Gymkhana Partners' Andrei Stetsenko on Maharashtra Scooters and Indian Holdcos
Maharashtra Scooters is a roughly $2 billion listed holding company with about $4 billion of exchange-traded Bajaj shares and no debt, putting its market price near 50% of marked NAV. Andrei Stetsenko’s thesis is not a liquidation stunt: he wants the underlying businesses anyway, while discount compression is a “potential bonus down the line.”
Bajaj Finance and Bajaj Finserv provide the core compounding engine through lending, insurance, and asset management in markets Stetsenko believes remain early in their adoption curves. He expects something closer to 20% average long-term growth than 5%, but explicitly rejects a smooth annual forecast: disciplined financial companies sometimes barely grow when “pricing was getting worse” and underwriting loosens. The governing principle is simple: “Succeeding in a financial business isn’t about lending money. It’s about collecting.”
Andrew Walker’s sharpest pushback was that fast-growing lenders and insurers can manufacture growth by accepting bad risks, while new capital eventually commoditizes attractive returns. Stetsenko answered that Bajaj’s businesses have repeatedly grown more slowly than competitors when conditions deteriorated, yet compounded strongly across cycles; most Indian insurance buyers are also first-time customers rather than customers being poached through aggressive pricing. Bajaj’s insurance exposure had operated through two Allianz joint ventures until Bajaj bought Allianz out earlier that year.
The India thesis combines durable economic tailwinds with unusually labor-intensive local diligence. Stetsenko calls India the only market that gives the US “a run for its money in terms of fundamentals,” citing demographics, early-stage urbanization, infrastructure construction, and its status as the fastest-growing major economy. Stetsenko’s research process counters international-investor blindness with a database covering roughly 2,000 companies, hundreds of meetings, twice-yearly visits since 2012, a full-time local analyst, and an informal network that captures “literally every little last piece of scuttlebutt.”
Indian holding companies are closer to passive family trusts than bets on a single John Malone-style capital allocator, but the discount alone never makes one investable. Stetsenko estimates that perhaps a dozen, from a universe three or four times larger, combine sufficiently strong assets and governance; Maharashtra Scooters stands out because the Bajaj structure is intelligible and its operating companies sit only one ownership layer below. In his formulation, a “big juicy discount” is gravy, not the meal.
The potential catalyst is a convergence of regulatory pressure and changing behavior inside Bajaj itself. Since the prior fall, SEBI had begun targeting investment holding companies trading far below book value, improving dividend treatment and enabling tax-efficient distributions of underlying shares; Maharashtra Scooters’ dividend had already quadrupled over several years. More importantly, Bajaj Holdings evolved from the group’s “central bank,” whose CFO once insisted it would never sell operating-company shares, into a professionally run owner that recently sold shares and passed proceeds to shareholders.
A clean unlock could distribute Maharashtra Scooters’ listed holdings directly, while an alternative would be a premium buyout by majority owner Bajaj Holdings that clears the 90% ownership threshold. Yet Stetsenko says the thesis “doesn’t need to narrow for this to work”: the underlying holdings trade around a weighted 25 times next-year earnings, while Maharashtra Scooters provides look-through exposure near 12–13 times. Earnings growth is the base return; discount closure, though increasingly plausible, remains the upside.
1. Maharashtra Scooters sells blue-chip Bajaj exposure at half its marked value
Stetsenko first distinguishes Indian holdcos from Jardine Matheson, Liberty Media, or Berkshire Hathaway. Those structures ask investors to trust a particular capital allocator; Maharashtra Scooters functions more like a family trust, passively preserving economic participation for later generations of the founding family.
The balance-sheet proposition is unusually clean: “$2 billion company, $4 billion of assets, no debt.” The assets are overwhelmingly exchange-traded Bajaj company shares, not private holdings whose valuation must be negotiated, so the roughly 50% NAV discount is directly observable.
Maharashtra Scooters sits beside the larger Bajaj Holdings, its majority owner and what Stetsenko calls its “older brother.” Both provide discounted access to Bajaj Auto, Bajaj Finserv, Bajaj Finance, and smaller group holdings, without the labyrinthine ownership layers found in some Asian conglomerates.
Stetsenko places Bajaj alongside Godrej and the Murugappa group in India’s “platinum seal of corporate governance” tier. Even so, the investment begins with asset quality: “We’re not invested because of the discounts. We’re invested because we really like what they own.”
2. Financialization—not discount closure—is the primary return engine
Bajaj Finance is the largest single component of Maharashtra Scooters’ look-through value. Bajaj Finserv owns a majority of Bajaj Finance while adding insurance, asset management, and other financial businesses, giving shareholders exposure to products whose adoption has grown but remains early in India.
Stetsenko’s long-range claim is “more like 20% year on year for probably decades,” but he immediately qualifies its shape. These companies “do not grow at 20% year after year after year”; earnings may barely grow in one year and rise far more than 20% in another, with the cycle averaging out.
Walker’s pushback — worth keeping: rapid lending growth is often a warning, while fast-growing insurers may win business only by underpricing risk. Stetsenko agreed and recalled an Indian lender being criticized for lagging competitors when “pricing was getting worse, underwriting was getting looser,” precisely the conditions management refused to chase.
Bajaj’s insurance opportunity differs from mature-market switching wars because many customers are buying insurance for the first time as living standards rise. Its ventures also grew more slowly than some competitors, which Stetsenko reads as discipline; the test is not policy issuance but whether “you actually collect.”
3. Local scuttlebutt is the defense against being the foreign sucker
Walker framed the international-investing hazard through a stock that looked irresistibly cheap until a friend told him it was widely regarded as a mafia front. His “where would you buy a hammer?” test exposed whether an analyst actually understood everyday life in the market being pitched.
Stetsenko’s culturally revealing answer was that many middle-class Indians might say, “I don’t pick up a hammer; I pay people to do that,” because household labor is far cheaper. The exchange illustrated why apparently simple local-knowledge tests can themselves mislead without cultural context.
