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Multipie Weekly #20 Curated reads for investors

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This week we discuss the market moves, Squid games in IRCTC, Roadmap of PVR Ltd after theatres reopen, share our favourite charts of the week, company result updates and some curated reads. Happy reading!

1. Market snapshot 

Last week, we saw a little correction in the market wherein many sectors underperformed in which consumer staples and commodities/metals loosed by 7% and 6.4%. Financials was the only sector up last week which merely gained 0.5%.

In the last 6 months, micro caps & smallcap is the highest performing category and in the last week, all the categories have underperformed. 

2. Squid Games in IRCTC

Retail investors are always looking for different opportunities to generate returns but in some cases, even after a top-notch analysis and conviction on the stock, minority retail shareholders are not able to generate good returns. 

This can be due to many reasons like inadequate allocation, incorrect forecasted intrinsic value, sudden management misgovernance issues, etc. Here we will discuss one kind of situation wherein spite of no fundamental reason, retail suffers from volatility.   

Recently IRCTC’s share price reached ~Rs 6,400 increasing by ~65% in just 20 days and suddenly fell by ~25% in just 2 days. Obviously, inherent fundamentals don’t change so often. 

So why did this happen?

Initially, the company had less float (shares available for the public) available with itself but we saw a sudden spike in institutional holding from the last 3 quarters till June ’21. Individual holding (worth less than 2 lakh) increased to 14.17% and the number of shares increased by ~52% in sept’21. 

This liquidity in Q2FY22 (which was actually building up from Q3FY21) led the company to enter the eligibility basket for F&Os, so these institutions trade-off their stakes, suddenly reducing the prices of the company significantly.

A similar case happened in Infibeam Avenues Ltd. where in April-May’18, there were large purchases from Retail HNI’s but then in Sept-Oct’18, there were many trading actions taking place which led to the decline of the company’s share by 75% in 15 days. 

In such conditions, institutions/HNI’s tend to drive the liquidity first in the company where the float is less, which leads to a price increase, leading to surging in retail investors entry and then these institutions sell off their positions. 

Why should you care?

It gets crucial to be very alert not just about the company’s business we are invested in/looking to invest in, but also about the company’s float and to know the reason why it is expanding with the regular track on block/bulk deals happening, as it might turn out to be against the retail investor’s interest. 

3. Roadmap for PVR Ltd post theatres reopening

Cinemas were launched in the 1870s and since then it has been through many crises from world wars to great depressions. Ajay Bijli is optimistic about the industry overcoming covid as well and on people again coming to theatres to watch movies. Few Insights on the roadmap for PVR’s future growth: 

  • Rental agreements constitute the largest expense for the company but it has still been able to control it due to good brand and relations with developers.
  • To maintain the safety from Covid, focus along with staff vaccination etc. will be on launching business class compartments that will have less capacity for the safety purpose.
  • On the movie chain side, there are more than 800 movies to get released in the next 8 months so there is no issue on that front of the value chain. 

The future vision in the multiplex industry is to make it more experiential. So inspired by Disney theme parks, PVR cinemas will also offer non-movie stuff at their multiplexes. PVR will be launching PVR Maison which just doesn’t include screens but also libraries etc. to make the experience of people much better.

4. Visual weekly – Some interesting charts

4.1 Growth rates of different segments in the retail category

Footwear has been the fastest-growing category in the last 8 years with a CAGR of 30%. Pharmacy has seen the lowest growth rate but it is segmented where we can expect ~20% growth.

4.2 Revenues of media listed companies in India 

Except for Zee Entertainment, the revenue of other media companies like DB Corp,    Jagran Prakashan and Sun Tv has remained stagnated over the last 7 years. 

4.3 Major up and down cycles in Sensex in past

In the above visual we can see that for how months the market has remained up or down in a particular cycle. From April’20-oct’21, i.e. in the last 18 months, Sensex has been up by 125% and it will be interesting to see that till when this trend continues.  

5. Interesting weekly result updates:

6. Good reads of the week:

6.1 Effect of corporate cycles on Corporates and their behaviour

Equirus wealth in their recent letter has explained how the Indian government is finally focusing on increasing Capex spending and on privatisation. This will help in initiating the virtuous cycle as not only higher utilization will lead to higher profits but also job creation which ultimately leads to more demand in the country. 

As now corporate earnings in India seem to be getting better, this will drive the Capex cycle. Cyclical sectors like Cement, Chemicals, Industrial equipment & EPC had very attractive ROCE’s in FY02-07

  • FY13-16: faced overcapacities (as mentioned above visual) but as demand was less than the supply, profitability started to decline. 
  • FY16-20: Weak high leveraged companies had to shut down their businesses leading to consolidation.

From FY21, finally, the supplies are getting fully utilized and there is a need for new capacity so we can expect the profitability and ROCE are going up again as utilization increases. This phase will be similar to or expected to be better than the FY02-07 phase. 

6.2 An excellent article on Howard Marks and Seth Klarman on “Being ready”.

6.3 A good read on how it is important to know your circle of competence and give a lot of thought while considering the competition.  

6.4 A thread by TrungTPhanon on how IKEA designs its stores so well so that customers are tempted to buy and spend more. 

6.5 A great thread on equal weight indexing and how one can use the NIFTY index as a benchmark to compare returns. 

7. Contributor of the week:

There are some great conversations happening on Multipie be it on intellectual investing or on asset allocation, you always get some interesting personalised/easy to digest answers in the form of learning. 

This week we want to highlight one of the members as our “community contributor of the week”: Indrajeet (@Ikamat) for being actively interacting and sharing some excellent insights on our platform. 

That’s all for this week. Please share with your peers if you found this helpful and subscribe to start receiving the weekly digest in your mail! Happy weekend!

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