THE RISE & RISE OF RELIANCE RETAIL

Reliance Industries reported its Q1FY19 Results on Jul 27, 2018. As the street braced itself for strong performances in Petchem and Reliance Jio, one can’t help but marvel at the giant leaps that RIL’s retail division has been taking. Reliance Industries’ retail vertical houses the grocery stores - Reliance Fresh, Reliance Smart, Reliance Market, etc. It also comprises of Fashion & Lifestyle stores like Trends, Footprint, Jewels, AJIO and stores such as Reliance Digital & Jio Digital Life that specialize in selling Consumer Electronics. That’s not all. The organized retail vertical of Reliance also has the Fuel Retail (Petrol Pump) division, Connectivity (Jio Selling Points) and many exclusive brand partners such as Superdry, Muji, Brooks Brothers, Ermenegildo Zegna, Diesel, Gas, Hamleys etc which marks the Reliance Presence across all value chains and product verticals.

The Businesses

Grocery: Reliance Fresh, Reliance Smart, Reliance Market, Smart.In

Fashion & Lifestyle: Trends, Footprint, Jewels, AJIO

Consumer Electronics: Reliance Digital, Jio Digital Life, Reliance ResQ

Brand Partners: Superdry, Muji, Brooks Brothers, Ermenegildo Zegna, Diesel, Gas, Hamleys etc

Source: Company

Reliance Industries has a reputation for achieving rapid growth, disruption & scale in all its new business ventures. After an unsuccessful foray in the retail business in the earlier part of the millennium, Reliance’s famed growth finally seems to have come. Between FY14 and FY18, Reliance Retail’s revenue has compounded at 37%

Reliance Retail

Annual Revenue Trend

FY13     10845 Cr

FY14      14556 Cr

FY15       17640 Cr

FY16       21612 Cr

FY17       33765 Cr

FY18       69108 Cr

Source: Company

Over the last 3 years, the introduction of Reliance Jio and inclusion of Jio Sim sales under organized retail have further boosted Reliance Retail’s Revenue & Operating Profit. Between FY16 and FY18, Reliance Retail’s Revenue has trebled and the operating profit has quadrupled.

Reliance Retail

Annual EBIT Trend

FY15       417 Cr

FY16       506 Cr

FY17       784 Cr

FY18       2064 Cr

Source: Company

Organized Retail Revenue Mix

47% = Fuel Retail & Connectivity (Other Retail)

53% = Grocery, Fashion & Consumer Electronics (Core Retail)

Source: Company, Brokerage Reports

Reliance Retail accelerated its retail revenue and EBIT in Q1FY19 as well. In the first quarter of the current fiscal, Reliance Retail revenue grew 124% and operating profit grew 266%. The company also expanded its retail space by 0.9 mn sq ft to an aggregate of 18.6 mn sq.ft. Total Stores as of Jun 30, 2018 Stand at 8533 which includes 4530 Jio points.

Number of Stores

FY14       1691

FY15        2621

FY16        3245

FY17        3616

FY18        7573

Q1FY19   8533

Source: Company

Quarterly Revenue Trend

Q1FY17                 6666 Cr

Q2FY17                 8079 Cr

Q3FY17                 8688 Cr

Q4FY17                 10332 Cr

Q1FY18                 11571 Cr

Q2FY18                 14646 Cr

Q3FY18                 18798 Cr

Q4FY18                 24183 Cr

Q1FY19                 25890 Cr

Source: Company

Quarterly EBIT Trend

Q1FY17                 148 Cr

Q2FY17                 162 Cr

Q3FY17                 231 Cr

Q4FY17                 243 Cr

Q1FY18                 292 Cr

Q2FY18                 334 Cr

Q3FY18                 487 Cr

Q4FY18                 951 Cr

Q1FY19                 1069 Cr

Source: Company

When compared to its peers, Reliance Retail’s turnover and retail reach stands head and shoulders above industry. For perspective, Reliance Retail reported Q1 Revenue of 25890 Cr which is roughly equivalent to the combined annual revenue of Future Retail, Future Lifestyle and Shoppers’ Stop. Even if one adjusts for half of Reliance Retail’s reported revenue as Fuel Retail & Jio Sales, Reliance Retail’s core revenue of ~13000 Cr in Q1FY19 almost as much as Aditya Birla Fashion, Trent and Shoppers’ Stop annual revenues put together. In fact, even from a number of stores standpoint, Reliance Retail’s ~4000 outlets are as much as all outlets of Future Retail, Aditya Birla Fashion, Future Retail, Shoppers’ Stop, VMART and D-Mart stores combined.

