Market tries even the best of the investors. The best investors are the ones who are dead or inactive.
“A news item that has gotten a lot of attention recently concerned an internal performance review of Fidelity accounts to determine which type of investors received the best returns between 2003 and 2013. The customer account audit revealed that the best investors were either dead or inactive”
Thanks for the update…
There are some observations related to stocks or sectors that have gone out of favour that I had made multiple times on different threads.
Usually what happens is that when an IPO comes around, all its virtues and positives are displayed in full fanfare. Because investment bankers have the mandate to get as much juice out of it as possible, so these IPOs are priced at really fancied valuations. And to get these IPOs across the gullible public, a strong narrative is needed, which is provided (knowingly or unknowingly) by a whole array of players including brokerage houses, Whatsapp and other social media superstars, IPO roadshows, TV channels, you name it.
These antics usually get the IPO through and the crowd cheers it with blockbuster listings. Stock prices rally hard irrespective of business prospects and valuations, and a lot of innocent retail folks (and often well learned fund managers) get sucked into the story. And after a brief period of time, usually a quarter or two of disappointing numbers, the cookie begins to crumble. Stock price initially starts showing signs of distribution, where the smart folks who can read in between the lines start selling out. And once their selling is over, the real cracks appear.
And all this while, the initial narrative keeps ringing, and sometimes if price achieve some sort of equilibrium with business prospects after falls, there is a rally. But at each higher level there are guys stuck with positions who have no idea about the business, (and who have bought on tips or on whims ) are ready to supply which causes stock price to correct again.
Since there is shortage of confidence in the company because of the disappointments it has caused, stock price keeps making lower lows, sometimes even when markets stage strong rallies. I guess the prudent course is to allow the stock price to settle down for some period of time, maybe months or quarters and see if some bottoming patterns have emerged and/or study the business with an open unbiased mindset and then take a call.
These kind of fancied IPOs can act as double edged swords, After these bite the dust, there is a fertile ground for picking really good winners from these. It does require high level of digging and work, but results are often satisfying. For the lesser skilled folks, stock price crossing the post IPO highs is often the simplest signal to latch on to these.
Hi - Recent update (Link) to the exchange had non-quantifiable descriptive words about the growth of various lines of business- moderate, a gradual scale up, steady growth. In my thinking, the above seemed reasonable as the business is still able to grow considering their opening statement about the industry growth- The report suggests muted consumer discretionary spending and weak IIP. I will revisit my opinion after analyzing the results of their nearest peer( Blue Dart Express Ltd). However, the market quantified the update by knocking off ~1/3 rd of the market cap.
How do you infer the recent developments?
Hi @Surender
(I have repeated some points in the below post, excuse me).
This is a definite negative (I’m not writing this with the hindsight benefit of stock correction) & I was surprised with the update & literally was prepared for down circuit but to my luck it opened with nominal cut and I made an immediate decision.
I was also surprised because as per reports Meesho had excellent festive sales & Delhivery services them.
Last quarter con-call, management blamed the results partially on Shopee exit & SpotOn integration.
Negative because the market majorly valued Delhivery purely based on “hyper” growth. Even my entire allocation towards tech stocks is primarily based on “hyper” growth. For “high” growth, market already has companies like Bajaj Finance, Page, Dmart etc. & I personally have Page, Kotak, Dmart etc. So, if Delhivery grows at 25% with path to profitability stretching till FY26 (because if growth slows down, does the business model has the ability to generate profits near term with such growth?) & Kotak grows at 25% with formidable business model, then what incentive I have to stay with Delhivery? Market so far has forgiven small issues here & there but it can’t forgive on “hyper” growth factor.
If the growth slows down to say, 25% from 45% then the company should be brimming with profits to get those valuations because otherwise, market has other options. These valuations are because you grow at 40% plus and one day turn into mega profits.
I want 40-45% revenue growth with path to profitability. Or
20-25% revenue growth with stable margins.
I definitely don’t want 25% growth with no profitability.
I want promise of 15-20% revenue & profit growth available at 20 PE so I can make money on re-rating first & then evaluate. (I bought Anand Rathi, CMS Info, Mahindra CIE, federal bank on this premise apart from technical analysis).
Qualitative factors:
If I promised 45% growth to shareholders, that should be achievable more or less irrespective of the macro - given that the sector opportunity is humongous. Just 6 months down the line I should not blame it on the macro for the slowness of the growth.
