy equities. It’s just a metaphor to explain when you should get aggressive with putting more money into equities. Rakesh Jhunjhunwala has often been sighted saying 2003-2007 was one of the most golden and ferocious bull markets in India. This led us to think about what was so unique at the start of 2002-2003 that such a crazy bull run happened. Before we go deep, let’s understand two concepts: steady-state price and growth price. The above two words are very important as they hold a very strong connection between the start of every Major bull market in India, be it 1997-2000, 2002-2007, 2009-2011 and 2014 – March 2018. In the context of NIFTY steady state price, the value nifty should get if current EPS (Earnings Per Share) is only able to grow at 3% – that’s the world’s GDP growth rate (also called as perpetual growth rate). In simple words, this is one of the worst expectations, in terms of growth, to have from a developing country like India. Steady State Price = TTM NIFTY EPS * (1+perpetual growth rate) / (Discount rate – perpetual growth rate) Growth price is the additional value NIFTY should get due to future growth in EPS being more than the perpetual rate. As EPS of NIFTY has reported a 25-yr median growth in EPS of 7%- and a 25-yr CAGR/Average growth of 10% at every point of time, there is some contribution of growth price in the current price. Current Price = Steady State Price + Growth Price; if we adjust the equation. Growth Price = Current Price – Steady State Price Steady Price Contribution = Steady State Price / Current Price Growth Price Contribution = Growth Price / Current Price The most important rule now: The higher the contribution of growth price in the current price, the more bullish the market is about future prospects, which means you should be more cautious. In other words, as the contribution of growth price increases, the market goes from the undervaluation zone to the overvaluation zone. Now let’s see the data points for the past 25 yrs to understand the pattern: In the image above (see green marked rows), observe the contribution of growth price in 2003 a -8%, which means at that point of time rather than paying something for the future market was not even trading NIFTY at its steady state price. A rarity which has not occurred since 1997 even once (cyclical recovery was the cause behind this number). That means if in 2003 you were sure that NIFTY EPS would at least grow by more than 3%, you were getting entire growth for FREE! A pure Value Investors paradise!!! Not as extreme as 2003, but if you closely observe the levels where markets bottom before the start of a new rally (all the green marked years) is when the contribution of growth price goes below or reaches approx 30-35%. This is when you can be aggressive with your buying into equities. We also have this data crunched on a monthly number for finer analysis. The file is too large; hence we decided to present it on a yearly basis.

Every time you own a stock it’s a part ownership in business and that part ownership of business is reflected in market capitalizations, always remember market capitalizations grows in line with profitability and profitability is never secular there is volatility that is associated with it. If you are investing in fixed deposits and bonds, your GDP growth or the growth in the economy and your bond returns would have been the same. Equity v/s other asset class returns past 3 decades Power of compounding with strike rate: If you would have invested 85 thousand in 1991 in 2 companies: Orkay silk (blue-chip company at that time) Hindustan Unilever Then that 85 thousand would have turned today into 1 crore (17% CAGR) rupees despite one company has shut (orkay silk). Although your strike rate would have been 50% but your wealth would have compounded well above index (has given CAGR of 12%). Inflation is a transfer of capital from the savers to the government, inflation is taxation the government taxes higher prices and don’t need legislation around it so they can take prices up but, on a percentagewise you pay a higher tax back to the company. Example for why we are entering a decade where the optics for every government in the world is going to be great: Tata Steel Steel prices have moved from 51 thousand rupees per ton to 78 thousand rupees per ton from 2019 to 2022. Tata steel profitability has moved from 30 thousand crore to 60 thousand crores (this is purely commodity price movement). When prices go up companies makes money and from that money, they repay all their debt. Now what is in the optics of the government? Government is not collecting taxes on volume sold they are collecting taxes based on price it has gone up by. We tend to believe that if we buy stock today then we have to keep it in perpetuity but things change very dramatically and it is relevant