RELIANCE RETAIL v/s PEERS

		(` Cr)	Margins
Reliance Retail (Core)		36,627	6.0%
Future Retail		18,478	4.5%
D Mart		15,033	9.0%
ABFRL		7,172	6.5%
Future Lifestyle		4,498	9.1%
Shoppers' Stop		3,697	5.7%
Trent		2,157	9.3%
VMART		1,222	10.9%

Source: Company, Brokerage Reports

RELIANCE RETAIL v/s PEERS	No of Stores (000)
Reliance Retail (Core)	4
ABFRL	2.5
Future Retail	1.1
Future Lifestyle	0.35
Shoppers' Stop	0.25
VMART	0.18
D Mart	0.16

Source: Company, Brokerage Reports

The most important question however, is what value does one ascribe to Reliance Retail? A range of estimates by analysts on the basis of FY20 estimates suggest, Reliance Retail could be worth anywhere b/w $15-20Bn depending on the multiple one assigns to it.

Reliance Retail FY20 Revenue Estimates

Jefferies                               111500 Cr

Morgan Stanley                   115000 Cr

CLSA                                  116900 Cr

Source: Brokerage Reports

Valuing Reliance Retail

EV/Sales        Value

0.8                    88000 Cr

0.9                    99000 Cr

1.0                  110000 Cr

1.1                  121000 Cr

1.2                  132000 Cr

1.3                  143000 Cr

FY20 EV/Sales

Source: Brokerage Reports

Much Love.

M

Disclosure: Reliance Ind is the owner of Independent Media Trust, the owner Tv18 Broadcast, the company I work for.

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

Keep The feedback Coming.

HINDUSTAN UNILEVER - Q1FY19 HIGHLIGHTS

HINDUSTAN UNILEVER

Q1FY19 HIGHLIGHTS:

FMCG behemoth Hindustan Unilever, opened the Consumer Sector’s Q1FY19 innings with an “in-line” performance. The fact that 12% Volume Growth, 200 Bps Margin Expansion & 24% Growth in Profits is considered “In-Line with estimates” is eerily similar to saying Virat Kohli scoring a century while chasing a gargantuan score is “par for course.” Expectations and valuations are pinned on those who deliver and if stock price is a barometer of the street’s expectations from Hindustan Unilever, the company has added Rupees Two Lakh Crore to its market capitalization in the last 20 months to climb to record levels ahead of results.

HINDUSTAN UNILEVER Q1FY19

-                      Revenue +11.2% at 9487 Cr vs 8529 Cr

-                      EBITDA +20.6% at 2251 Cr vs 1866 Cr

-                      Margins At 23.7% vs 21.8%

-                      PAT +19.2% at 1529 Cr vs 1283 Cr

-                      PAT Before Exceptional Items at 1567 Cr

HUL Q1FY19 v/s CNBC-TV18 Poll

- Volume Growth at 12% vs Expectations of 11-12%

- Revenue at 9487 Cr vs Poll of 9680 Cr

- EBITDA at 2251 Cr vs Poll of 2208 Cr

- Net profit at 1529 Cr vs 1539 Cr

HERE’S WHAT SURPRISED POSITIVELY:

The company’s operational growth was led by improved gross margins, the money it directly makes per product before all the other expenses the company incurs.  HUL’s Gross Margins improved 200 Bps to 54% led by product mix, judicious pricing and cost savings program. Also, the expansion in Gross Margins trickled down to improvement in operational performance as HUL’s EBITDA Margins expanded 190 Bps to 23.7% as well.  This came by despite the company spending higher money on advertisements to support innovations.

HINDUSTAN UNILEVER Q1FY19

-                      Gross Margins at 54% vs 52.1% YoY

-                      GM Led by product mix, judicious pricing and savings program

-                      Ad Spends up 27% YoY at 1153 Cr vs 905 Cr

-                      Advertising and Promotions were stepped up to support innovations

 

NOW WHAT?

