Esha Portfolio Feedback Invited

Q&A: Questions & Answers Portfolio Q&A
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I entered market in 2016 officially. So it has been 3 long years. I wanted to share my portfolio and get critical comments on it. The idea is to improve it with advice and make it better. I hope the discussion will help other new investors.

I joined forum in 2017 and made some contribution. Forum helped me understand few basic things about investing and companies. Below is my portfolio allocation and rationale

Note : Allocation is as of this writing. I do add some stocks with time in SIP manner based on their performance and my conviction. I will update the post with time as well.

  1. Asian Paints (Paints sector) - 12% allocation

Largest Paints Company in India. The sector have few players and sector has given positive returns. Still many houses in India are left without Paints. So there is still scope for penetration. Company is also expanding in neighboring countries. Management is good.

  1. Akzo Nobel (Paints sector) - 12% allocation

It is a take over candidate. Leader in Paints world wide but slowly coming down the ladder. PPG take over or Asian paints take over of Indian arm will shoot it up. Though I am planning to cut the exposure to 5%. Consistent dividend payer.

3.CARE Ratings (Ratings sector) - 20%

2nd largest in India. Globally Ratings is dominated by 3 players (2 of them listed in India). It has expanded to neighboring countries of India.Sector has not performed in last 3 years but it will turn around.Crisil has 8% stake in it. Global players may take it over which will benefit investors. Ratings is evergreen sector as well. Best dividend payer in the Sector.

  1. HDFC AMC (Financials) - 10%

Mutual Fund penetration is less in India. So with time it will grow and HDFC being leader in the sector will get benefit. Proven management. AMC business seems to be good dividend payers as well. (This year it will be more than 1% it seems)

  1. Pidlite (Diversified or Chemicals)- 10%

Monopoly business in Adhesives and sealants. Proven management. It has lot more products apart from M Seal and Fevikol or Fevi Kwik.

  1. Sasken (IT) - 6%

Company was able to shift from Communication to new business verticals showing Management capability. Consistent dividend payer. Now tapping on IOT and Automation wagon. It has 252 patents as well. Playing for IOT and Automation theme.

  1. India Nippon Electricals (Auto Ancillary) - 5%

JV of TVS and Mahle. Proven management. Playing for Electrical vehicles as well as Auto Growth story. MAHLE has electrical vehicle technique which can be passed on to it. INEL has also shown commitment for EV.

  1. Divis Lab (Pharma) - 5%

It is into API formulation. Stable Company.

  1. Multibase India (Plastics) - 2%

Subsidiary of Dow Chemicals one of the largest Chemical Companies. Makes product for different industries. Will get benefited with time as parent passes on more products to it.

  1. Kajaria Ceramics (Tiles) - 3%

Lots of Construction and Infrastructure development in India will trigger this stock. It is market leader in the sector and will get benefited.

  1. Johnsons Control (AC) - 2%

Johnsons Control is one of the largest Companies in World. It mainly deals with sub set of products from the Parent (mainly AC). Company has huge potential to grow in India.

I have small positions in below stocks mainly 1% and below 2%.

  1. Heidelberg Cement - Cement sector.
  2. Apcotex Industries - Rubber
  3. Avanti Feeds - Aquaculture
  4. Balmer lawrie - Logistics
  5. Bharat Seats - Auto Ancillary
  6. Jayant Agro - Chemicals
  7. Vedanta - Mining and Metals
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Hi

You seem to have a great set of companies. But one segment you seem to have missed is a good private sector bank. Most of these well managed private sector banks should do quite well in next few years till some kind of disruptive factor comes into play.

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Thanks for response. Good to see senior member taking time to share thoughts.

Private Bank is on radar and actively tracking City Union Bank.

It seems to be doing very good in SME lending and is small in size. Have jot invested waiting for correction to enter.

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Good Portfolio. My inputs are about Sasken. I am watching this company for 20 years. It works in very narrow domain od Networking and Telecom. This domain is not growing at a fast pace (as compared to BFSI). IMHO, it’s management is quite ordinary … with limited vision. At personal level I have included MindTree in my PF, which is broadbased (and more energetic management).

(I don’t own any share of Sasken).
Ravee Mittal

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Thanks for your valuable input.

They suffered due to restricted vision about Networking and Telecom. This lead to poor performance in past. They are now focusing on 5G, Blockchain, V2X, IoT and AI & Machine Learning. These are growth areas and lot of Companies are trying to get a share (specially AI, IoT and Blockchain).

I will be tracking it closely and keep your cautious words in mind. Also any reasons you selected Mind Tree over other service providers like TechM or TCS Infy

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Thanks. .MindTree is still mid size company. So I am expecting it to grow faster.

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One more thing about Sasken. It had tried mobile product development about 15 years back and failed. Reason is: It lacks DNA of a product company. You can’t develop world-class product when you have 20% attrition and you are unable to hire deep experts (which requires higher salaries and growth path). Whatever technologies they get into, they can at best do “services” or “body shopping”. The same is true for other services IT companies.
This is my limited understanding based on two decades of working in IT industry.

