Good Morning Toasters!

Sssup homies!! Hope you’re not too dispirited. This phase is as much a part of the markets as the last 18 months have been. Cycles come and go, all you need to do is trade/invest responsibly and be present for each of them.

In today’s issue, we cover Manyavar (yeah you know what I’m talking about) parent Vedant Fashions who delivered strong post Covid-19 growth, indicating a return of the wedding season. Vedant is now more than just Manyavar, with a full suite of brands addressing the entire family experience.

Our very first time (probably) covering Crypto News, with a supposed stablecoin, not behaving anything like stability. Crypto much like stocks is being beaten, and with most coins mined during much calmer periods, the true test for the longer-term viability of this asset class starts now. Less capital, high inflation, and stricter fiscal & monetary policy, all make for a dour scenario.

And finally, we’ve started a rollout of our newest product, Trade:able, that aims to democratise trading, via a unique and fun learning experience. There are a bunch of amazing rewards and prizes to win. Click here to know more.

Market Watch

Nifty 50: 16,167.10 | -72.95 (-0.45%)
FII Net Sold: INR 3,609.35 crore

Sensex: 54,088.39 | -276.46 (-0.51%)
DII Net Bought: INR 4,181.20 crore

Company News

Manyavar parent Vedant Fashions delivers strong growth; what’s up and what do you need to know?

• India’s only full-suite wedding wear brand (more on this below), Manyavar recorded ~16% topline growth (vs FY20 pre-covid), touching INR 15 Bn in revenue
• Same Store Sale Growth (SSSG, a key metric when tracking retail brands) for Q4FY22 was 33% (vs Q4FY21, covid impact) and 1.6% vs Q4FY20 (normal business working scenario), with the low growth attributed to Omicron variant creating havoc in Jan’22, and thus affecting wedding season (you too bro?😉)
• The company opened 17 new Exclusive Branded Outlets (EBOs) in Q4, while adding 37 during FY22, with # of Shop in Shops (think: exactly as the name suggests) increasing by 28
• The company’s topline is heavily skewed towards EBOs, with ~10% of revenue generation coming from non-EBO linked sales, including online, SIS, MBO (Multi-brand outlets)

Margin Profile

• Gross margins have improved for the company, from 65% in FY20 to 67% in FY22, aided by better cost optimisation, improved supply chain (wow) and better revenue mix (higher ticket size, less wedding entourage sales)
• The company expects to spend ~5-6% of revenue on Advertising & Promotions, which is within past trends, and close to industry-wide benchmarks

Interesting! Can I get a company & industry primer, please?

• ~34% of India’s population is within the estimated marriage age of 21-39 (some assumptions her, ofc), with a cumulative unmarried population of 289 Mn, positioning Manyavar at the cusp of a continued growth opportunity
• Initially started as a Menswear product in 1999, Vedant Fashions has subsequently launched other brands, targeting the full demand of a family (see image below)

• Priced to onboard customers from Tier 2 / 3 cities who visit Metros to shop for wedding season, and then up-sell / cross-sell to the entire family, Vedant Fashions has ballooned into more than just a wedding wear brand, now offering Non-wedding outfits (festivals etc)

Nice, thanks! So, what else? What’s the plan going forward? And what about the stock?

• The company plans to leverage its entire brand portfolio to build an ecosystem, growing the topline via new & current channels, with plans to open brand-specific EBOs in the future
• Vedant Fashions has a presence in 220 cities, and plans to expand to 120-150 new cities in the near future, with the scope of expansion in incumbent markets as well
• In lieu of general commodity inflation, the company has refrained from undertaking any price hikes, with the strategy to instead on-board / up-sell to customers and move from INR 2-3K range to INR 3-4K, positively impacting topline & margins
• ~80% of revenue contribution comes from the core Manyavar brand, and the company expects this concentration to reduce in the future, through a concerted buildout of other brands launched

Stock Performance

• The stock trades close to its IPO price, with the results not particularly impressing the street (stock is down ~10% in the last week), albeit with a larger market crackdown on Mid & Small Caps to take into perspective
• The stock currently trades at a rich 50-55x FY24E EPS, which is at a stark premium to other retail listed plays like Aditya Birla Fashion & Retail and TCNS, who trade within the 30-35x range
• This makes the stock all the more susceptible to corrections, with the market-beating holding the company ransom for below-par growth (in the context of valuations)
• The company is well-placed to record high teen earnings growth in the future (through a solid business model), resulting in best-in-class returns, and yet valuations could prove a stumbling block till non-Manyavar revenues don’t pick-up

