Associated alcohol seems to be a very small co to compare with USL. I guess a fair comparision would be with united breweries which seems to be showing strong growth since past 3-4 quarters with improved profitability.
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Hi Hiteshji @hitesh2710 ,
I’m trying to understand dairy industry and based on the runway for growth in consumption, I feel it’s a good investment theme. My key learnings are:
Hatsun: Largest and most dominant player, excellent return ratios, but very high valuations and debt levels
Heritage: Looking to increase their distribution network, excellent return ratios, but poor topline and profit growth
Parag: Enetering newer segments such as proteins and nutrition, strengthening pan India network, good growth, but low return ratios and pledged shares
Do you track this sector or individual stocks? What are your thoughts on the runway for growth?
Many thanks!
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@hitesh2710 Hi Hiteshbhai
1 Which companies have you added in your portfolio in recent months ?
2
This is the best way to avoid buying at high prices. However if the price keeps on going up, then can one average going up . Should we buy basis historical low pe range and treat that as the ideal valuation ?
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I was just thinking on the superb explanation given above by you and had a query as to if the runway is long and if there is consistency, predictability and longevity of growth as a result of which the valuations are high then how to value such high pe companies ?
4 There are two school of thoughts on indian valuation vs universal valuation . One school of thought that believes in coffee can approach to investing believes that some compounding companies (eg Asian paints, Pidilite, page industries ) in India are different than the rest of the world due to consistent growth and higher ROCE. However it doesnt consider margin of safety and hence there is confusion as to whom to follow as there is another school of thought that says that its risky to invest without margin of safety and at higher valuation . Is investing in such companies like Asian paints , Pidilite etc , doesnt follow the standard investment rules of margin of safety etc ?
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Mostly the companies that are available at lower valuations are cyclical or havent proved themselves i.e with a uncertain future . There may be very few great companies (as per my limited knowledge) which are facing temporary issues which mr market mostly knows but sometimes overestimates the loss and hence undervalues . eg Nestle maggi issue few years back. However such issue are very rare and so under such circunstances , instead of buying cyclical or companies with uncertainty of growth , is one better off buying secular companies ? How can one comfort themselves on growth longevity and runway in case of undiscovered companies or mispriced bets ? as generally i dont prefer cyclical companies as i find it difficult to identify cycles .
6 Many companies though quite different in characteristics and some are well established players and some may have yet to prove their mettle are valued the same . HDFC life pe and Page Ind pe is currently similar , HDFC life is a bit more costly . However Page industries has a great track record while HDFC life is valued richly due to parentage . In such cases , how does one identify which is overvalued and which is undervalued, considering that one has a great ROCE and other hasnt although both seem to have a great runway for growth with my limited knowledge .
Request your guidance on the above Hitesh bhai
Recent good article on United Spirits - https://www.thehindubusinessline.com/companies/focus-on-premiumisation-keeps-united-spirits-on-high/article27004297.ece
- Companies added to portfolio during past few months… Ideally I wont be comfortable answering these stock specific queries. But as per disclosures made while putting up some charts etc and elsewhere,
I bought avanti feeds recently but was promptly stopped out as it was a techno funda (more technical) call.
A cyclical company I bought some time back is Polyplex. The company is into packaging products but while all the peer companies like jindal poly, cosmo films, ester etc bleeded this company managed to tide over the troubled times easily. It has a decent balance sheet and gives out fat dividends. From whatever I have read about the company, some part of the business is commodity and some is value added products. For further details one can go through company’s presentation.
A value buy bought some time back was BSE ltd. Its not going to be a great compounder but once it reaches a reasonable valuation I would think about what to do with my position. Around 600 and below there seemed to be good margin of undervaluation and dividend yield and cash on books offer some comfort. It is a sort of parking space for me and if I get a better idea I would switch.
I have bought Indian hotels as mentioned in the charts I had put some time back on Indian hotels. Its a great combination of technicals and fundamentals. The chart pattern has taken a form of rounded bottom formation and subsequent rally to close to all time highs of 160 region where it is facing some supply pressure. Support seems to be coming in at 150. The range has been 150-160.
Fundamentally the management had spelled out its Aspiration 2022 strategy in a presentation in Feb 2018. And till date the strategy has yielded excellent results which are reflected in the numbers posted by the company. Even q4 results posted by the company this week are quite decent and adhere to the guidance of the management. Basically it is a story of 10-15% topline growth with consistent improvement in margins by a mix of efficiencies, debt reduction , disposal of non core assets etc. As per q4 presentation company intends to add 1 property per month during the next fiscal. It has been adding rooms consistently on management contracts and operating leases which are asset light modes of expansion. Even as per q4 fy 19 concall, management re interates its strategy to follow the aspiration 2022 strategy. With infusion of these new rooms and properties the growth could be better than before and if the margin improvement continues it can be a good combination.
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Averaging on the way up takes some doing but once you are confident with the strategy there is nothing like it. Basically price going up consistently and business improving in tandem validates the investment thesis and once this happens averaging on the up would come naturally. It would take some time but is often very fruitful.
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First of all one has to get over the mindset of applying PE to each and every company on which research is being carried out. One has to learn to value companies by other means as well. Explaining these methods are beyond the scope of my writing on this thread. You will first have to go through few books and see if u can go ahead. One has to think about company’s earnings 3-5 years from now and see how valuations stack up.
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Coffee can investing is a totally different concept where one doesnt look too much at these companies for atleast few years and results are examined in 10 year period series. For those who cannot have 10 year views, margin of safety is important. One has to find out which kind of investment style one is suited to. There are compounders and there are multibaggers. Take your pick or a combination of both.
