smallcase Managers

19-Nov: FTX scandal, Railway stocks, Prataap snacks & More

Reading Time: 4 minutes

🔆 Quick glance

  • What’s up with markets: Crisp overview of markets & macros
  • What we are reading: 5 good reads from across the globe
  • What’s that outlier: Prataap Snacks
  • What’s on YouTube: FTX scandal, Railway stocks & More

What’s up with markets? 📉📈

Kotak Bank is topping the leaderboard with a 3.2% weekly gain. The financials as a sector are in an uptrend from last year on the back of raising interest rates. 

Coal India was down -9.4% this week. The results were decent. But the stock had already seen a huge run-up before the results.

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On valuations, the price-to-earnings (PE) ratio for the Sensex was at 23.3, and there’s a graph below for historical comparison.

Sensex PE 30 Ratio

What’s that Outlier?

Capitalmind Outliers is our in-house screening tool that helps you discover stocks with trends and momentum in their favour. Every week, we at Capitalmind discuss what’s behind an outlier standing out. This week, we’re looking at an Indore-based packaged foods company which goes by Prataap Snacks, a leader in the rings category of snacks.

PSL sells potato chips, extruded snacks, and pellets under flagship brand “Yellow Diamond”, namkeens and fryums under the recently acquired regional brand “Avadh” (fourth-largest in Gujarat), and sweet snacks under “Rich Feast” via its decent-sized distribution network that covers 2.2 million retail outlets.

The company had an unsustainable growth run in the early years of the past decades, driven by offering value products–higher grammage per pack, typically in lower price categories– but appears to have moved on as recent inflationary trends tore apart cost structures, and pandemic induced lockdowns interrupted demand for its products. To be sure, the company did well to build brand loyalty and increase its market share in western snacks to 6.8% during its growth years, but its continuance does not seem as certain.

Thus, the post-pandemic era has been one of soul-searching for management. Mindful of its challenges ahead, the company made serious changes to its business model last year with a higher focus on namkeen as a category, higher priced SKUs, grammage rationalizations, and a shift to a two-tier distribution model paring down a band of trade margins. The overarching idea, in their own words, seems to be: moving from being a brand in the impulse purchase category to the planned purchase category.

Fair enough, considering the deterioration in the company’s margin and return profiles, especially given they don’t stack well against some of its listed competitors:

Will it work? Too early to say, but the numbers from the recent quarter appear to be a mixed bag: the growth visibility came back, but the margin profile, may take some more time.

Prataap Snacks is one of many stocks that ranked well on the Capitalmind Outliers platform this week–subscribe to our premium offerings to access Capitalmind Outliers.

(Disclaimer: The information conveyed in this post is intended for informational purposes and shouldn’t be considered investment advice. Please do your own research before making investment decisions)

What we are reading? 📝

  • Having a stealthy-wealthy mindset allows you to focus on what’s truly important in life. Less bling-bling, less maintenance, less stress! Read – Stealth wealth
  • Insight into what makes a Good business, the longevity of these businesses, the accuracy of financial statements, and the unit cost-centred valuation approach. Read – Graham and dodd annual breakfast 2022
  • People start being interested in something because it’s going up, not because they understand it or anything else. And, the guy next door, who they know is dumber than they are, is getting rich and they aren’t. Read Proof of work
  • Lessons from the FTX Crypto Exchange fiasco. Read – FTX crypto exchange collapse
  • The best quitting criteria combine two things: a state and a date. A state is a benchmark that you have hit or missed. A date is the when. Reply – Investment bubbles and frauds have a lot in common

What’s on Youtube? 🎙

Our latest episode, released yesterday had three fantastic discussions: 1) FTX scandal explained 2) Why are railway stocks zooming up 3) FIIs back in the action. Tune in to watch Deepak Shenoy and Krishna Appala discuss the latest trends in the markets.

If you have questions you would like to ask us, do join in live every Friday at 4:00 PM on our Capitalmind YouTube channel.

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