Post 24% growth in co’s Q1 EPS, the investors & analysts alike ask themselves and company, the most important question – Now What? The Management sounded off some “pink flags” (red, I thought, is too strong a word) for the near future. While they expect gradual recovery in demand to continue, they’re concerned about the way input costs & currency is behaving. In addition to increased input cost, they expect competitive intensity to spike too. Higher Input Cost Inflation coupled with Increased Competition usually means reduced pricing power. So the question that begets asking is, does Unilever have more levers for further margin expansion?

THE MASSIVE BASE

Q1FY19 Marks the third consecutive quarter in which the consumer giant has delivered double digit volume growth. While the demand environment has seen some improvement improved one can’t ignore the role a favorable base has played towards the reported growth in underlying volumes. Come H2FY19, and these double digit volumes turn into an albatross around HUL’s neck. So to extrapolate these growth trends beyond Q2FY19 may be an overstatement.

HUL VOLUME GROWTH TREND

Q1FY17:  4%

Q2FY17: -1%

Q3FY17: -4%

Q4FY17:   4%

Q1FY18:   0%

Q2FY18:   4% 

Q3FY18:   11%

Q4FY18:   11%

Q1FY19:   12%

THE BIG D: DEMAND!

All said and done, one can’t ignore the optimism in commentary from consumer companies on how they foresee demand. Be it Unilever, Nestle, Marico, Dabur, Emami, Godrej Consumer, Britannia or even Jyothy Laboratories, all companies have stated and re-iterated that there is strong underlying demand, despite disruptions like DeMo and GST. A hat-trick of normal monsoons, state elections, higher minimum support prices, lead up to the 2019 General Elections and the Government’s thrust on improving farm incomes are just the right ingredients to spice this heady cocktail of consumer sentiment up. The expected spurt in innovations, more launches in the Naturals segment, normalizing existing trade channels, higher spends on advertisement and promotions, and visibly increasing presence of modern trade in our daily lives will only make it more difficult to not buy more FMCG products.

BROKERAGES DOWNGRADE HUL

Brokerage     Action              Rating

Citi             Downgrade      Sell

Nomura           Downgrade       Reduce

DB                Downgrade      Hold

Jefferies        Downgrade      Hold

PC                 Downgrade     Hold

ISEC              Downgrade     Hold

Axis Cap         Downgrade     Hold

THE VALUATION PICTURE

Strong sector tailwinds and companies delivering on expectations have kept the prices of all nearly FMCG companies close to record levels. Given Hindustan Unilever trades at 52X FY20e earnings, analysts believe most positives are priced in and warrant a look at other companies that trade at a discount to Hindustan Unilever. It’s not that analysts are finding fault with HUL’s Q1 results or questioning the pedigree of the HUL. The only question, I presume, they’re asking is inspired by an old Ad by HUL’s competitor Nirma,  – “ Jab Wahi Safedi, Wahi Jhaag, Kam Daamon mein Mile, toh Koi Yeh Kyun Le? Woh Na Le?”

HUL VALUATIONS VS COMPETITION

HUL         52X

GCPL       42X  

Emami     38X

Dabur      35X

ITC           27X

#FY20e

Much Love.

M

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

Keep The feedback Coming.

RADICO KHAITAN: SHAKEN OR STIRRED?

RADICO KHAITAN

India's fourth largest & third most profitable spirits company, Radico Khaitan was among the companies added in the ASM list since June 1, 2018. While the BSE Statement on ASM does state, ”the shortlisting of securities under ASM Framework is purely on account of market surveillance and it should not be construed as an adverse action against the concerned company/entity”, the street was fairly nervous about the stock’s inclusion in this list. As a result of which, the share price of Radico Khaitan fell -15% since June 1, 2018 and has corrected about -21% from record high of `495 on May 30, 2018. Remember, it has been a big wealth creator before being enlisted the SEBI Watchlist, the market cap of Radico Khaitan almost quadrupled b/w June 2017 & June 2018

RADICO KHAITAN

In ASM List since Jun 1, 2018

Down 15% since Jun 1, 2018

Down 21% since Record High of 495 May 30th  2018

RADICO KHAITAN

B/w Jun 1, 2017 and Jun 1 2018: Stock Up 285%

Radico Khaitan has transformed from bulk & country liquor manufacturer to IMFL seller. The market knows this company via brands such as 8 PM Whiskey, Magic Moments Vodka, Morpheus Brandy and it’s latest entry in the super premium Single Malt offering Rampur. Analysts & market watchers stand positively surprised when the company claims it commands 50% share of India's entire Vodka market.

