@Yatharth I think I would go around reducing Motilal, PEL, Edelweiss and then Bajaj fin and hdfc in that order. But it also depends upon the kind of allocation I have in the portfolio for each company.
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@Darkwanderer79 I think the top 4 and graphite in your portfolio are good companies. Since one has to keep in mind allocation risks, it would be a better idea to allocate to some other companies where you have the highest conviction. Since your time frame is pretty long it might be a good idea to stagger the purchase over few weeks/months.
You can start a portfolio thread of your own where you can get good valuable feedback from other investors too.
Multibase as you have mentioned has shown good topline growth if adjusted for the excise duty and gst impact. Profitability has been impacted mainly due to higher other expenses and we need to figure out what that includes.
About the details about the company as you mention, not much is known. I intend to attend the AGM or maybe persuade a friend or two to attend and get more details about the company and the prospects for its products. Opportunity size vs market cap seems attractive. I think these kind of companies have to be given longer time to see how things play out.
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Hi Hitesh,
Are you still tracking canfin homes ? It has corrected so much due lot of headwinds (stack sale to HDFC was pulled off, RERA affecting the small builders, increased NPA). Besides, another player who has similar customers, GIC Housing, which has sector headwinds like other HFC, NPA is getting better. Would like to learn about your opinion on these cos.
Thanks!
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Thanks @hitesh2710 for your opinion. The application of its products is wide-ranging. As you mentioned, If we remain invested for a longer period it may give good return provided the management is investor friendly. I think the management integrity is the key here.
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Thanks a lot Hiteshji for your kind words and suggestions.
hitesh bhai
my portfolio is currently finance heavy with the following stocks. piramal enterprises, bajaj finance , manappuram finance. i was reading about the the npa resolution happening at the big private sector banks specially axis bank. even a drop in extra oridnary provisions for the bank will result into hefty gains. bain capital was alloted preferntial stock at price of 520 or so. the bank has ample liquidity for future growth, shikha sharma out of the way might refresh things at the top. also other large caps being priced to perfection the mutual fund money might end up chasing these turnaround largecap. charts are also showing that a breakout above 650 will lead to a swift rally …waiting for your valuable input… in was intending to book part profits/cut down in other financial stocks and enter axis bank
regards divyansh
Hitesh sir, @hitesh2710
Promoter stake and pledge % is often an easy parameter for management ‘skin the game’.
BUT…
Would like to know your thoughts on how do you see (or how much importance you give) to these factors when evaluating management?
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In many cases, execs or director take-home is very high compared to net profits. sometimes above the ceiling but in many cases it almost touches the ceiling as per companies act (dont know the rules though)… how much should be considered as ‘depriving the minority shareholder’ or ‘decent pay’?.. sub point to this… Execs have very large commission as part of profit
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In many cases, there is a lot of related party transaction. for example, rents paid or goods or RM purchased and/or loans given/taken from ‘entities where key persons have influence/ control’…(apart from remuneration to key execs).
While like to know your thoughts. Esp in case of mid-small cap family companies how to evaluate these and how much importance / ignorance should be given to the above matters?
Appreciate your view. (and examples of how you have passed/failed any companies on the above will help a lot)
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You should be two thirds happy if your portfolio comprises of BF, PEL and manappuram.
I personally didnt like the kind of NPAs created by manappuram’s MFI subsidiary and hence ha exited. gold loan itself seems to be a saturated markets and with a lot of other players moving into gold loan financing there’s nothing niche left in the segment.
About axis, I think the two laggards viz. axis and icici bank have finally started moving even though the expected results are some time away. As you say with other counters having run up the MF and large cap money might very well end up chasing these laggards. Both axis and icici seem good on charts, coming out of consolidations.
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Regarding promoters/directors taking home a huge pay packet, I think I would be okay if the guys have done a stellar job of guiding the company skilfully on the growth path. But for companies which are not going anywhere if the promoters are taking fat pay cheques then I think I would give the company a miss if I were thinking of long term investing. ( I saw recently saw or read somewhere about TBZ promoters paying themselves a lot of money while the business remains on a weak footing.)
About related party transactions, with small cap companies during the early phase of the journey these things might be a cause of concern as there is not much track record to go on from the side of promoters and one wants to be confident about the guys running the show. Again here too if the quantum of money involved is not so big and proper disclosures and explanations are given in AR or during interaction with investors it should be okay.
I think over time as one goes on observing a lot of companies and how their promoters/managements have guided the company through good and bad times, one starts getting a feel about the management. Some times these predujices also prevent one from getting into multibaggers.
Just as an example in case of Mayur there was some issue of warrants issued to promoters and some action by SEBI or something similar back in 2010 or so. But the company was doing quite well, it was paying good dividends and growth was consistent. In this background the issue which itself was blown out of proportion by some purists was an ignorable one.