True, no one can predict macro & if this is the case, then don’t claim such hyper growth projections in the first place as a given. Probably, I personally should have been sceptical?
Management should have the vision to predict sector tailwinds or headwinds at least 6 months to a year ahead of the time, except under exceptional circumstances. I think the management will get the hints as they are in the business day in & day out.
Personally, this breaks the trust, integrity factor & I generally sell brutally if I have an iota of doubt on this aspect.
Having said all this, Delhivery really built excellent business with foresight, technological capabilities & all this could have been exceptional circumstances for them. So, I believe they will sort this out & emerge stronger in due course just like Page weathered 2018 storm. So, this is will be in my watch list for re-entry. Also, I think they ate more than they can chew with SpotOn acquisition. Market rumours say that the integration is not going well. All this could have been OK had the growth continued.
It’s a matter of time before market makes adjustments for growth projections versus profitability. Since they have already said slower FY23, market has a lot of time & so do I. Money flows out for “opportunity cost”.
I will watch out for growth, profitability, technical charts, management talk & walk.
Thanks!
EDIT: I did not get this thought but what you said seems good suggestion - see Bluedart’s numbers & management commentary and correlate.
@richdreamz - What’s the basis for optimism although the collective market wisdom reflects pessimism in current times?
Hi @Surender
Long winded answer… many ifs & buts. Any broken link in the chain may lead to sell decision.
Because market is inefficient, particularly at extremes.
This has happened to me many times before. People sold Page left, right & Center quoting Van Heusen is killing Jockey. I was holding it then. Recently, people sold Star Health mercilessly from 750 to 475 scared by Covid wave 3. I was holding it then.
Good managements always deliver, given time.
My belief is that there is a huge mis-match between demand-supply at the moment. Had I known this, I would have waited but this is not a sustainable strategy. So, I will take this hit on my chin.
Any selling not for fundamental reasons, it’s fine as price comes back to equilibrium sooner than later.
In the absence of growth slow down to 20%, I will remain invested. It is possible that market may be preempting growth slowdown in its wisdom. I’m not convinced. The day I think growth will slow down to 20% permanently, I will exit whatever be the price.
The market opportunity is huge, management capability & integrity is not in question - then, it is a matter of time.
It is also possible that high revenue growth with profits far out in the future is out of market favour. But market can’t ignore growth for long. Equity investing is about growth & cash flows.
For a company which is likely to make 9000 crore sales in FY25 with 1100 EBIDTA & growing at 30%, optionality in fashion business, men’s business, eB2B, international expansion, proprietary line of clothing - the valuations are not insane. EV/Sales of 6 times! A travel app with no moat is trading at higher valuations!
Disclosure: Important to state that I hold Nykaa shares & may change my view if any facts on growth slow down come to the fore in public. I would have loved to add below 1000 but my allocation is already full, so do not want to disturb PF allocation.
Observation: This correction & special treatment is particularly reserved for “expensive” stocks tech or otherwise. It is likely that interest rates world over will likely remain higher for longer & so the worth of future cash flows is lower at present impacting high growth stock valuations. So, I have diversified into “value” stocks also as I have been disclosing off late.
I also have a small allocation to Nykaa. Although I have kept some option to add more (and did some miniscule addition recently) but do not wish to ramp up significantly - what I cannot digest is the fact that having been in markets pretty long…and with you I consider even senior in terms of the big conviction investment you have done and ridden on Page…I am unable to digest how we could also miss this fairly simple issue of Lockin…specially after having seen the fate of Zomato around that…
I did have it in mind but somehow focussed on only the Anchor investors lockin part…
Not that the loss from recent fall in Nykaa is causing any severe damage to my Portfolio but we could have benefited from knowing this simple fact and buying in this sure shot fall…
Having known about the lockin and still not waiting to benefit from the fall (as nothing is really sure shot), is another matter…but for my case…I didnt even know of any more lockin expiry until the fall…makes me feel so small & humble yet again and brings me back to the thought of always remaining simple & cautious investor…
Thanks for keeping sharing your thoughts…
My thinking is big & very long term in Nykaa. I’m looking at Nykaa entering Nifty within 15 years, so would it make any difference if my average price is 1350 or 1000? Zilch.
After a few years we will all laugh it off probably.
If story changes tomorrow, I will run from the stock. My emotions won’t pay for my kids school fees but being egoless does.
