My portfolio and rationale

(Investor_No_1) #22

I do see some risk, probably that’s why they go for equity dilution to fund growth? I see the risk a little less in L&T Finance as practicaly, its promoters are institutions and not any family or person. Institutions are governed by better processes. Also, Mr Naik had clearly mentioned that their reason to focus on L&T Infotech and Finance is to increase their income from services business and diversify. So, they have all the more reason to make sure these companies perform. If corporate governance is good then TCS has flourished even though rest of companies in Tata are in debt and peanuts compared to TCS…so I think we should think that why TCS minority shareholders flourished even though rest group needed finance badly. Food for thought for me. Let me know your views

(Investor_No_1) #23

I like two midcap IT - L&T Infotech and Mphasis…both because of inherent strength of promoters. Ability to talk and negotiate with contacts of parent, use the parentage to establish long term relationships, attract best talent and retain them etc. Also, better corporate governance (although I am still learning to identify this, if at all we can as minorities). Another…I have seen L&T management as very dynamic and aggressive. If aggression is accompanied by ethics, it is wonderful combination for me…
Regarding L&T Tech. I had it but sold it for wrong reasons. I may buy some again. It is a different business alltogether compared to Infotech. LTI is more a services company and will cater to more day to day needs of the customer, say earlier it used to by .NET/Java applications, ERPs etc and now growth is in digital day to day needs…LT Tech will be more R&D based, engineering company, cater to creating platforms, research for any disruptions say Electric Vehicle wirings, design (just example)…maybe somewhat comparable to Tata Elexi…and L&T parent has huge strength in engineering…it is also an excellent company to have…however, for it to grow extremely big, we need to have a research based education system and talent in India…sadly we are but simply services…so maybe it will end up as research BPO/services and its niche will fade because of lack of talent and enviornment in India…I wish these companies could transform India and do something big someday…and talent in India be more research based…

(Investor_No_1) #24

In recent midcap corrections last few months, I added some -

  1. Max India
  2. Max Financial
  3. Aditya Birla Capital. (I would have chosen L&T Fin over it but already have bulk of my port in L&T Fin so thought to diversify within NBFC)
  4. HDFC Life

Also, some small new position in IDFC Bank. I read about the Founder of Capital First. Really amazing the way he created Capital First and made it a success. (Although I can imagine plight of Capital First long term shareholders as well as it has fallen dramatically since news on IDFC merger)

(Investor_No_1) #25

In all this carnage my portfolio took severe beating. Some changes that happened

  1. Complete exit of LnT Info
  2. Added Hdfc Life
  3. Added small quantity of Godrej Consumer, Aditya Birla Capital, Max India, Max Ventures and Godrej Agrovet
  4. Rest remains same
  5. Nervous about LnT Finance as its my largest holdings. Ever since Jan 2018 i could sense some macro headwinds but never expected macros to impact so much…huge learning

(Investor_No_1) #26

Recent portfolio updates. Want to make it more concentrated by as @hitesh2710 ji mentioned to sell less conviction ones and add to more conviction ones. No major transactions except complete exit of L&T Info.
It has been a roller coaster for Finance part of my portfolio and even FMCG for that matter.

  1. L&T Finance Holdings - 15
  2. Marico - 14
  3. Pidilite - 11
  4. Godrej Consumer Products - 10
  5. Tata Global Beverages - 8
  6. Britannia - 6
  7. Max India - 6
  8. Dabur - 5
  9. HDFC Life - 5
  10. Max Financial Services - 4
  11. ICICI Prudential Life - 3
  12. Bajaj Corp - 3
  13. Max Ventures & Industries - 3
  14. Agro Tech Foods - 3
  15. IDFC Bank - 2
  16. AB Capital - 2

(simplyraghav) #27

I too own L&T Finance Holding and it is approximately 8% of my portfolio. I agree with your investment hypothesis, and would like to add that the ROE is improving as well. What is your strategy and expected returns from it as clearly the sector is face headwinds. L&T Parentage and rural penetration can provide comfort but margins are going to lower going forward.

