MR.

RAAMDEO AGRAWAL
PRESENTING AT TREASURY
ELITE CONCLAVE - 2017

Notes by Venkatesh Jayaraman (Twitter handle: @VenkateshJayar2)

 For the collection of more such compilation of Interviews and my notes on
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Note:

• I have mentioned Mr. Raamdeo Agrawal as RA.

• This is not a transcript of the entire speech but notes from the speech.

Date: 10th February, 2017

Location / Channel: Treasury Elite Conclave, 2017, MCA Club, BKC, Mumbai
URL / Source : https://www.youtube.com/watch?v=ytDvJZf79Sw&t=67s

Raamdeo Agrawal used to do Wealth Creation studies every time. But for a change this time it was
decided to take a break and talk about the way he himself made money. The presentation title is
casual as “0-1000 Crores”, as they literally started from 0. RA came to Mumbai in 1978 to do his
CA and passed out in 1983 and started his career with equity research. Any one in Mumbai needs
to earn money to make a living. If RA gets into a job, there is no way by which he could enjoy his
living. He wanted to make lots of money. He could read balance sheet well and week end hobby
was to collect Balance sheet and churn out the whole thing over the week days. That time there
was not business magazines and internet. Many of them famous now was then started in front of
his eyes. Economic times was four pages and it used to contain everything other than business.
That was the time when they started his career. In 1987 he started a business and went to find a
business without a capital as RA did not have any capital. The only resource available was a CA
degree and some knowledge about stock market. He started as a sub broker as there was a good
demand for it that time. Back in 1987, CA were not supposed to trade in stock market. He came
together with Motilal who had two brothers, one was in Chennai and other at Ahmedabad. They
were looking for good broker and RA was looking for good clients. They used to buy at Ahmedabad
and sell it here. This way he never needed a Working Capital. To start the company some registers,
contract and bills were needed. This could not be published and hence got it Xeroxed.
The business was literally started with 200-300 rupees capital. But RA was confident that he will
absolutely do better than others. From 1989, he started to make more money and started paying
full tax to avoid any issues in future. He clearly told Moti, that he did not want the jokers to come
to his house. This kept them very clean.
In 1989, they borrowed another 12-15 Lakhs and got the membership. This was a starting point.
There were 6 people working for them and RA again worked for a main broker. The moment they
opened the doors he Harshad Mehta Bull run started. It looked as if it started for them. Everything
went negative except for the birth of Motilal Oswal. Their money grew to 30 crores, which was a
big money then. Infact the first 1 Crore cheque that he signed was Xeroxed. Not a single day were
they away from market. It was the ultimate compounding. There was 30 Cr worth of shares in his
portfolio with most of them in Bank shares, which was very cheap then. The scams all started in
the banks and once the scam broke out his portfolio was washed to 10 Cr.
Those days there was no concept of index (BSE, NSE). The stock quotes of a few famous companies
were observed to understand the mood of the market. He used to buy the stocks and held it for 6
months to 1 year, till the stock price doubled. By 1995, there were around 225 stocks in his
portfolio. Around that time excel was introduced and for the first time he could put all the stock
details in one place. These details used to run to 4 sheets. By the time one or two sheets were
completed they were mentally tired.
Miraculously someone gave him the Berkshire Hathaway shareholder meeting book (Something
missing here). He started to focus on learning. That year he reduced his portfolio size to 15 from
225. At any time, he was never more than 20 irrespective of the size of the portfolio. That very
year his portfolio doubled, and they started Wealth Creation Studies. Everyday he started reading
books and started visiting Omaha. He goes there every year even now. Buffett is his Guru, but
Buffett may not even know that he has such a disciple. Then Y2K happened… these were the times
when fortunes had to be made in the market. In a year we should stay invested in all the 365 days.
Then in year 2000-year bull market started and most of the money was made in Infosys and
Mastek. These stocks became 20-30 times in 9 months. He was at Omaha at that time and it was
absolutely clear that it was going to crash. It was obvious even before 1 year. Again, crash
happened. There was nothing that would work. Only strategy was to sell and run away. It was not
possible to move out earlier due to the extreme excitement. Bull runs happen globally and not
only in India.
Year 2002-03 was depressing times. Again, from nowhere the bull market started again. In this
phase, Motilal Oswal - a 10 Crore company became 1000 Crore company in 4 years.
In Mumbai it was difficult to get brokers. Today they would be behind you to be their clients. If
you go to a brokerage house they will throw you out. You need to go with someone reference
holding their hands. There was no KYC, it was only by introduction. Country has progressed despite
handicaps, for the type of Prime Ministers and Finance Ministers we had. In 1980 when index
started it was 100. Today it is around 27,000+. So, in this 35 years index has gone up by 270 times.
Better companies give even bigger gains (Greater than 270 times). Money is being made because
of the demographics. India is not supposed to be this poor. Despite all political conditions,
demonetization, budget, UP election, flood etc. company will make money and we will make
money in the stock market. At least that kind of optimism is there.
RA has three declines of around 67% in this 20 years. Even Buffet in his 60 years has seen only
three declines up to 50%. In the starting stages except for EPS & PE there was no other 3 rd ratio
that was used. Even though many were learned in the lesson of corporate finance. They were only
in books and not practiced. It was a simple market with no Greek letters. One of the thing about
market is luck and skill. In 1994 he read about Buffet. Till that it was more of a luck. They managed
to just survive the market. After 1994, the skill building happened. This skill building in stock market
is very difficult. You are as good as anyone in the world. Competition is also as intense as anywhere.
In 1994-95 even Buffet was not that famous. He used to sit in middle and meet the shareholders
individually and ask their names. People used to get sign from Buffet in the dollar bill. RA too had
one such dollar but lost. Now it is a very huge show with 40K-50K people and we cannot go
anywhere near to him. Charlie Munger used to open the doors of the hall.
There was always a look for investment philosophy or magic formula to make money day in and
day out. Search of an investment philosophy lead to Wealth Creation studies in 1996. This lead to
reading of more and more books. Always spend 2 months full for the improvement in formula.
Biggest help came from books. In 1992 books were not available in India. When RA went to United
States for the first time in 1996 he purchased a lot of books and send via Sea Mail. He spends a
full day in the book shop. But ended buying lot of wrong books. Lot of books were there but did
not know what to buy. It was ignorance of ignorance. We did not know that we were ignorant.
Now internet is levelling everything. Knowledge flow is real time all over the world.
The moment a winner wins, his strategy is copied in the market. This person must continuously be
on the run to be better every day. Stock market is all about frame works. The guy with maximum
frame work wins the game. How to analyze competition, growth value, franchise value and quality.
A chartered accountant can understand Cash Flow statement, but a lot other have difficulty in
understanding it. Many have difficulty in understanding the double entry system. Price is common
to everybody. Price is what you pay, and value is what you get. Stock market is a place where we
can get a one-rupee stock for 10 rupees or a 10-rupee stock for one rupee. It is a crazy place. So,
we must understand the value of stock in hand. Value has two components.
1. The current component – current earning value (Available from Balance Sheets). This is
purely mathematics and can be arrived with the knowledge Cash Flow, DCF and other
things.
2. The future growth component. This is more of story and how the company is expected to
do in future.