You have been long enough in the market & would have seen so many events, this is just one among them.
Sometimes Stocks fall because they are falling. Let’s analyze results on November 2nd.
Thanks for your words & agree with you on being small humble & cautious.
Completely agree if it grows the way it has grown, entry price like you mentioned above does not matter much, provided it does not fall significantly from here on also…
At 50K cr mcap of Page & around 45K Cr now of Nykaa…which one would you see performing better over 15 years? I ask this as I see you hold very long term vision of the stocks you hold
15 years. 
Could one have predicted present nifty stocks in 2007 ? 
or even 2017 ? or even sensex stocks
tata steel entered sensex in may 2021 after being excluded in december 2020
In the end, control the controllables. Also, nobody knows everything except for liars and famous people on twitter (ones who will again screenshot this, post it on twitter where I don’t have an account but themselves have sold 5 of the 6 stocks that they planned to hold for 10years in January 2022.)
P.S. - new pick - south indian bank (best bank after idfc first bank)
Thanks that you understood my intent of writing “nifty inclusion” is from broader point of view of vision & conviction but not from speculative perspective as is rampant everywhere.
I’m putting across my thoughts unfiltered, so my sharing process remains genuine. I have also been promptly updating my losses & exists for the same purpose.
I think from my portfolio, Dmart, Page, Nykaa are eligible candidates for Index inclusion or become mega-caps in future.
In my opinion, Nykaa does hold a better prospect than Page, relatively. It is best to sell spades during gold rush than go find the gold itself. Page is a manufacturer while Nykaa is e-commerce primarily. Purplle & Glamm, who started along with Nykaa are not even 1/10th of the size of Nykaa. It is not easy to achieve the scale that Nykaa got without execution capabilities. Doing all this while Amazon, Flipkart, Myntra are ruling the space. Page at some point has to diversify to some other product line and be successful at it IF it has to become mega cap. This is much difficult than Nykaa who now has to ensure that unit economics are improved & scalability is achieved with efficiency, technology usage while customer experience being non-negotiable. The operating leverage, the platform benefits of ad revenue, first mover benefits are not appreciated well. Nykaa makes an estimated forward 300 crore ad revenue because it is an e-commerce platform. Page cannot have this revenue stream. Nykaa presently invests all this cash flows into Fashion & other fledgling businesses & so the profits are invisible. So, at steady state, I expect Nykaa to report RoE of 30% plus, margins of mid-teens, growth of 25%. My entire thesis of holding is based on this premise. Let’s see how the future unfolds.
I’m afraid of talking up on Nykaa ad nauseam particularly when the stock is down as I may come across as being publicist. Let the numbers do the talking!
Indeed it is difficult to find someone to having meaningful conversation on long tern vision. Glad we have members like you in this forum.
The best way for Learning & growing - self and others who read your thread and thank you for that!
Wow, what an example! Page does have element of Branding & retailing to it but agree on product line & manufacturing aspect and the long-term vision that you hold for these 3 companies.
Along with that, Page does have another aspect of it not being owner of the brand but rather a custodian in India. This was a major reason I did not buy it at 350 Rs around a decade back…sigh! I had that silly fear of what if it loses licence/contract to sell someone else’s brand in India…
Now that this sharing of thoughts have become telepathic, let me share a couple of my mistakes of omissions:
Titan in 2009: I read that Titan follows asset light strategy of franchises & doesn’t own the retail stores. I wanted Titan to buy land & build stores. How big can you become without owning real estate? So, I did not buy. I think it’s 25x at least.
Page at 600: How big can a company become by selling inner wear? Meh… Did not buy.
I was 27 at the time. Compare with the investing prowess some of the 27 year olds possess now! I’m a dumb wit compared to the new age investors.
Hey - Thanks. Much appreciated.
During IPO, The OFS component was 88%, which was ~28% of the shares held by pre-offer PE/ultra-HNI/HNI. The market was super-excited and IPO was subscribed 81.78 times - 12.24 times in the retail category, 91.18 times in QIB, and 112.02 times in the NII category @ IPO Price: ₹1125
However, the narrative around the current price fall:
Hence, IPO-Part 2 is unfolding and that too at a better price. IMO, this seems to be a case where the price is suffering more due to faulty imagination than reality.
Disc: Invested, expecting a hyper-revenue growth rate in the near term.
