(1/n) As our previous tweetstorms have shown, we just can’t resist a hot take. We tried to make the case for why Trent was overvalued at 7,500 when it looked like the business could do no wrong. We tried to present a bull case for select small caps on Feb 14 when fund managers were advocating a rotation into large caps. We also shared four small / midcap ideas over the past four months (JM Financial, Indiamart, Samhi Hotels, Narayana Hrudayalaya) to better illustrate our thought process and rationale for sticking to small caps. We learn a lot from putting ourselves out there and soliciting debate on difficult questions. The latest debate raging in the stock market: given the Trump tariffs, how should we think about our portfolio allocation to export-driven businesses? Listed Indian exporters can be broadly divided into 3 categories: 1) IT services, 2) pharmaceuticals and 3) manufactured goods. (2/n) IT services: Leaving aside the potential deflationary impact of GenAI, it is hard to argue that business uncertainty has fallen due to Trump’s recent antics. We listened to Jamie Dimon’s interview, heard Walmart’s earnings call and saw announcements of MSFT cancelling a few data centres. We get it. If investors in India are hesitant to buy US-focused businesses despite running a diversified portfolio where they can exit positions, how difficult would it be for an American CEO to convince themselves to continue spending at the same pace as they have before? Some caution, a pause in spending and belt tightening is natural as CEOs wait for policy predictability and resolution to the US-China trade war. Is it likely that there will be a discretionary demand recovery near term? No. It is in fact, more likely that we see some sort of pause in spending. While valuations have corrected (TCS trades in-line with its pre-covid multiples), so has growth and if you want growth visibility, you have to pay up (Persistent, Coforge). We do not see idiosyncratic upside here despite the correction.

(1/n) As the bear market rages on, we believe that the proverbial baby is being thrown out of the bathwater. The recent sell-off has been indiscriminate and businesses operated by savvy management teams that have both an attractive near-term setup and long growth runway are available at mouthwatering valuations. Today we’ll discuss one such position from our portfolio – Samhi Hotels. Full disclosure: we are invested and biased. If markets remain weak, this stock will likely go lower before it goes higher. Please do not treat this thread as an investment recommendation. We are simply surfacing ideas that we think are mispriced and trying to spread some optimism during holi. DYOD and consult a financial advisor before investing in any financial instrument. (2/n) Samhi Hotels owns hotels assets comprising of ~5,000 operational rooms largely under the Marriott, Hyatt brands. It is important to note that Samhi is a not a franchisee to these brands. Instead, it enters management contracts with these brands where they are responsible for day-to-day operations. This difference is crucial as in return for paying slighter higher royalty rates in the management contract setup vs the franchising setup, Samhi’s leadership is freed from the day-to-day headache of running this large hotel portfolio and it receives access to Marriott, Hyatt’s international sales office. This is vitally important as a hotel is a high fixed cost business and profitability only inflects if occupancy can be maintained above a certain level. Access to Marriott and Hyatt’s international sales office improves Samhi’s ability to tap foreign tourist arrival demand as Samhi can leverage the corporate tie-ups that Marriott and Hyatt have signed with MNCs across the world

(1/n) There has been a lot of noise last week on whether small caps are still expensive and whether large caps offer better relative value. Here is our stance on this topic: (2/n) Comparing current PE multiples to long-term averages is only fair if the RoE, growth rate, balance sheet structure, competitive intensity, shareholder payout ratio is the same as it was in the past. Let’s take HDFC Bank as an example. It trades at a significant discount to its LT average. However, has it ever demonstrated 10-15% loan growth over the past 20 years? Was it ever forced to throttle lending to bring C-D ratio in-line with RBI’s desired target range? Did it ever face as stiff a competitive environment as it does today when most frontline banks have healthy asset quality and report 10-15% RoEs? Did the stock market historically offer large corporate NBFCs with comparable corporate governance (Bajaj Finance, Cholamandalam, AB Capital) growing faster with superior RoEs? With all these changes, is a discount to long-term PE multiples warranted? We think so. LT averages lose meaning if the competitive setup changes (Asian Paints, Berger vs Birla Opus), growth rate falls (HUL), disruption risk goes up (LGD impact on Tanishq making charges), business mix / balance sheet structure changes (KEI Industries), dividend payout ratios increase (IT services). The last 2 changes are worth highlighting. 10 years ago, KEI’s D/E ratio was greater 1, the business was much smaller and contingent liabilities were a material % of net worth. Today KEI is significantly net cash, growing comparably fast at scale and contingent liabilities are a small % of overall net worth. Given these changes, is a premium to its multiple 10 years ago warranted? We think so. Does this mean today’s PE multiple is justified? Perhaps not but it is not fair to compare today’s multiple vs LT averages either. Similarly, let’s look at Jubilant Foodworks. 10 years ago, it was a single brand, single country story with 20%+ rev growth expectation. Today it is a multi-country, multi-brand story with hopes of growth recovery and elevated delivery competition from Zomato, Swiggys. Is the same PE multiple warranted? We don’t think so. Even dividend payout ratios can make comparison with LT averages meaningless. Let’s take Wipro as an example. It traded 14-16x PE for 5% US$ CC growth rate. Today, the same stock is available for 23x PE with forward US$ CC growth rate expectations largely unchanged. However, Wipro now pays out 50-75% of its profits as dividends whereas the payout ratio was <10% in FY19. If Wipro can maintain similar growth rates as it did in 2019 with a step function jump in shareholder returns via dividends or buybacks, is a re-rate not warranted? We think it is important to study LT averages without losing sight of bottoms-up changes that drive re-rating or de-rating.

(1/n) We keep hearing that markets are expensive and that they don’t make bear markets like that used to. Absent nosebleed starting valuations, we believe that time in the market trumps timing the market. Pockets of value are starting to emerge. Here’s another example. Full disclosure: the last time we tweeted about a name that we thought was attractively valued (Indiamart), it fell 10% the next day. Please don’t take us seriously. We ourselves don’t. We are invested and biased. We could be wrong. We will change our mind if the facts change and liquidate our position without any notice. Please do not treat this thread as an investment recommendation. DYOD and consult a financial advisor before investing in any financial instrument (2/n) The business in question is JM Financial. While the listed entity consists of an affordable housing finance company, wholesale lender, ARC, asset management and wealth management business, JM’s trophy asset is its investment bank

(1/n) With markets correcting swiftly, pockets of value are starting to emerge. Indiamart is a example. Full disclosure: we are invested and biased. This is not a buy / sell recommendation, We may change our mind at any time. Please do your own due diligence, treat this tweetstorm as a case study and consult a financial advisor before investing. Let’s dive in: (2/n) Indiamart has a market cap of INR 13,800 cr. If you subtract cash, we are left with an EV of INR 11,400 cr

(1/n) Some napkin math on what it will take for Trent shareholders to make money at today’s share price: (2/n) Let’s start with Star Bazaar and assume that revenue grows ~7x from FY24 i.e. INR 15k cr by FY30