In stock market, one needs vision, courage and patience. You must know the story of every
company. How to figure out growth? There is no book available on this subject. Even today 50-
60% of Indian stock markets is priced on growth. There is no formula to arrive at growth. Growth
is a multi-faceted thing. It is like you cannot figure out the next biggest guy in the next few years.
What kind of work you do or what strategy you have. Understanding this growth value is very
important.
The greatest IT companies have no growth value and could be even negative. There would be no
growth for a long period of time. It is like a bond valuation. Here there could be difference of
opinion between what you predict and market factors.
Interest rates came down quickly to 5% in 2002-03. All the PSU banks were bailed out because of
this. This happened because of yield crash from 12% to 5%. Change in interest rates affect the
value of an asset class and not its price (Takes some time to reflect that changes). That is where
the opportunity lies. Stocks and bonds are affected by interest rates. For bond the changes happen
overnight, but for stocks the change happens over time.
In 2007 Berkshire report page 6 & 7, Buffett spills his entire secrets. There are three types of
companies, Good, Great and Gruesome. Compare this with bank account.
1. Good: you invest Rs.100 and get Rs.20 as interest. If you want Rs.40 as interest, you invest
Rs.200. Put more capital make more money.
2. Great: There are around 30-40 companies that make money every year higher without any
increase in capital. Nestle, HUL, Colgate, Hero Honda are such companies that do not need
any capital. Infact they work on Negative working capital. It is like getting juice without
cane.
3. Gruesome: There are around 3500 companies. They earn less than Cost of Capital. The
problem is not the low Cost of Capital, but the problem is that these companies want to
grow. All these companies are stuck with PSU banks. These companies give trouble to retail
investors, PSU banks and is an endless disaster. Such companies should never enter our
portfolio.

