Business Run By An Idiot

One of the criteria that the Oracle of Omaha has for selecting a business to invest is that the business should be so simple to run that even an idiot should be able to run it, because some day an idiot will run it.

I was always wondering what kind of business that be. I tried to do research around the same but could not find anything or any business, that is till this weekend. So this weekend I wasted 170 Rs to buy ticket for Dum Maro Dum, where the title song has lyrics: "Unche Se Uncha Banda, Potty Pe Bethe Nanga" You get the message. Anyways since I have already wasted the money and had nothing better to do I decided to buy some Nachos and a cup of tea. Here are the details: Cup of tea Rs 40, Nachos equivalent to 1/10th of the pack you get in market 80 Rs. 

Same stuff is available in market for less than 20% for both the items.So can you imagine the profit margin on these items?

Similarly a popcorn starts at 60 Rs. Now a cinema theater has minimum cost. The boys and girl roaming around in funky dress in the theater who are manning the counter and show you your seats are minimum wages. Most of them are actually students doing part time jobs. So I guess salary cost for the multiplex is minimum and the other cost that a cinema in a multiplex pays is the electricity bill and the cost of procuring the movies. The income comes from: Ticket Sales, Sales of Food items, advertisements inside the hall and brand promotion in the common areas. 

Once a person enters the hall and even if the movie is useless he will not be leaving and will continue to spend money  on food and beverages, which are really high margin business for the multiplex chains. Most of these multiplex chains are in business for last 10 years and are still in investment mode. Once the fruits of these investments start coming they will be producing money like an oil well. I think I will be doing some more research on this topic and then take a call if buying multiplex stocks makes sense or not.
Some of the listed multiplex companies in India are Reliance Media, PVR, Cinemax, Inox. Most of these companies are highly leveraged and neck deep in debt. I think soon consolidation should start ( there is a bidding war already going on between Reliance and Inox over Fame India limited) 

Let us see how the multiplex market evolves.

But all said and done you won't find another business where you buy something for 10 Rs and are able to sell it for 50. I am sure one day these companies will make bucket loads of money. I don't know what that day will be. If you do please leave a comment about the same.