Saurabh Mukherjea, founder of Marcellus Investment Managers, believes that there are three themes including China plus one, low cost of capital and world-class technology, which presents itself well with the flavor of market recovery. which becomes more and more interesting as the months go by.
Mukherjea said, “China plus one as a theme is really going a lot higher than expected. Even small textile companies, small API manufacturers are getting a lot of business from global buyers who are clearly making India an alternative to China as a priority. Plus, things like what the Chinese premier is doing with the crackdown on the capitalists there like Evergrande, etc., push China plus a theme to a whole different level. China plus one will be a major theme over the next two to three years as India emerges as a potential alternative to China by global buyers. “
“The second theme is the lowest cost of money ever recorded in India. Whether it is to take out a mortgage or to build a factory, we have never seen such a low cost of credit in our country – home loans of 6.5 to 6.6 percent are something new and that stimulates activity in the home buying market, ”he said. noted.
He added: “The third theme is that this is the first time that we have recovered, we come out of a tough situation like COVID, we come out with world class technology available to businesses, even small businesses. The Software as a Service (SaaS) model means that companies as small as Marcellus can access world-class technology at a very, very low cost. If you put these three things together, China plus one, the low cost of capital, and the world-class technology available to Indian businesses, it creates a very interesting set of circumstances over the next two or three years and we’re trying to understand the full implications of this. This appears to be the start of a good two, maybe four year economic recovery, with obvious implications for the stock market. “
He said Marcellus played the low cost of capital theme through building material companies, not through real estate developers. “We own businesses like Asian paintings
, Pidilite Industries in some of our portfolios, and we are looking to add other building materials companies. In every theme, just because the theme is played doesn’t mean every action will make money, you should look for companies whose franchises are very hard to replicate. The franchise of real estate developers is not very difficult to replicate. Although there is a formalization of the real estate developer market and there is a consolidation, it is very difficult for real estate developers all over the country to offer a return on capital that is significantly higher than their cost of capital. And therefore, it is this sector that we will avoid, as we believe that the building material industry will continue to thrive in the next two to three to four years as people buy more apartments, houses , paints, pipes, and maybe other building material companies should do well as this pickup in house construction continues, ”Mukherjea said.
About chemical space, he said, “We think we’re just beginning this story. Take the example of Alkyl Amines, China’s API production capacity is 10 times that of India. So if about it, due to China plus one
strategy, even though 10% of Chinese API capacity moves to India, our API Industry
will double over the next two to three years. So if you are an API manufacturer in India then you need Aliphatic Amines and Alkyl Amines is the biggest supplier. It is very difficult to enter the market and start making aliphatic amines, the barriers to entry are great, both around the technology and getting the right premises etc.
“Therefore, China plus one should mean the API industry will double in the next three or four years. And if you want to build API in India, you need the output of Alkyl Amines
. For this company, profits have accumulated over the past three or four years at around 30-35%. But free cash flow increased to 40%. It is an efficient company, well managed and in absolute pole position to profit from it ”, he declared.
For the full interview, watch the video