On agrarian economy & its impact
Agrarian economy accounts for only 15% of India’s GDP but the rural economy is distinct from the agrarian economy. If we look at the FMCG giants like Dabur, Marico and Nestle or the auto giants the Hero and Maruti, in my reckoning, over the last 6-7 months, the bulk of the demand pickup has come from what we call the rural economy as opposed to the agrarian economy.
Why has rural India become such a powerful demand driver for giants like Maruti, Hero, Dabur, Marico, Nestle? The reason for that is rural India seems to be way more than agriculture. My suspicion is that the majority of the rural economy is no longer around agriculture and that is allowing them to get a fillip from rising demand for service-oriented work in small town India. One way to gauge this is the speed at which workers return from the countryside. We are all expecting a reverse migration post Diwali as workers come back to the cities, but if we find that the rural economy is continuing to or companies like Nestle, Marico, Maruti, Hero are continuing to post solid sales in rural India then that would give you and me quite of validation that rural demand is more than just agriculture.
The other story that we will hear through next spring is rural-focussed credit offtake from the leading lenders of the land. I strongly suspect they would not give us data on this but our works suggest that because enough big data is available for lending in the countryside and both Cibil and smartphone data, I strongly suspect in the last six months there has been a big push by private sector lenders to distribute more credit in the countryside. Without that, the Maruti, Hero type pickup would not have worked out. If more credit is going there regardless of agriculture, the sheer availability of credit will give rural India a good two, three year pick up.
“Why has rural India become such a powerful demand driver for giants like Maruti, Hero, Dabur, Marico, Nestle? The reason for that is rural India seems to be way more than agriculture.”
Asian Paints or Pidilite?
We have both in the portfolio and we have made lots of money on both. Where Asian Paints edges out most other Indian companies is that it is very difficult to build a company of this quality in our country is the ability to institutionalise processes across many generations and take it beyond family and beyond one or two superstar CEOs.
Asian Paints in the last 40 years would have five, six CEOs — all internally recruited, trained and groomed to world-class standards. An Asian Paints CEO change is never a point of discussion on TV channels and yet the company keeps compounding at an epic rate. That deserves a lot of respect in our country where it is very difficult to institutionalise stuff. I am running a small company called Marcellus, there are only 50 of us. I know how hard it is to institutionalise processes in our country and this company over 70 years has institutionalised selling a complex product across 5,000 SKUs and 75,000 dealerships. Great CEOs come and go, they do not seek limelight. The market does not notice them and this company continues compounding and generating immense wealth, 2000 times returns since 1982 without drama, without fuss, without dilution.
It is a privilege to live and invest in a company like Asian Paints and learn from them. Pidilite under Bharat Puri and under the guidance of the Parekh family has come leaps and bounds, not just over the last 30 years. In the last six years, Pidilite has made huge strides forward. My reckoning is — and if you read the annual report you can see — they are building monopoly number three. The first monopoly was adhesives, the second one was at the turn of the century, they started building waterproofing that too they are completely dominating. Now they are going into building their third monopoly and it is in the annual report. They are allocating capital smartly and this could become the first Indian family to dominate three sectors. Most Indian families dominate two sectors. Pidilite could become the first Indian family to dominate three sectors.