What is Coffee Can Investing? Top 15 Companies to Own:

What is meant by Coffee Can Investing?

Coffee Can Investing is a term that refers to investing in shares of firms that have continuously performed successfully. Coffee investment started in the US markets, where it has been extremely profitable.

The Coffee Can portfolio has its origins in the American Old West. People used to secure their valuables in coffee cans back then. The coffee can was then concealed beneath their mattress, where it remained for years, if not decades. 

In 1984, Robert Kirby, an investment manager, argued that investors might use the same investing method. They choose a wide range of well-performing companies, invest in their shares, and hold them for at least 10 to 15 years.

Coffee can portfolios have been defined in the Indian setting in the book “The Unusual Billionaires.” This book discusses firms that have an annual return on capital (ROCE) of greater than 15%. Additionally, sales increased by more than 10% each year for the previous decade.

There is another well-known book titled “Coffee Can Investing: The Low-Risk Path to Sustaining Wealth” by Saurabh Mukherjea, Rakshit Ranjan, and Pranab Uniyal. Although there are several books on investing, there are just a few books on the Indian equity markets.

Additionally, the majority of Indian retail investors have significantly invested in gold and real estate. However, these investments have not benefited from the economic expansion in recent years. Coffee can also help investors cut down on the costs of other types of investments.

What are consistent compounders?

Consistent Compounders means that the portfolio is composed of companies that have demonstrated sustained healthy growth in their fundamentals over the last decade or longer and that they will continue to do so over the next decade as well. 

Even though these companies have been around for a long time and have been consistent, some investors are worried that they might be nearing the end of their development cycle because of their size and already strong market shares.

There are some industries in India where one or two businesses not only have a disproportionate share of the market but also have ROCEs that have consistently exceeded the cost of equity for decades.

What to Check in a Coffee Can Investing?

The majority of standard valuation techniques (P/E multiples, PEG ratios, or discounted cash flows) anticipate that the difference between ROCE and COE will narrow over the next five, ten, or fifteen years. 

This is because, as is often the case in Western economies, a big difference between ROCE and COE leads to a lot of competition, which pushes the gap to close as dominant players make concessions on how much money they make per unit of capital used.

However, a few enterprises in India have such a strong pricing power and competitive advantage that they can sustain a large differential between ROCE and COE for extended periods of time.

The majority of standard valuation techniques (P/E multiples, PEG ratios, or discounted cash flows) anticipate that the difference between ROCE and COE will narrow over the next five, ten, or fifteen years. 

This is because, as is often the case in Western economies, a big difference between ROCE and COE leads to a lot of competition, which pushes the gap to close as dominant players make concessions on how much money they make per unit of capital used.

However, a few enterprises in India have such a strong pricing power and competitive advantage that they can sustain a large differential between ROCE and COE for extended periods of time.

Coffee Can Investing Meaning, explaination and top 15 Companies in India

Top 15 Companies Best Suited for Coffee Can Investing:

S.No.Company NameROCE 5Yrs Average (In %)ROE 5Yrs Average (In %)P/E RatioEV/EBITDAPB X PEPEG RatioDebt / EquityROCE (In %)ROE (In %)ROIC (In %)ROA 12M (In %)EPS 12M (In Rs.)Market Cap (In Crores)
1Asian Paints Ltd35.6926.3896.1657.522,242.457.670.1134.8127.2635.4117.5031.612,91,500.21
2Berger Paints India Ltd28.1723.5480.1948.241,533.235.390.3227.3223.8420.9613.228.4565,758.62
3Dabur India Ltd28.4525.6054.6838.12674.758.280.1027.2723.7346.3116.8010.3199,813.04
4Divis Laboratories Ltd27.4220.4643.0330.38477.633.590.0332.0923.9322.6820.5996.731,10,592.83
5Godrej Consumer Products Ltd20.2624.4242.1130.64309.514.040.2119.7420.1318.7911.9917.4777,015.65
6Havells India Ltd26.6118.8263.0937.09827.745.220.0829.2021.1618.9112.6018.3372,328.67
7Hindustan Unilever Ltd74.3653.8257.0638.88600.273.970.0239.2129.2315.9518.3937.295,04,457.22
8ICICI Lombard General Insurance Company Ltd25.6119.7847.0035.64322.421.980.0326.8821.7126.883.8627.4561,270.53
9Infosys Ltd32.1024.3133.2321.32339.284.480.0835.2527.2232.1119.4450.817,16,270.64
10Larsen & Toubro Infotech Ltd41.2131.0748.3332.54669.853.390.0937.9427.4865.0118.27121.611,02,962.79
11Marico Ltd42.8235.7554.8937.34926.545.080.0943.9936.7245.8722.889.2466,292.57
12Mindtree Ltd28.9723.0042.8827.93547.582.840.1136.1029.7147.5019.2890.8664,316.10
13Pidilite Industries Ltd34.7025.5296.7262.542,035.9613.620.1329.4222.5120.8714.7824.781,22,061.40
14Supreme Industries Ltd32.4926.3723.5416.04179.140.690.0141.3035.9134.9424.6886.2025,738.18
15Tata Consultancy Services Ltd45.5635.1634.9223.39473.175.090.0848.9039.0658.2326.75101.7713,11,813.00

  • ROCE % – Return on Capital Employed in percentage, per-annum.
  • ROE % – Return on Equity in percentage, per-annum.
  • P/E – Price to Earnings ratio.
  • EV/EBITDA – Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization expenses.
  • PEG – Price to Earnings Growth ratio.
  • ROCE 5 Years – Return on Capital Employed in percentage, 5 years average.
  • ROE 5 Years – Return on Equity in percentage, 5 years average.

