Hitesh portfolio


(Hitesh Patel) #3441

@kumars1672

I remain invested in multibase but in the short to medium term there remain headwinds in terms of slowdown in auto sector. Same goes for mayur though I dont track it too closely.

Regarding how long the auto sector slowdown is going to persist its anybody’s guess. The sector has had a great run till now but I think it could take a bit of rest for now. Difficult to predict when the cycle will turn. I think very few anticipated that the cycle will slow down so fast.


(Hitesh Patel) #3442

@ramanhp

Sterlite Tech has kept posting very strong numbers. But in the kind of market we are in, pledging is currently considered to be a very risky parameter in any company esp after the fallout of Zee.

Plus the Anil Agarwal group has not got the best reputation in the markets after their dealings in Sesa Goa and Cairn etc. Using one company’s cash for other company’s expansions or acquisitions and so on.

Besides that, the stock earlier was quoting at valuations which were discounting 2-3 years of forwards earnings. So a correction was warranted and usually these kind of swings dont stop where they should stop at. So I guess it might swing in the direction of pessimism before it normalises.


My Portfolio_Homemaker
(Sujay Ghosh) #3443

Hiteshbhai, regarding Pledging, I have the following question:

I have been reading about Bajaj Consumer for the last few days. In my opinion, its financial performance (mergin, ROCE, dividend etc.) and also the act of the management so far indicates that they are conservative, transparent and shareholder friendly. But the only turn off is share pledging, which the promoter is doing to fund his other infra/sugar business. Bajaj Consumer is financially stable and needs no such money.

Now what happens if the promoter’s investment in the infra/sugar doesn’t give returns or make losses? He will need to sell his stake to return the money and eventually promoters stake will decrease in Bajaj Consumer.

But how does that affect Bajaj Consumer’s financial performance? I agree that the stock price can nosedive if this happens, but I can find no reason how Bajaj Consumer’s turnover/profit/cashflow detoriate because of promoter’s stake decrease!

Am I missing something?

Can you please put some light on this?


(rkatikam) #3444

what if the promoters stake decreases such that they become minority shareholders? They can be a target of a hostile takeover. Even if it doesn’t happen, the board and the owners may not be in sync with the decisions for e.g. should they do a capex, pay a dividend etc . Lets say the promoter is a very talented guy, but having lost his control, do you think it is easy to run the business? will he be as motivated as earlier?


(ramanhp) #3446

Thanks @bharat19. I agree the conglomerate is now well known for is corporate governance. I think it commodity nature of the business is lesser talked drawback amidst the hype around 5G and IOT. Thanks for butting in with your views. Appreciated.


(Sujay Ghosh) #3447

Hostile takeover is an issue I’ve considered but India have seen only a handful of these. But it’s a possibility.
https://www.lawteacher.net/free-law-essays/business-law/india-has-experienced-only-a-handful-of-hostile-takeover-attempts-business-law-essay.php
Moreover, several well known companies have very low promoter holding. For example: Persistent (30%), Cyient (22%), Mindtree (13%), India Cements (28%), Satin Creditcare (27%), Astra Microwave (13%). So, I wonder if ease or motivation of running the company by the promoter is linked with his % holding. On a different perspective, in my opinion, if the promoter is a good guy, he will become more motivated to prove the investor’s perception about the company wrong.


(rkatikam) #3448

So, I wonder if ease or motivation of running the company by the promoter is linked with his % holding.

In my limited understanding that would be more of an exceptional case. I would generally prefer to invest with those who have their skin in the game. And though not all pledges are bad, what I have seen is that it becomes more of a habit (where they pledge release pledge release) especially in the Indian context and then when will it blow up is anybody’s guess.


(Sujay Ghosh) #3449

In fact, many of these companies (I have mentioned only a few) have created huge investor wealth over time. So, these are not exceptions I guess.

But yes, I also tend to avoid companies where promoter holding is this much less.


(Hitesh Patel) #3450

@sujay85

About the question of what happens to promoter pledge if the money derived out of pledge doesnt achieve the desired results etc… Dont you think this is too complex to fathom? And in the current markets when we should be looking out for no brainers these kind of companies should be brushed off at the first look itself. Why should we waste time on these kind of complex situations? (This is my personal view and you and many others might have a different view but I usually dont go too deep when I find things complex to understand or project)

Investment thesis should be simplified to a few lines on a page. If the thesis put up in one page in a few lines doesnt make sense then its not worth following.


(Sujay Ghosh) #3451

Aptly put Hiteshbhai. My mind is clearer now. :slight_smile:


(1.5cr) #3452

Dear Hiteshji,

I would like your views on Orient refractories valuation at current levels of ~200 per share.