(Investor_No_1) #28

I agree all NBFCs are facing headwinds with increasing interest rates and tightening of liquidity. I would ask myself if this is something new to the sector and which the management was not prepared of at all. Answer would be no. Interest rate and liquidity cycles must have come numerous times in past and NBFCs have thrived and some have even grown much larger than many banks. So, my strategy would be to focus on how L&T Fin management tackles this current challenge. I would expect some slowdown in growth, so would the market. So, will keep close watch that is sure.
Having said above, I want to reduce my exposure to Finance sector - I have NBFCs,(L&T Fin, Ab Cap), Bank (IDFC bank) and Insurance (ICIC Pru, HDFC Life, Max Fin and Max Bupa via Max India) so if and when I reduce that heavy exposure to Fin sector, the natural choice for my portfolio to trim some stake would be from L&T Fin first as it has highest percentage in my portfolio and going ahead I expect the percentage to increase further so I would look to mitigate some risk from Finance sector when I feel time is appropriate.

(Investor_No_1) #29

What is your strategy with L&T Fin and how much exposure to Finance sector do you have?

(Matt1985) #30

Good stocks and a diversified portfolio. Has avoided the expensive / popular stocks within the category / sector and has tried to play growth at decent valuation backed by strong parentage. The broad theme is FMCG and financials including insurance (surprised to see both HDFC life and ICICI prudential) which is a proxy to consumption / development of India. In my opinion, this portfolio is something on can take it forward with minimal changes as it is heavyweight on consumption and if there is a bad quarter the investor can buy chunks, so the underlying theme would remain the same. I also note that there are no cyclicals although some of them are currently available at decent valuation. This is the first impression when I have a quick overview the portfolio. Good work…!!

I see roughly 60% in FMCG which seems to a bit concentrated. I know that Pidlite is not a strict FMCG but most of the analysts and websites classify it as a secular growth story and consider it as FMCG. In that context one call Pidilite as FMIG to an extent. Any rationale for having a fairly concentrated portfolio in FMCG? And also reasons for avoiding auto and tech. Is the absence of MNC stocks because of valuation and not quality?

Happy investing. All the best and can see a good effort in building the portfolio.


(simplyraghav) #31

I have a exposure of 35-40 % to Finance sector. Regarding L&TFh , I am willing to wait for 2-3 quarters and see how the management handles headwinds. I feel it will fair better than peers and I feel therein lies the margin of safety.

(Investor_No_1) #32

ICICI Pru is kind of Legacy in my portfolio. I bought it just after IPO as that time it was the only listed pure life insurance company. I am inclined to stick to HDFC Life only for any new additions ever since it got listed.

(Investor_No_1) #33

I agree with your analysis of my portfolio. FMCG is somehow my type of company. They do give jitters at times but relatively less. I have such strong conviction in this business that I would not mind even having 100% allocation to FMCG (distributed among say 10 FMCG/consumer firms). MNC - yes valuation is one key aspect. Also, the market cap was another (although I was proved to be wrong here). When I started building my portfolio, MNCs in FMCG were having much greater mcap as compared to Indian firms and I wanted to focus on relatively smaller firms expecting more growth). However, MNCs grew equally well. I have few MNCs in radar like HUL, 3M, Nestle however have not been able to catch them still. With MNCs there is one more doubt of their India plans. See how Glaxo sold their flagship brand Horlicks instead of working on it. I would not want to buy a company that would one day sell itself or have doubts about its operations in my country. HUL has proved to be really a India focussed company and so has Nestle and 3M so far. Among MNC, I ended up buying Agro Tech Foods as it was a small company and it still remained small after years. Guess I would have fared better off if bought 3M or HUL instead.

(Investor_No_1) #34

Not much equity transactions last few months…wait and watch approach…portfolio down by 15-20% in 2018…not happy about it at all…its been disappointing…feeling couldn’t make use of volatility in some shares specially financials which are down by as much 50%…no point in selling now…i now totally relate with what @hitesh2710 sir once said…there are good companies and great companies and only great companies are worth long term hold…!

