Dinesh Sairam's Portfolio: Requesting Feedback


(Dinesh Sairam) #143

Sure, why not. My Portfolio looks like this now:

I’m not sure what you mean by ‘qualitative analysis’, but you can follow my blog where I talk more about valuations and the markets in general (The link is in my VP profile page).


(Dinesh Sairam) #144

Nobody can put a finger on the growth of NBFCs at this point. A lot hinges on them, including Regulatory action and Market’s reaction. At the end of my post, I did stress-test my own assumptions, simulating Growth between 13% (The SSGR) and 25% (The normal, historical average Growth Rate of DHFL). This is what I ended up with:

If you want to value DHFL using your own inputs, feel free to do so. In fact, I encourage it. Here is the model: https://www.dropbox.com/s/ute6l7t1h602wyu/Money%20and%20the%20Myth.xlsx?dl=0

Again, this is quite related to what you asked earlier. All I’m saying is, assuming that a large default does happen in DHFL, it does not justify the current price. Of course, if there are skeletons in the closet that the investors are not aware of, that would be disastrous.

Of course, that’s why DHFL has historically quoted at a lower P/B than most HFCs. But all that plays into value. In 2005-2007, they had a RoE even lesser than 14% if I recall correctly. All I’m worried about is the divide between Price and Value. RoE or whatever other metric you can imagine are simply a part of Value.

That’s why Margin of Safety exists. I already warned in the blog post that a DDM isn’t as good as a DCF, so one should exercise caution. If you think that there are too many random elements at play, you should use a higher Margin of Safety. IIRC, at the current price level. my valuation of DHFL offers a almost 70% Margin of Safety. I don’t understand what you mean by a ‘negative value’ in this instance.

I hope I answered all of your questions.


(mak2569) #145

Can I please know why cera sanitaryware and not Kajaria?.

Just curious to know.

Disclosure- Tracking Kajaria.


(Dinesh Sairam) #146

Cera caters to several parts of the home styling needs, whereas Kajaria’s is limited to only tiles (Not saying the company isn’t bad or anything, though). So this way, Cera’s Competitive Advantage can last longer. I also adore Cera’s management, the way they built the business from the ground up. As an example, you could listen to this interview:

I think the key is their understanding of consumer preferences. Listen to the part where they talk about changing consumer preferences. Long back when they started, their competitors at the time were offering limited number of colors. Cera introduced sanitaryware in 21 different designs and it was a big hit. Coming back to today, the CMD notes that their customers have started liking sleek and simple designs with white/whitish colors. In line with this, Cera has started selling more of these types of sanitaryware.

The rising RM prices do pose a threat in the short to medium term (As the management itself has warned the investors about in their concalls). But in the long run, I think Cera should do well indeed.


(Abhishek) #147

Atleast there is one thing we agree on! :stuck_out_tongue:


(mak2569) #148

Would definitely take a look.
BTW kajaria’s results came out good today. So it seems they were not affected much from demand factors as much as someone like Asian Paints were.

What do you think?

Regards


(Anupam) #149

Seems the 7% jump is due to results only. Can be a value pick if future growth visibility is clear.


(Dinesh Sairam) #150

I don’t ‘think’ anything about a quarter’s result or short term price movement. I could try to value it though. I’m busy with some work or the other until next week. Maybe I’ll attempt to value Kajaria post that.


(ramdhawad) #151

Does the recent correction makes valuations attractive for Heritage? Can you please share your narrative and valuations scenario for Heritage ? Thank you in advance.


(Mahendra243) #152

Just a random thought…why is it not prudent to stay away from politically linked companies? market discounting that CBN will lose in coming elections…pure speculation though


(ramdhawad) #153

Yes, one should stay away from such business however In case of Heritage, Company have demonstrated that business and politics don’t interfere. Nara Brahmini is independently running the business.

Disc - invested since 2015 levels and views may be baised.


(Dinesh Sairam) #154

I invested after the recent correction, not before. So yes, I think Heritage has a lot of value to offer.