RADICO KHAITAN

IMFL Brands: 8 PM Whiskey, Magic Moments Vodka, Morpheus Brandy, Rampur Single Malt

The Company’s financials have shown a decent improvement in the last 5 Yrs. The liquor maker’s topline has compounded at a rate of ~5% between FY15 to FY18. Radico’s Ebitda margin improvement from 11.5% to 15% has ensured 16% growth in profitability over last half-decade. The company’s deleveraging efforts have further boosted Radico’s EPS. For the Future, Radico’s Management aims to make the company Debt Free by FY21 and targets 150 bps margin rise with 10% volume growth in FY19.

RADICO KHAITAN

REVENUE

FY15       1488 Cr

FY16       1543 Cr

FY17       1680 Cr

FY18       1823 Cr

EBITDA MARGINS

FY15       11.4%

FY16       12.6%

FY17       12.6%

FY18       14.8%

NET PROFIT
FY15       68 Cr

FY16       77 Cr

FY17       80 Cr

  FY18       123 Cr

RADICO KHAITAN

DELEVERAGING

                 Finance Expense      Total Debt

FY15                90 Cr                    738 Cr

FY16                85 Cr                    708 Cr

FY17                80 Cr                   654 Cr

 FY18                68 Cr                    522 Cr

Triggers for the company in future include better margins due to improving product mix, higher volumes in Uttar Pradesh. UP is one of the company’s strongest markets and with the Govt ending distribution monopoly last year, the case for higher volumes in UP strengthens.

MGMNT GUIDANCE

FY19: 10% volume growth in premium and 4% in regular segment

FY19: Margin Expansion of 150 Bps

Co to become debt free by FY20-21

However, a high working capital/receivables cycle would feature as the key concern for the future. It takes an average of 4 months for the company to receive cash for sales it has made. It would be important to see this process hasten. Another hanging sword on the industry is applicability of GST on ENA (key input for liquor companies). If indeed, it happens, as suggested by the Attorney Solicitor General, analysts peg a risk of 10-15% to industry EBITDA.

CONCERNS:

Year        Receivable days

FY15       117

FY16       135

FY17       135

FY18       126

Also, FY19 is a year full of state elections leading up to the big General Elections. Liquor is a politically sensitive subject and any adverse announcement from political leadership on the same may hinder the industry’s growth expectations.

CONCERNS:

Lower than expected pick-up in volumes

If GST is applied on ENA

Regulatory Risk

Having said that, the foreign institutional investors have been upping stake in Co and analysts peg (pun intended) Radico’s FY20 EPS to be higher by 45% than what it was in FY18. Despite a 4X move, Radico still trades at a discount to industry leader United Spirits. So is this decline of 20% from record high a time to enter or is the valuation glass overflowing already, only time will tell.

RADICO KHAITAN:

EPS TRAJECTORY

FY17 -       6

FY18 -       9.3

FY19e -     11

FY20e -     13.5

RADICO KHAITAN:

FY20e VALUATIONS

USL                              48X

RADICO KHAITAN          30X

Hindustan Unilever Q4FY18 Results: Dho Daala!

Hindustan Unilever Q4FY18 Results: Dho Daala!

If you’re an ad-buff like me, chances are, you’ll remember the old Surf Excel Tagline – Dho Daala! I’ve decided to pull this out from the archives to describe its parent Hindustan Unilever’s Q4FY18 Results. The company has managed to wash away all analyst expectations aside and report a stellar beat on all parameters this quarter.

For starters, it’s the Domestic Volume Growth of 11% that has surprised the street the most. Yes, Hindustan Unilever posted comparable domestic revenue growth of 16% in Q4, led by 11% underlying volume growth.  Across all the analyst-reports I referred to for consensus expectations, 6-8% was the general estimate. 11% Volume Growth in Q4 marks the company’s second straight quarter of double digit volume growth and this time, it’s without a favourable base. Remember, Q3FY18 saw 11% volume growth after 5 Yrs and that too because Q3FY17 witnessed 4% decline in Domestic Volumes owing to disruptions caused by demonetization.

