Morning everyone! It’s a happy festive weekend, but we got you covered on some key insights and developments from the week. We have an important personal update – Multipie app is now live and we have started rolling out invites to our waitlist members. If you have signed up, you would have either received an invite code already (check your mail please in case you missed) or will be getting one soon 🙂
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This week we discuss the market moves, Saregama’s inflection point, explain the big GatiShakti project, share our favourite charts of the week, company updates and some curated reads. Happy reading!
1. Market snapshot
The bull market gained more steam with broad-based gains last week. Auto & Consumer discretionary gained the most i.e. 5.4%, largely driven by a huge 32% rally in Tata Motors after they announced $ 1BN funding from TPG Capital in their EV subsidiary (check their EV ecosystem plan here).
Industrials and consumer staples gained 4.9% and 4.3%.
2. What happened to Saregama in 2021?
This week Saregama announced phenomenal Q2FY22 results – Revenue growth of 40% QoQ and consistently expanding profit margins. The company’s return ratios have been on an uptrend for the last 6 years, but reached tipping point in FY21.
The stock has also been on a tear (up ~700% last year), but this sharp surge in returns and share price in FY20-21 is not due to some overnight event.
So what led to this?
Saregama has always had the highest library of songs and it used to earn a major chunk of revenue i.e. ~60% from the telecom segment in FY16 (caller tunes) in the Music Audio business. But then the company realised that it is a dead business with no growth opportunities and eventually decided to exit those businesses.
From ~FY16, management started giving commentary that it wants to take advantage of the shift in the music industry from sites like Torrent to apps by entering into deals with Spotify, Gaana, Saavn and increasing its exposure towards potential growth platforms like Youtube and since then, there is no going back.
Source: Q4FY18 Concall
The most important factor which has led the company’s margins to improve significantly is the changing focus towards Licensing (contributes 64% of total sales currently) in the music streaming segment which holds the highest margins (~60%).
Also due to covid, definitely the Carvaan’s (Durable device for listening Music) sales were impacted but the situation overall was beneficial for the company. After Pandemic, we can see the behavioural change in content consumption from Music streaming apps & OTT platforms.
Classic case of Value migration, with Saregama pivoting at the right time to focus on future trends.
3. Gati Shakti: 100 lakh crore Infrastructural plan
This week, the government declared a “Gati Shakti plan” according to which 100 Lakh crs over a decade on speeding up the movement (Transportation) of goods & people in India by providing multi-modal connectivity. This can be done only if different departments operate under the same umbrella, so 16 ministries including rail and roadways will come together and use digital systems like Geographic information systems (GIS) & satellite imagery very efficiently.
Why is this needed?
- To reduce the national average logistics cost from 13% of GDP to ~8%, by reducing dependence on railways. If done well, this will be revolutionary.
- It will improve Railway cargo & port handling capacity and in reducing the turnaround time.
So which segments benefit?
The public capex of this scale on infrastructure is expected to have a significant multiplier effect on various sectors such as Banking, Infrastructure, Logistics, Shipping, etc. But one dark horse can be the upcoming GIS segment. We will next explain all that is happening in GIS with potential beneficiaries.
4. Visual weekly – Some interesting charts
4.1 India’s renewable energy capacity trend
India’s share in Renewables energy capacities has been soaring from FY17 i.e. contributed more than half of the world’s capacity addition.
4.2 Iron ore makes up 94% of all base metals mined in the world in 2019. 98% of iron ore mined goes into steel making
Click here for HD image.
5. Good reads of the week:
5.1 A great piece on how digitalisation, if used efficiently, can do wonders. This is a case study of SKF India – a component manufacturing company that developed an online marketplace and this is helping the company to reach micro markets.
5.2 Lessons from the book- “Margin of Safety”
5.3 A write up “Psychological profile of an investor” on how behavioural finance helps in successful investing.
5.4 Decoding the “Rs 10,000 invested in Wipro became Rs 500 crores” example by Jago Investor. Explains the nuances that those Whatsapp forwards don’t tell you.
6. Interesting company updates:
6.1 Motherson Sumi has acquired a 55% stake in CIM Tools Private Ltd. to enter into the Aerospace segment which will help the company to diversify its business towards the non-automotive space.
6.2 Reliance Industries Ltd. through its wholly-owned subsidiary Reliance New Energy Solar Limited has entered into an agreement to invest in NexWafe GmbH (NexWafe)- a silicon wafers (for Renewable energy) manufacturing company with unique patent technology.
6.3 PNB Housing terminated the Investment deal which was initiated in May’21 via the open offer of 4,000crs from Carlyle owned company- Pluto investments. This is a positive as this deal primarily seemed to be against the minority shareholders interest.
7. Tweet of the week:
- Thread on RBI policy & the basic dynamic of Interest rates
8. Contributor of the week:
That’s all for this week. Please share with your peers if you found this helpful and subscribe to start receiving the weekly digest in your mail! Happy weekend!