A lot has happened in the past week. Both the US and Indian markets have fallen sharply following rate hikes by global central banks to address the rising inflation challenges. As you know, I don’t worry about the macro scenario so will not spend much time on what we already know- volatility is the nature of the beast and markets will move up or down for whatever reasons. Today I would rather talk about three things- startups, Reliance and of course the overall scenario!
The past six months have been brutal for new age tech companies across the globe. Be it our Paytm and Zomato or doordash, zoom etc in the US. Paytm we all know is going to zero very fast and is now joined by Zomato which is down roughly 66% from its all time high and over 50% from listing price. Zomato is now finally selling for the price of 1kg tomato! The beating in the US is much worse- Zoom down 75%, PayPal down 75%, Ark ETF down over 75%, the mighty Amazon down over a third and the list goes on and on. The idea that only tech will survive and everything else will forever stay in the dumps is being challenged.
Closer home, I was wondering how these startups find a way to lose money in businesses where making money is guaranteed by the nature of the game. In stock broking businesses, whether you buy or sell, lose or win, house takes a cut, period. Thus we are betting heavily on Isec, BSE etc. Now you have newer players like Groww and Upstocks funded largely by private equity losing money to attract customers! Wow! It’s like the Umpire in a cricket match getting out LBW! It sounds incredulous but true. The full year revenue for Groww is hardly 5cr rupees and it boasts one of the highest retail customers! So basically it’s a casino which allows people to gamble on its own account so that it can claim higher footfalls! Incredible!
Similarly, I am amazed by the way these grocery and food delivery companies operate. They deliver free of cost on the same day, some even in a few hours and charge much less than the retail price of fruits, vegetables or groceries and offer cashback! Wow! I mean, the smallest of the fruit vendors makes at least 30% on his cost and these supercharged masters of the universe lose money! How beautiful! Of course as a consumer I am delighted with their services but would never invest in their stocks.
Let’s now discuss Reliance! If ever there’s a company which embodies scale, this is it. The annual trunover for the whole year FY2022 is over $100B! Its profits for the year is over 67000 crores which is higher than sales of almost 99% of the listed companies in India! In an earlier blog, I mentioned how Reliance can grow to almost a Trillion Dollars company (https://zerotomillion.business.blog/2022/01/10/is-the-new-amazon-amongst-us/) Reliance retail is now doing annual sales of 2lakh crores! Just for reference, let’s compare it with other much more fancied retail chains- Titan did around 29k in sales and 2200cr in profits. Dmart did similar sales with around 1500cr in profits. Titan has a market cap of 2l crore and Dmart is at 2.4l crore, even after 40% correction. Reliance retail did 2l crore in sales and over 7000 crores in profits. This is twice the combined profits of the two behemoths. Take a deep breath and absorb this fact!
Airtel has annual profits of close to 5000 crores and sales of roughly 1.1l crore in the trailing twelve month period. Jio did sales of 95k crores and net profits of over 15k crore! Almost 4x of Airtel. And Airtel has a market cap of 4l crore!
So once you add Reliance in your portfolio, you basically have Titan, Dmart, Airtel, ONGC, speciality chemicals ( Reliance is one of the largest petrochemical companies in the world) at a market cap of 17l crores which is a steal compared to the valuations market is according to some of the stocks I mentioned earlier. I was all too happy to add some of it when Russia invaded Ukraine and it fell back to 2200 types.
Investing requires us to be patient in times like today’s when the bluechips fall massively and begin to underperform, markets trade sideways for months together and there is pessimism all around. What I do is to read more. I recently finished the Ambuja Story, autobiography of Narottam Seksaria, the founder of Ambuja Cements. It’s a fantastic read about someone who dared to dream big in the 70s and 80s in a socialist India. Anyone who believes India is in the doldrums needs to revisit where we were 40 years ago and how we survived the ugly days of state control. You may also like to pick Ambani and Sons by Hamish McDonald which chronicles the story of Dhirubhai Ambani. These two gentlemen are first generation entrepreneurs in days when India was a hungry third world country. In one generation, both of them became Billionaires. This is what I believe – bet big on India, it works! https://zerotomillion.business.blog/2021/05/24/bet-big-on-india-it-works/
Life is all about Compounding! 