(Investor_No_1) #35

@dumboinvestor really liked your thought process and the way u pruned unwanted stocks in someone else portfolio. Would love to have your thoughts and same exercise on mine if I should keep a portfolio for long term…thanks!!

(Investor_No_1) #36

First time during the downturn, I have started some restructuring exercise. I had been patiently holding with no major actions but finally decided that I need to evolve as an investor. Not sure if doing the right thing, experts please advice. Portfolio now looks like below. Major activity done was converted some Max India to Godrej consumer, added HDFC Life and Aditya Birla Capital

Marico 14
L&T Finance Holdings 13.5
Godrej Consumer Products 12
Pidilite 11
Tata Global Beverage 7
HDFC Life 7
Britannia 6.5
Dabur 5
Max Financial 5
Max India 3.5
Aditya Birla Capital 3
ICICI Prudential Life 2.5
Bajaj Consumer 2.5
Agro Tech Foods 2.5
Max Ventures 2.5
IDFC First Bank 2.5

(Investor_No_1) #37

After lot of thought, patience and holding a stock, which once formed a major 6% (10% from cost perspective) of my portfolio and holding for almost 4-5 years, finally made complete exit from Max India at 35% Loss. It has been my worst investment till date because of the percentage it held in my portfolio. Clearly, it was my bet with good conviction and I failed. I held Max India even before the demerger, but not significant percent. It was post the demerger that I started buying individual companies. So, what went wrong for me?

  1. Just before the demerger, I was reading about special situations in Peter Lynch’s One up on wall street where it was mentioned how huge money is made in demergers where market does not realize the potential of small companies demerging out of bigger ones. It was as if I read something at the right time. I already liked the management of Max India and how they built it from scratch story so, I lapped up Max India once it demerged. Also, I looked at various now illogical metrics to value or rather find hidden value of the company like how deals were getting done in healthcare, Health insurance space etc. (Learning - PE deals, as rightly mentioned by someone in the forum is like musical chair game with one PE investor exiting and another coming and on complete exit no real gain for minority investors)
  2. I learnt that well known companies are already owned my Mutual funds, institutions and post demerger, these smaller entities may be sold heavily by these institutions because of their own regulations and metrics. I made second mistake of using every fall to buy more.
  3. Biggest mistake - Why I bought Max India in the first place? I was really interested in the insurance business. (I hold Max Finance as of now). Max India having Health insurance as its subsidiary and growing at big percentage made me believe in this long term gem with hidden value. I miscalculated hugely that heath insurance numbers mattered least o the overall picture and the bigger Healthcare business started facing all headwinds from all 4 corners. MAX INDIA WAS NEVER A HEALTH INSURANCE COMPANY!! I had realized that I had made a mistake but still averaged down in hope of hidden value getting recognized in some form or other as I had trust in Management
  4. Promoters almost exited Healthcare business. Bigger players came in and there were news that health insurance company maybe again demerged and listed seperately once a new buyer buys it. However, with turn of events, they completely exited the Health Insurance business. Irony - that was the main reason form me buying into it in first place. No complaints with Promoters or Management. They are taking all right decisions for long term survival of the company.

I finally exited the day Health Insurance business was sold completely. With above learnings, I may never look at demerger cases again. I would also look with caution on companies with good management (I have huge respect for Analjit Singh). I would buy a company if I like all the businesses in which it operates and not just because of one subsidiary. Infact, buy less complicated and straightforward business and companies, if at all I buy direct equity. For now, I have bought some amounts of Godrej Consumer and HDFC Life in recent fall and with Max India exit.

Thoughts from seniors on my experience welcome!!

(Vijay) #38

A 35% loss on 10% of portfolio does not seem too bad. You have the remaining 90% to take care of you. The experience you have gained is invaluable. I am sure you will do very well due to very good quality stocks in your portfolio. However please be careful with the allocation as you seem to be going above 10% on many stocks.

(Investor_No_1) #39

Thanks for the feedback! Yes you are right and will keep this in mind in future transactions.