Life Long Portfolio


(niravacharya) #1

I am starting to build a portfolio of stocks which are for life time holdings. Right now I am starting with just one stock, however, as and when i will have suitable investment opportunities, the same will be added along with investment research.

  1. Majesco - 100% Holding
    Average Price - 530 (I started building position when stocks was 600 and increased investment to recent levels of 350. Anybody interested in investing can surely take a position around 400 to 450 levels)

Investment Rationale:

  1. Currently in top 3 software companies for Insurance Products
  2. Cloud computing is game changer with massive revenue potential
  3. IBM Partnership a massive opportunity - IBM currently processes approx 1 billion policies per year. Partnership success will open doors for massive gains.4
  4. Very low switching of clients once they are on Majesco Platforms.
  5. Business model will unlock investor wealth creation once it crosses 150 - 200 million mark.
  6. Gross Profit margins of 45 - 50%
  7. Europe is still an untapped market
  8. 9 Billion US Market, approx 19 billion European market.
  9. Insurance market almost immune to economic macro fluctuations.
  10. Company market shares will change based on performance, however, insurance software developers will see overall growth.
  11. Stable revenue once any client has integrated Majesco systems.
  12. Any acquisitions will boost revenues.
  13. Available at 80% discount to peer valuations of Guidewire.
  14. Insurance market is almost unaffected by any global termoils in Life and Annuity segments.
  15. Strong USD boosting INR revenues.

All can comment freely.
This thread will be 100% Work in progress. Investment ideas will be added as and when opportunities emerge.

A seperate thread is already existing in forum for Majesco analysis.


(vyasln14) #2

It is an excellent concept to construct part of our investment for life

time holdings.In case if the market shows irrational exuberance or wrong investment

booking profit/loss may be considered.

I suggest you may add shares of holding companies like
stel holdings,Bengal and Assam,B&L investment,sumeet securities etc.
available at deep discount.


(niravacharya) #3

Thanks. However, can you give investment rationale these companies…since, I am hearing their names for first time.


(Alphin) #4

The concept of lifelong stick is good but the stock selected should have a deep and wide moat which is clearly not available with software companies. As an exampke there is a excellent video on YouTube in the investment rationality for Coco cola by warren buffet. If a stock fits multiple criteria as mentioned in the video it can be a lifelong stock.


(niravacharya) #5

can you post the youtube link ?


(Abhishek Basumallick) #6

In my opinion Majesco is a very poor choice for a stock to be held for a very long period of time (anywhere beyond 30 years).

Firstly, Majesco is not a market leader in the space it operates. It does not have a major competitive advantage worth mentioning which will sustain and keep it profitable for a long period.

Secondly, fintech can be very very disruptive area and companies will need to continue to invest heavily and innovate to be in business. No one knows today how tech like blockchain may disrupt the technology in the core insurance industry.


(Parag) #7

My two cents:
Long term returns and technology do not hand to hand. I think Warren Buffet has said something in line – “Change is not good for long term investor”, and technology means changes and Majesco is at the forefront of change. It may have a different profile, but it is nevertheless a technology (product) company.

For a long term investor, what matters is MOAT and Return on Invested Capital and as long as ROIC is decent and good MOAT, it will deliver good returns. I suggest reading Berkshire Hathaway’s 2007’s letter to a shareholder . He has listed characteristics of the good, gruesome and great business, which is at a crux of the long-term Reuters. II have created a short version of the of it on my blog here - you may find it helpful if you are short of time.

In term of Indian stocks, there are some of the stocks, which has delivered fantastic returns over the decades and it is likely – although not certain- that they will continue to thrive. Some of the stocks I can think of

  • ITC- Last 20 + years return as more than 20+ CAGR
  • HDFC and HDFC Bank
  • Asian Paints.

Coming to Majesco(I have few shares) – I think it has a good moat. The majority(or many) of new customer sign in last 2/3 quarters are Clouds based customer. Majesco is not a leader in insurance product space in the US, but is certainly no 3 or 4 and Cloud offering which is it’s key differentiator.

Clouds based customer are not profitable in first 2/3 years, but they become profitable after 3rd year onwards (as per company management). After 3rd year, profitability increases a higher rate.

Once customer sign on to clouds, and start using it, they are hooked on to the product, and they are unlikely to shift in a hurry, and it creates a strong MOAT.

Management has indicated that more than 60% (approx.) of the deal pipeline is in clouds which tie in line with their key strength.

Currently, Majesco is trading at a lower valuation because India’s stock market does not have successful product companies and their US Company is also languishing.

On the flip side, Maesco may not be able to scale their business and reach their goal of $200 million in revenue by FY 18 and it may hamper the stock.

Overall, the market likes long stream of (certain) revenue, and it gives better valuations to these long steady revenue. Hopefully, the market will realise Majesco’s potential in the near future. I do not think Majesco is a long term investment which one can hold for decades, but I think it is a decent investment in the medium term at the current valuation.