The gruesome companies get filtered at the Q part of the QGLP frame work. Even industrialist
don’t understand the difference between good and bad companies. They just buy out other
companies. These are examples of bad capital allocation. This arises out of pure ego. E.g. Vijaya
Mallaya – Two generation of his empire was finished in just 3 years.
It took 60 years for our country to become 1 Trillion-dollar GDP. The second came in the last 7
years. Third will come in 5 years and the 7th will come in one year. China became a trillion-dollar
economy in 1998. They are just 10 years head of us. We are going to repeat China in a much bigger
way without repeating the mistakes that they did. Every next country does it much faster. Very
rarely, we come across to know 10 years in advance as to what would happen in the market.
How to play the game? Figure out the business that are going to win. Identify Winning categories
and within that ‘Category Winners’. So far it was a bike economy. Going forward will be a car
economy. Maruti could end up making 50% of the requirements. What would be stock price term?
Category winners should be build one by one.
Asian paints – There is no online way of painting a house. There is no shorter way to get drunk.
One must open the bottles. This is a duopoly market. This is the youngest country in the world. It
is completely a branded game, be it in house or party. These companies are going to make lakhs
of money. We must build a portfolio with such companies. Everyone wants to make a lot of money
in the market. You are going to make money only as much as the company is going to make money.
Identify such companies which is going to make lots of money. They moment you get this part
right as a portfolio you are bound to be successful. We don’t get big ideas every day.
Vysya Bank was brought by him without any study. Purely based on some recommendation from
the client, it was brought at Rs.20. The price went upto 2000 and again came down to Rs.600.
When trying to sell his share certificates were lost which was send by courier to Bangalore to the
company. He had to apply to get a duplicate which took a few months’ time. The stock price again
went up and ended up selling for Rs.2250. The purchase of Hero Honda was based on research
and held for nearly 20 years.
The most powerful force India is Value migration. The entire country is prospering only because
of value migration i.e. Boston to Bangalore. This is the world’s biggest migration and the biggest
headache for Trump. All the generics are made in India. HDFC Bank is making money because
public sector banks are sleeping. Useless NBFC are doing well because of the inefficiency of the
PSU. 70% of banking system is inefficient or sleeping. Money is borrowed from them and lend at
double the prices. First value migration happened from scooters to motor cycle. Bharti Airtel is the
ultimate migration from wired to wireless.
A paper from Michael Mauboussin explains clearly how networking works. Indian telecom has 14-
15 players. No one knows how this industry works. The rule of networking business is that number
one player makes 90% of profits, number 2 make 10% and number 3 makes losses. This is same
for even a country like the United States. In India, there are around 12 Telecom companies and
more blood will flow.
Airtel was brought at Rs.24 and it went up to Rs.1200 in three years. But due to 2G scam the stock
price came down to Rs.650. Eicher motors was expected to beat Telco and Ashok Leyland in truck
business. But the story changed and only the Bike business sold.
AU Financial (Last stock in his list, CEO Sanjay Agarwal) public issues came out in 9000 Crores, but
RA sold it for 5000 Crores. This will be a Lakh crore before realizing what has happened. We are
buying the power of entrepreneurship. The vision and execution of the front man and the
relentless passion to make more and more money.
There were misses too. Mastek was brought when the IT boom was happening. This stock became
20 times in 9 months. They wanted to sell but due to LTCG consideration they plan to hold for
another 3 months. But it was back to 200 after they months and they ended up barely recovering
the money. Don’t have tax considerations in investing. MOSL manages 17000 crores and all this
money is within 6 products.
Many fund houses don’t how many products they have. But just talk about 3 or 4 popular ones.
But money is struck in poor performance and no one talks about it.
A small story of going from 0 – 1000 Crores.