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Newsletters > View: Darlings of yesteryears' bull market lose over Rs 60,000 crore market cap in just 4 years

View: Darlings of yesteryears' bull market lose over Rs 60,000 crore market cap in just 4 years

September 30 . 15 MIN READ

Overview

Some promising names, once the darlings' of yesteryears' bull market and who have now lost their charm, together are responsible for wiping out a whopping Rs 60,000 crore of shareholder wealth in just a matter of four years. This number is as big as Motherson Sumi’s entire market capitalisation or even about half of Zomato’s, as of today.

 

Despite riding the bullish wave amidst the entire Covid saga, when we look back in the rear-view mirror we come across a handful of promising names, once the 'darlings' of yesteryears' bull market, who lost their charm; leaving a sour taste in the investors' mouth. These fallen angels together are responsible for wiping out a whopping Rs 60,000 crore of shareholder wealth in just a matter of four years. This number is as big as Motherson Sumi’s entire market capitalisation or even about half of Zomato’s, as of today. Let that sink in!

 

These once magnanimous large, mid-caps are either already a penny stock trading in single digits or are on the brink of becoming one, except for Zee who was recently saved by the Sony merger!

Now, bear in mind, that these are just a few names off the top of our heads. In reality, there could be a lot many names that could be added to this list of 'the biggest and most notable market failures', pushing the Rs 60,000 crore losses mark even higher.

Surprisingly, all these businesses had one thing in common, they were the absolute darlings of the bull market and created all the buzz back in their days; for their respective prospects of course. In fact, not a single soul could have predicted that anything could go wrong with them. One just had to invest in one or even a basket of these dozen-or-so promising businesses, hold them for a few years and count the gains!

But no one could have imagined what came next! When a business lists itself publicly, it sure can bring in an instant flood of capital, but we as investors fail to grasp that it also opens up the business to greater public scrutiny, airing out albeit not all but most of the company’s dirty laundry. And this becomes the duty of the investor to diligently study the company, its business and especially befriend its numbers which have the immense power to convey the honest truth, the real inside story, rather than the one being sold to them constantly by the media and company reports.

The list is full of classic examples wherein investors fell for a story rather than an attractive quality business at a reasonable price.

 

Apart from the whispers of profit and loss, and balance sheet, fudging with practices of aggressively boosting revenues and conservative booking of bad debts; a few other commonalities we noticed with the majority of these dimmed stars were massive borrowings (debt), lofty promoter share pledges accompanied with a negative return on capital employed and cash flow from operating activities. We are barely scratching the surface here but as one may suspect, there’s also an independent crisis story unfolding behind each of these monster-sized setbacks. But we wouldn’t get deeper into that as most of us are well aware of these downfalls. But when we take a step back and look at these businesses collectively we notice that most of these stories show us the dangers of unmet and unrealistic expectations rooted more in hope than plausibility.

With that as the backdrop, here’s a run-down of a few of the biggest and most notable market failures from the past four years. And even though we’re sure that the numbers may change going forward, but one thing we’re sure about is that it is unlikely that any of these stock flops will perform their way off of the list, at least anytime soon.

Cox & Kings, once a household brand name in India and directly compared to Thomas Cook, got its name tarnished with the alleged accounting frauds. Losing over 99 percent of its value, the company is now in shambles!

India’s largest fitness group, Talwalkars, which was considered to be a steady, conservative and successful enterprise also wound up shredding 99 percent of its value in the last four years. The fitness group borrowed massively along with pledging nearly three-fourths of the promoter shareholding.

Analysts salivated at the prospects of the Adlabs Initial Public Offering (IPO) back in the day with newspapers covering articles like 'Top 5 reasons why Adlabs is good for long-term investors'. Adlabs Imagica once touted as the Disney Land of India also lost about 86.6 percent of its total market capitalisation.

YES Bank’s technological prowess was supposed to be a strategic business enabler to build distinct competitive advantage as well as provide better products and services but immediately after its peak, it began lending to companies that were under stress, including the Anil Ambani Group, DHFC, and the Zee. Long story short, eventually the debts kept piling up leading to more and more non-performing assets. Ironically, the helping hand of YES Bank also got pulled down during this entire debacle to make its way to the list of dreadful market failures.

Interestingly, about 40-50 percent of these companies’ holdings stood solely with retail investors. And as we already know promoter pledging was huge, proving they absolutely had no skin in the game whatsoever. What’s even more daunting is the fact that the majority of these pledged shares lay with government banks!