Maybe they did not sell.more due to limit of IPO size. Can existing investors decide on IPO sizing or only Promoters have major say?
In April 2018, nykaa raised money from PE / Institutions at INR 3000 crore valuation. But for IPO listing in 2021, the valuation was way beyond INR 1 lakh crore. So the investors are sitting in a huge profit even at this price which is not very below IPO offering price of 1125 per share. So once Lock-in period ends investors will sell and pocket a huge profit. People who purchased in IPO and later are the bag holders.
Shark Tank’s Ashneer Grover should be thanking the HDFC staff for not lending him 500 crores to invest in nykaa 
I keep myself updated on Nykaa by reading this thread. Helps me in getting views from both sides.
Somehow I have not been too convinced about the competitive edge of Nyka versus the biggies like Amazon, Flipkart, Ajio, Tata Neu (Cliq) etc. The latter are deep pocketed companies and can afford to keep losing money for long periods of time.
I feel Zomato is a much more interesting company in terms of competitive advantage. Only two players with others like Uber Eats etc having gone away. Even smaller mom and pop companies operating in smaller cities have disappeared.
The reason I find it will be difficult to displace is that it has a pan India network established with restaurant people, a good IT infrastructure and alliances in place with the delivery boys. In case of Nykaa, I think the biggies will simply get into its domain and try to damage it.
If and when the cash burn phase is over in Zomato, it can become very interesting. As of now it also seems to be under the pump, and looking at the charts, it seems before any fundamental changes, technical charts will provide clear cut indications here. As of now only in watchlist.
The psychology surrounding Nykaa seems to be just about right for a bottom formation. News about the promoter losing 1 billion USD valuation in this fall have been flashed on news. And huge volumes with the fall on friday of above 40 lacs indicates panic and manic selling. Volumes of more than 40 lacs in the counter have happened only on a handful of ocassions since listing.
With the kind of falls we have seen in the likes of Nykaa and Zomato, the good part for someone who is watching from a distance is that once a bottom is formed, there will have to be a lot of consolidation before a major upmove happens. So there will be time enough to get in, once the dust settles.
Really good to have your views!
To add to above, I was recently amazed by the swiftness & usefulness of Swiggy instamart delivery…so these two companies are not just building solid moats around restaurants ( personally I do not trust this part of their business as restaurants have been in pain and many trying to build their own delivery ecosystem…views invited) but also around grocery. Competition might arise from big pocket Jiomart & Tata Big basket here too…
I think a part of the biggies were already in this domain like Amazon, Flipkart, Ajio even Myntra - Beauty & Fashion …but Nykaa did grow. Now we do have Reliance & Tata eyeing the Beauty piece more sincerely ( note they already in fashion since many years)…so we can look at it other way round also…
It is not just they who are entering Nykaa’s turf but rather Nykaa is also entering theirs…with recent entry into Fashion and also entry into innerwear with Nyked ( Page’s turf)… Execution & Direction is key…hence Jockey is very very important…
Would be great to get your views further in these new age companies as only your views can make discussion complete and bring us to some logic than just our own personal views & biased assessments
Disc. Invested in Trent, 1% allocation to Nykaa. Transactions last week. Not eligible for any recommendations and can be wrong in all assessments
Thank you so much Hiteshbhai for the amazing post on ipo stocks. Its very insightful and eye opening
I read your recent post on Policy Bazaar.
Can you, if possible, please elaborate further your thought process on my below verbose.
Particularly when these platforms involve customer service, fraud detection, push products, rewards, returns (ONDC), delivery, seller vetting etc.
If the Bima Sugam’s intention is not any of these then it may not be of much direct competition to aggregators like PB.
When insurance is a push product, agents would not be interested in sales when the commission drops by a 80% overnight. Then it is defeating the purpose of increased insurance penetration by leaps & bounds as is what IRDAI saying publicly. People won’t line up to buy a product just because the commission is lower now.
Coming specific to PB, below 400 the valuations are lucrative for 18% CAGR unless the Bima Sugam overdrives & destroys with unmindful regulations. So, I bought it again around 385. It broke-even decidedly & at the current growth rates operating leverage should catch up definitely. With recurring premium of 285 crores at 80% minimum contribution margin, the numbers are clear.
Looking at Delhivery’s price action coming week. At some price of irrational selling, it makes a buying case. I’m monitoring.
