[29 Oct 22] Newsletter: 30% OFF Diwali deal, Venus Pipes is Outlier, 5 Good Reads & More

🔆 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: A note on Venus Pipes
• What’s on YouTube: Jio Financials, Mid-size banks & More

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Diwali offer goes away this weekend

🪔 ✨Diwali celebrations will go on during the weekend…

…And so will our Diwali special discount offers ✨ 🪔

Yet these offers have to end with this weekend. Make the most of our biggest sale of the year and  get 30% discount on annual plans. Use code CELEBRATE.

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What’s up with markets? 📉📈

Maruti is topping the leaderboard with a ~10% weekly gain as the stock kept rising during the week expecting good quarterly earnings.

HUL was down 4.7% this week mostly because of a disappointing earnings report. Bajaj twins also didn’t do much on the exchanges this week.

Nifty 50 index inched up 1.2% extending its monthly gains to 5.6% and turning positive for the year. Yet, on the yearly time frame, it does worse than gold. Crude continues to hover between $90 and $100 while silver & gold closed flat for the week.

 

On valuations, the price-to-earnings (PE) ratio for the Sensex was at 22.5, and there’s a graph below for historical comparison.

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What’s that Outlier?

Capitalmind Outliers is our in-house screening tool that helps you discover stocks with trends and momentum in their favor. Every week, we at Capitalmind discuss what’s behind an outlier standing out. 

This week, we have a Gujarat-based stainless-steel pipes & tubes manufacturer ($32.4 bn global industry) in the limelight: Venus Pipes & Tubes, which has doubled up before even celebrating its half-year anniversary of listing.

The young company (incorporated in 2015) seems to have listed at an opportune time when the industry is experiencing a trifecta of tailwinds

• The level playing field for domestic players due to the combination of China (which accounts for half of the imports) revoking export rebates for ERW & seamless stainless-steel pipes last year, and the Indian government mandating BIS certification for stainless-steel pipes
• Substantial capital expenditure plans from the end-user industries
• DGTR recommends an anti-dumping duty (ADD) on stainless steel seamless tubes and pipes

Looking at the demand generation that imports substitution and end-user capex cycle could create, Venus Pipes & Tubes has planned its own capex of ~108 crores to backward integrate (from currently procuring hollow pipes, to manufacturing them via converting stainless steel rounds bars through a piercing unit) and double its capacity to become the second largest player in India, taking over from Jindal SAW.

While Venus Pipes has grown significantly faster than peers (which also produce carbon steel pipes) on the back of capacity expansion and is more efficient owing to high capacity utilization, it is worth noting that the industry leader Ratnamani Metals & Tubes is less levered, has higher margins due to its much larger scale, and is probably just as ready for the industry tailwinds.

Whether there’ll be a sequel on the cards, with the utilization of new capacity driving growth all while maintaining efficiency, who knows. The markets sure seem convinced.

Venus Pipes & Tubes is one of many stocks that ranked Grade 10 on the Capitalmind Outliers platform this week.

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

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What we are reading? 📝

• Imagine how much harder physics would be if electrons had feelings. Well, people do. So any topic guided by behavior – money, philosophy, relationships, etc. – can’t be solved with a formula like physics and math. Morgan Housel writes: Cumulative vs Cyclical knowledge.
• Aswath Damodaran explains why there’s little benefit in replacing traditional valuing multiples (like PE and EV/EBITDA) with Free Cash Flow multiples when pricing a stock. Read: Earnings and cash flows primer.
• History shows that betting on a company to produce abnormal earnings growth persistently has been a loser’s game. Read: Predicting growth isn’t the same as predicting returns.
• ‘Employed individuals allocate their saved commute time toward leisure activities and sleeping, while reducing overall work hours.’ Read: What Have Workers Done with the Time Freed up by Commuting Less?
• Marc Rubinstein looks back at past incidents when bond markets faced stress, and how fund managers maneuvered through those periods. Read: Managing a bond fund: how banks do it.

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What’s on Youtube? 🎙

Our latest episode, released yesterday, had two fantastic discussions: 1) Reliance demerging its financial arm 2) The hammering of $META, $AMZN & $GOOGL. 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 on Fridays at 4.)