Clearly, a lot can go wrong even with the biggies as they can quickly fall out of favour. So, go back and check again if you are sitting on today’s Adlabs, Talwalkars, perhaps Jet, or even RCom! Tread carefully, these are dangerous waters! Do not give in to tempered enthusiasm and always invest diligently; ensuring that occurrences like these do not run you off the road, but instead only remain mere speed bumps on your way to immense wealth creation!

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Disclaimer:

Note: the above material is neither investment research, nor investment advice. Marcellus does not seek payment for or business from this material/email in any shape or form. Marcellus Investment Managers Private Limited (“Marcellus”) is regulated by the Securities and Exchange Board of India (“SEBI”) as a provider of Portfolio Management Services. Marcellus is also a US Securities & Exchange Commission (“US SEC”) registered Investment Advisor. No content of this publication including the performance related information is verified by SEBI or US SEC. If any recipient or reader of this material is based outside India and USA, please note that Marcellus may not be regulated in such jurisdiction and this material is not a solicitation to use Marcellus’s services. All recipients of this material must before dealing and or transacting in any of the products and services referred to in this material must make their own investigation, seek appropriate professional advice. This communication is confidential and privileged and is directed to and for the use of the addressee only. The recipient, if not the addressee, should not use this material if erroneously received, and access and use of this material in any manner by anyone other than the addressee is unauthorized. If you are not the intended recipient, please notify the sender by return email and immediately destroy all copies of this message and any attachments and delete it from your computer system, permanently. No liability whatsoever is assumed by Marcellus as a result of the recipient or any other person relying upon the opinion unless otherwise agreed in writing. The recipient acknowledges that Marcellus may be unable to exercise control or ensure or guarantee the integrity of the text of the material/email message and the text is not warranted as to its completeness and accuracy. The material, names and branding of the investment style do not provide any impression or a claim that these products/strategies achieve the respective objectives. Further, past performance is not indicative of future results. Marcellus and/or its associates, the authors of this material (including their relatives) may have financial interest by way of investments in the companies covered in this material. Marcellus does not receive compensation from the companies for their coverage in this material. Marcellus does not provide any market making service to any company covered in this material. In the past 12 months, Marcellus and its associates have never i) managed or co-managed any public offering of securities; ii) have not offered investment banking or merchant banking or brokerage services; or iii) have received any compensation or other benefits from the company or third party in connection with this coverage. Authors of this material have never served the companies in a capacity of a director, officer, or an employee. This material may contain confidential or proprietary information and user shall take prior written consent from Marcellus before any reproduction in any form.

Note: the above material is neither investment research, nor investment advice. Marcellus does not seek payment for or business from this material/email in any shape or form. Marcellus Investment Managers Private Limited (“Marcellus”) is regulated by the Securities and Exchange Board of India (“SEBI”) as a provider of Portfolio Management Services. Marcellus is also a US Securities & Exchange Commission (“US SEC”) registered Investment Advisor. No content of this publication including the performance related information is verified by SEBI or US SEC. If any recipient or reader of this material is based outside India and USA, please note that Marcellus may not be regulated in such jurisdiction and this material is not a solicitation to use Marcellus’s services. All recipients of this material must before dealing and or transacting in any of the products and services referred to in this material must make their own investigation, seek appropriate professional advice. This communication is confidential and privileged and is directed to and for the use of the addressee only. The recipient, if not the addressee, should not use this material if erroneously received, and access and use of this material in any manner by anyone other than the addressee is unauthorized. If you are not the intended recipient, please notify the sender by return email and immediately destroy all copies of this message and any attachments and delete it from your computer system, permanently. No liability whatsoever is assumed by Marcellus as a result of the recipient or any other person relying upon the opinion unless otherwise agreed in writing. The recipient acknowledges that Marcellus may be unable to exercise control or ensure or guarantee the integrity of the text of the material/email message and the text is not warranted as to its completeness and accuracy. The material, names and branding of the investment style do not provide any impression or a claim that these products/strategies achieve the respective objectives. Further, past performance is not indicative of future results. Marcellus and/or its associates, the authors of this material (including their relatives) may have financial interest by way of investments in the companies covered in this material. Marcellus does not receive compensation from the companies for their coverage in this material. Marcellus does not provide any market making service to any company covered in this material. In the past 12 months, Marcellus and its associates have never i) managed or co-managed any public offering of securities; ii) have not offered investment banking or merchant banking or brokerage services; or iii) have received any compensation or other benefits from the company or third party in connection with this coverage. Authors of this material have never served the companies in a capacity of a director, officer, or an employee. This material may contain confidential or proprietary information and user shall take prior written consent from Marcellus before any reproduction in any form.

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