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Ajith
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   Posted: 28/Jan/2007 at 12:10pm |
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I expect insurance, Indian consumer product (and allied) companies like Marico,Godrej Consumer,Mirza Tanneries, arguably perhaps Bata ,retailers who find the winning formula like say Pantaloon to meet the criteria since these are non-cyclicals ,that is, not being dependant directly on the state of the economy and interest rates .
Edited by Ajith - 28/Jan/2007 at 12:28pm
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Ajith
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ramki830
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Posted: 28/Jan/2007 at 2:46pm |
Ah Friends... A good try. Insurance indeed is very much and mostly a Non Cyclical Sector - A sector whose revenues and expenses are mostly uncorrelated with commodities/cyclicals.
But there is ONE MORE SUCH SECTOR... ANY GUESSES? Easy One, Big One !!!
PS - Ajith, many of the cos you mentioned are quasi cyclicals - their inputs/raw materials are cyclicals. Likewise ITC has a cyclicality element in their hotels/paper business. Their cigarette business is non cyclical, but govt regulation is a greater danger in cigarettes than in insurance or even banking... and this will only worsen in future.
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basant
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Posted: 28/Jan/2007 at 4:36pm |
But there is ONE MORE SUCH SECTOR... ANY GUESSES?
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This is my second option. Telecom - Needs one time fixed costs no raw material, incremental revenue is mostly pass through that goes straight to the bottomline.
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ramki830
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Posted: 28/Jan/2007 at 10:09pm |
Originally posted by basant
But there is ONE MORE SUCH SECTOR... ANY GUESSES?
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This is my second option. Telecom - Needs one time fixed costs no raw material, incremental revenue is mostly pass through that goes straight to the bottomline. |
Exactly Basant.. You have Hit the Bull's Eye !!!!
Telecom is one of the most non cyclical sectors , not only in India but even elsewhere... things like staff wages, power consumption etc (which are commoditized inputs) make less than 10% of any Telco's Sales . So the rest of it all goes to regulatory Costs (read spectrum fees, taxes) and capex payouts (for expanding the network) and technology upgradataion expenses .
Of course this big positive also goes with one big negative, namely that this sector is one of the most regulated sectors in world.....
But on the balance, Telcos deserve and demand higher valuations for right reasons.
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xbox
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Posted: 28/Jan/2007 at 4:06am |
How about Insurance?
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Basant jee, insurance is not commodity for sure. There 2 type of insurance ..
1. Term
2. Non-term
Term premiums are almost same and determined by govt body. If I take 10 year term insurance from LIC or from TAT-AIG, premium will be same. But value addition comes in recovery. LIC agent will not have same amount of trust as tata-AIG will get.
Non-Term are highly value added product, so no question to discuss it further.
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Telecom is quite scalable business. I am not sure whether it is cynical or not. As I mentioned earlier all businesses are subjected to ups and downs of market forces. Telecoms are no different. World over all telecom biggies are under-pressure by investor. Take vodafone, that Sarin guy is working odd hours to sallow hutch because he is under pressure to perform (as per newspapers vodafone itself is takeover target). Take AT&T and Cingular, Cingular brought troublesome AT&T. Or take Sprint and nextel, both got merge to take benefits of big layoffs. All is not good/gr8 in this sector. Remember FLAG, Worldcom, Tyco telccom examples. They are capital intensive biz any interest rate hike or technology shift not only decelerate them but some times murder them.
Catching them young is the key.
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Don't bet on pig after all bull & bear in circle.
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basant
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Posted: 28/Jan/2007 at 7:51am |
Telecoms are no different. World over all telecom biggies are under-pressure by investor. Take vodafone, that Sarin guy is working odd hours to sallow hutch because he is under pressure to perform (as per newspapers vodafone itself is takeover target). Take AT&T and Cingular, Cingular brought troublesome AT&T. Or take Sprint and nextel, both got merge to take benefits of big layoffs. All is not good/gr8 in this sector
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This is because those markets are saturated but these companies are not cyclical. For instance HLL is a low growtrh company in India but it is certainly not cyclical.
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Ajith
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Posted: 29/Jan/2007 at 2:20pm |
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Hi Ramki830,
I do not think it is right to consider the nature of the raw materials(whether cyclical or not)to determine if a company's /industry's business is cyclical or not.Take Ray ban for example,where raw materials-metals and plastics are pure cyclicals but the business of Ray ban is not basically cyclical and even if it was so,that is a separate matter altogether having in itself nothing to do with the cyclicality of the raw materials used.Telecom is basically non-cyclical,I think,because it does not depend on the state of the economy or the interest tates.
Edited by Ajith - 29/Jan/2007 at 2:33pm
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ramki830
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Posted: 30/Jan/2007 at 10:27pm |
Originally posted by Ajith
Hi Ramki830,
I do not think it is right to consider the nature of the raw materials(whether cyclical or not)to determine if a company's /industry's business is cyclical or not.Take Ray ban for example,where raw materials-metals and plastics are pure cyclicals but the business of Ray ban is not basically cyclical and even if it was so,that is a separate matter altogether having in itself nothing to do with the cyclicality of the raw materials used.Telecom is basically non-cyclical,I think,because it does not depend on the state of the economy or the interest tates.
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Hi Ajith,
Thanks for bringing the Rayban Example. The business which uses cyclical/commodity inputs itself is not cyclical - it is the profitability that gets cyclical. Biscuts of britannia are consumed irrespective of wheat harvest being good or not, but wheat harvests and open market wheat price do decide how profitable Britannia is. And stock prices track profitability, not sales right?
Well probably my theory must be reinterpreted like this - Most companies in most sectors , dont have 100% backward integration and so will use some kind of commodity inputs. The key thing is to determine the kind of value addition that a company does to raw material and kind of entry barriers it puts (by way of economy of scale cost reduction, technology , process/QC, branding etc) . So rayban no doubt takes plastic and glass inputs, but Rayban has enough inbuilt value addition, so that rayban profits are not much affected if glass or plastic price goes up 100%.
The same is not the case with a TVS Motors and motorcycles that it makes. Value addition is much lesser in this case. We can go on like this. But what I as an investor feel important is - all these should be factored in valuation.
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