HUL Q4FY18 YOY

Total Income +10.8% at 9097 Cr vs 8213 Cr

Comparable Domestic Sales +16% YoY

HUL Volume Growth 

Q3FY17    -4%

Q4FY17   +4%

Q1FY18     0%

Q2FY18   +4%  

Q3FY18   +11%

Q4FY18   +11%

It’s heartening to see that the company has posted double digit domestic volume growth without hampering margins.  In fact, a very strong operational performance will go down as the key highlight of HUL’s Q4 results. The company’s EBITDA margins expanded by 240 basis points on a reported basis and 160 basis points on a comparable basis, as per their Press Release. Cost Savings have come by on account of the company’s strong focus on cutting down non value adding expenses. Other Expenses have remained under control, while we also saw 150 Bps Improvement in Gross Margins.

However, the company’s focus on innovation and activation continues. For the second straight quarter we saw Ad Expenditure increase in excess of 25%. The street would view this positively.

HUL Q4FY18 YOY

EBITDA +24% at 2048 Cr vs 1651 Cr

EBITDA Margins at 22.5% vs 20.1%

Gross Margins at 52.6% vs 51%

Ad Expenses +25% at 1070 Cr vs 853 Cr

Net Profit +14.2% at 1351 Cr vs 1183 Cr

Exceptional Loss of `64 Cr

Hindustan Unilever’s reported Net Profit in Q4 clocked in gains of 14.2%, but there was a 64 Cr exceptional loss. If one was to adjust for the one-time expense, the FMCG Major’s comparable profits grew 26% YoY, that’s comfortably above even the highest estimates made by the analyst community.

So, what led to the growth? HUL’s management says, there was broad based volume growth across all segments of the company. All Verticals, Home Care, Personal Care, Foods & Refreshments witnessed double digit growth and margin expansion. The Natural’s portfolio and Innovative launches made by HUL grew 2.5X the average growth at HUL.

HUL Q4FY18 Segments:

Home Care:  Double-digit volume growth

Personal Care: Double-digit growth across Personal Products and Personal Wash

Foods: Good growth in Kissan and Knorr

Refreshment: Robust growth across Tea, Coffee & Ice-creams

I was listening in to the company’s earnings call, wherein the Top Mgmnt sounded rather confident about resumption of normalcy in all trade channels, an improving demand environment and the company’s focus to succeed consistently and profitably despite increasing competitive Pressure. Mgmnt commentary was particularly positive on the company’s brands Ayush and Indulekha in the Naturals Portfolio. While we kept hearing cautious calls from the top brass regarding an increasing input cost environment throughout the earnings call, the management sounded reasonably assured of their ability to tackle it, just as they have done so in the past.

HUL Q4FY18: Concall Takeaways

Trade Channels have Returned to Normalcy

Naturals Portfolio - Indulekha & Ayush doing well 

Premium Segment of Portfolio did better; popular range saw muted Growth

Indulekha is growing much faster than anticipated

Innovations and Naturals growing 2.5x avg

Expect Demand to Continue to Improve

Will continue to focus on operational efficiencies

Will manage inflationary headwinds as we have in the past

So, all said and done, the big question arises  - What Next? Remember, Hindustan Unilever is trading at Record High. The Stock has added 80% to its humongous market cap in the last 18 months and it’s trading at a record high P/E multiple of nearly 49X FY20e earnings. Ahead of results the consensus FY20e EPS on the street was 31 vs 24 in FY18. It will be very interesting to see if and to what extend to brokerages tweak these expectations upward given High Base, Increased Input Cost Environment and Record Valuations. Can there be a re-rating, will HUL cross ITC’s market cap tomorrow or will the fate of the HUL stock be similar to that of Titan, Dabur, Emami and Jubilant Foodworks which saw profit booking despite good showing in the current quarterly results, only time will tell. So let’s end it with a take on another Unilever tagline, Results Achhe Hain!

HUL Stock up 80% Since 2017; Trades at 49X FY20e

 Will Valuations be a speed-breaker? 

How Much More Can Analysts Tweak Expectations By?