Parag


(Dhruv Saraf) #8

I am not focusing on Majesco particularly, but given the theme of the discussion, I’d like to quote Buffet here - "Buy commodities, sell brands."
According to me, businesses that do not employ large sums of capital incrementally, that are in steady state mode and have tangible brands that focus on us - the consumer are Investments for life.
So in this regard, something like a Castrol, or a Colgate or a Page - having exceptional ROE’s over the past 10 years and having the real franchise value could be a lifelong investment.


(Alphin) #9

https://youtu.be/jfxOvdiac94 it’s mohnish pabrai explaining the rationale for Coco cola investment of warren buffet.


(bkbanka) #10

Dear Sir,
Thanks for starting the thread. I am not fully aware for Majesco now.
But I can say that Sun Pharma is a Stock, which one can keep in portfolio for a life time. Also presently it is available at the rock bottom price also due to USFDA notice to the company for their Halol plant.
Be fearless for this stock.

Bharat


(niravacharya) #11

Can you list reasons for selecting sun pharma?


(bkbanka) #12

A very good high rather fastest growth company, liberal management high dividend and bonus paying company.


(Anandca09) #13

I think UFO Moviez can be added to the portfolio for following reasons:

  1. Leveraging presence in cinema value chain
  2. In-cinema advertisement revenues to grow manifold
  3. Innovative business models may be growth drivers in future
  4. Available at 26.2x TTM P/E
    The compnay has declared a dividend of Rs.10 per share (dividend yield 2.39%) at CMP 417.90/-.
    Source of info: ICICI direct
    Discl: Invested
    Thanks
    CA Anand Sharma

(niravacharya) #14

Portfolio as on today:


(Debanjan_M) #15

First of all, I must say that this is an excellent thread as the kind of replies that comes into the thread will definitely develop a good strong portfolio idea for newbies and at the same time can provide a safe haven in the volatile situations in the market.

My views on the same is that, the portfolio should consist of a good diversified list of stocks which have strong moat. And following the same idea the list should consist of some names like,

  1. ITC
  2. ONGC
  3. Vedanta
  4. MRF / Balkrishna Industries
  5. Avenue Supermart
  6. L & T
  7. TCS
  8. Avanti Feeds
  9. Hindustan Unilever Limited
  10. Maruti Suzuki
  11. Tata Motors
  12. Asian Paints
  13. ACC cement

I would suggest equal exposure to all the stocks mentioned above for better stable results and balanced return on a longer time frame.

Would like to know others view too, on the same.


(Amit Jain) #16

Hi Debanjan_M

Our Stock market has had a great run since 2003, just remarkable. But that is the past. And I believe past performance is no guarantee of future prospects. Because several things change: Managements get complacent, Volume of Business are now huge therefore similar rate of growth is tough, the landscape has changed, new competition arrives, technological advancements, evolution etc. Therefore, simply hanging onto what has worked in the last 15 years, assuming it will work for the next 15 years as well, won’t prove wise.

========================
Further critical review of the above portfolio.

  1. ONGC is a dull stock, will not grow for another decade or two.
  2. LT is in huge debt, the interest cost itself will near about kill any potential it my have, plus the recession.
  3. Vedanta has dubious management which has little interest in the minority shareholder’s well being.
  4. ITC is in middle of reinventing its revenue source, cigarettes alone are not cutting it.
  5. Maruti is too expensive now and it remains to be seen whether it can lead the EV race
  6. ACC has given returns akin to PPF since 2006. Dull growth, and is being ousted from Nifty 50.
  7. Tata motors is a lost battle. Growth is dismal. JLR future is still unclear.
  8. HUL is huge. A decade ago it was king. Now it has plenty competition for our very own Ramdev Baba, Dabur, Marico and several others in the FMCG circuit.

(Amit Jain) #17

I will go ahead and put forward my portfolio of “Safety + Growth”

Core portfolio: (work in progress)

  1. Three Banks
    HDFC, Yes, Indusind or Axis.
  2. Three IT Cos
    TCS, Mindtree, Persistent Systems or Cyient.
  3. FMCG
    Dabur, Marico (connected Essel Propack)

And Ten odd Bets on strong Mid Caps. Working on this section.

  1. Housing Finance
  2. Avanti, Mayur.

Feel free to make suggestion.


(Debanjan_M) #18

@jamit05

Hi,
I would like to thank you for enlighting those points mentioned above.

Well, let me cover few points that I think works for the stocks I mentioned above.

  1. ONGC is a cash reach giant which is too big to fail. But yes certainly it has tepid kind of growth and the growth is unlikely to come in a drastic manner in future too. What works for ONGC for me is the future prospect of taking over the OMCs in India resulting in the giant to fall in the league of BP. Now, provided we are still maybe at least 20-30 years away from an economy which is significantly not dependent on fossil fuel and the amount of oil and gas we import in India it provides opportunities. But certainly it is not gonna deliver a hefty lot and probably would just be a little better bet than govt. bonds.

