Why we love McDonald’s burger and why it is our top holding !!

 Why Mc Donald’s is our top holding ??

bur.jpeg

How could anyone get wrong with this?

Westlife development is the franchise for McDonald’s in India (West and South )

  1.  Westlife Development is the franchise of  Mac Donald’s for West and south region.
  2. 232 stores are already there and expected to be doubled in in next five years.

World average margin for net profits is 6%.

  1.  India has the second highest population in the word (130 Crore ) and it’s like you can have a McDonald every 100 Kms.
  2. Driveway concept is still very new here and will be flourishing with time.We are 5 years behind the USA.
  3. MC Donald spends Millions of dollars on research to keep people hooked to their burgers, and once you ar hooked you are a customer of a lifetime. Westlife has to pay 4% per annum for this Research.

Valuations — (@ 175 when we loaded it )2300 crore market capitalization and  Sales are expected to touch  1000 cr in Fy 2016-17.

We at Shikhar capita always wanted to buy a business which we believe will be doing fantastically well even 30 years from now. Mc Donalds, with the brand name and worldwide recognition and with such a small presence has brought us with this opportunity. Just go to any Mc Donald’s store and see the kids hanging there .. they will be the loyalist customers of it for coming decades.

 

Other considerations

1. Inflation is headed high… burgers cost goes higher but Rich /middle  Indians don’t care.

2. Inflation is lower .. profits are much more as input cost decreases.

3. 2008 when the recession hit the USA .. see the sales of USA MC Donald’s and the stock price, the pointer it’s a recession proof business.

4. Businesses have a moat and competitive advantage. No one makes better burgers than Mc Donalds

5.  Last which I shall not write but seeing kids around me .. just want to go to Mc Donald’s to have the toy…. Read Charlie Munger and you will get it. These kids are going to be looooooooooooooooong term loyaaallll customers …!!

 

In India everyday, the population increases by more than a crore. Stat says India will have some smart cities and there is going to be a huge migration of rural population to cities and if all people who will migrate will have a burger once at McDonolds.

I believe this stock has been presented on a platter to us. The liquidity is low, Presence is low and as India catches up, Population grows earnings will catch up and …

SBI MF bought some chunk at 250 RS.

63 percent with Promoters. Even at a very short term, you can get an appreciation of 100 RS I.e is a range of 50 to 70 percent.

We hold it as our number one investment idea !!!

In very short term as markets are very hot … we have some good news…
a) Turning existing Mc Donald’s joints into Mc Cafe .. so you save retail space and sales go higher.
b) The new breakfast menu of Burger dosa has sales at the Black time in Mc Donald’s.
c) The online ordering is just catching up, with India having JIO and benchmark as Domains (Which is our second largest holding ) Mac Donalds has a large pie to eat.
So top holding in our core portfolio. Invested @ 175 and right now at around 225 (Good 25% ) but it’s in our portfolio till valuations reach 50,000 crores.
Some people complained through twitter that we don’t analyze numbers in the balance sheet and just give philosophical ideas.  That has hit us hard .. but if you see all over fund managers are from the finacial background so they crunch numbers first and story after that .. and boy have they got it wrong. We have the story first and then crunch numbers. In this case very low debt .. and 5oo crore in cash hmmm good for us.
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