Dinesh Sairam's Portfolio: Requesting Feedback

(Dinesh Sairam) #62


Thank you.

Short term price movements and short term interest rate changes or whatever changes in the short term do not bother me. Can I wait for some time until RBI hikes interest rates and buy DHFL at a lower price? Maybe. But I don’t have a crystal ball. I already bought DHFL at decent levels. Now I just wait. There’s a long road to demand fulfillment and DHFL is definitely playing a part. If the market overreacts to interest rate hikes, I’ll go shopping for more.

In fact, as far as the Housing Finance space is concerned, I’d have loved to hold a bunch of them instead of a single one (Say DHFL, Repco and LIC Housing). But as you mentioned, many of them had already run up and weren’t available at a good price.

Regarding the number of stocks I hold, it is largely a function of when I started investing. I started around a year and a half back. But whatever I invested in my first year were dubious and based on quick fixes (Price Ratios, Return Ratios). I started valuing my purchases only about 6 months ago. So, there was a huge churn in my portfolio then, reducing the number of stocks I hold drastically. I don’t think that many stocks are available at a good price now. If I’d started investing around, say 2009, I’d probably have held 10-15 stocks now. I don’t think holding more than 15 stocks makes a lot of sense though.


Thank you.

And sure. My approach is fairly simple. As mentioned elsewhere in this thread, this is my code of conduct. I try to follow it religiously as much as I can. My role model in India is currently Prof. Sanjay Bakshi and Chandrakant Sampath of the yesteryears. Both of them are known for holding on to decades of underperformance and waiting for compounding to work. I try to emulate them as much as I can. Will I be half as successful as them? Only time will tell.

Secondly, I don’t have big expectations. Even if I earn around 15% for the rest of my investing life, I’d be a happy. So my investments concentrate more on capital protection than extraordinary growth prospects.

(VP_amit) #63

Great post @Savishesh - full of humility and “reality” :slight_smile:

This is a classic: “Numbers are never wrong until you torture them to speak a different picture”

(Dinesh Sairam) #64

I haven’t written here in a long time. Some interesting updates.

I have sold my entire stake in Kitex Garments in order to raise cash (Yes, I sold at a small loss). I did, however, take a small stake in KMCH lately. I haven’t entirely understood the healthcare industry yet, so this is just a token of appreciation, since I think the company has some good moats and was trading at a good discount to its intrinsic value. The rest of my portfolio remains the same.

Since I wasn’t doing much by way of investing, I thought this would be a good time to relax and look back. I built a simple excel thingy to keep track of my portfolio performance (Inclusive of dividends and adjusted for new cash infusions):

The sudden drop you see between March and September of 2017 was the time I rethought my investing process, so I sold out on many of my previous investments and put them in Bank FD instead. I re-entered just months before the mid-cap and small-cap meltdown – how unlucky, I must say.

I also built this handy DCF model too, once again thanks to free time:

Finally, I have started writing a blog on mostly Investment and Valuation-related content:

I’m enjoying some peace and quiet. But also tracking some potential investments. I’ll be sure to update if I make any significant changes.

(axiskumar) #65

CUPID: NO CEO found from past many years…and Promoter told …he may sold it…in one of the conference call…

so on what rational the Cupid bought? Please throw some light to enlighten me…

(Dinesh Sairam) #66

I bought Cupid because of their unique B2G2C business model in a product which is largely B2C otherwise. Add that to the fact that the market for condoms is pretty huge, and it makes sense. They are also one of the earliest producers of female condoms and only the second company in the world to do so. They’ve successfully captured the market in Africa and recently even got into Europe with their Angel line of female condoms.

The promoter said he’s getting old and would like to sell his stake in the company, which he’s been doing in the last year or so. He wants the replacement to be an expert in the B2C Condoms space, which makes sense, since Cupid has been unsuccessfully trying to crack that space.

I understand that succession is a big factor. But I always buy with a wide enough margin of safety to give myself some cushion is case of such anamolies. For example, even after the Smallcap meltdown, I’m still in profits with Cupid.

(axiskumar) #67

which means you purchased very low price…but there are very much uncertinity about company growth…as promoter planning to settle in USA…not in India…who will run this company?

(Dinesh Sairam) #68

I don’t have a crystal ball. Succession is definitely a risk here. I’ll be closely following the management’s comment on the same.

(Hitesh Patel) #69

About Cupid, even though sales has grown from 61 crores in fy 16 to 82 crores in fy 18, profits have not moved much. Is there any moat really here? And is the market big enough in the segment?

About buy price being right and very low I think its a form of price anchoring. Its okay to wait for few quarters but even after say 4-6 quarters if company doesnt seem to be doing well fundamentally I personally start considering opportunity cost. Simplest way to measure that would be to compare it with no brainers like hdfc bank or asian paints or page inds where very little research is needed to invest. If investing in those no brainers scores over investing in companies like cupid, especially with high allocation I think one needs to get out of intertia and start evaluating the investment merits of the company in question.

