Dhwanil's Portfolio

(bsahni) #101

Appreciate your response Dhwanil.

(paresh.sarjani1) #102

Any reasons to exit Arman Financials?
AYM i can understand…no triggers right now

(Dhwanil Desai) #103


It is an outcome of a process of portfolio re balancing where the weakest candidate in the portfolio makes way for much stronger new entrant where potential for risk adjusted returns is significantly higher. When I bought Arman, it was highly undervalued growth business run by conservative promoters. However, the undervaluation part has gone away and as my understanding of the business evolved, I recognized more risks than I initially envisaged. This made, Arman the weakest holding in my portfolio.

I hope it answers your query.

(rishi_j15) #104

Hi Dhwanil, If you Don’t mind sharing with us any new addition or changes to your portfolio. Your views on housing material stocks.


(Dhwanil Desai) #105


I have reduced my position in AYM syntex and exited Arman Financial and some opportunistic bets

. I have added ISGEC Heavy engineering (avg buying price 4500- 8% allocation), GE Shipping (Cyclical bet- 5% allocation- average buying price 350), PTL enterprise (demerger play- 5% allocation - average buying price 140) and Max India (Average buying price of 148 - 8% allocation).

Disclosure: I am not a registered investment adviser and views expressed here are not recommendations to buy/sell. Please do your own due diligence or consult an investment adviser before making an investment decision

(niraj.dugar) #106

Hi Dhwani

What is the idea behind ISGEC and Max INdia? Dont see much about these companies on our forum. Thanks.

(Rits) #107

Dhwanil Bhai, are you still invested in Max venture… Regards

(Gagan) #108

Dear Dhwanil, We would really appreciate if you can share your rational behind buying Max India, thinking to buy but could not find much info.
Thank you!

(Dhwanil Desai) #109

@Rits, yes, I am still invested in Max ventures.

(Dhwanil Desai) #110


There is a thread on ISGEC and Aveek has posted the stock story there with all the details. So on a broad basis,

  • During last 10 years, they have grown in scale by almost 10 times both on topline and bottom line. This was one of the worst time for capital goods company. It’s peers like thermax has hardly grown 3.5 times during this period. Even during last 5-6 years, when the entire sector was in cyclical down turn - they have grown their topline and bottom line at very decent pace
  • This was a result of well calibrated strategy of patching up JV/technology transfer tie ups with world leaders in various segments (as illustrated by Aveek in his note) - and expanding the horizons. As a result, they are in the top 3 players in each of the segments that they are present and in some of them they are the only indian players. This expanding into new areas with very high quality partners have given them opportunities to grow.
  • Moreover, over the period, their capital efficiency has improved dramatically. ROCE has jumped from 14-15% to 50-60% - in one of the worst possible time for the industry. This also resulted in very strong free cash flows- reflected in cash balance of 800 odd crores
  • As and when capital goods cycle turn, they will be able to make most of it as the building block in many segments are in place by technology tie ups/credential/execution capacity building etc.
  • Finally at my buying price, I was getting the business at around 15 times, net of cash while industry leaders who have not performed as well as ISGEC, were trading at 35-40 times TTM.

(Dhwanil Desai) #111


On Max India- I feel two major businesses , i.e. hospital and health insurance, have significant tailwinds and long runway. However, what attracted me to it was below three points

  • Changing ratio of new/mature hospital in next couple of years (given in their presentation)- that will significantly change the EBIDTA and profitability (we just have to do simple arithmetic)

  • Max Bupa - health insurance business is likely to be profitable in next couple of years- their operating cost/income ratio has come down and combined ratio is consistently declining- typically there is significant operating leverage in these businesses as the cost put into building agency force is fixed- and as the productivity of that force improves almost all gains flow to the bottom line (Max’s life insurance business to witnesses this few years ago)

  • For last couple of quarter, management has firmed up plans to expand their laboratory business (which was until now serving only Max hospital) to B2B and B2C in Delhi/NCR area- this business has much superior economics as such but when we look at it from already established laboratory facilities available with Max India- it becomes highly margin accretive- though I have not considered any upside potential in valuation- and am treating it as optionality