Stetsenko’s research process is the real screen: a roughly 2,000-company database containing “literally every little last piece of scuttlebutt,” built from hundreds of company meetings and an informal network of local investors, businesspeople, analysts, financial journalists, and people with inside knowledge. Stetsenko and his partner have spent two two-week periods in India annually since 2012, except during COVID, and now have a full-time local analyst.
Humility still shapes sizing: the fund owns more than 50 stocks, with its largest position usually below 4% and certainly below 5%. On Bajaj, however, Stetsenko is emphatic: “If I’m wrong about Bajaj having excellent corporate governance, then I don’t know what I’m right about.”
4. India’s opportunity is real, but only selected holdcos deserve capital
Stetsenko thinks Americans retain a “Slumdog Millionaire” image of India that is exaggerated or distorted. Mumbai instead evokes China two decades earlier: roughly a dozen metro lines under construction, a new airport, and high-speed rail, all being built within a pluralistic democracy.
His macro chain runs from favorable demographics and early urbanization to higher-productivity city employment, recurring GDP growth, and corporate earnings. He described India as the fastest-growing major economy and expected it, on his stated timeline, to eclipse Germany within roughly 18 months.
That runway does not make every discounted holdco attractive. Stetsenko likes perhaps a dozen among three or four times as many listed structures, including Cholamandalam Financial Holdings within the Murugappa group; each must combine governance with operating assets capable of prolonged compounding.
The contrast with Korea is structural: some Korean webs appear designed so 51%-owned entities control further 51%-owned entities, preserving control without equivalent capital at risk. He cites Jindal as a more convoluted Indian example, whereas Bajaj’s operating businesses sit one readily diagrammed layer beneath the holdcos.
5. SEBI and Bajaj’s own behavior have begun moving in the same direction
Since the previous fall, SEBI—India’s securities regulator—had begun pursuing reforms for “investment holding companies” trading far below reported book value. The measures do not force immediate action, but they improve dividend taxation and allow holdcos to distribute underlying shares tax-efficiently.
Walker compared the setup to Japan, where below-book and below-cash stocks languished for years until the Japanese market and regulators became serious about capital returns. His conclusion: when national authorities focus on persistent book-value discounts, those discounts can finally become actionable rather than permanent curiosities.
The Bajaj-specific change is equally important. In meetings around 2014–15 and again in 2017, Stetsenko encountered a holding-company CFO who simultaneously worked for Bajaj Auto and called the holdco “the central bank of the group,” a captive financier rather than an independently managed company.
That CFO said Bajaj Holdings and Maharashtra Scooters would “never sell any of the shares” in their operating companies. The executive ranks have since turned over, with some managerial overlap remaining, and Bajaj Holdings recently sold underlying shares and increased distributions—evidence that capital allocation is shifting toward holdco shareholders rather than the broader group’s financing needs.
6. Diffuse family ownership may now favor liquidity over entrenchment
Stetsenko’s local network sees a broader change in Indian incentives. A decade earlier, misconduct might involve siphoning money to an unlisted affiliate through nebulous charges; now status increasingly comes from being “the guy in the room who has the biggest market cap,” aligning prestige more closely with public value creation.
After four generations, Bajaj wealth is spread across more than 100 family members with different needs—marriages, homes, overseas education, or simple liquidity. Stetsenko argues that this diversity means there is no longer one monolithic family interest committed solely to preserving an illiquid structure indefinitely.
Governance remains “a bit of a monarchy”: Rahul Bajaj was the third-generation leader, while sons Rajiv and Sanjiv are the fourth-generation figures in control now, running the auto and financial sides respectively. Family disputes have occurred, but Stetsenko characterizes the top-level relationship as markedly more amicable than groups conducting weekly battles through newspapers.
His alignment argument is practical rather than sentimental: owner-managers often treat allocated capital as “their capital,” whereas prestigious professional boards can still destroy value. Walker supplied the specimen—directors with excellent résumés cannot erase an acquisition followed 18 months later by an 85% goodwill write-off.
7. The discount survives the small-float challenge, and the exit mechanics are tangible
Walker’s hardest valuation objection came from Liberty SiriusXM: the tracker appeared discounted until the structures collapsed and SiriusXM fell to the tracker’s implied price, revealing that its small float, ETF ownership, and dividend had inflated the operating stock rather than cheapened the holdco.
Stetsenko’s answer is fundamental. Bajaj Auto, Finserv, and Finance are established businesses whose EPS has doubled in all three cases, “at worst every five or six years”; their weighted valuation is around 25 times next-fiscal-year earnings, while Maharashtra Scooters cuts the effective entry multiple to roughly 12–13 times.
An unlock could be exceptionally clean because Maharashtra Scooters owns listed shares and minimal cash: it could distribute those securities pro rata and effectively liquidate. Alternatively, Bajaj Holdings could offer minorities a premium; under the rules described, a successful offer must carry ownership above 90%, letting the marginal tendering shareholder determine the clearing price.
Walker noted that Maharashtra Scooters had risen more than tenfold—perhaps fifteenfold—over the preceding decade, but Stetsenko redirected attention forward. Unlike obscure small caps that benefit from discovery and multiple expansion, Bajaj is already known; future returns rest chiefly on earnings, with a narrowing discount increasingly credible but unnecessary. His closing historical analogy: liberalization once threatened Bajaj with imports, yet exports eventually approached half of sales—“the story of this company really has been the story of India.”
Full transcript
I’m happy to have Andrei from Jim Kana Capital on. You’re going to have to help me with your last name; I’m not even going to bother to butcher it.
Doing well. Thanks for having me on.
Thanks so much for coming on. I’m really excited to talk about the company we’re going to discuss today. The company is MAHSCOOTER, which trades in India. Maharashtra Scooters, I guess, is the full name. I labeled it MAHSCOOTER because I think you primed me for that.
Ticker. That’s the exchange ticker.