(Dinesh Sairam) #155

Mr. Naidu has very little intervention in the actual business of Heritage, is what I understood. He appears in award ceremonies and other official gatherings though.

If you’re worried about the opposing party playing folly, I think that’s unwarranted fear. CBN was not in power for a majority of the last decade. Look at how Heritage grew their business over this time. I honestly don’t think the market cares about who’s in power (And if it does, and sells into the doubt, I’d personally just buy more).


(mak2569) #156

Would be really great to see what your excel model says.

Thanks and Regards


#157

would like to know your view on max india - kkr has acquired the stake in max health care valuing the company at 4300cr. Max india has 50% stake in max health care - means 2100cr which is more than max india’s current market cap of 2000cr. Looks good at current price. have you have considered max India while adding KMCH ?


(Dinesh Sairam) #158

Several things to note here.

  1. Max India is a conglomerate. I generally do not consider investing in conglomerates, because there are different moving parts and it’s difficult to value them objectively. It’s not that I hate investing in them. They’re just too difficult to judge and value. I might require a massive Margin of Safety to invest in a conglomerate. which is ironic because a conglomeration is one of the strongest business formats.

  2. Max Bupa is one of the arms at Max India. I do not understand the insurance business all that much. What I do understand is that a good insurance business requires a strong authority in probability and risk. I personally don’t see anyone like that in any insurance company in India. This could very well spring from my lack of understanding of insurance or the fact that a vast majority of insurance in India is done by the public sector.

  3. PE firms do not play the value game. They play the pricing game. They often take over a company with plans to intervene in their business plans, tune them to cough up profits and attempt to sell them to someone else when profitability is at its peak. This is not a game I am familiar with, nor do I wish to play it. I do have a lot of respect for what they do, especially the way they turn around otherwise non-productive assets. I just don’t identify with the way they do it.

  4. If, like I said, KKR manages to turn around the loss-making Max India, and we start seeing some cash flows, I might be comfortable approaching it for investment. Even then, I would require a better understanding of the insurance business and a good Margin of Safety.

Apologies for the late response, by the way.


#159

Thank you dinesh for your thoughts


(chytak) #160

Hi Dinesh,
I am a newbie and don’t have much experience in valuing companies. I like your way of presentation and logic behind selection of business. Since you have invested in kovai medical, i’d like to know your thoughts on Apollo hospital and the reason behind your selection of kovai medical rather than Apollo?
Thanks


(Dinesh Sairam) #161

As discussed here, my thesis for investing in KMCH is that the penetration in Medical Insurance and Government schemes will promote healthcare awareness. Massive hospital chains such as Apollo cater to the mid-to-high level class of people, who already have this awareness. So, well-rooted hospitals in Tier-II and Tier-III cities may gain more out of this than the big players.

You can look at PE investments in this space for the past half a decade. Although I don’t really identify myself with the way PEs “invest”, I have nothing but respect for their skills and the kind of hard-work they put in to make deals work.

Even on a more objective level, KMCH is better is almost every number indicating growth, productivity and valuation (Of course, I haven’t actually valued Apollo yet, so take this with a pinch of salt). I suppose that’s one of the advantages of operating in a greenfield structure, as opposed to Apollo which has gone through several brownfield projects.

Along with the opportunities existing in Coimbatore itself, I’m more relieved that KMCH didn’t open a new hospital in Chennai. I personally think a Medical College is a better response. This means that the company will post flat results for a few quarters, plus the returns and the business model of the Medical College remains to be seen, which is why KMCH remains a lower allocation in my portfolio.


(chytak) #162

“my thesis for investing in KMCH is that the penetration in Medical Insurance and Government schemes will promote healthcare awareness. Massive hospital chains such as Apollo cater to the mid-to-high level class of people, who already have this awareness. So, well-rooted hospitals in Tier-II and Tier-III cities may gain more out of this than the big players.”- very good logic.

Thanks for your prompt reply