The power of the obvious: How Siddharth Bothra finds coffee can stocks with simplicity

Time of India

21-06-2025

In a market addicted to complexity,
Siddharth Bothra
finds comfort in clarity. The
Ambit Asset Management
fund manager isn't chasing moonshots or falling for market fads. Instead, his
Coffee Can Portfolio
is built on a deceptively simple idea: buy high-quality businesses with enduring moats, strong returns, and the power to compound quietly over time.
Edited excerpts from a chat:
Ambit describes the Coffee Can Portfolio as a low-churn, quality-focused, large-cap strategy. How do you screen for companies that meet your criteria of long-term revenue growth, high RoCE, and durable competitive moats?
Our investment screening is a mix of qualitative and quantitative methodology, wherein we ascribe 30% to nine quantitative filters and 70% weight to seven qualitative frameworks. Both need to validate each other for a stock to get selected. For example, if the qualitative analysis suggests that the company has multiple moats and strong pricing power, it should reflect in a steady margin profile with low volatility, superior margins and return ratios compared to competitors etc. We do not view investing as a treasure hunt. The fundamental principles of investing are well known. Instead of re-inventing the wheel, our approach is to leverage on the power of simple and obvious opportunities. Our investment approach is not that of "placer mining," the process of sifting through piles of sand for specks of gold. Instead, we attempt to apply our pricing power framework to find the large, unrecognized nuggets of gold that sometimes lie in plain sight on the ground. Our key focus is on capital protection – our first attempt is to understand the downside risk. We are willing to forego potential returns in poor governance stocks and deep cyclical and fad stocks to limit our downside risk. What risk tolerance spectrum an investor chooses depends on the investor's goal. If one is aiming for Longevity (magic of compounding) leaning will be more towards defensiveness and conservativeness. Similarly, if aim is for rapid speed (glory like a shooting star) then leaning will be more towards high risk tolerance and aggressiveness. We approach investing with a mindset of a marathon and aim to benefit from the 'Magic of Compounding'.
How has your portfolio changed in the last 2-3 years as we have seen newer companies and business models challenging the dominance of incumbents?
Ambit Coffee Can Portfolio (ACCP) has undergone some fundamental changes in the last year or so. We created space for 30% of portfolio for what we describe as 'Prospective Coffee Can Companies', which meets all our qualitative filters, but may not have the 10 year long quantitative history we used to seek earlier. This allows us to have a good mix of established and emerging coffee can companies across the corporate life cycle. Essentially, we shifted our focus more from static quality to forward quality. While static quality is indexed to the past, we seek companies that will be successful over the next five to ten years. We go beyond conventional wisdom and apply the proprietary Pricing Power framework. Our investment focus is on companies in the Sweet Investment Zone, which lies between late-stage two and late-stage three buckets of a corporate life cycle. The sweet investment zone is where companies generally witness J-curve growth and the bulk of the valuation re-rating occurs, presenting a high probability of finding multi-baggers.
Coffee Can stocks are typically high PE stocks. How do you make sure you don't overpay for the long-term growth story?
While this is the common perception, not all quality or 'Forever' characteristic type companies with high pricing power are necessarily expensive. Often investors misjudge the longevity and optionality of such companies, value of which is not captured in trailing and one-year forward PE multiples and label such companies as expensive. Moreover, one should look at it from a portfolio valuation perspective. For example ~83% of the ACCP stocks are within the bucket of value and GARP, with only ~17% in the expensive PE segment. The companies in the expensive PE segments to our mind on an intrinsic valuation basis due to higher growth period longevity and optionality continue to be attractive on an intrinsic DCF absolute valuation basis which is what really matters. Since pricing power is such a pervasive concept, there are good reasons to expect that it is already 'priced in' by the market and does not offer consistent outperformance. However, several empirical studies have proven that companies with strong pricing power have historically earned consistently strong returns while maintaining a lower risk profile. Moreover, they have demonstrated similar characteristics across different geographical markets, lending credence to the long-run reliability of pricing power as an investment factor. While constructing our portfolio, we believe in being suitably defensive as we need to be prepared for a 'Black Swan Event' at all times.
You maintain low churn. In a rapidly evolving macro environment, what prompts you to sell or add a name?
The magic of investing is understanding compounding. Compounding cannot happen to our mind unless one has a long term investing perspective. Hence, typically we aim for churn ratios of less than 20-25%. The key reason to sell a stock is if we feel our buy narrative is getting invalidated. Other reasons being to accommodate a much superior quality business with better risk reward or portfolio position sizing. Simply eliminating the short-term mindset that impedes compounding can provide a significant source of alpha. Hence, we approach investing from an infinite growth mindset and seek the magic of compounding. Magic of compounding is not possible unless one focuses on Quality and Longevity of Growth. Companies with 'Pricing Power' is one of the key elements determining Longevity of Growth for a company - which is essential for sustainable long term compounding.
The AUM breakdown shows ~86% in large-caps, with modest exposure to mid and small caps. Do you see attractive mispriced smaller quality names today?
ACCP is a large cap fund, with a possible range mix of 80% in large caps and 20% in SMID. We position the fund within this range depending on various factors. However, currently we believe that the risk reward is better for large cap category in general, though we realize that good bottom up ideas can be present across market caps and as such within this range we remain market cap agnostic.
What is your take on sector exposures—for example, financials, consumer, telecom? Are there particular sectors you've recently tilted more toward or away from?
We have almost ~40% weight in the BFSI vertical across private banks, insurance, NBFCs and capital infrastructure plays. Hence, no surprise that this is the vertical we find most attractive currently. We also have a significant exposure to telecom and are in the process of increasing our weight for the consumer sector as many more bottom up ideas within this segment are increasingly looking more attractive.
Finally, how do you view the Coffee Can strategy's relevance for today's investor: is it best suited for wealth builders with 8–10 year horizons—or is there merit even for shorter-term investors seeking stability?
Ambit Coffee Can Portfolio (ACCP) is designed for niche, long-term investors seeking superior absolute returns by investing in high-quality businesses with sustainable compounding through strong pricing power. Our endeavour is to be well diversified across sectors and have a concentrated 'All weather portfolio' with an eye to be always prepared for 'Black Swan Events'. While we will seek a prudent mix of offense and defence in portfolio, capital protection is our main credo. The strategy targets Growth companies with lasting Quality and 'Forever' attributes, leveraging on a proprietary Pricing Power Framework to identify businesses with robust margins, and steady earnings growth. We believe, investing in 'Forever companies' or 'companies with pricing power' is one of the most key elements determining Longevity of Growth for a company. Our investment strategy is designed to achieve our objectives by minimizing behavioural biases and institutional imperatives. We believe, ACCP investment style is timeless and has been proven over decades, hence it is most relevant for any investor who has an investment or business ownership mindset as opposed to a speculative mindset. Also, ACCP portfolio is relevant for any investors who have at least a two year plus investment horizon.