Cellphones - a 200,000 crore market in India in 2012 - Part 2

Thanks a lot for all the response and queries on my earlier post on the cellphone market and spice mobile
Would again urge all the readers to post yr messages on the blog itself rather than writing directly to me. So that everyone can read them.

The questions put forward by all of you can be summarised in the following 3 questions.
a) Whether the management is credible enough?
b) There seems to be a lot of competition and cheaper imports which could dent the market for smaller players. Will Indian players benefit?
c) What are the future prospects of spice mobile?

Will try and cover the question on management credentials in this part and the rest 2 in the next part.

To understand the management we have to go back about 15 to 20 odd years and see what they have been doing and then draw inferences out of it.
The spice group which was earlier known as M corp was created as a result of a bitter business battle within the Modi family in the eighties and nineties. And a look at the various things that the Modi group has done you will find a common thread of being the first mover in a lot of spaces.
From the first xerox machine in India to the first mobile service to venturing into PC hardware the group has been ahead of its peers. Thus it formed JVs with Xerox for photocopier machines, Luft for aviation, Alcatel for telecom equipment. The group also had the honour of connecting the first mobile phone call in India between then West Bengal Chief Minister Jyoti Basu and then Union Minister for Telecommunications Sukh Ram in 1995. It had also set up the first mobile telephony equipment manufacturing unit with Alcatel. Though the modi group was not successful in taking all of these to the next level but still it cannot be denied that Mr B K Modi is really good at identifying the great business opportunities of the future. And the best thing is that he is able to recognise his failure quite easily. He may not say it publicly but if you look at the timing of his exit from businesses you will realise that he is pretty good at it.
A classic example is the selling of Spice communication business to Idea in 2008. He was not able to scale up the business and hence he sold out. We all talk about how The Singh brothers of Ranbaxy got a great deal by selling off their stake in Ranbaxy. I think the selling of Spice communications is equally commendable. Some of us may call it sheer luck but I think going by Mr Modi's track record I would like to give him credit. He sold off his stake just 3 months before the crash. and that too at an absolutely fantastic price. He sold it at an EV/EBITDA of close to 17 times. The Bharti Zain deal is at EV/EBITDA of close to 10 and we think that it is an expensive deal. Think about it. Not only that it also got money for non compete agreement.

Let me give you another example. We all know about the satyam saga. Do you guys remember the first person who stood up and said that he wanted to buy Satyam. Yes, he was Mr Modi again. When all analysts were saying that Satyam is finished this man saw value in it.

So what is important to note here the astute understanding of this man in recognising opportunities and his knack for seeing value. His failure to scale up is a point of concern though.

Also the point about cooking up books and management quality. Guys lets get real. All companies do it. Maybe not to the extent of Satyam but all of them do it. I cant quote examples but if you keep your eyes and ears open you will often read a lot about these kind of things. And nobody can be sure which company is going to be the next Satyam. But thats a risk we all have agreed to take when we have ventured in the stock market. How many of the analyst recommended Infosys in 1995 or could say for sure that Infosys management was impeccable in 1995. Dont think anyone did. So personally I think the key is to look for value. We may fail but we may succeed too.
Infact I don think during these 15 to 20 odd years there has been anything against Mr Modi to alarm us on the quality of management.

So for a man who has proved himself for 15 years I think I am going to go with him this time

Dont know if you guys have seen his interview to CNBC Asia.

If you really are a value investor I guess you should.

These are the links for the video on youtube. Please do watch it.

Part 1
Part 2
Part 3

Happy investing