November 19: FTX Scandal, Rail Stocks, Prataap Snacks and More » Capitalmind

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🔆 Quick look

What is happening to the markets: Clear overview of markets and macros
What we read: 5 good reads from around the world
What is that outlier: Talking Snacks
What’s on YouTube: FTX scandal, railroad stocks and more

What is happening to the markets? 📉📈

Kotak Bank tops the leader board with 3.2% weekly increase. The financial sector as a sector is on the rise from the past year on the back of rising interest rates.

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

November 19: FTX scandal, railway stocks, Prataap snacks and more

The Nifty 50 index was marginally down -0.3% last week. On a monthly basis, the Nifty is up 4.5%. Still, on the annual time frame, it does worse than gold. Crude oil fell below $90 while silver closed flat and gold is up 1.1%.

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

What is the Outlier?

Capitalmind Outliers is our in-house screening tool that helps you spot stocks with trends and momentum in their favor. Every week in Capitalmind we discuss what lies behind an outlier that stands out. This week we look at the Indore-based packaged food company that goes by Prataap Snacks, a ringleader in the snacks category.

PSL sells crisps, extruded snacks and pellets under its flagship brand “Yellow Diamond”namkeens and fryums under newly acquired regional brand “Avadh” (fourth largest in Gujarat), and sweet snacks below “Rich Feast” via its decent-sized distribution network covering 2.2 million outlets.

The company enjoyed unsustainable growth in the early years of the past few decades, fueled by offering value products—higher gram weight per pack, usually in lower price points—but appears to have moved on as recent inflationary trends tore apart cost structures, and pandemic . induced shutdowns interrupted demand for the products. To be sure, the company did well in building brand loyalty and increasing market share in Western snacks to 6.8% during its growth years, but the continuation does not seem as certain.

Thus, the post-pandemic era has been an era of soul-searching for leadership. Considering the challenges ahead, the company has made serious changes to its business model last year with a higher focus on namkeen as a category, higher priced SKUs, gram weight rationalizations and a shift to a two-tier distribution model that reduces a band on trade margins. The overall idea, in their own words, seems to be: go 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 that they don’t stack up well against any of its publicly traded competitors:

Will it work? Too early to say, but the numbers from the last quarter seem to be mixed: growth visibility returned, 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 offers to access Capitalmind Outliers.

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

What do we read? 📝

Have one creepily-rich mindset allows you to focus on what’s really important in life. Less bling-bling, less maintenance, less stress! Read – Embarrassment of wealth
Insight into what makes one Good business, the life of these businesses, the accuracy of the accounts and the unit cost-centred valuation method. Read – Graham and Dodd Annual Breakfast 2022
People become interested in something because it happens, not because they understand it or anything else. And the neighbor, who they know is dumber than they are, gets rich and they are not. Read – Proof of work
Lessons from the FTX Crypto Exchange failure. Read – FTX Crypto Exchange Collapses
The best end criteria combine two things: a state and a date. A state is a benchmark you’ve hit or missed. A date is when. Answer – Investment bubbles and scams have a lot in common

What’s on Youtube? 🎙

Our latest episode, released yesterday, had three fantastic discussions: 1) The FTX Scandal Explained 2) Why Railroad Stocks Are Zooming Up 3) FIIs Back in the Action. Tune in to see Deepak Shenoy and Krishna Appala discuss the latest trends in the markets.