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Around the World 🌎

• Jobs to move out of the US – The trend of working remotely will shift jobs further out of the US to workers in India, China or the more immigrant-friendly Canada. Remote jobs in tech have jumped 420% since Jan’20 with ~ 22% of all tech jobs being remote currently (up from 4% in Jan’20). The tech industry is desperate to fill its open positions and is lobbying hard for reforms so that they don’t have to turn away foreign talent owing to a dearth of visas. Their new approach is talking of H1B visas as a workforce and not an immigration issue
• Russian flows not allowed says Ukraine – Ukraine will be reducing the flow of Russian-origin natural gas through its territory in a move that caused prices to soar in Europe. The main reason is said to be the interference of Russian forces with technical processes at key pipeline infrastructure. With the upcoming embargo on Russian oil Europe was already shoring up its energy supplies. Futures for the commodity rose 5.4% to 98.80 euros, equivalent to $104.21, a megawatt-hour. The supply in question accounts for a third of Russia’s gas exports to Europe through Ukraine
• OG Twitterati may be back soon –  New ‘owner’ of Twitter Elon Musk believes that the ban on Donald Trump’s account was morally incorrect as it alienated a large part of the country, and did not even cut off his voice immediately, with plans to reverse the move should he take over the company. Wrong tweets in his opinion should be either hidden or deleted, and the accused should face warnings in the way of temporary suspension but not a permanent ban. Trump however has no plans of returning and is focused on his own social media site – Truth Social

Crypto News 🔐 (You did not!!)

A stablecoin becomes unstable (sorry😝)

Explainer

• Stablecoins are cryptocurrencies whose value is pegged to (in theory) another asset (think: gold, USD etc)
• While the most form of stablecoins are backed by cash (like hard cash in the bank), there are some algorithmic coins that are backed by sister coins; algorithmic coins are maintained through a combination of mathematical equations & active trading
• For example, when one sister coin dips below USD 1, it can be swapped for another at a small profit, which maintains the supply and keeps both coins stable

So what’s up?

• TerraUSD or UST is the biggest algorithmic stablecoin by market value; over the weekend, the coin lost its peg against the USD, initially falling to ~99 cents; a wave of selling followed, with UST hitting an all-time low of 60 Cents
• Investors ultimately sold UST, with actions something akin to a crypto bank run, sending jolts through the market (and rightly so!)
• To assuage the market & calm the situation, UST’s creator, Do Kwon bought USD 3.5 Bn worth of bitcoin to provide a backstop for UST in the time of crisis, with the assumption that bitcoin could eventually be redeemed for UST, instead of Luna (swapping sister coins, a concept mentioned above)
• In a follow-up, the Luna Foundation Guard said it had withdrawn 37,000 bitcoins (worth >USD 1 Bn) to lend out, and buy UST to maintain the peg
• While the actions are noteworthy, and show the creator actively trying and maintain the peg at USD 1, UST was trading at 50 cents (at the time of writing this issue)

And the larger ramifications/situation?

• Crypto’s had a bit of a confidence crisis, with the market having now lost USD 2 Tn in capitalisation since November 2021, with the headline coin, Bitcoin down 50% since highs of USD 61,000
• In the last month alone, ~15.5% of bitcoin wallets fell into an unrealised loss, with some ‘analysts’ arguing the coin’s close correlation to the Nasdaq offers little in terms of respite (Nasdaq is down ~21%)
• CoinBase, the world’s largest cryptocurrency exchange recorded a 27% drop in Revenue (Year on Year), with retail monthly transaction users falling to 9.2 Mn from 11.4 Mn during the fourth quarter
• In addition to a dip in transacting users, the volume traded also fell from USD 547 Bn to USD 309 Bn, leading to the company reporting a Net Loss of USD 430 Mn during Q1
• Not all’s lost though, the world’s first and only country to accept bitcoin payments, El Salvador bought the dip, adding 500 coins to its balance sheet, roughly translating to USD 15.5 Mn

This was the latest message at the time of publication, released by the creator, Do Kwon, in case you want perspective on possible steps of remediation.

What else caught our eye? 👀

India needs to prove itself again

• Morgan Stanley has reduced India’s GDP growth forecast rate to 7.6% for F2023 and to 6.7% for F2024 with global growth to average at 2.9% in FY23
• The main reasons include slower global growth, adverse terms of trade shock, and impact on business confidence from geopolitical tensions
• The only hope for India now is the support from the government’s supply-side response and the reopening vibrancy which will help the informal sector in supporting consumption growth

Asian paints weathering the inflation storm?

• Margin recovery did not occur even in the April quarter for Asian paints as input cost inflation continued to plague at 32-34% in FY22 which led to price increases of 24-25%
• This price hike may aid Gross Margin levels but it will still return only to the 41-42% levels with further hikes not possible due to increasing competition
• In Q4FY22, the consolidated operating margin was at 18.1% (an increase of 19bps sequentially, but a fall of 54bps YoY)

Educational Topic of the day

Comparable Company Analysis

Comparable company analysis (or “comps” for short) is a valuation methodology that looks at ratios of similar public companies and uses them to derive the value of another business.

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com