As far as the public market is concerned, traditionally, Indian arms of multinational companies have been considered to have the best moats: Nestle India, P&G Hygiene, Castrol, Colgate, Glaxo, Bosch, 3M, Unilever, to name a few. But the problem with consumer companies in India is two-fold. Buffett can and has invested in their parent or in the case of Unilever tried to buy them outright. Instead of buying P&G here, he might as well play white knight to the parent, which is being pushed by activists. It makes more sense given the exuberance reflected in the relative valuations of the Indian arms compared with the parent. Suzuki’s Indian arm, Maruti, is a fine example: the company is on a roll with stellar growth and has a deep moat where both supply-side and demand-side economics are at play. But today Maruti trades at a market cap of $32 billion, reflecting a multiple of 25, compared to Suzuki, whose market cap is $20 billion or that of Honda at $50 billion.
The second problem with big brand companies in India is that they face intense competitive pressure from low-cost single-product or nimble-footed regional players. Pabrai says, “Wal-Mart & Costco in the US and V-Mart in India sell store brands that are clones of the established brands. Packaging is similar, it is placed right next to the branded product and pricing is lower. Look at V-Mart’s store version of Parachute Coconut oil. As retailing concentrates in the hands of fewer players, it will put pressure on the brand guys.” Additional competitive pressure comes in the form of larger companies for whom profit may not be the prime objective. A classic example of the latter is GCMMF, a co-operative whose main objective is to maximise the price offered to members of the co-operatives i.e. its farmers. It operates under the Amul brand and its supply chain is an unbeatable moat, but it is not run for profit. Then there’s Ayurveda-powered Patanjali that has sprung up and is targeting doubling its sales in the next two years, throug