In May 2020, I started researching Tata Consumer Products (formerly Tata Global Beverages), diving deep into its intricacies. Several aspects caught my attention:
Expanding Distribution Channels: The company demonstrated a commitment to expanding its distribution networks.
Streamlining Product Portfolio: Noticeable efforts were made to trim down products that didn’t align with the overall strategy.
Strategic Acquisitions: Tata Consumer Products executed strategic acquisitions that bolstered its market presence.
Diversified Growth Verticals: The company strategically diversified its verticals to foster growth.
Valuation Considerations: Despite stretched valuations, the customer-centric nature of the business instilled confidence that once
distribution channels were optimized, future product launches and acquisitions would seamlessly integrate.
Leadership Transition: The appointment of Mr. Sunil D’Souza as CEO in April 2021. He was very clear with the vision and the path to get there.
Financial Prudence: All growth initiatives, acquisitions, and distribution expansions were executed while maintaining a pristine balance sheet, with low debt, controlled working capital, and robust cash flows.
After an exhaustive research period spanning over a month, I made the decision to invest, allocating 2.5% of my portfolio to Tata Consumer Products. As time progressed, the stock delivered an impressive 3.5x return over the course of almost four years.
Reflecting back, while the investment yielded substantial returns, the allocation didn’t align with the level of conviction I had in the company. In our portfolio of 15-17 stocks, this deserved better allocation in hindsight. Amidst the volatility of the markets, it’s crucial to recognise that risks extend beyond capital loss or diminished returns. Not sizing your ideas according to your conviction in the idea is also a big risk.
One pertinent lesson gleaned from this experience is the importance of not only acting on conviction but also appropriately sizing the investment. High conviction picks demand greater allocation, which may necessitate trimming positions in lower-conviction holdings. While this approach doesn’t eliminate risk or ensure superior returns it ensures that investments are aligned with diligent research and unwavering belief in the underlying fundamentals and management.
In the recent market downturn, like many investors, liquidity constraints posed challenges. However, by prioritizing high-conviction ideas and adhering to a systematic process of sizing investments based on thorough research and belief, investors can navigate market fluctuations with greater resilience.
This being said, it is important to diversify a portfolio, number of stocks in a portfolio is a personal choice, but capital preservation is always a untold principle, which diversifications helps in,
Thank you for reading!
Regards,
Bhavya Sonawala
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