We can talk about all things Maharashtra Scooters. Let’s start there, and then we can zoom out broadly on India or focus here. What is Maharashtra Scooters, and why are they so interesting?
In India, there’s this phenomenon of listed holdcos, and I know you’ve had some interesting discussions about other holdcos recently, which I’d be glad to tie this into—especially the recent episode you had on Jardine Matheson, which was fascinating. This is a very different situation from that.
Whereas in the case of a Jardine, a Liberty Media, or even a Berkshire Hathaway—probably the best in class of what people think of when they think of a holdco—you’re making a bet on usually 1 person who’s a capital allocator, and you’re basically trusting that they’re going to sustainably outperform the market. That comes with its own challenges.
The kinds of holdcos we’re invested in in India are more like family trusts. The way they exist today, they’re basically ways for 3rd-, 4th-, and 5th-generation family members to equitably participate in the economics of a business that their great-great-great-grandfather started. They’re pretty passively run, although that’s changing in interesting ways in some cases, including the stock we’re talking about today.
With respect to the Bajaj Group specifically, there are a few names in India that are universally considered to have a platinum seal of corporate governance—truly universally respected. Godrej is 1, Murugappa out of Chennai is another, and Bajaj is definitely in that top tier.
This company, along with another holding company in the same group that we’ll definitely want to touch on, Bajaj Holdings, is basically a way to get in at a discount to 1 of India’s best-run groups. It’s not just about buying into the discount. That’s not the reason we’re invested. We view that as a potential bonus down the line if and when the discount ever narrows. The reason we own this is first and foremost because of the high-quality businesses it owns.
That’s perfect. Let’s start with some details. Most of my listeners are domestic. This is an Indian company. If you’re lucky enough to have a Bloomberg or if you pull up Yahoo Finance, you’re going to see this listed in different places. Maybe we could just start with the market cap of Maharashtra Scooters. What are we talking about here?
In round numbers, it’s a $2 billion company, and it owns assets that aren’t hard to value because they’re traded on an exchange, so we know the market value. It owns about $4 billion worth of Bajaj company shares. So, it’s a $2 billion company with $4 billion of assets and no debt.
That’s perfect. I wanted to express that because I’ve looked at weird Korean holdcos and stuff, and sometimes you’re looking at a $75 million market-cap company and people just write it off. This is a pretty large company.
Let’s move to the next point. The market’s a competitive place. You mentioned the holdco discount—it’s trading for about 50% of NAV. I’m focused on bitcoin companies right now, and most of that NAV is publicly traded companies, so you’re kind of getting market value. What are you seeing that you think the market is missing that makes this an alpha opportunity?
If you’re invested in some run-of-the-mill ETF that markets itself as an India ETF, most likely that ETF owns at least a couple of the Bajaj operating companies. These are blue-chip stocks.
At the same time, Bajaj Finserv especially and Bajaj Finance—the 2 financial holdings that make up the vast majority, the lion’s share, of the sum of the parts, or the NAV, whatever you want to call it in this case—are big. But for reasons I’m happy to get into, they’re destined to keep compounding, not at 5% a year, but more like 20% year on year for probably decades.
I mean, realistically decades, because they are plays on insurance, asset management, and commercial lending—things that have grown a lot over the last decade or 2 in India but are still very much in the early days.
Let me ask a question there. A lot of the underlying holdings of MAHSCOOTER are commercial insurance and all that sort of stuff, and you said these are plays that can grow at 20% per year. Did I hear that right?
Obviously, India is a huge place and it’s an emerging economy, so I definitely hear that. But then I also say, what is the scariest thing as an investor? It’s a fast-growing insurance company, or any type of fast-growing financial company. If you’ve got this huge market that’s growing rapidly, at some point you’d have to imagine the giant insurers are going to move in here.
I’m posing this question in 2 ways. On 1 hand, are you at all scared that they’ve been doing a ton of quickly growing underwriting? On the other hand, when you say this can compound for years, are you worried that as the market opens up, you get a flood of new money into it and that’s going to bring returns down?
When you say, “I think this can compound in the double digits for years,” insurance is a commodity business. Capital comes in and all the returns go down. I think I presented 2 countervailing views there. I’ll let you take them.
Both are very valid, good points. On the subject of insurance specifically, I couldn’t agree more. The same is really true of just a basic lending business. If you have a lender that’s suddenly issuing a ton of loans, that’s a red flag.
My partner Steve and I have been going to India since 2012. One of our most memorable early experiences there was seeing analysts in a group meeting become irate with the CFO or CEO of a lending business—what they call a nonbank financial company—because they weren’t growing as fast as their competitors.
And the reason they weren’t growing as fast is because pricing was getting worse, underwriting was getting looser, and they didn’t want to participate in that. If you look at the track record of Bajaj Finance, the non-banking financial company that accounts for the single biggest chunk of the Maharashtra Scooters sum of the parts, and Bajaj Finserv, which owns a majority of Bajaj Finance and, in addition to that, has a bunch of businesses that include insurance, these businesses do not grow at 20% year after year.
They have compounded at that rate, on average, over a decade or longer, and in any given year they may barely grow at all. In other years, they may grow well north of 20%. I think if you judge stocks based on Greek letters and complex formulas that equate volatility with risk, then you may not like that. But that, to me, is a sign of disciplined management, where they’re avoiding exactly the kind of pitfalls you described.
As for insurance, point very well taken. The thing I’d say with respect to Bajaj’s participation in that market is that until a few months ago, it was via 2 joint ventures with Allianz, the German insurance—or I guess just financial services—giant. They bought out Allianz earlier this year, after trying for a long, long time.
I think there are 2 things that really differentiate how insurance works in India from how many listeners might conceive of it, coming from a developed-world perspective. One is that it’s such a nascent industry that there really isn’t that much fighting over good customers, as we might be used to here. Most people who are signing up for insurance policies in India are first-time insurance customers. That’s definitely not the case in the US.
