Marcellus Insights
The Lenders In Our Portfolio Will Gain From The Ongoing Crisis
Great lenders (banks as well as NBFCs), which are Consistent Compounders, benefit significantly in the aftermath of a financial crisis. This is because: (a) when the competition struggles to raise funds during & after a crisis, great lenders have access to adequate liquidity; and (b) as competition’s ability to lend reduces, great lenders can […]
Introducing Little Champs – our small cap PMS
Given that each year 60 companies enter the BSE500, we can see that there are certain economic drivers which are helping well run small firms explode into prominence. From an investors’ viewpoint, in the three years run-up to entering the BSE500, new entrants outperform the index at a CAGR of as much as 40%, indicating […]
Consistent Compounders benefit disproportionately from tax rate cuts
The superficial approach of choosing winners from the recently announced tax rate cuts, is to look for companies paying the highest rate of tax and then expect a 10-15% increase in their profits. Instead, the real winners will be determined by the ability of a company to either: (a)reinvest the incremental cash flows back into […]
Why consistent compounders outperform during market stress?
Marcellus’ Consistent Compounders portfolio has shown resilience since inception in 2018. This resilience is not uncommon for share prices of great companies. Over the past 2 decades, in stock market crashes,stocks like Asian Paints and HDFC Bank have, more often than not, delivered positive and healthy returns.More importantly, in the few instances that these stocks […]
Page Industries – Why do we continue holding it in our portfolio
Page’s promoters have used their experience in the Philippines to fortify Page’s moats around: a) product differentiation based on in-house manufacturing in a labour-intensive industry; b) aspirational brand recall using Caucasian models in high-impact advertising campaigns; and c) IT investments and control on the distribution channel to manage a wide spectrum of products. Whilst these […]
Valuing longevity of healthy fundamentals
Without a deep understanding of a business’ fundamentals, valuation becomes a difficult exercise. A weak franchise trading at 10x P/E multiple appears cheap, when its fair value P/E might actually be 5x. On the other hand, a consistent compounder trading at 50x appears expensive, when its fair value P/E could be higher than 100x. Conviction […]
Why are we underperforming the Nifty?
In FY19, our portfolio companies reported 18% revenue growth, 16% earnings growth and 37% ROCE. Whilst this was a healthy performance at an overall level, the external environment facing our companies deteriorated towards the end of FY19 due to tight credit conditions accentuated by the challenges in the NBFC sector (and hence challenges faced by […]
Risk-reward arbitrage of investing in quality
The holy grail of investing in stock markets is to buy companies which can sustain a healthy ROCE with growing capital employed, thereby delivering consistent earnings growth over long time periods. In this newsletter, we divide the Nifty50’s constituents into three buckets – A (no moats), B (shallow moats), and C (deep moats) based on […]
‘Doing nothing’ is perhaps the most difficult thing to do
Buying the Consistent Compounders and holding them for long time periods becomes a difficult exercise asinvestors are bombarded with newsflow and the apprehensions which come with newsflow. As a result,investors tend to do injustice to the size of their allocation to the Consistent Compounders and the length of the holding period of this portfolio. The solution […]
Quantifying the futility of timing the market
Many investors try to time their investments basis the perceived impact of external events on either thebroader stock market or on the share prices of specific firms. Analysing the last 30 years of stock marketdata suggests that even if an investor were to perfectly time her investments in indices / good companieseach year, her returns […]
Why India is Blessed with Consistent Compounders?
Marcellus’ Consistent Compounders Philosophy identifies firms with high pricing power that helps sustain a wide gap between returns on capital employed and cost of equity. The portfolio holds such firms for 8-10 years on average and aims to deliver healthy returns with volatility like that of a government bond. We also made the first churn […]
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