- May 10, 2018
- Posted by: Shivani Chopra, CFA
- Category:BLOG, Events
Contributed By : Dhruv Saraf
In the session organised by Kolkata chapter of IAIP, Mr Bangur (MD of Shree Cement) began by mentioning that the truth is always the same – the method to attaining it doesn’t matter. Ultimately, a business earns a certain amount of free cash and that is the truth – the way of arriving at the number doesn’t matter. Mr Bangur also mentioned the fact that in business, cash flows always take precedence over book profits as the P/L statement merely represents certain numbers whereas the cash flow statement reflects the true picture of the business and the quantum of cash that it generates year after year
Mr Bangur then went on to talk about the art of decision making. He elucidated upon the fact that the worst of decisions are made in the best of times and the best of decisions are made in the worst of times. When times are ripe for growth, every management team extrapolates that into the future and sets ambitious targets for the business without recognizing the presence of cycles that prevail across time. In the context of analyzing investment opportunities, Mr Bangur talked about understanding companies and the behavior of management teams across the cycle – both in a downturn and an upturn. In good times, everyone grows and performs well, but it is the bad times that truly separate the enduring franchises from the rest. In this context, it also becomes important to understand that whether the company is also growing at a similar clip to its peers during the good times. There is a fine line between ambition and over-ambition and managements should be careful of not crossing that when the going is smooth
Sir then went onto talk about the nuances that separate an analyst from an entrepreneur. An analyst prefers business to always operate in a steady state environment without the presence of exogenous shocks – which is very difficult as business environment in reality is a dynamic force. Risk taking is an essential part of the game and in the absence of an animal spirit, there is little scope for outsized value creation. Mr Bangur then went onto give an example of ability to take risk by citing his acquisition of a plant in the middle east. Mr. HM Bangur said ..we have bought this at 2000 crore..a small bet..if things don’t do well we can sell it back 10% lower. So that’s roughly a 200 crore loss which is 2-3 months profit. He also mentioned that Analysts are much much better at projecting future cash flows than the management as the element of uncertainty in business plays a big part in guiding strategy for the people who run the company.
The other highlight of the talk was the point made on an individual’s area of concern v/s his area of influence. What Mr Bangur talked about is similar to Buffet’s theory on one’s circle of competence. People always focus on gathering more and more information daily(area of concern) but only a selected few focus on processing it and extracting the most out of it (area of influence)
On being asked about corporate governance and providing a plethora of information available to shareholders, Sir said that if one wants to hide a banyan tree, it can only hide it amongst 100 other Banyan trees. Similarly if you want to hide data,you can hide it by giving much more data than actually required. Giving more than what is needed is always a red flag for the investor.
Mr Bangur concluded his talk by saying that his primary role at work is to create new problems everyday that are more complex than previous ones. This is what brings the element of innovation at work and this is why Shree today is the cost leader in a commoditized industry – a strategy that worked immensely well for the company thus far and will continue to in the future,