All money is equal!

Here’s a list of money(net profits after tax) some of the stocks have made in the past 12 months( end of September quarter): DMART ~ 1400cr, IRCTC~ 425cr, Pidilite ~ 1025cr, Berger Paints ~725 cr, Page( end of June 2021) ~ 400cr, ISEC~ 1257cr.

Now let’s rank them by market cap. DMART is ~3l crore, IRCTC~65K cr, Pidilite ~1.2l cr, Berger ~75K cr, Page 45K crore while ISEC is right at the bottom with market cap of a lofty 25K crore.

With Net profit margins of 41%, operating margins of 61%, ROE of ~55%, can anyone of us argue that it’s not a decent business. Well it’s just not fancied yet.

This is one of the largest broking house, with full digital play on India’s rising financialisation valued at less than 20 times earnings when every loss making so called digital company is valued north of 50000crore atleast. I remember somebody valuing Nykaa saying it’s cheap if we look at 2041 earnings. I mean, seriously?

I would like to quote Sunil Singhania who recently said to a guy who asked him why didnt he own Asian Paints, Nestle, Kotak etc. He said- mere paas returns hain. I’d agree that some of these supremely valued companies are great businesses. However, if they’re bought at astronomical valuations, I’m not sure they’ll be multibagger in immediate future.

Secondly, valuations are slaves of earnings. My bet in ISEC is simple. Come 2030, it will be making 2-3 times profits from here if it doesn’t do anything fancy and avoid being stupid. If it can just maintain what it’s doing today, it’ll be making 5000cr profits in under 10 years from now. That’s good enough for it to go from 750 to 7500 in the same period, or even less.

Two companies making similar money, with comparable ROCE and similar growth runway should be valued similarly. So if DMART makes 1400 cr is valued at 3l crore, why should ISEC not be valued at 50K crore. Both are plays on a rising India, who’ll consume and invest more in the coming years. Though I’d argue ISEC is capital light and can scale much faster than any of the above-mentioned businesses.

Now come back to my favourite BSE. It’s a duopoly business with leading franchise in a lot of its offerings. I can’t think India’s second largest Stock exchange being valued for $750million when it’s peer NSE is quoting at close to $20Billion! If it was a loss making startup waiting to be listed, I’m sure all analysts would run over each other to justify why it shouldn’t be valued at $15B.

My take is- I’m too conservative to buy Policybazar, Paytm or Nykaa, leave alone Zomato. They’re all plays on a rising India, which I’m happy to bet through ISEC and BSE. It doesn’t matter what stocks you own, as long as what you own also go up respectably. I mean, I don’t have Kotak, HDFC Bank, Nestle, Page, Asian Paints, Zomato, Speciality chemicals, Pharma or IT for that matter. Not even Tata Elxi or IEX or IRCTC. So now you’d think I must have been crying over missing the bus. Well, to let you know, TaMo went up 8.5x from bottom, BSE up 5x. And you’d not evn hear these names.

Like I said, color of money is same. You’re not here to make money by buying what is being fancied, or socially approved. You can buy the most ridiculed and still end up rich. Market may value 1000cr profit differently, but if you make 5x, it’s indifferent to the stock which you own.