One cant remain in self denial for too long. Markets are not obliged to run up prices of our companies and provide us with returns.

(Dinesh Sairam) #70

Financial Performance

I do not look at profits per se. It’s the cash flows that matter (i.e. Inclusive of money required to acquire those profits). Profits are misleading because of the “accounting appropriations”. This is how it looks for Cupid (For FY18, I have just made a proportionate projection of the Net Cash Flow, since the actual Cash Flow Statement is not out yet):

I honestly wouldn’t call that ‘going nowhere’. But yes, as already discussed, Cupid’s revenues and profits are order-based and tend to be volatile. There’s no denying that.


Also, I don’t think Cupid’s fundamentals have worsened. They have improved over the years (No FY18 because I’ll have to pull up numbers for the Q4 results and make a lot of calculations - I took the below numbers from Screener, mostly):

Market Scope

Several research reports indicate female condoms will see more traction going forward, what with the UN itself endorsing them. IIRC, male condoms are pegged to have a CAGR of 3.5% until 2021, but female condoms are pegged at 9% or so. Cupid, being one of the very few companies operating in this space, will have a chance to capture a piece of that action.

There’s also no denying the fact that India itself is a huge market for Male Condoms. Cupid has just started selling in this space last year. How successful they will be, is largely dependent on the next CEO (Especially his expertise in this domain, as per the current CEO Mr. Garg).

Opportunity Cost

Surprised to hear this from you. You show me any decent company, and I can show you a space of 3-4 quarters when the company performed poorly. It’s the nature of businesses to perform poorly. But the only question I ask in such cases is, did the company’s fundamentals or story change? I judge that, for Cupid, it didn’t. Besides, even in their ARs, the company always gives conservative forecasts. They don’t usually try to woo investors with outrageous targets.

Money takes its own time to compound, sometimes years. If I had the ability to predict when the company would make compounding work and/or when its stock would rally, I would sell now and reinvest at that time. But I don’t. I’m no messiah. I’m just an average investor with a lot of patience.

(Vegeta) #71

Curious to know how you calculate this cash flow metric you are using.

In my reading of accounts, the Cash Flows from operations aremuch lower than FY17 because not only has the profit fallen, but the working capital has gone up, Cash balance has depleted and the company had to make short term borrowings.

Debtors increased by 9 cr
Inventories increased by 3 cr
Other current assets increased by 4cr
Creditors increased by 3cr
Rest current assets and current Liabilities all are almost same

CFO = profit + changes in working cap
= 17 - 9 - 3 - 4 + 3
= ~ 4 cr

(Vegeta) #72

As regards your portfolio, I’m no expert. But 1 thing I can add is that the portfolio is lacking allocation to stocks which have high degree of predictability of earnings and growth (eg: HDFC Bank, IndusInd Bank, Brittannia, Bajaj Finance, Gruh Finance, ITC). These stocks have been referred to in some VP discussions as Long term steady compounders. I believe even a 10-20% allocation to such stocks adds stability to ones portfolio. Maybe you can add one of these through SIP mode.

(Dinesh Sairam) #73

I did have HDFC Bank for about 1.5 years and it had given me a CAGR of around 50%. I’m not invested in any Large Caps now. That is not to say that I will never invest in Large Caps. I just don’t think any of them are available at a good Discount to Value.

I regularly hear that IT and Pharma sector stocks could be Value buys now. But I do not have any kind of understanding in both the industries, so I have never evaluated them.

(Dinesh Sairam) #74

I took it directly from Screener (Net Cash Flow, that is):


Cash Balance has jumped from 9.4 Cr in FY16 to 19.40 Cr in FY17 (IIRC, in FY18, again, it’s a little higher, but they’ve moved a majority of Cash to some Current Investments).

You should look through their AR17 to calculate the actual reinvestment + change in working capital: https://www.cupidltd.in/wp-content/uploads/2017/08/Final-Annual-Report_2016-17.compressed.pdf

Most of their “Other Assets” are really just bank deposits, deposits in foreign currency and short term loans. They’re as good as cash and should not form part of working capital or capex calculations.

(Vijay) #75

It appears that a lot was discussed about Goodyear but very little went in to the business. A good discussion imo would be the market share changes in farm equipment tyres in the last 10 years, Growth of Apollo tyres in farm equipment, shift in focus of BKT to capture domestic market, distribution challenges for goodyear, etc.

When buying a company, we may want to ask if the promoter has the same goal as shareholder (us)! Action speaks eventually.

