Dhwanil's Portfolio

([email protected]) #167

Hi, can you please share your thoughts on the Q2 result of TD power systems.

(Dhwanil Desai) #168


Insurance as a sector is very interesting and at the same time economics of the insurance sector is peculiar. Hence, looking at the sector from plain vanilla sales/profit perspective may not be appropriate. One of the important parameter based on which companies are evaluated - is Embedded value and equivalent to ROE. Return on embedded value. The calculation and underlying logic of EV is a very involved topic, however, I would strongly recommend you to study it and understand, if you want to invest in insurance sector.

On a broader level, economics of an insurance company is governed by two things

  • Float: Money lying with the company as premium that policy holders pay but company is not obligated to pay at the moment

  • Underwriting economics: Whether the company is making money or losing money while underwriting the policy on aggregate level (both in terms of paying for claims + operating cost)- typically it is measured through combined ratio.

With this basic understanding, I generally look for two key skill set in any insurance company, which positions them for success over long period of time

Ability to underwrite profitably: This is THE most important expertise that is required to succeed over long period of time. This means, company understands and assesses the underwriting risk correctly and prices it accurately so it is economically viable. Even though, it may sound very logical and simple, very few companies around the world, have consistently demonstrated this ability. As mentioned earlier, this is generally measured by combined ratio. Combined ratio of above 100 indicates underwriting loss while below 100 indicates underwriting profit. Good companies, ALWAYS focus on profitably underwriting the risk while growth is seldom the priority. In fact, great insurance companies, may be willing to walk away from business, if they think the underwriting at present price point will result into loss. Thus, while investing in insurance companies, it is important to defocus from growth and focus on how well the insurer is underwriting.

Investment Skills : All insurance companies will have some float with them which is policy holder’s premium that is paid upfront until the claim is made. Now, how efficiently this float is managed, becomes extremely important. If you can very efficiently deploy this extra capital, it will give a good bump off to your profitability and return ratios. Hence, one must look at, how well this float is managed, by the insurance company. You will find a lot of divergence in Return on policy holders’ funds and this diveregence, if observed over long period of time, will clearly give you clues about investment skills of the company.

Regarding the choice between life insurance and general insurance companies, I think both of them have their own advantages and disadvantages. Also, even within life insurance companies, one need to understand the product contributions (ULIP versus non-ULIP policy mix) to judge the quality of the business.

However, one thing that stands out, is that for life insurance companies, the float generated is much more sticky (as once you buy the term policy, typically one is locked in for long period of time (typically 25-30 years). For general insurance companies, the float generated may not be too sticky as the policy comes up for renewal every year or two. Hence, the churn in policy and hence float may be much higher. On the downside, in life insurance, once the company underwrites risk, it may have to live with it for long period of time and hence any mistake committed is not reversible. In general insurance, since policy comes up for renewal every year, insurers may get chance to correct those mistakes at the time of renewal.

Overall, If we look around the world, both kind of businesses (general insurance- more popularly known as property and casualty and life insurance have grown really big and some of them have survived for many decades. Thus, what I like about the industry is that it can give longevity and scale, which are essential for compounding. Another important factor is the base rate for survival of the company in industry seems good (this is based on hunch and not based on data)The key is to buy the businesses that is run on good economics (and not chase growth)- and stay put.

Discl: I am still developing understanding of this sector and hence my views may evolve as I get more understanding. I do not have any direct exposure to insurance business in my portfolio except for one indirect exposure to health insurance through my investment in Max India.

(Arun S G) #169

Is there any data to support this viewpoint. My thinking based on limited experience is that a person would buy multiple policies over the duration of a lifespan. 20-25 years ago, one bought insurance for 5-10L which was a big sum, and today it does not mean much, so one would allow that policy to lapse, maybe after 5-10 years after buying, and then buy another policy for a much larger sum, health allowing!

(Deepen) #170

Rather thank allowing the first policy to lapse, wouldn’t it make sense to have multiple policies. My assumption is that the premium for the policy of lesser value will be proportionately less than new policy given that it was issued when the person was younger.


@desaidhwanil can u please explain what effect does this news have on mcx ?? Is it positive as one year is with mcx to make its grip strong on commodities or negative as nse will be better competitor for mcx in commodities ??
Sebi meet: All bourses to offer stocks & commodities trading from Oct 2018

(Dhwanil Desai) #172


I have put up my views on MCX thread instead of here to make it more relevant.

(Deepen) #173

@desaidhwanil :
Hi Dhwanil, Whats your take on TD Power Systems as a turn around story, post their recent results. Thanks.

(Dhwanil Desai) #174


The recent results were more or less in line with the expectation set by management. However, their commentary was very positive. After so many quarters, management was indicating strong (and almost secure) orders in times to come. Moreover, the order inflow is from multiple segments including gas engines, waste to energy, large steam turbine and wind. TD Power management has always been grounded and painted a realistic picture so far in earlier calls and hence I tend to feel that based on their commentary, turnaround may be round the corner.

(niraj.dugar) #175

Hi @desaidhwanil sir.

I believe the cost of your investment in Max India was 148. Do you follow any kind of stop loss mechanism which would have triggered a sell off considering a 40% fall from your cost or have you averaged it more?

(Dhwanil Desai) #176


I do not follow any kind of stop loss formula as I feel that in fundamental investing stop loss may be a misnomer. However, sharp falls from your buying price do prompt one to reassess his/her investment thesis and see if there was an error of judgement in initial decision. If eventually one reaches conclusion that he/she has made a mistake, irrespective of the price, it is better to sell off and not fall into loss aversion bias.

Specifically for Max, I have averaged down until a point and then stopped doing as I feel the industry headwinds are likely to persist for some more time. Moreover, regulatory environment too may throw some surprise as things move forward. I would rather not preempt that at this juncture. However, once there is clarity on both industry/regulatory front, I may either average down or decide to exit.

(Kumar Saurabh) #177

Dhwanil bhai, how do you treat increasing share pledge? I think Max has further increased its pledged shares. More price fall with more headwinds can lead to higher pledge which could be bad.

(Samir P H) #178

Very happy to see Dhwanil mentioned on ET. I have learnt a lot from his indepth study/writings, thought process and the investment style.

(Akbar Khan) #179

Congrats @desaidhwanil ! Well deserved.

(James Sebastian) #180

Dear @desaidhwanil Congrats and thank you for willingness to share your journey through this forum. Learners like me immensely blessed by your and other top contributors/moderators willingness to share knowledge and views, introducing to new perspectives and understanding on different companies and stock market in general.

When think of markets, we can think of many other celebrated investors. What sets apart VP leaders from them is willingness to share and guide newbies in the right path and what a great service it is.
Well deserved and good example for many.

(vivekvikramsingh) #181

Congratulations Sir …!!

(srikanthg) #182

Congrats Dhwanil ji :slight_smile:

(Shiv Kumar) #183

congrats, Dhwanil. your posts have been a learning experience on this forum.

(aerofire) #184

Congrats Dhwanil, your posts have helped to understand the market intricacies.

(contactmith) #185

Congratulations dhwanil for getting featured in an article of economics times…

(Kamlesh Patel) #186

Many many congratulations Dhwanil bhai for mention in The Economic Times.