EPS

FY18                 24

FY20e               31

Epilogue - 

Parsing All Through Brokerage Commentary This Morning - 

Headline Comments buy Brokerages

CLSA – Just Wow!
DB – How Good is Good?
Edelweiss - Bellwether rules unperturbed
Nirmal Bang - Rewards of Consistency
Morgan Stanley - Priced in                    
Nomura - Growth Recovery Already Built In

Upgrades 

Consensus FY20e EPS

Earlier      `31

Revised     `34 

Consensus Target Multiple 

 Earlier           49X 

Revised         50X

Target Price Revisions

             Old         New

DB         1700      1800

NB         1700       1750

CLSA     1575       1650

Phillip    1585       1670

CS           1530       1675

Nomura 1324      1430

MS         1120      1260

#FMCGDiaries - What moved ITC today?

ITC was the highest Nifty gainer in today’s session after a long period of under-performance. A large part of the street believes, things for ITC are coming together and some pieces of this massive jigsaw are falling in place. Let’s try and take a look at a few of those pieces

1) The Good News 

An important piece of news that showered gains on the entire FMCG sector was IMD’s announcement of normal monsoons in 2018. If both IMD & Skymet’s predictions do come true, it would make for a hat-trick of normal monsoons and hopefully spur rural demand. It’s because of this belief that most FMCG Stocks, like, HUL, Godrej Consumer, Pidilite, Britannia and Nestle hit record highs despite trading at record high valuations too.

2) The Valuation Argument

ITC’s underperformance v/s HUL can be summarized in the following charts. While the latter narrowed it’s gap with ITC’s market cap, the valuation gap between the two only widened. Usually, it has been seen that ITC trades at a 40% discount to HUL’s valuation during an unfavorable tax regime, which narrows to 25% during stable times. But as of yesterday’s close, ITC traded at a 50% discount to HUL’s valuations, a discount which is arguably the widest ever, at a time when the optimism over Co’s Non-Tobacco Business is the highest ever. Something, somewhere, had to give.

HUL vs ITC

Market Cap Gap Narrowing

At Start of 2017

                                            Market Cap

HUL                                         1.78 Lk Cr

ITC                                           2.92 Lk Cr

Yesterday

                                            Market Cap

HUL                                         3.13 Lk Cr

ITC                                           3.23 Lk Cr

HUL vs ITC

Valuation Gap Widening   FY19e PE

HUL                                         52X

ITC                                           26X

#As On April 17, 2018

3) Hotels Check In 

This is where it gets all the more interesting. A part of ITC that we often overlook, their hotel business. ITC runs one of the largest and fastest‐growing hospitality chains in the country. Hotel Stocks have been on a tear this week owing to favorable demand-supply situation, optimism towards the industry’s pricing power & occupancy and premium valuations of the latest listing, Lemon Tree Hotels. Stocks like Taj GVK, Royal Orchid & EIH Associated Hotels gaining anywhere between 26-30% in the last two sessions. Earlier, analysts on the street would ascribe a valuation of 15X EV/EBITDA (`5/share) to ITC’s hotel business. But with the current lot trading above 30, 40 & even 50X EV/EBITDA, the case for a re-rating of ITC’s hotel biz only strengthens. 

Hotel Stock Valuations

EIH Ltd                   63X

Lemon Tree Hotels 51X 

Indian Hotels          34X

Royal Orchid          32X

EIH Assoc              30X

FY18e EV/EBITDA

Valuing ITC's Hotel Biz 

At Various Multiples Hotel Biz Value Per share –

18X  Rs. 6/sh

20X  Rs. 7/sh

24X  Rs. 8/sh

28X  Rs. 9/sh

30X   Rs. 10/sh

FY18e EV/EBITDA

4) The Big Question – Value or Value Trap?

After today’s move, ITC now trades at 48% discount to HUL, the highest in the last 10 years. However, The company’s earnings growth over FY15-18 has been ~5%, the lowest in the last 20yrs. Irrespective of the optimism around ITC’s Non-Tobacco business, the truth is, Cigarettes still account for nearly all of ITC’s operating profits and free cash flow. Only an annual tax-hike of less than 10% in 2018 to lead to a substantial growth in cigarette volumes and earnings. Earnings growth is the one ball needs to be kept a watchful eye on and that depends solely, on how the Tax Regime on Tobacco pans out in the very near future.

Much Love.

M

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

Keep The feedback Coming.