(Gothamcapital) #76

You seem to have selected good companies with good managements,so good job till there.But the issue here is the price.None of them look cheap at this price,so we have to wait for revenue boom in those companies.For example ,in case of goodyear the company trades at 20 p/e (which is at the improved operating margin of 13 percent) ,But a look at the historical growth in revenue shows only a double in 9 years.If the company repeats the performance without any serious improvement in OPM ,i would still call it expensive at 10 p/e .

I hope you get my point,unless the company has aggressive expansion plans,the company revenue will not vary a huge deal from its historical path and lot of money will not be made.Not to mention the persistent threat of cheap imports(the chinese tyres are getting expensive though)

(Dinesh Sairam) #77

My whole thesis for investing in Goodyear is that they’re capable of turning over capital at an amazing pace, second only to only MRP (Probably). This shows up in their Capital Turnover figure (Around 8-12 in the last 10 years) and their built-up cash pile, which is close to 15% of their Market Cap. The management has recognized the fact that there will be a huge influx of demand in the commercial tires segment and is willing to dip their feet in that space. Combine it with the fact that only 20-25% of Tractor Demand is met in India, and you’ve got a massive market that needs its demand fulfilled. Goodyear India will play a substantial part in the demand fulfillment.

Regarding Valuation, I never did understand the logic behind Valuing companies using the P/E Ratio. The P/E Ratio, in my opinion, is fuzzy thinking. My Valuation philosophy is simple. I use a conservative DCF calculation, coupled with a high Margin of Safety. If the Value is still above the price, I buy the stock. Since I purchase when the stock is excessively undervalued, I sell the stock only when it becomes (If at all) excessively overvalued-- that is to say, if the Price becomes 50%-75% higher than the Value.

(Vijay) #78

I feel that PE / PEG could be used only as an initial screening. DCF if done well , could add much more insight although effort required is much much more to get usable outcome. It is as good as the numbers plugged in to it and hence may need attention to detail.
Above all these, i sincerely feel some factors are not quantifiable and hence may need to be used to ascertain value.

Tractors are 4% of total tyre sales. Does Goodyear have the stamina and will to venture in to commerical and PV to make a difference? Replacement demand is not as significant as PV for farm tyres. Many MNCs don’t have the aggression to expand.

(Gothamcapital) #79

Dcf calculations are very volatile,they are not easy to calculate either.They are only theoretical according to me.Price to earning is actually much easier to use(anyways it is up to the individual).
I think even using Dcf we need large improvements in revenue and profit margins in the near term to justify this kind of price.

You have talked about capital turnover and it is a very valid point.A strong capital turnover coupled with improved margins means a good ROE,anyways i think it would be nice if you could share your calculation of dcf.What do you think will be the impact of exports,which have been the reason for uncertainty in this sector.

Also i do not have the article but chinese tyres are about 25 percent cheaper than indian tyres.

(Dinesh Sairam) #80

The management seems to think so. We as investor like to think that we have deep insights into the operations of a company. But in reality, our conviction leans heavily the management’s actions. That’s why it’s important to trust the management of the company you invest in. It’s important that they are great allocators of capital. I see that in Goodyear’s fundamentals.

Now, what will Goodyear India do with the extra money? I don’t mind if Goodyear India starts paying dividends, finds space to expand on the tractor tyres segment or starts getting into the commercial tyres segment (I’d prefer the latter two). If they don’t do any of this, I might be willing to exit the stock. But it takes time, at least 1-2 years, to decide that. If the management knows what they’re doing, you’ve got to give them some leeway. Rome was not built in a day.

Then how do you justify companies with exorbitant P/Es? You can’t. But DCF isn’t hooked on short term profits. It considers the entire business cycle and sees what price can be paid to have that sort of business cycle. I honestly don’t think there’s a more logical way to value stocks, than through their cash flows-- which is what a stock gives you the right to procure in the first place. Earnings are proxies for cash flows and bad ones at that.

This is an unbiased Valuation of Goodyear India. in my opinion:

However, as a careful investor, I am biased. Rather than using estimated, lower-side WACCs, I always use 15% as my WACC, which is the minimum amount I wish to earn from my investments over the long term:

IIRC, I purchased Goodyear India around Rs. 820-840 about 6 months or so back. So you could see that I indeed purchased with a large Margin of Safety.

The tyre industry is very strategic to India. I personally don’t think the GOI will let China dump its tyres here and get away with it.

Of course, if it does, I might have to rethink my story. But in general, I try not to predict macro developments. Good news or bad news, I will wait it out and then take action. News over rumors any day.

(Gothamcapital) #81

Still steel is in trouble.I dont think the GOI can do a lot though.I have been following the tyre industry for a few months and the pessimism around this sector is ONLY due to imports.That was why many of these companies were trading at 10 times earnings 2 years back.Chinese tyres are still quite cheap,even though the labour costs have gone up.