that you continue to move your portfolios or track your portfolios on a regular basis. Cycles and preferences change (explained through this 2 slide) What was not popular in 2008 is the major preference in 2020 Try to find companies who can increase their top line as well as bottom line with same amount if invested capital or % wise the revenue and profits should be increasing at higher pace than invested capital. Example: Redington, this company grew its profit 4x (400%) by just increasing their invested capital by 21% from 2010 to 2021. Avoid incumbents: example: Paint Industry- Major players- Asian Paints, Berger paints, Akzo Nobel, Kansai Nerolac, Indigo paints. Industry Revenue- 36500 crore (INR) Invested capital- 16000 crore (INR) Industry profit pool- 6000 crore ROCE (Return on capital employed) – 37% Market value- 450000 crore This numbers have attracted the attention of very large business which have deep pockets like Grasim industries, who are willing to commit 30% of industry’s capital i.e. 5000 crores into paint business which will bring competition. Grasim has 55k dealers who sells birla white putty so now they are going to sell paints too of Grasim. This was just one new entrant we also have JSW paints which is also a very strong group. Due to new entrants it might happen that same profit will be spread out on wider base or the next question would be can industry sustain its superlative/ supernormal ROCE? Kenneth sir’s opinion on startups which are still loss making? It hasn’t happened for the first time there was a company named Shobha developers IPO’d in 2007 it crosses its IPO price in 2021. I think it’s our savings and our investments that drives that value of that firm so you got to figure out when to step back. Specially for the current companies that are coming out, we are putting our savings behind someone else’s losses, if you got an appetite to take losses then start your own business. Do not venture into unknown territory because you have no control of it. Identifying top of the cycle: Identifying the top of cycle is easy, go back to 2007 to 2008 it was very simple every construction company was raising money for the same order book. Every NBFC or every micro-finance business was raising equity to fund the same customer. Valuations are stretched, everyone’s raising money so more capital is not creating profitability that’s where you catch the top of the cycle.

- D2C a.k.a. Direct-to-consumer brands. Majority of their revenue or customer acquisition comes from direct-to-consumer online channels or started with an online first distribution channel before going omni-channel. For example, Lens kart. - Brand awareness is at an all time high and brand loyalty is at an all-time low. - Building a retail store requires huge investment and it is capitalized in the balance sheet (expensed gradually over its useful life) whereas in Online space the cost of developing an app is relatively less expensive but incentivizing users to download the app is very high. Incentivizing cost is expensed on P&L. That is why most of the internet-based companies suffer huge losses in Initial years. - Journey of D2C brand: Early stage: Focuses on digital distribution, mix of omni channel, Creating customer database from their own platform. Mid/ Growth stage: Scaling offline for gaining more traction, Enables touch-feel factor. Expansion stage: Increase basket size and target audience, Omni channel expansion and international expansion. - Key metrics to measure D2C success as a brand: Average order value. Customer Repeat ratio. Gross margins. Brand resonance. - Value chain difference: Normal retailers: Manufacturing brand > Wholesaler > Retailer > Customer D2C brand: Manufacturing brand > Online platform > Customer - Difference in marketing strategies: Traditional business: Spend a lot in terms of promotions and offers to general trade and to wholesale channels. D2C brands: Tend to spend a major portion on digital marketing (Instagram/ Influencers / Bloggers, Facebook, Google AdWords’). - Selling (Marketplace V/s Website) When you sell your product on a website the major cost for that company is IT cost (In house IT team or through 3rd party) and logistics costs takes around 15% of the order value whereas when you sell your product in market it takes around 40% for logistics cost, inventory management and payment gateways. - Major sub-segments in D2C space: Beauty & personal care F&B Fashion Electronics and Home & Furnishing. Below is the chart used in the presentation giving key details about these sub-segments. Credits: PPFAS - Success stories: Nykaa, Firstcry.com, boat, mamaearth. Some failure stories: D:FY (Sports brand). There has been one fantastic book written by the founder of D:FY addressing what went wrong in their business named “The Biography of a failed venture”.

