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Rakesh Bhaiya always taught us that Prashant business is built on cash flow and he always gave us the example of Titan that you are generating so much cash, you want to leverage it and grow with it because if I am a shareholder and a bigger shareholder than me is a promoter and ultimately I have set out on my wealth creation journey, then the less dilution there is in it, the better it is.
Every time you are doing equity race, then friend, why should I buy your share next time because after six months you are going to come and give it to me. Wherever there is constant dilution in any company, wealth creation cannot happen. So if you look at his entire thesis and his entire wealth creation journey, you will not see a single business of e-commerce.
Thinking was his belief and a very important saying is not that of behavior, nor was his belief that there would be no cash flow. So, if by mistake someone came up with a business that he would incur loss for the next six years, then he would make profit, then entry They also did not get it, no brother, he also used to say that this is not always right, in fact Buffett also did the same, in fact when Buffett got the news of dot com, then someone in Buffett's stock asked why are you not doing it, he said I do not do cash flow business, so I am your share holder, don't you think it is your responsibility to learn, if you do not know how to learn, then luckily Rakesh Bhaiya does not manage anyone's money, he had his own money, but one school of thought was that brother, businesses are built on cash flow, the second school of thought was that it is not necessary that businesses are built on cash flow, scale is necessary, value is gained by scale, so I take it to scale, then I will get value, but to reach that scale, according to the nature of the business, like today you talk about Zomato or our investment of Everstone in pharmacy, if you look at the structural, then the old school of businesses used to invest in plant machinery, the new school says, friend, you are putting my balance sheet here I am doing it in brand building and customer acquisition, so what is the difference, I could also have capital, my balance sheet looks big, but the accounting standard of Chartered Accountant Society is that if I spend on marketing, it will go through PNL, so you are seeing a loss, ultimately I will also try to build a business, both are schools of thought, which one is right or wrong, but we did a big exercise when I came with Bhaiya, Research Head Rakesh Sir, with Rakesh Bhaiya, we did a lot of research on businesses that have destroyed most wealth and when we did it, we found that double most wealth has been destroyed because of capital misallocation, if you do not respect capital, then ultimately the stock market will punish you, a very interesting example, Bhaiya used to tell us about Raymond, I don't think there is a bigger or more powerful brand than Raymond, right, we all grew up with The Raymond Man and what, man, even today we are in suitings and suits, right Gross margin business at 50-60%.
I do n't know what to do with that money. This was a brand. At that time, a new company came, Sanjay Lal Bhai started Arvind Mills. We Arvind Mills took a different point of view that I make denim, but I will be the denim supplier to the world, whether you are Levis, Gap, or whoever you are, I will supply you.
So, he opened a big plant and started expanding. He started bringing denim prices very high. The stock market liked this story very much, so they gave Sanjay Lal Bhai's company a market cap higher than Raymond. Friend, there will be pain somewhere, right? Entrepreneurs, so I will make Raymond a business with a return on capital employed of 70-80.
He went and took out all the capital that was coming in as cash flow and invested it in denim. Denim was a business with a return on capital employed of 8. We in the market, boo-boo, what stupidity is this? We got such a punishment. Now, in the last one and a half years, Raymond has come back to recognition, so capital allocation became very Important Decision for Wealth Creation The only difference is when you are building business through cash flow Capital will never be misallocated because you have only how much cash flow
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