Acceleration in growth rates of CCP companies’ fundamentals
Marcellus’ CCP companies grew their revenues in 3QFY22 (vs 3QFY20) at 19% CAGR. This is significantly higher than: a) the 17% revenue growth reported over FY14-19 (i.e. prior to Covid-19); and b) the 16% revenue CAGR that was reported in 2QFY22 (vs 2QFY20). The drivers of this acceleration can be categorized into two types. Firstly, […]
How Volatile Funds Cost Investors Dear
High volatility in an equity portfolio creates zones of ‘excitement’ and ‘fear’ based on recent performance. This adversely affects the quality of decision making by equity investors. As a result, historically, investor returns in Indian equity funds have been lower than fund returns across different periods. Similarly, a recent example from the US – NYSE […]
The Benefits of Timing are Inversely Correlated with the Quality of Fundamentals
The rate at which fundamentals of a company compound (and hence its share price) over the long term is inversely correlated with the quantum of benefit that an investor can achieve by perfectly timing her purchases at the bottom of the share price trajectory. Moreover, for a portfolio consisting of high-quality companies, benefits from a […]
CCPs use more ‘S-curves’ to elongate their fundamental compounding
Value addition from every initiative undertaken by a company follows an ‘S-curve’ with three parts to it – the investment phase, the growth phase and the fade period. The fundamentals of the overall company are a consolidation of ‘S-curves’ of all initiatives. There are several limiting factors to every initiative such as addressable market size, […]
The Path to Consistent Compounding is Paved with Free Cashflow
There are four key drivers of free cashflow in a business – revenue growth, profit margins, working capital efficiency, and asset turnover. The order of importance across these four drivers differs across businesses. As Marcellus’ CCP companies invest in technology to improve operational efficiencies, those companies that sell day-to-day essentials to their customers whilst avoiding […]
How Portfolio Rebalancing Tools Enhance Investors’ Returns
Every stock market crash causes a dislocation in a portfolio of high-quality companies, due to differential drawdowns in the share prices of constituent stocks. Rebalancing such a portfolio in the aftermath of the crash not only generates additional returns, it also crushes the risk of being left with uninvested cash. The biggest challenge faced by […]
The Power of Quantifying the Qualitative Aspects of Investing
Forecasts of the growth prospects of any business are based on several factors, many of which are qualitative in nature, such as management quality, capital allocation discipline, the ability to disrupt rather than be disrupted by unforeseeable events, etc. Investors who arrive at these decisions based on their personal beliefs or myths expose themselves to […]
Amidst the Covid turmoil, CCPs invested in tech & in institutionalisation
Longevity of free cashflow compounding is the most undervalued aspect of a high-quality stock. Besides strength of the existing business, the sources of longevity for a business include incremental reinvestment in areas which will deliver cashflows beyond the next 3-5 years, and the institutionalization of strategy and business execution. In the recent past, most CCP […]
CCP = 25% Free Cashflow CAGR = 25% Share Price Compounding
Capital reinvestments, including tech investments, drive incremental deepening of the Consistent Compounders’ (CCPs’) competitive advantages. This increases the importance of free cashflows in understanding the fundamentals and hence the valuations of our portfolio companies. Over the last 5 / 10 / 20 years, the free cashflows of our portfolio companies have grown consistently at around […]
India’s Greatest Cash Generation Machines Keep Compounding
Marcellus’ CCP Portfolio delivered earnings growth of 74% YoY in 4QFY21 which led to a 11% earnings growth for the full year FY21, almost fully offsetting the drag from nation-wide lockdowns during April and May last year (2020). Unlike the trend for the broader market, CCP portfolio companies’ earnings growth was supported by a strong […]
Why is it rare to find a free-cashflow generative retailer in India?
Modern Retail in India has a huge opportunity to modernize and consolidate this millenniums old sector. However, building and growing a pan-India retail network of stores with high ROCE consistently has been difficult for most retailers. Challenges range from understanding consumer preferences, optimizing store location / size / format, optimizing merchandise selection / procurement / […]
The Science Behind Portfolio Concentration
Diversification in an equity portfolio reduces stock-specific risk but excessive diversification reduces returns, substantially more than it reduces risk. Marcellus’ proprietary framework for arriving at the number stocks in a portfolio is based on the most critical driver of portfolio concentration, namely, the “gradient” of the characteristics that the fund manager seeks within her coverage […]
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