I think the business is great and very strong. They are also in a good industry.

My only question is on the valuations. they seemed to be fairly priced at 150-170 prior to the merger.

Now with the merger being done, how would you value the company?

Thanks!


(A shah) #3453

Hi hitesh bhai ,
1 How to determine a turnaround in a sector early? What factors can one check to determine turnaround in auto sector at early stages?

2 Also can quality cyclical stocks make good long term bet if one stays through the troughs in the cycle i.e would it make up for the lean cycle period or should one get off when the cycle seems coming to an end ? As cyclical stocks i find bit difficult to estimate and hence request you to kindly explain the same .

3Also secular stocks generally are well discovered by the market and its very difficult to find a quality underpriced secular stock as even if one discovers , theres lesser information available in the market about corporate governance of new companies as against well established companies . So does cyclical offer a better bet or please correct if i am wrong. I would love to add a secular stock in my portfolio but find valuations too high and seem discovered.
Many thanks


(Bhaskar Bora) #3454

What are your views on Bharat rasayan


#3455

Hi Hitesh,
What’s your opinion on Ajanta Pharma now? It has come up with a poor result in Q3. While it’s showing decent growth in Indian market, it seems to have slowed down in global markets.


(Hitesh Patel) #3456

@1.5cr

Orient refractories is a fantastic company but there seems to be margin pressure in Jun and Sep quarter looking at OPM as shown in screener. These kind of companies are typical steady compounders and returns often are magnified if bought during downswings.


(Hitesh Patel) #3457

@respondvignesh

Ajanta has come out with poor results with degrowth in topline and bottomline during q3 fy 19. For any company which has shown scorching growth for many years a few quarters of stagnation or degrowth is usually the norm and during these times the stock prices tend to go sideways.

Chart shows a head and shoulders top with neckline at 1120 odd levels. After breaching it during May 2018 it went down to 900 and tried to rally. Sometimes after these breakdowns stock prices tend to go up and reach or slightly exceed the neckline only to fall down again. Same thing happened here where the stock price reached 1200 and weakened and now after weak q3 fy 19 results seems downtrend has again resumed. How low it goes is a thing that needs to be watched but in view of chart pattern combined with poor results its prudent to stand aside and watch patiently till either charts or preferably the fundamentals improve. (growth returns)


(Hitesh Patel) #3458

@A_shah

  1. These days most auto companies report monthly sales figures which are available as announcements on exchanges. This is a good way to check for turnaround in the sector. Or one can visit a couple of vehicle showrooms nearby and try to ask the dealer about inventory levels and sales in general under the guise of being a buyer or otherwise.

  2. One sector where quality cyclical stocks have been great investments are cement stocks. If u look at shree cem or ramco cem or any other high quality cement company over a longer term time frame they have delivered superb returns. (thats not to say its bound to happen again.) Among others I was surprised to read that balrampur chini has delivered close to 20% cagr returns over something like 10 year period inspite of big rallies and drawdowns. Ideal way to play the cyclicals is to buy when a lot of companies in the sector are making losses and a few of them file for bankruptcy or are in dire straits. Selling is a difficult art to master in cyclicals but sometimes it helps to be mindful of peak margins attained during previous bull run and be watchful when these margins are reached during a subsequent bull run. Thats when staggered selling can be done. But all said and done, in cyclicals, buying is the most important part. Correct buying price would make up for a lot of errors in the selling part of equation.

  3. Secular growth stories are indeed priced perfectly especially in this day and age of information dissemination and overload sometimes. But there will be times of market panics which happen almost every year or couple of years on a regular basis when these correct reasonably from their lofty valuations and one has to be confident to buy them. This confidence comes from doing homework on these companies and determining levels where one wants to buy them.

You can read Peter Lynch on how to approach the cyclicals investing.

In the current markets, only the quality companies are holding somewhat while all the poor quality/poor management/poor corp governance companies are taking it on the chin.

@bhaskarbora67, Bharat rasayan seems like a good company but one needs to see the receivables and working capital cycle of these company to take a call.


(A shah) #3459

Thanks so much Hitesh bhai for the crystal clear and practical reply as always. Understood the same perfectly now .


(Rohit B) #3460

@hitesh2710 hello Hitesh bhai , are you still tracking Andhra Petro? it seems the margins are going to improve a lot based on latest RM to finished material spread. besides the numbers, how do you feel the management/comapny is ? is it worth keeping for longer periods or is kind of cyclical in your view? thanks


(rskothari) #3461

Hi Hitesh Bhai,
What’s your opinion on Pricol?