  2. I’m bullish on L&T not for the kind of market capital that it has or the kind of growth it has shown in the past, but because of its engineering excellence. There is no denying the fact, that if you have got to mention a name in the heavy engineering behemoths in Indian listed entities, you certainly can’t look beyond L&T in that respect. As long as you believe in the growth story of India into a developed nation you have got to believe in L&T for A to Z indigenous engineering solutions. Added boon to that would be the Make in India drive, especially in the defence sector which has been pretty much untapped in the private space. As far as debt is concerned, the kind of business L&T caters to is a capex heavy one and debt is a part of it. That is probably the reason more so to select L&T in the peers as only the fittest can survive in the long run when it comes to heavy engineering space.

  3. On Vedanta, I do agree with you and was not aware of that previously. I chose Vedanta for the kind of Horizon that it caters to. It is slowly becoming a one stop solution for all sorts of natural resources. That is pretty much a safer bet as natural resources are cyclical commodities and very much volatile. Hence, it kind of balances the volatility well. Reasons for worry beyond the management are environmental concerns and debt.

  4. ITC is slowly moving away from cigarettes and becoming an FMCG giant. As per the latest commentary from their AR I came to know that they are now ready to move into the heavily unorganised perishable items space and as a pilot project already undertook few items in domestic market. Considering that, and the kind of brand value it boasts, ITC is still around 40% cheap compared to other FMCG Peers. Hence there is opportunity if we have 10-15 years kind of horizon roughly.

  5. Maruti is certainly expensive and due for a correction. But, I am not worried about EV though (Considering how Maruti was no where in the SUV space, and Brezza becoming the highest selling SUV as the market demanded it). That is brand Maruti, which understands India better than anyone else. If situation demands, they would surely come up with a JV or for ToT.

  6. Cement as an overall sector is due for a revival due to various housing and infrastructure development schemes by Govt. of India. Chose ACC for its pan India Presence.

7)Tata Motors is on a turn around phase and provided the kind of presence it has in India and abroad results are bound to show. Right kind of products are coming up. Introduction of ‘TaMo’ would be a boost for R&D requirements. Plus they are heavily working on brand building phase. Besides icing on the cake is Tata Sons recently buying 1.42 % stake. Management is confident on turn around, they are having the right kind of products, good dealership networks underutilised production line, all pointing towards a growth.

8)HUL is also due for a correction. Barring that they are also pushing Ayurvedic Mania by promoting Lever Ayush brand. Besides they already have established brands, excellent dealership and distributorship network. And Indian economy is rising. As the per capita income increases there will be drastic growth in the FMCG space. HUL has years of experience, fantastic management and a growth opportunity in the long run. Certainly there is a large competition coming up but that is more detrimental to Dabur than HUL. And the kind of margin lost to ITC would be compensated by equal exposure to ITC in the portfolio.

   Well, these were certainly most basic and consise views without numbers and I do admit that there might be wrong viewpoints for which I invite constructive criticisms from all. Certainly would like to hear more from you too @jamit05. Let's make this thread more lively and interesting.

Disclaimer : I’m invested in some of the scripts mentioned above and waiting for corrections for some to enter into.


(Amit Jain) #19

If one aggressively goes for growth then, he would select small caps or mid caps that are unknown and pack a strong potential. But, they carry a risk of going bust.

On the side of the spectrum, if one aggressively chooses safety of capital and not care for growth at all, then he would invest in huge companies, with dull growth numbers.

I think a retail investor has a choice to invest to achieve safety and growth both, strike a smart balance.

I believe Companies in Nifty 50 (ACC, ONGC, LT, Cipla, Maruti etc) are for Fund Houses who have huge funds to invest and some tall promises to keep. However, a retail investor can be nimble. He should invest in mid sized companies, where safety and growth both are present.

If I had the confidence, I would invest only in mid caps. But, I suppose for the first decade or so, I will mix growth oriented Large caps (70%) and growth oriented Mid caps (30%)


(Debanjan_M) #20

I absolutely agree with you @jamit05. And, that is why I am looking for some companies ( 5-6) which are midcaps and boasts of such strong moats to survive for a long run, the “Buy and Forget” kind of stocks. Your ideas are good.

I’m currently looking for an opportunity to enter the Insurance space at moderate valuations. Will look for such opportunities as the market sees some considerable amount of corrections. Hence “ICICI Lombard” is a space and/or also “Bajaj Finserv” is a space where I would like to park a part of my capital but only at a moderate valuation (P/BV).

“Bharat Forge” also looks interesting but need to know about the management (recent case of suicide of an accounting official, acusing a director rocked me) and financials more.

And I have forgotten to mention “Exide Industries” in my previous post. Leader in the Battery market, looking for significant demand in market for Lithium cells to pick up and soon they will leap forward to eat a sizable share of the pie as per management commentary. What could be a better opportunity to look into if Indian market is fancying EV revolution?