Kaveri was another case in point. Company was not paying any taxes bcos as per rules agricultural income by seeds companies did not entail payment of taxes. But a lot of investors were feeling insecure about this issue. But management interaction posted by Donald at the time removed all the doubts and I was able to invest confidently.
In most small cap companies in their early phase journey there will always be something or the other to worry about. Promoter integrity is the first issue raised often by guys who have no idea about the promoters. If it comes from some trustworthy source or from someone who has interacted with management then one can consider it as a risk factor.
By and large judging promoter/management is a very difficult job and involves a lot of subjective assessment and often relies on softer skill sets of observing things and connecting the dots.
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@hitesh2710 Sir,
My first question to you on this forum. How do Ujjivan and Equitas look to you now specially after current Q results? Can we expect these two to create good wealth in medium/long term or would you avoid these?
The small finance bank space is undergoing a change in business model. The erstwhile microfinance companies are now transforming into small finance banks.
Advantages of this change is that the liability profile of these institutions would and is changing. The term deposit and CASA now constitute nearly 50% of total borrowing in these banks and since these are available at cheaper interest rates, the cost of borrowing goes down drastically for them.
The second change is change in loan book esp more so in case of Equitas. The percentage of MFI loan is reducing and in case of equitas is down to nearly 30% of total loan book with other segments like SME funding, vehicle finance and gold loans, etc forming the rest of the book. This helps in diversifying the risk in PF. Ujjivan still has high proportion of MFI loans. But reduction in borrowing costs applies to it as well.
The other aspect affecting these banks due to change in business model is that the lending rate which were high in case of MFI now will come down as loans like vehicle finance, sme funding etc carry lower rate of interest.
Plus these institutions would now need to set up retail branches which would entail expenses like rentals, higher staff costs, and other costs associated with expansion.
The play here is on business model getting more stable and robust while lending rates will go down which will to some extend be countered by borrowing costs going down.
The segment these SFBs (small finance banks) cater to is often underbanked or unbanked. So growth should not be a problem for them.
The key monitorable is asset quality in terms of NPAs and write offs and the cost to income ratio and net interest margins.
I like and am invested in equitas and have avoided ujjivan bcos of higher proportion of MFI loan book.
How this whole change in business model plays out needs to be seen over time but to me the opportunity seems interesting.
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Hitesh what about high lap lending in equitas portfolio . Do you see any major threat from that segment in near future.
What is your view of Allsec Technologies
At the CMP of 250 it is available at TTM PE of 7.2. Only challenge has been the significant drop in the quarterly run rate.
hitesh sir @hitesh2710
Really appreciate such a detailed reply - this is one lesson I will take home that always be humble and help others learn especially if you have succeeded in your field! Once again, thanks a lot for so much wisdom sharing with investing community…
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Allsec is on a downtrend and although the PE might look cheap at 7.2 as you say, one has to be sure that there is no de growth going forward. Inspite of a lot of tailwinds for most of software stocks as can be seen from their price action, allsec seems to be dwindling and hence better to avoid. There could be something structurally wrong with the business like losing contracts etc.
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The motto of the forum is to share and colloborate. Its been instilled in most of us at VP by Donald Francis and we try to follow that. Till around 2008 I was a complete novice in the field of investing having no knowledge, having read no books on investing and never interacted with an educated or informed investor. After reading One Up on Wall Street, I immediately related to the fictional character of Houndstooth mentioned in the book , which I felt I was as I used to keep on justifying my investing mistakes and losses in exactly similar manner. The book and guidance from fellow investors on forums like theequitydesk and VP changed the trajectory for me.
I have always felt that knowledge tends to increase as we keep sharing it. I think when we write it tends to clear a lot of things in our minds and improves clarity about the things we write. Sometimes we dont even know things that are at the back of our mind and these come out in full force when we end up writing things. And in the process if you end up helping someone in their growth, there’s nothing like it.
I believe there is always this positive feedback loop where if you do positive things they tend to take a whole circle and return to bless you with positive things in your life.
rgds
hitesh.
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@hitesh2710 You are absolutely right on Allsec about a structural change. I attended the AGM and spoke to few people from the management team.
During last few years their AML business did exceedingly well. This was because one of their client was into regulatory trouble. The client needed to process a lot of prior year transactions using Allsec’s AML expertise. The need to process such transactions have dropped considerably now. This has reflected in Q1 FY19 results. So overall sales will decline significantly for FY19.
We are unlikely to see earlier volume in AML business unless they get another client who gets into serious regulatory issues
The future driver for Allsec will be their CLM and HR businesses. We need to base all our calculations for the growth based on these two businesses only.
Regards,
Raj
Disc: Invested
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hi @hitesh2710 . By any chance do you still track Sonata?. Of late they have shown a very consistent growth. Even after this run up, the div yield is around 3%. I listened to one of the recent con calls. Management looked transparent to me.
Like all the other IT companies they are also talking about the digital transformation. I am not sure what their moat is.