Most customer acquisitions in the US are 1 company stealing a customer from another. The way you do that, typically, is you think you can afford to offer them a better price. That’s not as much of a factor in India, where improving living standards are allowing people to think about the utility of an insurance product for the very first time.
The other issue is that with Bajaj specifically, the same as in their lending business, these insurance businesses have not grown as fast as some of their competitors. I think that’s for a very good reason: They realize that succeeding in a financial business isn’t about lending money. It’s about collecting.
Let me jump to a completely different point. You mentioned at the start of your answer going to India a few times, so I’ll ramble and then I’ll ask a question. One thing I worry about, as a guy who operates out of a shoebox office in New York City, is being the sucker at the poker table when it comes to international stocks.
I don’t think I’ve told this story before, but a few years ago I got pitched a stock in Eastern Europe and got really excited about it. It literally seemed too good to be true. I was about to pull the trigger on it, and right before I did, I mentioned it to a friend. He was like, “Oh yeah, it’s widely known that the numbers are great, but that’s a front for the mafia.” Then I just passed because I was like, “I don’t really need to get involved with the mafia.”
I point that out because I’m reading the spreadsheets online, and I always worry I could be the sucker at the poker table because it’s a front for the mob or something. I want to ask you—let me rant just a little bit more. I have a friend who is so good at this: Whenever somebody pitches him a stock, if I had pitched him this stock, he would say, “Hey, where would you buy a hammer if you were in that market and looking at a local store?”
So I’ll ask you: If you were in India, where would you buy a hammer if you were walking around?
Probably at a kirana corner shop. I doubt they have it at any of the fancy malls attached to the kinds of hotels that foreigners stay at.
Nope. That’s a fine answer. His point would be that if I asked you domestically, you could list 100 places. If he asked me, I could say Ace Hardware.
The way he told the story—or the way I heard him tell it the first time—was that somebody pitched a German stock at a conference. It was a really interesting pitch, and his first question was, “Hey, if you were in Germany, where would you buy a hammer?” The guy couldn’t answer.
There’s actually a big cultural-conflict thing that immediately made me realize I had to interject. I think if you asked an Indian that question, they would laugh because they’d say, “I don’t pick up a hammer. I pay people to do that,” because labor is so much cheaper there.
When wealthy Indians come to the States, that’s a culture shock, and vice versa for me—it’s a culture shock seeing it there. People we would consider middle class in the States have household staff in India, so [laughter] they truly may not know where to get a hammer.
Well, I was rambling. Thank you for cutting me off. I’d love to ask you, because you can answer that question and because I kind of know the answer: As somebody who was raised in the US, how do you guys get a handle on the local Indian market with your India-focused fund?
That’s, I’d say, the single most important screen in the research we do. We have this database of about 2,000 companies that’s filled with literally every last little piece of scuttlebutt, down to something we might have overheard in a hallway. It’s the product of hundreds of meetings with hundreds of companies, most of which we didn’t invest in, as well as meetings with what we now consider—not formalized; it might be one day—an informal network of local investors, businesspeople, analysts, financial journalists, and people who know the inside story at just about any business that we might encounter.
That has been invaluable as a screening tool. Not to say that we’ve never made a mistake—I can definitely think of at least 1—but I’d say that we’ve been successful in avoiding any mistake that would have been really significant for the fund, in terms of investing capital in a business that was fraudulent or what have you. I definitely think we avoided anything that would have been really significant for the fund.
We also remain humble by being pretty diversified. We own over 50 stocks, and our top position is less than 5%, typically less than 4%, of capital.
And just to clarify, you guys are running an India-focused fund? That’s kind of what I was driving at there, too.
Correct. We spend 2 weeks twice a year on the ground in India, so roughly a month out of every year, and we’ve done that every year since 2012, with the exception of COVID. We now have a full-time analyst on the ground there, which has also been critical.
But I’d say that even before we had this analyst, when it was just us—11 months out of the year here in the States, 1 month there—it was a lot of cultivating this local network so we could get feedback on, “What’s the reputation of these guys?” When we’re in a meeting with a competitor, we ask them, “Have they been known to compete in a way that’s maybe not above board?” You piece all these data points together, and you get a pretty good picture.
I’ll just make 1 last related comment on this. I mentioned at the outset that Bajaj is in what I’d consider to be the top tier of Indian firms, or Indian family groups, in terms of corporate governance. If I’m wrong about Bajaj having excellent corporate governance, then I don’t know what I’m right about. I have great confidence about this particular point.
I have definitely encountered plenty of Indian groups that I would rate very poorly on this metric, whereas literally every single data point points in the positive direction with these guys.
Let me—I’m just a dumb generalist. You’re an India-market expert. I guess most of my listeners have not spent a ton of time in India, so let me stay broad right now. What’s the biggest thing that I, as a generalist who maybe has only seen stories about the Indian market out of the corner of my eye, have wrong? What’s the biggest misperception that you think generalists, or people who don’t live and breathe the Indian market like you do, have about it?
I think a lot of people, especially in America, have an outdated picture of India. They think of Slumdog Millionaire, to be perfectly honest—a picture that’s exaggerated at best and distorted at worst of a country that’s not so much a showcase of capitalism as a showcase of development assistance.
The reality is that an Indian company, Tata, is the biggest employer in the UK. India has the world’s biggest oil refinery and biggest steel mill. When you go to Mumbai—as a New Yorker myself, and you are too, as you just mentioned—I’m sure you’re regularly frustrated with how we can’t seem to build anything in the city, or even repair the subway system we have.
Whereas in Mumbai, there’s something like a dozen metro lines under construction simultaneously. There’s a new airport being built, and there’s a new high-speed rail line. It feels like China 2 decades ago.
But I’d say it’s even more impressive than that, because this is being done in the context of a very pluralistic, multicultural democracy. The other thing I’d say is that India is truly the only market that gives the U.S. a run for its money in terms of fundamentals. I’d say that the drivers of EPS—whether you look at EPS growth or actual equity returns, benchmark index returns—the underlying drivers of that are, I think, very durable.
