"HLL's brand strengths in different product categories, a wide distribution system, strong financials and professional management at all levels is admirable"
27-Dec-2000 •Aabhas Pandya
With the first three fund managers picking Infosys as their favourite stock, we decided to scout for a fund manager who is willing to bet on a stock from other sectors. Our search ended with E A Sundaram, the fund manager of Zurich India Capital Builder, who has a liking for Hindustan Lever. The fund has stayed clear of technology theme and has been bullish on FMCG stocks, which account for 42% of the portfolio in November. Besides, the fund manager has maintained holdings in sectors like automobile, publishing, pharmaceuticals and media. Converted into an open-end fund only in February 2000, the erstwhile Zurich India Quantum Fund has given a paltry return since launch (launched in 1994) of 2.43% though the 3-year return on December 22, 2000 is a more impressive 21.13%.
1. Which has been your favourite stock for Capital Builder and why do you like that stock?
Sundaram: There are a few stocks that I like very much, but you can say that Hindustan Lever is my favourite stock. The company has strong brand strengths in different product categories, a wide distribution system, strong financials and an excellent, professional management team at all levels. Despite the fact that their growth in the previous year has not been very exciting, or the fact that their growth over the next year will also not be very exciting, at the present valuations, it suits the Capital Builder Fund admirably.
2. Even if your favourite stock was perceived to be overvalued, would you still buy more of it?
Sundaram: I would buy if I, as a fund manager, consider a stock price as reasonable. If in my opinion, the price is high, then obviously the question of buying does not arise.
3. Which of the mid-cap holdings in Zurich India Capital Builder are tomorrow's bluechips and why?
Sundaram: I would like to point out two stocks in the portfolio that fit this bill.
Himatsingka Seide: Himatsingka Seide (HSL) is one of the largest exporters (and certainly the most profitable) of silk furnishing fabrics. This Bangalore-based company has a most amazing track record of profit growth and high profit margins. Although it is in the textiles business (which is generally capital intensive), HSL has been able to sustain its growth without frequent doses of external funding. This is because HSL is in the furnishing fabrics business, where fashion is not so fickle. Also, they operate at a plane higher than most of the competitors from the South Asian countries, and also its other Indian competitors. Its design capabilities, perfection in execution and timely delivery schedules have earned it a reputation among overseas buyers that would be very difficult for any competitor to replicate.
Tata Infomedia Ltd (TIL): This company was until recently called Tata Donnelley. For some strange reason, this company continues to be referred to by many people as a "printing" company even though printing now accounts for less than 20% of their revenues. TIL is a publishing and information services company and the only Tata company that is a creator and owner of content. In almost all its areas of operation, TIL is a market leader with an overwhelming market share. For instance, they own the Tata Press Yellow Pages with more than 90% share. In the special interest publications business, they have the publications such as Better Photography, Overdrive and AV Max Search. In all these categories, they take the number one slot. In all these categories, the company has planned multiple ways of sharing information, including traditional print, CD-ROM as well as the Internet. They have entered the direct marketing business through their "Direct Edge" division. In my opinion, this is a thoroughly misunderstood and undervalued stock.
4. Which, in your opinion, are the non-performing holdings in your portfolio and would you exit them at first opportunity?
Sundaram: There are no "non-performing holdings" in the portfolio though I should clarify that there are two or three stocks that were purchased long back (when the fund was a closed-ended fund) that are non-performing. However, since these are being valued at zero, it does not make any difference to the NAV.