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For me if I dont want to do too much research and sit tight with a company even at present juncture, Nestle is a no brainer. Just look at the opportunity size and the kind of new prodcuts they keep launching. In the immediate term it may not provide too much returns but over a 5-10 year period it can be a good bet.
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Its not an apple to apple comparision between HDFC Life and Page. Both are from different segments and it would be futile to compare them. One has to figure out what is comparable and what is not. Page at most can be compared to say Asian Paints or Gillette, or Bata or something similar.
rgds
hitesh.
44 Likes
Thank you so much Hitesh bhai for the detailed replies to all my queries .
Which books you recommend for valuation of non financial and financial companies ?
Hello
I have been holding Bajaj finance from past three years and it has been a four bagger for me. Other few friends I know have been holding it from past 6-8 years and it has been 10 bagger for them. And it has been delivering above average results every year. So please don’t get jittery and don’t focus on the price much. Look at their quarterly results and also the business environment as such. Lot of nbfcs are in trouble and the incremental business will be gobbled by the able ones… Your guess is as good as mine ;).
Happy investing
Cheera
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Hiteshji,
Do you hold Khadim India ? I had a tracker quantity, was evaluating the management and business model.
The results of late has not been good… Any views
I dont hold khadim. I had a look at it few months back post its IPO but found Bata much more predictable and consistent in its numbers. Plus Bata seems to have re invented itself with a thrust on newer products and strong advertising.
Another company in same space is relaxo which has been a fantastic wealth creator. If one wants to look at the space then these two are worth looking at.
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Hitesh Bhai
I am curious to know your portfolio allocation. You might have answered this question earlier but going by the length of this thread it may take me few weeks to read all the posts.
So please be kind enough to tell again if possible.
- How many companies do you hold.
- What is the typical allocation you make on a company.
- Do you have 1%, 2%, 3% kind of allocations too.
- Are you market cap agnostic or look for a company to have a minimum market capitalization.
Regards
Somenath Paul
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Hitesh ji one general query I would like to raise goes like this : While going through results of companies, often I find drastic difference in standalone and consolidated financial performance. Please clarify which performance is more important : stand alone or consolidated ? Also, most companies do not publish quarterly consolidated figures which we can know only at the end of FY in yearly results. Are they not bound to publish consolidated results also on quarterly basis ??
Also, one intriguing factor which I am not able to understand is that for a few companies I have observed that consolidated revenue is less than stand-alone revenue !! How this is possible ?? As per my understanding consolidated results include financial performance of all subsidiaries and also that of listed main company and that the consolidated revenue can not be less than stand-alone figure. Pl. enlighten with your knowledge.
Thanks & regards,
@hitesh2710 Hi Hiteshbhai,
1 Whats your view on dmart now that it has come down and has undergone a time correction ?
2 Another thing that i wanted to ask you is there has been a regular selling of stock by promoters of page industries inspite of the company doing well ? This is giving confusing signals. How should one interpret it ?
3 Where can we get the historical pe of stocks over a period of 10 years or more ?
Many thanks
I am guessing but are the subsidiaries posting substantial losses ? as that could be one reason
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I hold at most 15 companies. Usually its around 10-12 or lower. No of companies depends upon the market situation or sometimes the kind of confidence I have in the company and management.
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Typical allocation has undergone some change over the past 1-2 years. Earlier I used to buy all the allocation in a single shot but now with markets being edgy I stagger my purchases over some time. I begin with around 2-3 % and gradually scale it up to 10% if I am convinced about the story, management and valuations. If it is a technofunda bet I limit myself to 5% allocation.
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I dont have 1, 2,3% allocations unless I am constrained by liquidity and cannot get desired quantity or else after the initial buying I lose confidence due to change in the story or investment thesis.
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I am totally market cap agnostic. I dont have a benchmark for any minimum market cap.
rgds
hitesh.
16 Likes
From FY 20 onwards all companies will compulsorily have to publish consolidated nos every quarter according to regulation and hence the problem of not having access to consolidated nos every quarter will be solved. The important nos are the consolidated nos esp while evaluating a company.
As far as I understand the consolidated revenues cannot be lower than standalone unless the subsidiaries are not doing any business and still incurring losses. This is a very unusual situation and if I find such a thing in any company I would give it a wide berth rather than bothering about why its so.
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Regarding dmart and its valuations you can go through the dmart thread where there are some good quality posts on the company and its business and the valuations.
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About Page promoters selling small quantities of their holding, earlier I think that was the case because of the terms of license agreement where they had to bring their stake to 50% or below. I am not too sure if selling continues even now or not. But if it is miniscule in comparision to market cap, I would not be too worried.
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Historical PE – Some research reports do give historical PE charts. I dont have any idea where we can get these. But if its not available its a good idea to take a pen and paper and plot the PE charts.
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I had stopped tracking pnb hf since past few quarters. But seems that the price correction will make me look at it again. 
In the thread of PNBHF, there is a lot of discussion going on and you can view the opinions of some learned boarders.
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@hitesh2710,
Do you have a best practice for:
- Cash as part of portfolio, from your experience (I’m not including living expense/ emergency cash here)? I’ve almost always found myself buying stocks and left with little/no cash to buy good company’s shares when it is available at a desirable price.
- I try not to chase stocks too with the fear of missing out, but fail a lot, and end up with less cash.
- Do you have a specific % maximum cut-off for a single holding in your portfolio, even at the risk of potential gains ? I’ve read your advice about concentrated portfolio just recently (10-12 individual stocks and at most 15).
Thanks very much for allowing us to learn from you.
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Hi Hitesh Sir,
I have three stock in watchlist Solar Industry - Leader in explosive , TCI Express and Wabco but valuation are not at comfort level but i can see the growth potential in coming future wanted to know if you are tracking any of the company .
Thanks in advance