Understanding brand value & share value in trading

Are you one of those people who feel like investing in a company because it is a popular brand? Then, here’s something you need to know. Just as all that glitters is not gold, every famous brand isn’t a hit in the stock market.

Consider some examples like S. Chand & Co or Milton Plastics. These are all household brands. While S Chand has been a leader in the textbook segment and once an integral part of a 90’s kid’s study table, the stock has tumbled from Rs 621 around the time it listed in 2017, to now trade at Rs 98.

The company that touched a rock bottom of Rs 35 in March 2020 has managed to, however, give its investors exemplary returns in the year of the pandemic.

“Right now, the textbook business is shut. I still do not know what are the triggers for the stock to rise in a year but since their financials have not been too strong, the stock has fallen over a period of time,” says Gaurav Garg, head of research at CapitalVia Global Research.

Another one - Milton Plastics Limited, one of the oldest brands in India - has followed the same trend. An analysis of their stock price shows, since 1995 the price has fallen from Rs 76 to trading as a penny stock at Rs 4.97 currently.

The list of such companies is not limited to these.

“We must understand that the consumer behaviour keeps changing which is why it is important from the investment perspective that people should look at the financials of any company for a period of four to five years before investing,” says Garg.

“Looking at short-term trends will not necessarily give the right picture.”

There are also stocks that seemed promising and delivered good returns to only witness a slump after that. One such company is Zee Entertainment. This stock jumped from Rs 32 in the latter half of 1999 to Rs 738 in March 2000.

Since then, it has seen a huge fall to Rs 36 in 2003. From there the stock recovered to touch Rs 591 in 2018 and then started falling to now trade at Rs 185.

Analysts say that the reason such reactions happen is when there is a fundamental problem with the company’s evolution. “If you take for Zee Entertainment, the OTT platform it provides is not as strong as a Hotstar or Netflix or Amazon,” says Garg.

“Zee Entertainment has not evolved that much from being a conventional entertainment space hence we see the stock reacting the way it does.”

Zee Entertainment had also gone through corporate governance and working capital issues. However, analysts feel that those issues have been left behind. They feel that the company has some positives like wanting to spend across its verticals - digital, TV, and movies.

“Six channels were added to its broadcasting portfolio (two in Q3). It is focused on regaining market share in Hindi and in a few regional markets by increasing expenditure,” says Shobit Singhal, media analyst at Anand Rathi Shares & Stock Brokers. “In Movies, it plans to increase the number of releases annually to 35-40, from 8-10 now. Margins are lower in TV but can become sustainably profitable through better selection.”

“We welcome its readiness to sacrifice its industry-leading margins to pursue growth.”

One more company worth analysing is Hathaway Cables and Datacom. Acquired by the Reliance group, this stock has had its ups and downs. It touched a high of Rs 72.86 and is now trading at Rs 23.4.

Analysts are of the opinion that there seems little growth for this company as a single entity and the focus could be on the bigger entity which is Reliance. Hathaway Cables has been a household name in the television cable network and broadband space.

“The main idea of buying Hathaway and Den by Reliance is to expand its presence to 1,100 cities and target 50 million homes with its faster broadband services, but also reduce the cost of reaching out to customers,” says Singhal. “Additionally, it also helped Jio GigaFiber achieve last-mile connectivity, overcoming the challenges the company has been facing from local cable operators who have in past stonewalled its expansion plans.”

“The deal also brings down Reliance Jio’s FTTH capex of $130-140 per subscriber. We would recommend investors to buy the parent company instead of Hathaway and Den.”

Den is also a cable TV company.