On the valuation side- we have to look at the three parts of the business separately as each one of the business needs to be evaluated on separate matrix

  • Max Healthcare- they hold 46.5%- need to be evaluated based on EV/EBIDTA or Per bed valuation - they currently have 2500 bed facility and are expected to do around 300 crore EBIDTA in FY 17. When Life healthcare (their JV partner) bought stake from Max last time, they paid 30 times EV/EBIDTA- we need to be much more conservative than that though
  • Max Bupa- should be evaluated on Gross premium underwritten- typically they are valued at 1.5-2 times one year forward GWP (Again benchmark here is when Bupa bought 23% from Max, they paid 1.8 times forward GWP)
  • Antara senior living - not assigning any value- as the business model around the same is not yet crystallized

So overall, you are getting a business which has strong industry tailwinds and large opportunity size run by very good management at fair value while the underlying economics of the business is on cusp of change - with high probability of 25-30% CAGR for next few years and optionality of laboratory business. (being scaled up and demerged/bringing in a strong JV partner which can bring in significant value creation- as they have done in past for all businesses)

I hope this explains the rationale. They have a very detailed presentation- on their website and concall transcripts for last 2 quarters. Even their FY 16 AR is very detailed. For previous data, you may also get it from AR of consolidated entity.

(Santosh Dave) #112

Found that MAX INDIA have Max Bupa Health Insurance, whereas MAX VENTURE is an investment arm of Speciality Films.
Confused with Max India and Venture for which you have been​ discussing. Could pl help clear my understanding with the correct company name.

(Rits) #113

Dwanil Bhai, sorry for troubling you, but do you think that at present price, there is any margin of safety… Specially considering the recent run up…

(Dhwanil Desai) #114

The recent post is about Max India however I also hold Max ventures but much lower allocation to Max Venture. I hope this clarifies.

As I mentioned, I bought it at much lower price @ around 50 and market cap of 300 croes…where my thinking was partnering with a great entrepreneur on favorable terms (why I thought it was favorable I had written a brief note in Max venture thread) from the beginning as he sets out to build few more businesses from scratch. At the outset, investment thesis included that it is going to be a long journey passing through thick and thin…as the areas he targeted (real estate and education) have long gestation period and has its own teething troubles. Hence, personally, I would want to continue partnering with him…till he builds the businesses to scale which can take anywhere from 7-10 years. We have to continue to monitor the journey traveled and re-evaluate our thesis as they reach various milestone.

My thinking as of now is that there all major businesses (except specialty films) are at inception stage and hence, I can control risk by buying at right price and allocating lower percentage…and as the businesses get built and we get conviction on scale up and profitability, we may get chance to increase allocation.

Thus, being already a part of the story on favorable terms, I would not want to jump off the side car before it reaches the destination. However, anyone planning to buy at this stage, may find that he is paying up more than fair value and hence the expected risk-return becomes less favorable.

(Rits) #115

Thanks Dwanil Bhai for the informative post…

(Santosh Dave) #116

This is line with discussion so further strengthening the conviction. Insurance penetration in India is far below than the developed countries and huge opportunity for growth is there.

(roy) #117

Hi Dhawanil,

I was doing some analysis on MPS and noticed on VP that you held the stock a year or so back. What is your view of it right now? Seems fairly priced.
Sorry if you’ve already addressed this recently


(Dhwanil Desai) #118


MPS was part of portfolio however I exited it as I started getting impression that the business is inherently tough and growing at 20% organically is very challenging. It is run by an excellent management who has prudence and get their hand dirty in the business. I have great admiration for them. However, I somehow feel that the quality of business is not as high as I perceived initially hence gave importance to that over excellent management and exited.

Discl: Not invested. Please do your due diligence before making an investment decision.

(roy) #119

@desaidhwanil Thanks. I’m in the process of evaluating the prospects. Got tempted since the valuations seem fair prima facie

(Rits) #120

Dhwanil Bhai, just wanted to ask if you are still holding HMVL… and how do you view it in present circumstances… Regards