Dabur ltd is an Indian multinational consumer goods company founded by Dr. S. K Burman in 1884. Dabur India Ltd is the fourth largest FMCG company in India. Today dabur is India’s most trusted name and the world’s largest ayurvedic and natural health care company with a portfolio of more than 250 herbal/ ayurvedic products. Below attached image shows us some of their great products. Dabur got its name from its founder Dr. S. K Burman itself. Da (from Daktaar (Bengali pronunciation of Doctor)) and Bur from his last name Burman. In late 1880s diseases like cholera, malaria and plague were life-threatening diseases so Dr.burman in 1884 started to prepare natural cures (ayurvedic medicines) with a mission of reaching a wide mass of people who don’t have proper access to medical facilities at affordable price. As soon as the medicines (natural cures/ ayurvedic medicines) cured people this news traveled quickly and Mr. Burman came to be known as the trusted “Daktar”. With growing popularity of Dabur products in 1896 Dr. Burman expanded his operation by setting up a manufacturing plant. In 1986, Dabur became a public limited company. Dabur in 1992 expanded its business into the international market by doing strategic partnership (Joint Venture) with Agrolimen of spain. During 1996 Dabur had a lot of product mix in their portfolio so for operational efficiency they decided to have 3 separate divisions according to their product mix - Health care product, Family product division & Dabur ayurvedic specialties limited. Dabur over the time has successfully transformed itself from being a family run business to professionally managed enterprise in 1998.In 2013 Dabur’s market capitalization crossed 5 billion $. Dabur’s today product portfolio - Health Care, Hair care, Oral care, Skin care, Home care & foods (Packaged juices).

The Bajaj Group is amongst the top 10 business houses in India. The group's flagship company, Bajaj Auto, is ranked as the world's fourth largest three and two-wheeler manufacturer and the Bajaj brand is well-known across several countries in Latin America, Africa, Middle East, South and SouthEast Asia. Jamnalal Bajaj is the founder father of Bajaj group. Born in Rajasthan in 1889. He was a great follower of Mahatma Gandhi. He was also known as “5th Son of Gandhiji”. After Jamnalal Bajaj his son Kamalnayan Bajaj took over the business in 1942. As Kamalnayan Bajaj was also a great follower of Mahatma Gandhi he could devote all his attention to business after Independence in 1947. Kamalnayan Bajaj handled this business for 27 years and after that Rahul Bajaj became the chairman of Bajaj Group and Managing director of Bajaj Auto. Under Rahul Bajaj leadership, turnover of this group went from 7.2 crores to 12,000 crores. Rahul bajaj was one of India's most distinguished business leaders but unfortunately, he passed away recently on 12th February 2022. In 2005, Rahul Bajaj's son Rajiv stepped into the shoes of Managing Director of Bajaj Auto. After becoming M.D of the company Rajiv introduced a revolutionary range of bikes known as “Pulsar” which altogether changed Industry’s dynamics and consumer preference towards sports bikes. Remember those ads where 2-3 bikers were doing wheelies & stoppies on Pulsar bikes. https://youtu.be/E466ti4okTA In 2007, Bajaj Auto acquired a 14.5% stake in KTM (2 wheeler premium segment bikes) that has since grown to 48%. Bajaj Auto today exclusively manufactures Duke range of KTM bikes and exports them worldwide. In FY2018, KTM was the fastest growing motorcycle brand in India. Bajaj Auto today exports to 65+ countries with a significant share of revenue coming from the International market. Bajaj Auto today has a very wide product portfolio under its umbrella which includes: 2 Wheelers: Premium segment (Pulsar, Duke, KTM, Dominar etc) Mass segment (CT 110, Platina etc) Electric scooter (Chetak) 3 Wheelers/ Passenger carrier: Rikshaw (RE, Maxima Z, Maxima X wide,) Goods Carrier: Maxima C Qute (Four wheel) This was the journey of a company which revolutionized the 2-3 wheeler Industry. Hope you liked it.