Losing a Few Billion $

So last I checked, we have the much feted Nykaa trading at around 35000 crore market cap which is roughly $4.2B. At its issue price, it was floated at close to $6.2 B and at its life high levels reached somewhere in the year gone by, it commanded a hefty $14 odd Billion capitalisation. This is not the funny thing though. The funny thing is that it has earned a grand total of $1.2 M( rupees 10 crores) in the first six months of the FY 2023 and is still trading at a trailing PE of around 400!

I’ve said this before and shall reiterate that all money is equal. A company making hundred rupees should get similar valuations to another company making hundred rupees, give and take the required premium for its Return on capital employed. However, at the end of the day, hundred rupees will be worth a hundred rupees. Now let’s take the sample of some of our listed companies and see how they fare

Asian paints has made over 2800 crores in the first nine months and trades at close to 2.7l crore valuation. Page industries has generated close to 500 crore in the nine months ended September 2022 and trades at 44k crore valuation. Dmart has done over 1900 crores in the nine months ended Dec 2022 and trades at over 2.27l crore valuation.

ICICI securities has done over 850 crores in the past nine months and trades at just over 16000 crore market cap.

I’m not recommending any stock but simply reiterating a point which has served me in good staid. Value investing or for that matter any investing requires you to scout for a rupee trading at 50 Paisa or less so that you’ve your margin of safety. If the rupee itself grows into a five or ten rupee note, you’re sitting at a potential multibagger. That’s what Chris Mayer has so elegantly summed up in his book , Hundred Baggers.

So coming back to our title. These lousy companies came out with fancy valuations and we’re feted by the media as doyens of innovation and what not have quietly lost a lot of billions in market capitalisation which of course was constituted in a rush of mad easy money by venture capitalists. Now that the tap has been turned off, they’re gasping for liquidity which is few and far in between. Having lost almost 75% from top, they’re still trading at obscene valuations made up largely on hope, not real cash.

Our mutual fund and investing gurus have all taken to this magic, having bought substantial positions in some names, especially Paytm, nykaa and Zomato. They’re actively disseminating their views on TV as to how these companies are going to make a ton of money and why we all should buy them because they have fallen enough! Remember, Yahoo went down over 90% and so did Infosys in 2000-2002. The joke is- what is down 90%? It is a company which is down 80% and falls another 50% from there.

So don’t rush to buy the new new thing which might look extremely cheap because it’s down a lot. Remember, Yes Bank fell fifty percent, then another fifty, then a few fifty percent more. And it still didn’t get cheap. These companies are trying to lose a few billions, I hope it’s not your money!