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Good set of stocks. If you are looking for sector with long runway you may to pick something from insurance,tourism and domestic healthcare sector

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Thanks for Suggestions. Feel free to correct my understanding for sectors

Insurance

I did had HDFC Life Insurance but it is not part of my portfolio now. Life Insurance is still dominated by LIC and transition from LIC to private player is very slow.I feel General Insurance is better placed but there are not any stock listed to interest me. Bajaj Finserv is one Company which has both Life and General but it had ran too much in past few years.

Tourism

Not interested as Most companies have not given good returns in past

Healthcare

Was tracking Narayana Healthcare but stock has not performed since IPO. I am tracking Pathology companies (Dr lal pathlabs) as test has become mandatory part of Diagnosis.

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First 5 stocks are solid companies! 2 Paint companies with around 35% allocation look high. Pidilite though not paint but as input materials are similar tend to be affected similarity as paints because of crude movements…so I would say almost 45% allocation to closely correlated companies…although rock solid ones…

20% allocation to CARE…any reason why such high and also why not CRISIL or icra? Is dividend yield only reason to chose care among these 3. Also since you own rating company is high allocation…can u pls let me know why have they not performed in last few years…even in a bull market? When RJ invested and it’s said that rating agencies are proxy to financialization etc. But last few years banks NBFCs moved a lot but these lacked correlation…I am not able to understand why…thanks

Thanks

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Thanks for your remarks. In first para you pointed out my own concern during high crude prices.

I agree 35% allocation to crude sensitive stocks does worry me sometimes.

It also gives me chance to buy these stocks at lower level of crude goes up. In long run I think crude will become cheap only. Solar and Electricity will lessen the demand.

Having said that I do plan to have 25 to 30 percent allocation not more.

CARE is 2nd in market share with 8% bought by Crisil and no promoter as such. Parai also entered few months back. Big 3 will try hard to gain control over India market. CARE is excellent company to take over.

The dividend yield is cherry on top. Rating industry had their share of bad news like ILFS fiasco impacting price performance . But they are must for market. Indian bond and debt market will grow so are these companies.

Note I bought CARE before Crisil stake buy. That love from Crisil firmed my belief but let’s see what future holds

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18 companies in total in portfolio
what is your investment philosophy?

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Survival of fittest is the core principle.

I select sector first and then stock in it. If a stock of my liking is languishing at good valuation I make an entry.

I never buy too much in one go. Always small quantities slowly.

If a new entry has potential to give more return than the one already in portfolio then new entry gets more fund and slowly the already one is sold off if fund is required or is kept depending on fund requirement and potential of it compared to others in portfolio.

I did not have Pharma in my portfolio. I bought Divis at 600 odd levels as it was good buy. So far good returns and for fund I had to sell off some of Sasken at that time.

Hope it helped.

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I have invested in City Union Bank for last 9yrs. It’s good choice.

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I would say Bajaj Finserv is a good choice. I had accumulated it since Rs 300 level. It has grown to highest holiding in my portfolio. Icici general Lombard could be another alternative.

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Services companies are all about the employees and the culture set by the top management. I would suggest that you talk with some employees from CARE (Preferably having a few years of experience) and also take a look at the profile of the top management (Look at what they have achieved in this specific field so far etc). Unfortunately, I cannot be more specific.

Disc: I work in CRISIL.

Really interesting, this one. Can you please elaborate more on how and where INEL will find itself in the EV value chain? Thank you.

Why pick two different companies who cater to the same value chain? I would love to understand your thought process on this one.

Otherwise, very good investments. If you could explain your stock analysis / picking / monitoring process, I think VPers can benefit.

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City Union I am tracking for long now but have not invested. ICICI Lombard is good General Insurance play and same is Finserv (along with Life as well).

I am also exploring one holding Company to include in my portfolio. I view Holding companies as mutual fund alternatives but some differences.

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Thanks for detailed response…

CARE

I do not know any one from CARE. So will use Internet to get information about Employee and management profile. This one has been stagnant player in portfolio as of now. Lets see if more diving in cements or shakes my conviction.

Since you are in CRISIL. How you see Rating Industry shape up in India.

India Nippon

Link to CFO interview - Link

Also you can explore MAHLE website. They have good potential in EV field.

Paints Sector

Paints is very interesting sector. There are 4 major players. Asian Paints, Nerolac, Akzo and Berger. All of them have positive performance over the years (You can pick most long term chart and they all have positive returns).

I picked Asian Paints as it is market leader and will continue to be so. Due to domestic market demand it should be one of top 5 Paints Company.

Akzo was leader few years back but slowly it is coming down the ladder (Now at 2). Within due course there may be hostile take over by Company like PPG (It tried once). Asian Paints has 4% stake in it and may buy India operations.

Though I am planning to cut down my Akzo holding to invest in new ideas for which I am analyzing now.
Note

I am from IT background so not much well versed with Balance sheet and all. I believe if ace investor like RJ can make DHFL like mistake then not possible for retail investor with limited resources to solve the mystery.

I use Company website, Past performance, Dividend yield and Future outlook for the Industry to make a call.

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In holding company I have Bajaj holdings. Seems to be best bet. Promoters increasing stake too.

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Yes it is on my radar as well. BTW you have good exposure to Finance sector. Any specific reasons though your picks are of Quality

Any other sector you are interested in