The Unusual Billionaires

1. Sustainable high performance is rare but achievable

"Over 99 per cent of the 5000 companies that are listed in India simply fail to fulfil his filters over the past decade."

Consistent excellence is uncommon. Out of thousands of listed companies in India, only a handful consistently deliver both revenue growth and profitability over long periods. These exceptional companies, dubbed "Coffee Can" stocks, share common traits:

• Sustained revenue growth of at least 10% annually
• Return on Capital Employed (ROCE) of 15% or higher each year
• Consistent performance over a decade or more

The rarity of such sustained success highlights the difficulty of maintaining excellence in a competitive business environment. However, the existence of these outliers proves that long-term, superior performance is achievable with the right strategies and execution.

2. Focus on core business drives long-term success

"We have consciously stuck to a sector which is growing and offers decent potential and have always strived for excellence across all functional areas."

Concentration beats diversification. Successful companies resist the temptation to diversify into unrelated areas and instead focus intensely on their core competencies. This focus allows them to:

• Develop deep expertise in their chosen field
• Allocate resources efficiently
• Build strong brand recognition
• Continuously improve their products and services

Examples:

• Asian Paints maintained its focus on paints for decades
• HDFC Bank concentrated on banking services without venturing into unrelated sectors
• Page Industries focused exclusively on innerwear with the Jockey brand

3. Deepen competitive moats through innovation and brand building

"Architecture is a system of relationships within the firm, or between the firm and its suppliers and customers, or both."

Build barriers to entry. Successful companies continuously strengthen their competitive advantages, or "moats," using John Kay's IBAS framework:

• Innovation: Continuously improve products and processes
• Brands: Build strong, recognizable brands that command customer loyalty
• Architecture: Develop unique relationships with stakeholders
• Strategic Assets: Acquire or develop assets that provide competitive edge

Examples:

• Asian Paints' innovative supply chain management
• Marico's strong brand portfolio (Parachute, Saffola)
• HDFC Bank's technology-driven customer service

These moats make it difficult for competitors to replicate the company's success and help maintain market leadership.

4. Prudent capital allocation is crucial for growth

"Good management teams work on proving a concept before investing a lot of capital. They are not likely to put a lot of money in all at once hoping for a big payoff."

Invest wisely for growth. Successful companies allocate capital judiciously, focusing on:

• High-return projects within their core business
• Gradual, organic expansion rather than risky acquisitions
• Returning excess cash to shareholders when profitable opportunities are scarce

Key principles:

• Maintain a strong balance sheet
• Avoid overleveraging
• Focus on projects that generate returns above the cost of capital
• Be patient and disciplined in pursuing growth opportunities

Examples:

• Astral Poly's careful expansion of manufacturing facilities
• HDFC Bank's focus on high-quality lending over rapid growth

5. Strong corporate governance and clean accounting matter

"Companies which have high-quality accounts also tend to be companies which have high-quality management. These stocks tend to do significantly better than those with inferior management, whose accounts often tend to be dodgy."

Integrity builds trust. Companies with strong corporate governance and transparent accounting practices tend to outperform their peers over the long term. Key factors include:

• Independent board of directors
• Clear separation of ownership and management
• Transparent financial reporting
• Fair treatment of minority shareholders

Benefits:

• Increased investor confidence
• Lower cost of capital
• Better access to funding
• Reduced regulatory risks

Companies like Asian Paints and HDFC Bank have consistently demonstrated high standards of corporate governance, contributing to their long-term success.

6. Customer-centric strategies create lasting value

"Customers use the strength of the company's reputation as a proxy for the quality of the product or the service."

Prioritize customer needs. Successful companies build their strategies around understanding and meeting customer needs. This approach leads to:

• Higher customer loyalty
• Increased market share
• Stronger brand reputation
• Greater pricing power

Key strategies:

• Continuous product innovation based on customer feedback
• Investment in customer service and support
• Building long-term relationships with customers
• Leveraging data analytics to understand customer behavior

Examples:

• Page Industries' focus on product quality and comfort
• HDFC Bank's emphasis on customer convenience through digital banking

7. Empower employees and build a positive work culture

"I strongly feel that focus will lead to depth and depth will lead to excellence."

Culture drives performance. Companies that create a positive work environment and empower their employees tend to outperform their peers. Key elements include:

• Meritocracy and performance-based rewards
• Opportunities for career growth and development
• Open communication and transparency
• Alignment of employee goals with company objectives

Benefits:

• Higher employee retention
• Increased productivity and innovation
• Better customer service
• Stronger organizational resilience

Examples:

• Asian Paints' focus on hiring and nurturing top talent
• Marico's culture of empowerment and innovation

8. Technology and data analytics drive operational excellence

"Technology has allowed banks to go for both enhancing client experience, and managing operational challenges and risk."

Leverage technology for efficiency. Successful companies invest heavily in technology and data analytics to:

• Improve operational efficiency
• Enhance decision-making
• Provide better customer experiences
• Manage risks more effectively

Key focus areas:

• Supply chain optimization
• Customer relationship management
• Predictive analytics for demand forecasting
• Automation of routine processes

Examples:

• Asian Paints' use of technology in supply chain management
• HDFC Bank's digital banking initiatives
• Astral Poly's investment in manufacturing automation

9. Adapt to changing market dynamics while maintaining core strengths

"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."

Balance stability and flexibility. Successful companies maintain their core strengths while adapting to changing market conditions. This involves:

• Continuous monitoring of industry trends
• Proactive adaptation of business models
• Investment in research and development
• Balanced approach to risk-taking

Strategies:

• Regular review and update of long-term strategy
• Fostering a culture of innovation and continuous improvement
• Maintaining financial flexibility to capitalize on opportunities
• Building diverse leadership teams with varied perspectives

Examples:

• Marico's expansion into new product categories
• HDFC Bank's evolution from corporate to retail banking

10. Long-term perspective trumps short-term gains

"We love to be boringly consistent."

Patience pays off. Companies that consistently outperform focus on long-term value creation rather than short-term gains. This approach involves:

• Consistent investment in core capabilities
• Willingness to forgo short-term profits for long-term growth
• Building enduring relationships with stakeholders
• Maintaining financial discipline through economic cycles

Benefits:

• Sustainable competitive advantage
• Higher shareholder returns over time
• Greater resilience during economic downturns
• Stronger brand equity and customer loyalty

Examples:

• Asian Paints' decades-long focus on building distribution networks
• HDFC Bank's consistent approach to risk management and growth

Last updated: October 8, 2024