India is the world’s fastest-growing major economy. It has been for years, and it will be for years. It’ll eclipse Germany probably in the next 18 months to become the world’s third- or fourth-biggest economy. Its demographics are better than those of really any other major economy on Earth, and its urbanization is still in its early stages. As China showed over the past 2 decades, until finally stalling out more recently, that’s a driver that keeps going and going when you move people from relatively poorly paid agricultural work to higher-productivity jobs in cities. That is a tremendously important driver for years of recurring economic development, GDP growth, and ultimately equity earnings.
Okay, so we’ve talked about India broadly. I’m going to try to start narrowing us back down to Maharashtra Scooters, and I’m going to start with this question. Indian holding companies—I think there are quite a few of these that trade at a discount to their NAV. Before asking you to compare them with Maharashtra Scooters, let me just ask broadly: I know you think Indian holding companies as a whole are attractive, and I’d love to hear your overall views on them.
Sure. Like with the universe of Indian stocks as a whole, there are good ones and bad ones. There are definitely holding companies that I’m not interested in, even though they optically trade at big discounts to their underlying holdings, because what I’m really looking for is to be a shareholder in a really high-quality business with a long runway for continued compounding growth. When there’s an opportunity to gain exposure to that at a big, juicy discount, that’s gravy. We’re not invested in the holding companies we own because of the discounts; we’re invested because we really like what they own.
To tie this back to what we were talking about at the start, and what differentiates them from what some listeners might be thinking of when they hear that word, these are more like family trusts. They’re diversified, almost passively managed, and are owners in a diversified set of businesses that are united by history, but really not much else. It’s not like you’re making a bet on a John Malone. You’re making a bet on a set of companies that are household names in their respective sectors.
The ones we own include Maharashtra Scooters. I’ll throw out a couple of other names: one is Cholamandalam Financial Holdings, which is a holding company of the Murugappa Group, which I mentioned earlier, out of Chennai. That’s another extremely well-respected group. Godrej Industries is another, although that discount has narrowed so considerably that we’ve sold a bunch of shares. There are, I’d say, maybe a dozen, out of a universe of at least 3 or 4 times that number of listed Indian holding companies, where I’d say I have good enough confidence in both the quality of the underlying assets and the quality of the governance to really like them.
Well, let’s go—I’ll jump on that point and let’s go to Maharashtra Scooters. One question I would have here is that you mentioned high-quality governance, but it is a nesting—to me, reading the documents, it is an interlocking nest of companies that own shares in each other.
The biggest worry I have with holding companies is the incentives. When I look at this, it doesn’t seem like there’s really an incentive to unlock the value here. I worry that if the assets are good, it goes up, but I really worry about the potential for management to say, “Let’s grow at any cost,” because you can pay yourself more if you grow. I’d love to talk about the incentives both to unlock value at the holding-company level and to answer the question, “Do we get paid when these guys get paid, or do these guys get paid when we get paid, or have they just figured out a way to pay themselves no matter what?”
Yeah, I sense that’s probably one of the things in the back of your mind when you’re asking that: Korean holding companies.
I have that. I have a note that says, “Tell me how this is different from Korea.” That was one of the notes I had.
I’ve diagrammed out the various Indian holding-company groups, and in some cases they’re complex, but they’re not so complex that you can’t draw a series of arrows and figure out the interrelationships. Whereas in the case of some of these Korean groups, the whole point seems to be to be confusing and convoluted. Ultimately, what motivates something that’s that convoluted is typically a desire to control a web of companies, because you own 51% of something that owns 51% of something else. You don’t have to have all the capital at stake that you would if you owned it outright.
That is the case in a couple of Indian listed groups, but not in the case of the high-quality ones I’ve been mentioning. The one where that would be a fairly accurate description is Jindal. Jindal is a big name in India. There are a number of branches of the family that have their own listed entities, including JSW Steel and Jindal Steel and Power, which are some of their operating businesses. If you try to diagram that out, it’s doable, but there are so many unlisted intermediaries, and it’s pretty clear that the point of all these listed and unlisted holding companies is to preserve family control above all else. It’s not about value unlocking.
In the case of Bajaj and Maharashtra Scooters, the exciting thing in terms of potential catalysts is that there really are a number of things moving in the right direction. Number one is that SEBI—India’s SEC—as of last fall, about a year ago, started pursuing policies specifically aimed at reducing the discounts to book value of what they call investment holding companies, a category that includes Maharashtra Scooters. They define this as companies that trade at a big discount to their reported book value, and the fact that this is on SEBI’s radar at all is significant.
They’ve started implementing reforms that won’t change anything tomorrow, but they set the groundwork over the coming years for a potentially momentous shift. It could become much easier for companies to dividend out not just the earnings they’re getting in the form of dividend income from their equity holdings, but the actual shares. You can now distribute shares from a holding company to its shareholders in a tax-efficient way. The tax treatment of dividends has improved, and companies like Maharashtra Scooters have quadrupled their dividends over the past few years.
Can I pause you there? This was actually the most exciting part of the pitch for me, because as soon as I read it, I thought, “Japan.” Obviously, there are a lot of similarities between many of the things you’re talking about and Japan. You and I, 12 years ago, could have gone and literally thrown a dart at any Japanese stock board and hit a company that traded for less than cash and had a good business. But none of them did anything.
Then, 2 or 3 years ago, the Japanese stock market got serious about companies not trading below book value. Over the past 12 months, all of these companies have been moving. I’d have had notes 10 years ago saying, “Trades below cash.” Eight years ago: “Trades below cash.” 2 years ago: “Trades below cash.” All of a sudden, they’re all ripping because they’re returning capital and doing all this stuff.
When a national government and the regulator get interested in companies not trading below book, that tends to be when they stop trading below book. To me, that was the most exciting part, because I could see the parallels to Japan instantly.
