Free Press Journal

Grave Dancer Investment Strategy

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A ‘grave dancer’ tries to profit from the mistakes of other people. This is a strategy built around systematically buying cheap assets from distressed sellers and selling when the price rises, writes TENSING RODRIGUES.

That’s a rather strange name for an investment strategy. Let truth be told : the idea is not my; it is of Sam Zell, a 75 year old man with a penchant for both gold chains and profanity. Outside his Chicago office there is a painting dubbed “Dante’s Inferno” which depicts the Securities & Exchange Commission (US) as the “bitch from hell” with Zell clothed in a jester outfit above the words Saltator Sepulcri, Latin for grave dancer.


Over the course of his 50-year-plus career, Sam Zell has consistently sought out and created value by buying into industries, companies and real estate that others have written off as worthless. He invests at a discount and stays in for the long haul; exiting at a great profit; or, a great loss!

A ‘grave dancer’ dances on the skeletons of other people’s mistakes; that is, he tries to profit from the mistakes of other people. This is a strategy built around systematically buying cheap assets from distressed sellers and selling when the price rises. That could be done for instance if a piece of real estate is going cheap because the owner wants to dispose it off in a hurry for some reason; or it could be a company which has been a victim of some mishap, but which is fundamentally sound. It is largely this second specimen that we are going to discuss, as an attempt to construct a working model of equity investment.

Let me warn at the very outset: this model of strategic investment is not for the common equity investor – not for the novice, not even for a plain veteran. It is for those who have a thorough knowledge of business and markets, who have a lot of time at their disposal for playing this dangerous game and who have deep pockets; and, of course, a very very cool head over a robust heart.

Off to grave dancing then. This strategy requires a surgical analysis of the situation about a company and an accurate assessment of the downside therein. Perhaps the best known ‘risen from the grave’ Indian company is Satyam – now Tech Mahindra. Satyam Computer Services, an IT services company, hit the dust subsequent to what was perhaps the biggest corporate fraud in the country.  In an open bidding Tech Mahindra acquired it and rechristened it as Mahindra Satyam, and eventually merged it with Tech Mahindra. Many were wondering whether Tech Mahindra was making a mistake by taking over such a liability. But it was no mistake. Satyam’s case was clear : it had fundamentally a sound business, with good profits; the promoters had syphoned out these profits for personal gains. The business without the promoters made perfect sense. The case is a good illustration of the saltator sepulcri strategy.

Far less macabre, but equally dramatic is the story of Britannia; an1892 vintage company, millions of my

Midsection of businessman balancing coins on wooden seesaw at table

Midsection of businessman balancing coins on wooden seesaw at table

contemporaries swore by as kids, had become more of a monument in the FMCG hall of fame. The country’s largest listed bakery and dairy manufacturer lost ground to Parle and Sunfeast (ITC); and several other smaller players like Dukes and Priya Gold, and global brands like McVities and Oreognawed at its market. In between it did manage to keep its head above water; but that was not what it was looking for; it was made for bigger things.

As in the case of Satyam, Britannia’s woes had little to do with its business; the storms at its helm set it adrift. The company was established in 1892, with an investment of in a small house in central Kolkata. Later, the enterprise was acquired by the Gupta brothers. In 1918, C.H. Holmes, an English businessman in Kolkata, was taken on as a partner and The Britannia Biscuit Company Limited was launched with Peek Freans UK, acquiring a controlling interest in it. In 1982 the American company Nabisco Brands, Inc. acquired the parent of Peek Freans and became a major foreign shareholder.

Rajan Pillai secured control of the Nabisco group in the late 1980s. In 1993, the Wadia Group became an equal partner with Groupe Danone in Britannia Industries Limited. Pillai ceded control to Wadia and Danone after a bitter boardroom struggle in 1995. Subsequently a prolonged legal battle ensued between Wadia and Danone, resulting in the latter selling its stake in Britannia to the former in 2009. With this, Wadia came to hold a majority stake of 50.96% in Brittania.

But all through this turmoil, Britannia held its brand equity untarnished. In an attempt to build upon that brand equity to bring back Britannia to its earlier glory, Wadia invited former chief executive officer of PepsiCo Foods India, Varun Berry to join the company; he is credited with having grown PepsiCo India’s market share in Gujarat by 38 percentage points  over 12 months in the 1990s. Berry joined Britannia Industries in January 2013, and by April 2014, he had moved from chief operating officer (COO) to Managing Director, stepping into the shoes of Vinita Bali.

Under Berry’s watch, the company has doggedly pursued a strategy to improve its sales and distribution reach, better the overall cost management, increase its in-house production capabilities, infuse operational efficiencies across its supply-chain and scale up its innovation capabilities. Berry’s shake-up yielded results: For nine straight quarters leading up to the quarter ended March 31, 2015, Britannia has grown its operating margins, an indicator of the company’s profitability.

Its operating profit margin in Q4 of FY15 stood at 13.95 percent, against 7.6 percent in the same quarter of FY13. Its net profit margin grew over 400 basis points in the two-year period. Besides, in the same period, Britannia posted 11-15% revenue growth, quarter on quarter. This was despite the fact that growth in the biscuit market had dropped by half during the period. Had you bought Britannia stock before the turnaround and sold it in June 2015, you would have quadrupled your worth. That is what saltatorsepulcristrategy is all about.