Rakshit Ranjan – The holy grail of investing in equity markets is to find firms which can deliver
returns on capital substantially higher than their cost of capital and then have the ability to sustain
this gap for decades in a row. We call these firms Consistent Compounders. And if you really see
what the gap between return on capital and cost of capital really mean, it is the free cash flow that a
firm generates. The wider this gap, the more competition the firm attracts, and intense competition
tries to narrow this gap down as much as possible over time.
In the global landscape, most of the firms that dominate their sectors, they do not generate Returns
on Capital far higher than their Cost of Capital. Hence, in the global landscape Consistent
Compounders aren’t present very easily. However, India is unique. In the Indian landscape, there
exist firms like Pidilite in adhesives, Asian Paints in paints, HDFC Bank in the banking sector, Nestle in
packaged foods – all these firms not only dominate their respective sectors, but their returns on
capital are far higher. These are the best examples of Consistent Compounders.
In 2014, I started managing my own money and started advising my friends and family on this
philosophy of investing in Consistent Compounders.
Saurabh Mukherjea – So everything that you heard from Rakshit so far, suggests that this is a very
simple philosophy but the challenge often in the investing profession is what is simple is often not
easy. And the core challenge in this form of investing is understanding sustainable competitive
advantage. A lot of people in our country struggle to understand why large, dominant firms like say
Maruti Suzuki or say Unilever, why they are not Consistent Compounders and they find it equally
hard to understand, why equally large firms like Asian Paints and HDFC Bank are Consistent
Compounders. And to figure this out, to understand the core of sustainable competitive advantage
often takes months, sometimes years of research to get to the bottom of this. That in a way is a
secret of the Consistent Compounders sauce.
Rakshit Ranjan – The research process typically includes understanding why companies like Asian
Paints and HDFC Bank have been able to deliver a consistent historical track record of healthy
fundamentals. What has been nature of competition, disruptions, evolutionary changes that these
firms faced in the past? And why was it that their moats, their competitive advantages, their returns
on capital as a result, they were not competed away? For instance, for a firm like Asian Paints, it has
faced competition from erstwhile incumbents like Jensen Nicholson, which actually used to
dominate the sector few decades ago, Kansai Nerolac, which still competes with Asian Paints in the
current landscape. World’s largest paint company, Sherwin Williams, which entered India in 2006
and then exited in 2012, after finding it difficult to even cross Rs 100 crores of revenue.
Asian Paints has also seen one of its promoter families exit in 1997, and we have been through so
many generations of promoters, 3 generations of promoters over the last 70 long years of the firm.
All this happening inside and outside of the firm, but nothing could shake the consistency of healthy
fundamentals delivered by Asian Paints.
And in order to understand the DNA of a firm like Asian Paints, amongst other things, we spent many
hours, months, at time years with ex-CEOs of paint companies in India, speaking to dealers and
contractors who have been in this industry for several decades. And once we understand the secret
sauce of firms that are there in our coverage universe, we watch them like a hawk, and we keep ourears close to the ground to ensure that we remain focused on the sustenance of the firm’scompetitive advantages over time.
Saurabh Mukherjea – So several years ago, a friend of mine, who is also a fund manager,
recommended that I read Robert Kirby’s 1984 paper, and it was a real eye opener. Robert Kirby who
is a fund manager at Capital, a celebrated fund manager at Capital, in Los Angeles in fact. He lays out
a very simple philosophy. He says find great companies and then hold them for 10 years. Don’t try to
time the exit, don’t try to time the entry. Simply buy great companies and sit tight for a decade. It’s
basically like going to an ATM machine which is puing out a 2000 Rupee note and just standing there
and collecting the cash, not trying to figure out when to move away from the ATM machine.
I found that philosophy very interesting. I implemented it in my personal life, in my portfolio. It
yielded good results and that led me to ask the question, is there a book here, is there a method
here, that we could lay out in a book for investors out there in the real world. And after meeting
some of the companies who could potentially be part of the book, companies like Berger Paints, like
Marico, we realised that the core of these great compounders is sustainable competitive advantage,
combined with a promoter, with a management team, which is unusual in its focus on competitive
advantages, unusual in its focus on high quality governance, unusual in its focus of creating a
compounding machine, which sustains over several decades. And that’s where the title of the book
and the core insights in the book, Unusual Billionaires came about. We took Rob Kirby’s work,
brought it to India in the Unusual Billionaires.