Asian Paints Ltd

Asian Paints was founded in 1942 and are India’s largest paint company. It also manufactures varnishes, enamels, and lacquers, as well as surface preparation, organic composite solvents, and thinners. It has offices in 15 countries and makes paint in 26 factories around the world. It sells to customers in more than 60 countries.

Asian Paints isn’t the only name the company goes by. It also goes by Asian Paints Berger, Apco Coatings, SCIB Paints, Taubmans, Causeway Paints, and Kadisco Asian Paints.

Additionally, it makes metal sanitary goods such as baths, sinks, and washbasins. Lighting, furnishings, and furniture were recently added, expanding the categories of home dΓ©cor and interior design.

Berger Paints India Ltd

Berger Paints is India’s second-largest paint manufacturer (after Asian Paints), with operations in both the decorative and industrial markets. The ornamental paint segment makes up about 80% of the sales. Industrial paints make up the rest.

Dabur India Ltd

Dabur India is a market leader in consumer care and food products.

Dabur India Limited is the fourth-largest fast-moving consumer goods (FMCG) company in India. It is also the world’s largest ayurvedic and natural health care company, with more than 250 herbal and ayurvedic products in its portfolio.

Divis Laboratories Ltd

Divis Laboratories Ltd. is primarily engaged in the manufacture of Advanced Pharmaceutical Ingredients (APIs), Intermediates, and Nutraceutical Ingredients. You can find it in 95 countries and employ 14,000 people.

Godrej Consumer Products Ltd

Godrej Consumer Products is a fast-moving consumer goods company that specializes in the manufacture and marketing of household and personal care products.

Havells India Ltd

Havells India Limited is a big player in the market for Fast Moving Electrical Goods (FMEG). They also make a lot of power distribution equipment and have a global presence.

A wide range of products is sold by this company, including Industrial and Domestic Circuit Protection Devices, cables and wires, motors, fans, switches, home appliances, electric water heaters, power capacitances, and Luminaires for residential and commercial use. This company has a lot of market share across a wide range of products.

Hindustan Unilever Ltd

Hindustan Unilever is India’s largest FMCG company and a consumer packaged goods (FMCG) company focused on home care, beauty, personal care, and food and refreshment areas. The company has manufacturing facilities across the country and sells primarily in India.

ICICI Lombard General Insurance Company Ltd

ICICI Lombard General Insurance Co., Ltd is one of India’s largest and most established general insurance businesses. It sells a wide range of goods and risk management solutions through a number of different distribution channels.

Infosys Ltd

Infosys Limited is a leading provider of consulting, technology, and next-generation digital services, assisting customers in executing digital transformation initiatives. 

They assist their clients in digitizing processes, migrating to cloud-based technologies, transforming their workplaces and business models, enhancing cybersecurity controls, and optimizing their IT cost structures. 

It was founded in Pune and has its headquarters in Karnataka. It operates in 46 countries and 220 locations.

Larsen & Toubro Infotech Ltd

Larsen & Toubro Infotech Ltd. provides a comprehensive range of IT services to clients in a variety of sectors, including application development, maintenance, outsourcing, enterprise solutions, infrastructure management services, testing, digital solutions, and platform-based solutions.

Marico Ltd

Marico Limited is a significant consumer products company in India, with a global presence in the beauty and wellness sectors. It operates in over 25 countries in Asia and Africa’s emerging economies. It makes and supports the best brands in hair care, skincare, edible oils, healthy foods, male grooming, fabric care, and more.

Mindtree Ltd

Mindtree is a global information technology consulting and implementation firm that specializes in global software development.

Pidilite Industries Ltd

In India, Pidilite Industries Limited is a market leader in adhesives and sealants, building chemicals, artisans’ and do-it-yourself goods, and polymer emulsions. The majority of our goods are the result of extensive in-house research and development.

Brand name, Fevicol, has become associated with adhesives for millions of people in India and is consistently named among the country’s most trusted brands. Fevikwik, Fevistik, Roff, Dr. Fixit, Fevicryl, Motomax, Hobby Ideas, and Araldite are a few of our other well-known names.

Supreme Industries Ltd

Supreme Industries is a significant manufacturer of plastic goods in India, with 25 production sites scattered across the nation. The firm offers a diverse and comprehensive variety of plastic products in India. People at the company make a wide range of products, from plastic pipes to protective packaging to industrial molded parts to furniture and storage and material handling products to performance packaging films.

Tata Consultancy Services Ltd

Tata Consultancy Services is the group’s main company. It is a provider of information technology services, consulting, and business solutions that have been assisting many of the world’s leading enterprises in their transformation journeys for more than 50 years. TCS provides a comprehensive spectrum of business, technology, and engineering services and solutions that are consulting-led, cognitive-enabled, and integrated.

Conclusion:

India is perhaps the only large economy in which several industries are dominated by one or two players, and these dominant players have consistently generated higher returns on capital employed (ROCE – earnings generated on each unit of capital employed on the balance sheet) than the cost of capital (or COE – the cost of equity) for several decades. 

For example, global businesses that dominate their respective sectors are easy to locate β€” Walmart leads US supermarket retail, Carrefour dominates French grocery retail, Toyota dominates Japan’s mid-segment vehicle market, and Hanes dominates Europe’s innerwear industry. However, none of these firms has a return on equity that is much more than their cost of equity.

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