#FMCGDiaries - TITAN TURNS THOUSAND

TITAN TURNS THOUSAND

Titan hit the 4-Digit mark on auspicious Akshaya Tritiya. At 1000 Rupees, the market cap of Titan crosses 88000 Cr, placing the company at the 33rd spot in the list of Indian companies with the highest Market Capitalization

REMEMBER THE TITAN

A trip down memory lane and one can see the massive power of compounding this company has displayed. From a Watch Co to a Jewellery Co, the Stock price of Titan has surged from Rs. 56/sh 10 years ago to 1000 now. If you stretch the time beyond 10 yrs, 15 yrs ago the adjusted price of Titan was Rs. 2.5/sh. A gold mine, for those who discovered it then and held on.

BIG BULL’s BIG BET

A notable name which associates itself with Titan is Big Bull Rakesh Jhunjhunwala. RJ and Family as of March 2018 hold 7.5 Cr shares in Co, that’s now worth 7500 Cr (just over a billion dollars). Again reinforces the old adage, “if you find a good co, back your truck, tank up and hold on.”

TITAN V/S GOLD

Talking about old adages, Gold is pretty dear to us Indians and we’ve heard about the wealth creating properties of the Yellow Metal. A quick look at the data suggests the same, but it also suggests that in the last 15 yrs, Titan has returned more bling for the buck as compared to Gold. 10 Yrs Ago, Gold was available at 12500/10 gms and the same was available at 5600/10 gms 15 Yrs ago. Today the price of gold quotes around `32000/10 gms. So if you look at the Compounded Annual Returns over the last 10 or 15 Yrs, Titan has outshone Gold by a fair margin. This is not to suggest that this outperformance may continue. But, if the company continues to post strong earnings growth and gain market share, it may very well do.

TITAN Stock Returns

                             CAGR

10 yr                       33%

15 Yr                       49%

GOLD Returns

                             CAGR

10 yr                       6%

15 Yr                       19%

TOO MUCH PRICE FOR GOLD? OR DIAMOND FOR THE PRICE OF GOLD?

At 1000 Rupees a piece, one may argue that the valuations are stretched. Titan Trades at 55X FY19e & 40X FY20e. Morgan Stanley this morning has actually downgraded their outlook on the stock. They find themselves “reluctant to push multiples beyond current levels.” However, they add “the company remains one of our favorite plays on urban discretionary consumption growth in India, with huge untapped growth potential.” While, multiples cannot be pushed beyond a certain limit, one must keep a close eye on the earnings of Titan.

Much Love.

M

PS:Don't treat any of these as investment ideas; I personally Don't Invest/Trade.

Keep The feedback Coming.

FRIDAY THE THIRTEENTH

TRISKAIDEKAPHOBIA & PARASKEVIDEKATRIAPHOBIA

You read that right. I know you’re squinting at the multi-syllabic Greek words and wondering what they mean. Triskaidekaphobia means Fear of the number 13 while Paraskevidekatriaphobia takes it a step further and suggests Fear of Friday the 13^th

We have a great set up for trade today, 6 days of gains, FIIs buying in Index Futures and World Markets looking good, thanks to Donald Trump’s tweets. The superstitious argue it’s Friday, the Thirteenth. So let’s turn the calendar and see what previous 13 “Friday the Thirteenths” have meant for our market.

NIFTY ON FRIDAY THE 13TH

Date                       Move

13-Oct-2017        +0.7%    

13-Jan-2017        -0.1%

13-May-2016       -1.1%

13-Nov-2015        -0.8%   

13-March-2015    -1.5%

13-Feb -2015       +1.1%

13- June-14          -1.4%

13-Dec-2013        -1.1%

13-Sep-13             0.0%

13-Jul-12               -0.2%

13-Apr-12              -1.3%

13-Jan-12             +0.7%

13-May-11             +1.1%

In the last 13 Such Fridays:

The Nifty has ended lower on 8 occasions, higher on 4 occasions and unchanged on one

The Average Move over last 13 sessions has been -0.3%

-0.94% has been the average loss on a down day, while a good day added 0.9%

The last time 13^th April fell on a Friday was way back in 2012, that day the Nifty ended lower by 1.5%

Again, this data ain’t to suggest what may happen today, but it’s perfect fodder for geeks just like the words Triskaidekaphobia & Paraskevidekatriaphobia.