Q2 – Sep 30th FY11 – Photoquip Result Analysis and Buffett Munger quips
In two words, exceeded expectations. It is going to make co-owners of this business wait for lesser duration than I had anticipated.
If one does not know the “whys” of trends in revenues and profits, its tantamount to gambling. Reasons behind rise and fall need to be validated and proven, whether they are temporary or sustainable. That was the reason that despite Photoquip having grown revenues 3x+ times between 2006 and 2010, it was not such a high conviction bet compared to Relaxo, TTK Prestige, Hawkins, even though latter have not grown revenues with similar scorching pace.
With my expectations set low enough I was looking for 25%+ topline growth and did not care much for bottomline this year nor do I still. Companies have to resort to all sorts of measures, experiments, ads, promotions to establish market place. You know that Microsoft sells XBox console at less than cost price to the company, actually making a loss only with hope of making profits later in distributing gaming titles. Its very much applicable to Elinchrom, sell the kit, to create sizeable userbase and make tonnes on accessories. One needs solid base, money will come eventually. Microsoft prefers piracy in India as long as it helps beat Linux and opensource flavours, so that users contributing zero to bottomline stay familiar with Windows atleast. Earn mind space if not wallet share.
Topline trend continues, 46% up.
Encouraging to see depreciation for this quarter at 0.5 crores higher than whole of last year, more new products underway !
Economies of scale yet to reflect on bottomline. One will have to wait. Raw materials have risen in tandem with revenues. Xbox factor ? maybe.
Hirings up, employee cost 45% up. Useful parameter I learnt from S&P Global Challengers study (http://www2.standardandpoors.com/portal/site/sp/en/eu/page.article/3,2,2,0,1148443919038.html) that uses two extrinsic and two intrinsic factors, one of them being increase in number of employees.
Wont make much into profits, operating efficiencies are a wee while away.
Two interesting quips from Buffett and Charlie Munger:
Student: What are they teaching us wrong in business schools ?
Munger: How can you answer it only in one hour ? [laughter]
Interviewer: Are you overspending on GEICO advertising ?
Buffett: Quotes another successful CEO, “Half of our Ad revenues is going waste, I don’t know which half.”
We need to learn from others mistakes, as the quote goes, “Its an honour to die for ones country, make sure other guys get the honour.”
I continue to accumulate.