K.S. Dhingra – The only sustainable way is to make it some kind of institution, so that there is
continuity and the family can, in a way, reap the benefits of dividend, etc. So therefore, we decided
it is better to take a chance. It (the company) may be better run professionally than our own coming
there or it may be worse. But it’s a price to pay for sustainability. So, it was not a choice in our
First of all, we carried on working, in the way, instinctively, we felt it should be the right way to do
things. We had no clue how others were operating. So, when the book Unusual Billionaires came
about, then we read about others also. And we also realised, we also had no clue, that in the filter,
which is an excellent filter that you (Marcellus) made, that we would actually be in the top 6 or 7 in
the whole of India. It quite surprised us because we knew what is happening with us, but we had no
idea how it was in comparison to others. So that was very, very surprising for us and very
encouraging and very inspiring. And secondly, what we did was what we did instinctively, and we
have held strongly that this is the right way to do it for sustainability, for making a nice company.
What I liked about the book was when I read about the other companies in the Unusual Billionaires. I
learnt a lot from that. I must give you credit that I learnt a lot from the progression and the pattern
others follow. So, it was a learning for me, it is one of the nicest books I have read.
Harsh Mariwala – So I think that the key thing is for any entrepreneur is to identify at what stage the
business is. And its important that the role of entrepreneur shifts as the business grows, so when
you are small, you are doing things yourself because you cannot afford to recruit and forget about
afford but you cannot just recruit because good quality talent will not come in. But as you grow, you
have to recruit talent. And I think, that’s where the role shifts from doing things to getting things
done. And that’s a huge shift and most entrepreneurs don’t realise what that means because it
means that you have to recruit very good talent, you have to empower people, you have to ensure
that they work with each other so team building, processes, all that comes in. And I think, it is a time
for the entrepreneur to sit back little bit and see how he can make others perform better. So, I think every organization has to have a very strong succession plan at all levels and specially at
the top level. And as I started getting older, that question was raised by my Board, what is my
succession plan. Normally in Indian family owned organisation, it is assumed that the children will
take over. In my case what happened was I have a person who will work with me for 10-12 years, we
had a discussion at the Board level and we decided to promote him and I decided to step down.
What I call, Hands off but mind is always on. So day to day, nothing comes to me for decisions but
I’m actively involved in terms of what’s happening at the organization and I add values in terms of
with whatever thoughts I have so its been a win-win kind of an arrangement, where I’m also
enjoying this role which is a big shift for me from a full time Managing Director role to spending just
20% of my time on the company. And if you look at our portfolio of products, in whatever product
we are present in, we are market leaders in that particular segment, that’s one. Number two, as
modernization comes in and as youth is getting exposed to the western world, we are seeing that
they are buying newer products for, what we call, pre and post wash hair care. We have gone in hair
gels and hair creams and hair fixes and hair waxes for the modern youth who wants to go to disco
and all.
But you (Marcellus) are right, we need to now go beyond hair oils. As an organization, you always
have to look at what are the newer opportunities. So, we have gone into now Saffola foods, where
we have launched whole range of, apart from oats which is doing very well, within 3-4 years we have
built a 100Crore+ franchise in Masala Oats. We are going into other high protein soups. We have
already launched high protein soups, green tea, green coffee with variants.
Saurabh Mukherjea – So after quitting my previous role in 2018, I decided to put my skin in the
game fully. I decided to found Marcellus Investment Managers. The goal of the firm was and remains
to manage money for individuals and for corporates using the precepts laid down by Robert Kirby in
his celebrated 1984 paper. We call this approach the Consistent Compounder PMS. And beyond the
intellectual element of investing, beyond putting high quality research into play, we have also
focussed on hiring the best talent in India and setting up systems and processes so that the overall
client experience that we provide is world class. So Consistent Compounders PMS is not just
implementing high quality intellectual approach but also making sure that the end to end invest
experience is more than satisfactory.
Salil Desai – I used to work in Mumbai with a very prominent brokerage. From there I joined one of
the largest family offices in India. As part of a very small investment team, I was responsible for
investing 2.5 billion dollars and consistently generating returns. When I heard that Marcellus was
being set up, I reached out to Saurabh because I wanted to be part of a team where they take the
ideas of fundamentally high-quality long term investing to a wider range of people. I met the
Marcellus team three times over long chats and I signed up.
Pramod Gubbi – Besides delivering healthy investment returns to our clients, we focus a lot on client
service. We intend to deliver the highest level of transparency when it comes to delivering Portfolio
Management Services. At the outset, we spend a lot of time with our clients explaining the
investment philosophy so that the journey with us is smooth. Secondly, we have hired one of the
best backend service providers from custodians to fund accounting so that the experience for the
clients is top class and finally our in house client service team works really hard to provide a
seamless experience right from onboarding to the journey in terms of getting access to their
portfolios and statements and so on. So, as we help clients grow their wealth, we also don’t want to
take it for granted their trust in us. It is most important, particularly while securing a financial future,
that trust is intact, and we intend work very hard to retain that. If you are interested in knowing
more about our fund, feel free to reach out to us on our website.

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