Edges: Some go to the keeper, some go all the way

Letter # 47, 25 June 2021

It’s the 4th of February 2021 and India is taking on England at Chennai, India. The visiting team is in top form, which is on total display in the first test. Skipper Joe Root piles on a double century in the first innings itself, helping his team put up 578 on board. The game was already half won when India failed to surpass 350 in reply. England beat India by a mammoth 227 runs… and that too, on India’s turf!

Old story, did you scoff? “Didn’t you see India lose the World Test Championship finals just a couple of days back, huh?” Sadly, I did. But then, what’s the fun in bringing that up!

What however is fun, is this question: with England having won the first test against India back in Feb 2021, which team, would you reckon, was statistically the most likely to qualify for the finals against New Zealand (had already qualified). India, or England?

As it turns out, neither! England only had a 25% probability of qualifying, which was still better than India’s chances at 17%. Well, it was Australia with a whopping 42% probability (it would have qualified had the series been drawn 2-2 or 1-1, or had England won 2-1, 2-0, 1-0).

As we take solace from the fact that while India lost, its presence in that competition itself was a low probability event; something more surprising strikes – how does a country like New Zealand become the World Test Champion? Come to think of it, it’s a country with hardly any population, no domestic tournaments of repute and a minuscule cricketing budget.

New Zealand’s population is about 5mn, less than half of Mumbai and a fifth of its neighbour Australia. It has about six domestic teams, but there is just one competition for first-class, one-day, and twenty20. In 2010, New Zealand Cricket announced (1) that it had signed a business deal with USA-Cricket Association and that it would go and play a certain number of games in the US. Yeah, that’s right, in the US. Until that time, I wasn’t aware that they played professional cricket in the US.

New Zealand’s batting coach from 2007 to 2009 (2), Mark O’Neill, said this, “in Sydney there are 20 first grade teams, each club has five grades. To get to first grade you’ve got to be a friggin’ good player and once you get there the competition is very, very fierce. Unfortunately, it’s not the same standard [in New Zealand].” They appear to have come a long way in just about a decade, haven’t they?

The fact that New Zealand managed to win despite these odds – leaving stronger teams like Australia (that has an impeccable domestic circuit), England (a team in top form all through the past two years), South Africa (a nation of athletes) behind, and eventually beating a team whose budget is arguably multiple times their budget – is truly praiseworthy. Their soft-spoken skipper Kane Williamson deserves a little (if not a lot) of credit for piecing together this fine unit.

And, talking of superlative cricketing teams that manage to pull off the extraordinary, let’s move to inspiring corporate teams that managed to do the same. Classified advertisements in newspapers was a boring business in the 1990s. The world was moving ‘online’ and with that, they began the journey.

In March 1997, Sanjeev Bikhchandani launched naukri.com (under the company Info Edge or INFOE). Job listings that used to happen in newspapers were the first to move over to the internet. Matrimonial came next. In Sept 2004, INFOE acquired Jeevansathi.com.

By the time INFOE came up for listing in 2006, it was still a ‘classifieds’ business which was “helping people and business meet.” INFOE IPO-d at an adjusted (for 2 bonuses) price of INR80/share. Today, at over INR60,000 crore in market cap, INFOE is a serious contender for Nifty inclusion (3). How did the company do it?

The business was decent, but managements’ vision was exceptional. A re-reading of its annual reports is still an absolute delight. It becomes evident that INFOE was ahead of curve by almost 5 years on seismic changes in the industry (4). In 2010, the company decided not to spend beyond its means for naukri.com, when capital was readily available as it would entail “high cash flow risks”. And yet, it did acquire 50% stake in Zomato in 2011, which did grow by investing ahead of revenue. Even when 80% of the business was Naukri.com, INFOE declared in 2011 that it wanted to become the “leaders in the internet space.”

By 2013, INFOE removed this tagline from its presentation: “Helping people and business meet”, which gave way to “India’s leading online company.” Since then, it has continued to invest in several start-up businesses, in promoters it trusts and areas that it is familiar with. INFOE has acknowledged that mistakes are part of business and has been happy to cut losses when warranted (99labels.com).

INFOE has a bit of a Berkshire feel to it. In 2015, the company scaled down its PPT materially, not in terms of reporting, but in terms of accoutrements. It started presenting in a plain white background, with no logo or shiny colours – just information. Also, we still carry fond memories of INFOE being among those few companies where top managements have found it ‘ok’ to disagree with one another in investor meetings… but have always preferred to speak their minds.

As INFOE expands into yet another category (by launching AIF in 2020) and seriously knocks on Nifty’s doors, we are happy to take lessons from it as well as the Kiwi team that resources could be limited, but imagination really isn’t!

Notes:
(1) USA and New Zealand sign deal to promote cricket (espncricinfo.com)
(2) Cricket: The Aussie with hard words for our top order – NZ Herald
(3) https://www.financialexpress.com/market/dmarts-avenue-supermart-naukri-coms-info-edge-shares-may-enter-nifty-50-soon-indian-oil-may-exit/2276688/
(4) Info Edge (India) Limited
The story was originally published here: https://www.cnbctv18.com/market/stocks/info-edge-share-price-some-go-to-the-keeper-some-go-all-the-way-9779851.htm

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Information in this letter is not intended to be, nor should it be construed as investment, tax or legal advice, or an offer to sell, or a solicitation of any offer to make investments with Buoyant Capital. Prospective investors should rely solely on Disclosure Document filed with SEBI. Any description involving investment examples, statistical analysis or investment strategies are provided for illustration purposes only – and will not apply in all situations and may be changed at the discretion of principal officer. Certain information has been provided and/or based on third-party sources and although believed to be reliable, has not been independently verified; the investment managers make no express warranty as to its completeness or accuracy, nor can it accept responsibility for errors appearing herein.

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