Amrutanjan Healt

The little bottle in the cupboard

Open the medicine drawer in almost any Indian home and somewhere near the back sits a small bottle of Amrutanjan balm, rubbed on an aching head or a stiff neck for three generations. The company behind it still sells that balm, and has added sanitary pads under the Comfy name and a few fruit-based drinks beside it. It is a genuinely good little business: debt-free, earning a fine thirty-one per cent on the capital it employs and twenty per cent on its owners' money, throwing off cash and paying a third of its profit out as dividend.

A value buyer's task, though, is not to admire the business. It is to ask what one is being charged for it — and here Graham's discipline pulls hard in the other direction.

A wonderful little thing at an unwonderful price

The shares change hands at about seventy-seven times earnings and more than fourteen times the value of the assets on the books. Set against the company's own history this is not a discount at all but a premium: through the last five and ten years the same business has typically fetched closer to forty times earnings, so today's price asks roughly double its own long-run rate. And the growth underneath does not justify a fancy multiple — sales have compounded at only about ten to twelve per cent a year, a modest pace for so dear a price. The promoters have, if anything, trimmed their own holding over the past three years rather than added to it.

Graham's first rule was the margin of safety — paying so far below a thing's worth that you are protected when you are wrong. At fourteen times book and above its own historical multiple, that margin is simply absent.

What to weigh

A high price is itself the chief risk: a business priced for excellence must keep delivering it, and a single slow year would be punished hard. The product range is narrow, the brands compete against far larger consumer houses, and the modest sales growth leaves little room to grow into the valuation. The quality is real; the price is the problem.

What this asks of you

The honest verdict is to admire this one and decline it — for now. It is a fine, debt-free franchise, but it sits in a deep-value list while trading like a richly-rated growth stock, dearer than its own past. The value buyer's edge is patience: wait for the market to offer the same lovely little business at a price that carries a margin of safety, and let the discipline, not the affection for an old balm bottle, decide. A good company bought at a poor price has sunk many a careful investor.