You could sense that a bull market was in the offing. In 2000, the technology bubble had bust. Three years of a lacklustre market had stock prices drifting lower, irrespective of whether it was old economy or new economy. In 2004, I could sense that the market was rebuilding value and will see a period of great growth ahead.
I was looking for new sectors to bet on. Technology had done well in 2000; I didn’t think it was going to do well in the next round. I realised that we were going to be a consumption-led economy. It was about India coming of age, young people asserting their freedom to go out and enjoy life rather than the sedate India I grew up in the 70s.
I looked at stocks that would benefit from this consumption-led growth. That’s when liquor stocks caught my attention. Liquor business is one of those recession-proof businesses. People will always drink, in good and bad times. Across the world, these were valuable businesses because they were consistent cash machines.
There were two companies I was eyeing at that time. One was Shaw Wallace and then there was McDowell which later came to be known as United Spirits. I decided to go with McDowell since the promoter was in India; the Shaw Wallace promoters, the Chhabrias, were living in Dubai. Besides, I got some extra comfort in McDowell as it also had relatively attractive valuation. It was available at a market cap of Rs.200 crore. So, you were getting 50% of India’s liquor market for Rs.200 crore. It seemed like a steal.
I had studied the liquor business of San Miguel in Philippines, Singha Beer in Thailand, Suntory in Japan, Pernod Ricard in France, Cinzano in Italy and Jack Daniel’s in the US. The valuations of these businesses were way higher. But this company was trading really cheap in comparison; I thought I couldn’t go wrong.
The important question was: why buy now? Why not 10 years back? The stock was available for 40 bucks 10 years back as well. As an investor, you need to look for triggers for change. Mcdowell seemed to have one. At that time Vijay Mallya was known for his flamboyant lifestyle and was known as ‘t