Yeah, that’s a really good analogy. I think that’s a good description of what’s happening. The other thing that’s Bajaj-specific is that I’ve met with the management of this group. They were one of the first companies I met with, first in 2014 or 2015 and then again in 2017.
I went down to Pune, about 2 or 3 hours south of Mumbai, to the headquarters of all these businesses. At the time, especially at the first meeting, I remember I was supposed to meet the CFO of the holding company, and I walked into a meeting with the CFO whose business card said “Bajaj Auto.” I was a little confused, thinking, “Am I meeting with the wrong guy?” It turned out he had both jobs.
The holding company wasn’t really thought of as an independent unit, as its own entity. He said the literal words, “It’s the central bank of the group.” Its job was to give loans to the underlying operating businesses and basically serve as a captive financier.
Whereas—and he also told me this very confidently—these holding companies, Bajaj Holdings and Maharashtra Scooters, would never sell any of the shares they owned in the underlying businesses. They weren’t trying to be smart for their shareholders; that wasn’t their purpose.
Fast-forward to the last few years, and the executive ranks have all turned over. The guy I met with is no longer there. There is still some managerial overlap, but it’s typically in the case of the investor-relations person, not so much in the case of the very top job.
Bajaj Holdings, which is kind of the older brother of Maharashtra Scooters, is about 4 times the market cap and has a narrower discount to its sum of the parts. That company, for the very first time—or at least the first time in decades—sold some shares of its underlying Bajaj Auto holdings within the past couple of years and essentially distributed the proceeds to its shareholders through increased dividends.
That company is the majority shareholder of Maharashtra Scooters, and so one could very easily imagine a day where—I’m not saying this is likely to happen soon, or even a decade from now—I’m just saying that if there were 1 Indian holding company where I could very clearly see a path to waking up to a new story about some serious value unlocking and a discount closing, it would be this specific case.
You have a majority owner, Bajaj Holdings, that is, for the first time, being run professionally in a way that is allocating capital in the interests of its shareholders, not in the interests of the broader group. That could, in a way that was accretive for everyone, do a buyout of the minority interest in Maharashtra Scooters.
Let’s talk a little bit more about Maharashtra Scooters and its controlling shareholder. The controlling shareholder owns about 50% of Maharashtra Scooters, and I just want to ask: What are their incentives to unlock value at Maharashtra Scooters?
Do you worry—I have seen this in the US all the time—about terrible ownership groups that have entrenched themselves? It always looks great, right? The sum of the parts says it’s worth $1,000, and the stock trades at $100, but every year that $1,000 produces $100 of earnings, and the earnings all go to the controlling shareholder. The shareholders are always sitting there frustrated, asking, “Why are we never getting anything?”
I just want to ask: What is the incentive structure for the controlling shareholders? Is everyone incentivized to unlock value, or perhaps to take the value for themselves?
The refrain that we have heard over and over again over the past few years in India, from the local network that I alluded to earlier, is that whereas a decade ago, if you were a crook in India, you did it in a way that you could detect in the notes to a financial report. It would be something like siphoning funds to an unlisted affiliate for some nebulous service.
Now, Indian managers, executives, and business owners care about market cap. It’s not about pulling up to their local Gymkhana Club in a fancy car; it’s about being the guy in the room who has the biggest market cap. That’s a very important shift in motivations across India.
In the case of this group specifically, the family that’s in control now is the 4th generation, dating back to the founder a century ago. Once you’ve gone that far down through a family tree, if you picture it, Indians have big families. The ownership that even 50 years ago would have been split among perhaps a couple dozen individuals is now split among more than 100 people with the last name Bajaj.
Their interests as smaller stakeholders in a very valuable empire are varied. Someone might be getting married, someone might be buying a home, and someone might be sending their kids abroad for education. The reasons they might want to make some of their wealth liquid are now sufficiently diverse and varied that there is no monolith that would exert the kind of pressure that, in a more tightly controlled or earlier-generation family group, might cause the kinds of risks that you’re talking about.
At the top, of course, you mentioned Bajaj, which is controlled by literally hundreds of family members at this point. How do they get together and organize around this company?
I like to use sports as an example. A lot of times you’ll hear, “Most of these sports teams were bought by 1 rich man in his 80s in the 1980s, and then he passes away or hands control over to his family.” Sometimes, like with James Dolan, it’s 9 kids and grandkids, but he has the controlling share and still has to please them.
Other times, control passes on and there are 7 kids, and there are huge fights. 3 of them are saying, “I just want the dividends so I can party on a boat,” while 2 of them are saying, “I want to run this team really well.” If you’ve got, let’s just say, 100 families, how do they control this company together? What are the incentives and the structure like?
It is a bit of a monarchy in most Indian business groups, and this definitely falls into that category.
Who’s the king in this case?
Rahul Bajaj is the 3rd-generation scion, and his children, Rajiv and Sanjiv, are the 4th-generation leaders who are in control now. Rajiv runs Bajaj Auto, and Sanjiv runs the finance companies, Bajaj Finserv; indirectly through Finserv, he runs Bajaj Finance.
The family has not been without disputes, but I’d say that the governance at the top is a lot more amicable than it is in some other cases, where there’s a newspaper fight every week.
Let me—so here’s another one. You mentioned Liberty Media earlier. Liberty Media has one of the more interesting holding-company unlock stories, and it’s one that I always worry about.
For 10 years, Liberty SiriusXM traded at an implied price of $2.50 for its SiriusXM stock on the open market, right? That’s kind of where Liberty SiriusXM traded. SiriusXM traded at $5 per share.
I was one of them for a while. Hedge funds would say, “You buy Liberty SiriusXM, you short SiriusXM, and when they collapse, you’ll make a profit.” The issue was that Liberty SiriusXM owned 80% of SiriusXM, so there wasn’t a lot of borrow. You kind of had to go naked and just say, “SiriusXM trades so far above Liberty SiriusXM that when they collapse, we’ll make money.”
