smallcase Managers

07-Jan: Factor Performance, Better days for battery maker & More

07-Jan: Factor Performance, Better days for battery maker & More
Reading Time: 4 minutes

🔆 Quick glance

  • Quote: Wisdom in a few words
  • Market Overview: Top stocks & asset classes
  • Of the Chart: Factor performance
  • Good Reads: 5 good reads from across the globe
  • Outlier Stock: Battery maker seeing better days
  • Capitalmind Smallcase: 3 Portfolios in one subscription

Quote ✍️

“In theory, there is no difference between theory and practice. In practice, there is.”

~ Yogi Berra – successful professional baseball player, manager, and coach

By a rough estimate, there are over 1000 books on “How to pick perfect stocks”—at least 100 of those with lifetime sales figures in the hundreds of thousands. Even with overlaps, that’s a few million investors who know exactly what stocks to pick to build life-changing wealth from equity investing.

And yet, it’s incredibly difficult to bump into many successful investors. Hence, the above quote.


What’s up with markets? 📉📈

Bajaj Twins had a forgettable week at the exchanges seeing a fall of 7.6% & 9%, something which they are not used to. Insurers, especially HDFC Life, did well with an 8% increase this week followed by BPCL with a 4.4% gain.

[07-Jan] Newsletter: Factor Performance, Better days of battery maker & More

USDINR is where it was last week and last month. Crude is below $ 80 and quite near to where it was starting in 2022. So is Nifty 50, quite near to where it was last year. Along with the dollar, Gold & Silver are showing strength since the last year while equities struggle. Will 2023 be any different for equities?

[07-Jan] Newsletter: Factor Performance, Better days of battery maker & More

Of the Chart 📊

Factor investing is a style of investing based on mechanically following a theme (factor) and exploiting its edge.

While investing in factor-based portfolios is quite popular in the US, it has recently picked up traction in India as well. However, we, at Capitalmimd, have been running factor based portfolios since 2017.

Here’s a quick review of how different factors have performed over the years.

[07-Jan] Newsletter: Factor Performance, Better days of battery maker & More

Battery maker seeing better days

Capitalmind Outliers is our proprietary discovery tool that helps you identify potentially promising stocks that have technical trends in their favor.

(Quick question: Reply with “Yes” if you find this “outlier of the week” section useful as an idea generator.)

This week we’re discussing Eveready Industries (Kolkata, ~2,700 crores), the maker and seller of popular brand synonymous with the dry batteries category in India, along with flashlights and lighting products.

Eveready’s journey has been fraught with highs and lows. The brand has strong distribution might of four million retail touchpoints and over 50% market share in dry batteries. However, frequent ownership changes, “diworsification” into non-related categories, and an ineffectual marketing strategy have slowed growth, hurt profitability, and tested the company’s resilience.

[07-Jan] Newsletter: Factor Performance, Better days of battery maker & More

When the company finally disposed of some of the less worthwhile segments, competitors had already moved on — the likes of Duracell captured the alkaline batteries markets, smaller players captured the rechargeable flashlights market, and the company was never a leader in the lighting category.

However, unlike the popular adage, opportunity often does knock twice. With the erstwhile promoters unable to pay back their debt, lenders called time on their pledged stake in the company. Parallelly, the Burman family (which owns the FMCG giant Dabur) increased their stake in the company, became the new promoters, and installed a new professional team.

The path ahead for the new managers is simple, but not easy:

  • focus on growth by consistently investing in brand strategy and distribution
  • fix route-to-market
  • stick to the core product categories of batteries, flashlights, and lighting.

Within core categories, Eveready is attempting to carve out a meaningful market share in previously overlooked, faster growing, premium segments such as alkaline batteries, rechargeable flashlights, and LED lighting.

In a previous edition of this newsletter, we wrote about forgotten brands such as Nintendo and Converse in the West, and Royal Enfield and Thums Up back home, making comebacks after missteps. With the brand recall and distribution network that Eveready already enjoys and hopes to augment, we wonder whether the brand could make the list someday.

As for the company, it is worth noting that

  • Eveready is significantly levered for an FMCG play, with a nearly 1.1 debt-to-equity ratio.
  • There’s a legacy case going on against erstwhile promoters, which limits the company’s ability to raise more capital, which could’ve been used to repay debt or pursue related categories, for instance.
  • There are contingent liabilities of about 170 crores relating to a penalty imposed by the Competition Commission Of India.
[07-Jan] Newsletter: Factor Performance, Better days of battery maker & More

What we are reading? 📝

  • Base your investment decisions and expectations on sanity prevailing, not insanity continuing. Read – Schrodingers Markets
  • The constant human desire to one-up past successes is a pure example of compounding in action. Read – Justifying Optimism
  • There’s more learning from what went wrong than from what went right. Read – Decision errors
  • The test of all beliefs is their practical effect in life. Read – Murder yoga
  • Most people don’t get rich through their investment decisions, they get rich through their income. Read – Its time to work

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[07-Jan] Newsletter: Factor Performance, Better days of battery maker & More

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07-Jan: Factor Performance, Better days for battery maker & More