Well, a year or 2 ago, they collapsed, and guess what happened? SiriusXM came all the way down to Liberty SiriusXM’s price, right? It turned out that because SiriusXM was an operating company that paid a dividend, was in a bunch of ETFs, and got tracked like that, its price was actually inflated by the small float.
That’s my favorite example because it’s Liberty and it was pretty public, but there are other examples of stocks with a small float actually having their price inflated, with the holding company trading at the right level.
We’ve mentioned a few times that Maharashtra Scooters trades at 50% of NAV, right? I can’t claim that I’ve gone and looked at each individual component of NAV, but I just want to ask you: I know you look at these businesses on a fundamental level, and you’ve looked at all of them. What are the chances that we’re looking at a situation where the market has it right because the NAV is actually overstated by the trading prices, with all these slivers properly allocating at the holding-company level?
The underlying operating businesses—the first point is that there’s really only 1 layer of complexity here. I don’t think it would be inaccurate to simplify Maharashtra Scooters and its majority owner, Bajaj Holdings, down to their 1 level of ownership. Below them, there’s Bajaj Auto, Bajaj Finserv, Bajaj Finance, and a bunch of smaller companies that, relative to those 3, aren’t that material.
The operating businesses aren’t a web of cross-shareholdings several layers removed from the ownership level. The other point is that these businesses are doubling earnings per share in all 3 cases, at worst every 5 or 6 years.
I’m not saying that they’re necessarily going to grow 20% each year. In the case of the finance businesses, especially for the reasons I mentioned earlier, it’s good that they don’t grow double digits every year. But over the long term, they shouldn’t compound at that rate.
We don’t need the discount to narrow for our thesis to work here. It can even widen. I wouldn’t want that to happen, and I’d be surprised if it did, but the underlying earnings growth from these businesses is so good that it’s the most important factor.
The other factor is that the underlying businesses are sufficiently high quality that I’d want to own them even without the discount. They trade at a weighted-average multiple of 25 times next year’s earnings, or next fiscal year’s earnings.
You can definitely think of examples of Indian businesses that probably deserve a premium valuation. The best-known Indian stock is HDFC Bank, and it’s an extraordinary business. It deserves a premium valuation, but my numbers are probably out of date; at one point, it sold close to 10 times book value.
And so, even if I could buy that at a 50% discount, I’d still be worried about overvaluation. In the case of these Bajaj businesses, at a 25-times weighted-average P/E, I can indirectly get that down to roughly 12 or 13 through Maharashtra Scooters. I’m not buying a distressed asset where I’m not sure the story is going to work out. I’m buying some real icons of capitalism in the world’s fastest-growing economy.
You mentioned a few times the incentives, and they’re kind of professionalizing the incentive structures. If they haven’t already, they’re professionalizing the incentive structures of all of them. I have a few questions on that.
First, Maharashtra Scooters: the dividend is growing, but it is still a very small dividend. The first thing I did—and this says “Financials in English,” by the way, which is always awesome for us foreign investors, not needing to rely on Google Translate—was search. They haven’t, I don’t believe, ever repurchased shares, and if you and I can do the math at 50% of NAV, they can do the math. So I just want to ask you: the capital returns look skinny, and particularly the lack of share repurchases—how do you think about that?
Bajaj Auto did a tender-offer repurchase of a big chunk of stock within the past few years. That was, if not their first ever, definitely the first in the group in a long, long time. I would be surprised if other companies in the group didn’t do it as well.
India has liberalized in so many ways, especially since 1991. But one of the ways in which there’s still a lot of work and a lot of reforms to be done is that the procedures for things like tender offers and buyouts of minority shareholders are pretty cumbersome. SEBI, the markets regulator, is starting to address that, which is making things like tender offers easier.
Counterintuitively, those cumbersome rules were presumably intended to protect minority shareholders. But the result has been that it’s harder to close discounts like this. I think that’s changing.
I’m just laughing because poison pills and stuff were intended to protect U.S. minority shareholders from creeping takeovers and everything, but in practice they’re intended to protect management teams from losing their jobs after they’ve done a terrible job for 10 years and somebody comes in and tries to—
I’d just add one more point on the comparison to the U.S. I can’t tell you the number of times that I’ve encountered a U.S. company where there are all these marquee names—marquee institutional investors that own it. I don’t know if you can tell, by the way, that I’m in New York with the sirens behind me. But there are all these marquee investors that own the stock, and the board is full of quote-unquote “professionals,” and they are terrible capital allocators.
They make horrible acquisitions. They don’t really represent the interests of public shareholders whatsoever. And so, even though it’s a quote-unquote professionally run company, you’d be much better off entrusting your capital to essentially a family trust like this one. It’s the Bajaj family; they’re generationally wealthy.
But there are multiple examples in our portfolio of companies where I could tell, from my interactions with the management teams—who are also the founders and the majority owners—that they thought of the capital they were allocating as their capital, and they were smart about it in the way that people really only are, at the end of the day, when they have a personal financial stake in it. And if they’re smart and if their market is good, then you’d want to be along for the ride with that.
You’d much rather be there with them than in a company with a bunch of—no offense to your prior stint at McKinsey—but a bunch of people being advised by consultants to buy XYZ.
There is absolutely no offense taken. You told me before we started recording that you’ve got some good friends at McKinsey, so maybe they should take offense.
But I’d love your point on U.S. governance, because I will talk to people all the time about stocks where I’m like, “Hey, I think this is a good asset. I just think it’s mismanaged, right? I think the board has stepped on rakes 10 times in a row.” And you look at the stock price, and a friend will come back and be like, “Hey, this board is great, man. I know this person. They’re really sharp. This person is ex-Apollo. This person is ex-McKinsey. I think this board is great. What are you talking about?”
I’d be like, “Hey, the pedigree doesn’t matter here, right? I’m talking—I’m pointing you to the fact that they did a $1 billion acquisition and had to write off 85% of the goodwill 18 months later, and you’re saying, ‘But I think they’ve got good resumes.’” I’m just talking about actions, and I see that over and over again. So I love the point you made there.
Just one last one on Maharashtra Scooters. You mentioned, hey, maybe the Bajaj family is more incentivized to unlock. They own 50% of Maharashtra Scooters. If there were an unlock, what would that look like in your mind? If you’ve ever been involved in a holdco and they do the unlock and the stock’s up 30%, 40%, 50% in a day, you’ll get pretty addicted to it.
But what does the unlock actually look like? Do they just say, “Hey, we’re spinning out all the Maharashtra Scooters stock”? Or, “Hey, Maharashtra Scooters is spinning out all of its underlying stock”? What would it look like in your mind?
The cleanest and simplest way to do it probably would be to take advantage of one of the new frameworks that SEBI has put in place for holdcos, which I mentioned earlier, where it is now possible for a holdco to dividend out its holdings in a tax-efficient way. If Maharashtra Scooters decided to, it could essentially liquidate itself.
That can be complicated in the case of businesses that own a bunch of unlisted stuff, where you can dividend out all the public shares, but you’re still left with a bunch of stuff that people can’t agree on how to value. In the case of Maharashtra Scooters, it’s essentially shares in a handful of listed companies and a really de minimis amount of cash. So it wouldn’t be complicated at all to do that.
That would be very clean, and there really wouldn’t even be a possibility for a conflict of interest. Bajaj Holdings, the majority owner, would get its pro rata share of all the underlying holdings, adding to the shares it already owns directly in most, if not all, of those companies. It would just own more.
A more complex way to do it would be for Bajaj Holdings to simply offer a premium price to buy out minority shareholders. Even under the slightly loosened rules that are in effect now—looser compared to where they were a few years ago—I won’t say it’s impossible to game the system; I can’t think of a way to do it. But the only way one can successfully buy out minority shareholders is if you offer a price that has to be a premium to the past X number of days’ volume-weighted average price, and that gets you over 90% ownership.
So it’s basically determined by the marginal price at which someone is willing to tender their stock. That price would get the majority owner over 90%.
Interesting. I didn’t have to think about it that long. All right, I have one last question, and then we can wrap this up.
This is a very strange question to ask, but if I just rewind 10 years—and I hate rewinding 30 years because you never know what happens—Maharashtra Scooters’ stock is up over 10x, probably a 15-bagger over the past 10 years. This is why it’s such a weird question: is that good? I know the Indian market—and I don’t mean that facetiously—has had a lot of inflation. There’s been a lot of other stuff going on.
It sounds crazy to ask whether 15x is good, but would this beat the index? Has this historically been a good performer? I’m using this as a sign of all of the value creation that you alluded to at the beginning of the podcast.
We’ve outperformed the benchmark Indian indices, I think, through investments in companies that are typically smaller market-cap-wise, as well as at an earlier stage of their development. Our archetypal investment is in a business that is not, or barely if at all, covered by sell-side analysts.
Oftentimes it’s in a big city like Mumbai, Hyderabad, or Delhi, but oftentimes it’s in a city that Westerners haven’t typically heard of. It’s in an unsexy business. They’re making ball bearings, selling asset-management products, or even something like cement—which is not a commodity like we think of it here; that’s a whole separate conversation.
There are multiple reasons why they have the potential to outperform. Their earnings are compounding. Their P/E typically expands as the story becomes better known. They gain coverage from other analysts and investors, yada yada.
In the case of the underlying Bajaj companies, everybody in India knows that Bajaj Auto is a good two- and three-wheeler manufacturer. Bajaj Finserv’s Bajaj Finance is probably the single best-respected non-banking financial company. So these stories are known.
The reason that they should be able to continue compounding really comes from their earnings-generation potential, and I think they’ll be able to pull that off because of the markets they’re in and the shrewd management teams they have, even without a narrowing of the discount. That will produce results for the shareholders of the holdcos that they’ll be very happy with.
For reasons we've talked about, I think my confidence about all these various potential catalysts for the discount to continue to narrow has increased, because it has already started to narrow over the past couple of years. The reasons are multiplying sufficiently that I might even feel confident enough to say that we can build it into our expectations for returns. But it doesn't need to narrow for this to work.
Cool. Well, let's wrap it up there. I think that's a great look forward—not backward, but forward. I will say, JimconPartners.com—I will include a link in the show notes. As I was preparing for this podcast, I started reading a lot of the dispatches from India, and I've really enjoyed those. You get backwards pretty quickly in time when you start reading them. But Andrei, thank you so much for coming on.
Could I highlight 2 blog posts, if you have a moment?
Heck yeah. Throw them on my reading list right now.
One is “The Financialization of Indian Savings.” Like I said, the single biggest piece of the sum-of-the-parts puzzle here with Maharashtra Scooters and the Bajaj group more broadly is financial businesses—lenders, asset managers, and insurance companies. These are huge opportunities in India that are only just getting started. That blog post goes into that.
The other one is a 2-part series: “India Before 1991” and “India After 1991.” I bring up the “India After 1991” post specifically because I think it was Rahul Bajaj—the father of the 2 brothers who are currently running the show—who, right before India liberalized its economy under great pressure in 1991, was running what was then a very provincial company. They basically made auto-rickshaws and motorcycles just for the Indian market, with perhaps some minimal exports to nearby countries.
At the time, he was very worried that liberalization would flood India with cheaper Japanese and Korean imports and destroy his business. The result of liberalization was that not only has Bajaj thrived at home in ways that he probably could never have imagined, but almost half its sales now come from exports. You can see Bajaj motorbikes on the streets in Latin America and the Philippines. The point is that the story of this company really has been the story of India.
Cool. I will include a link in the show notes. The “India After 1991” and “India Before 1991” posts that you mentioned are from 2017. I didn't go quite that far back into the index in my podcast preparation, but maybe for the second post I'll be ready to speak on those.
Andrei, this has been great. Looking forward to having you on again for another episode on India in the near future, hopefully.
Likewise. Thanks, Andrew.
A quick disclaimer: nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.