My Portfolio - Your Views Invited

Q&A: Questions & Answers Portfolio Q&A
1
Atul Auto 12.8%
Sasken 9.0%
Alembic 7.9%
Swaraj 7.4%
NESCO 7.2%
MPS 6.4%
Gruh 5.4%
Accelya Kale 5.4%
Poly Medicure 5.4%
Natco 5.2%
Can Fin 4.7%
Torrent 4.9%
Eicher 4.4%
Ratnamani 4.3%
Ajanta Pharma 3.4%
Talwalkar 3.2%
ENIL 3.0%

I own 17 currently. 2 higher than my comfort zone. Can't get around to sell any though. WOULD BE GRATEFUL FOR VIEWS FROM FELLOW VALUE PICKERS

Thoughts on the same

Atul Auto: Started buying at Rs81 levels (split adjusted). Bought more at Rs140 and Rs329. At 81 I think it was a 6-7 PE stock with zero debt, high RoE and RoCE. Now it is expensive. Not got around to selling it. Ramdeo Agarwal (Motilal Oswal) bought at Rs125, Birla MF at Rs150 and HDFC MF at Rs307. Has got coverage in Forbes in Sep14 also.

Sasken: Bought at Rs110 level in May 2012 and have added more at Rs310 levels recently. When I bought it initially it had 40% of market cap in cash. Clean promoters who pay dividends and do buyback. They once again have lot of cash after recent settlement which made me add more.

Alembic Pharma: Bought in May2013. Stock was at 13-14x P/E. Zero debt. High RoE and RoCE. So bought it

Swaraj Engines: Bought at Rs400, Rs641, Rs715 and Rs890. Low P/E. High RoE and RoCe. Supplying engines to the market leader M&M. given Kirloskar is also a large shareholder M&M is being forced to give very healthy dividends which keeps RoE high and shareholder happy.

NESCO: Inspired by Sanjay Bakshi's note and bought at Rs600 levels. Have added more recently at Rs1266 levels. Had also bought Piramal Healthcare inspired him but thankfully better sense prevailed and I sold out.

MPS: Bought at Rs335 levels inspired by Ajay Relan's comments and research done by esteemed value pickers

Gruh Finance: When I invest I need to see a cash flow statement. That is why I find it hard to buy financial companies. Gruh business model appealed to me. I felt it could grow 20-30% for the next 10 years and off course the HDFC pedigree. Bought a crazy valuations of 6-7x P/BV at Rs112. Has perhaps gone at 10x P/BV. Quite crazy dont you think

Accelya Kale: High RoE and RoCE. Clean promoters and high dividends. Niche business. But can it grow? When will investors wake up to the value in this stock?

Poly Medicure: Saw this 1.5 year back. Did not buy as market cap was small and valuations high. Stock doubled and I was kicking myself. Bought it at Rs475 levels sometime back.

Natco Pharma: Bought at Rs636 for copaxone. Then thought if they can make copaxone they can make more block buster drugs in the future. Decided to hold long term

Can Fin: Wanted to buy one more finance stock after Gruh. Looked at Bajaj Finserv, J&K Bank, Federal Bank. Then saw REPCO, Can Fin and Dewan. Like Can Fin and bought it.

Torrent Pharma: Had collapsed to Rs470 levels after Elder Pharma acquisition. Thought it was very cheap. Bought it as I have a good view about promoters

Eicher Motors: Missed the massive rally. Read about it in VP. Liked the 6 month waiting period on Enfield bikes. Felt bikes can grow 40-50% for next 3 years and off course if Volvo JV turns around could get interesting given where Ashok Leyland is trading. Bought at Rs10050.

Ratnamani metals and tubes: Only zero debt pipes company with high RoE and RoCE. Nalanda Capital presence was another positive. Bought at Rs376.

Ajanta Pharma: Missed buying in May 2013. Bought it today as it is cheaper than Alembic and I continue to own Alembic

Talwalkar: I think this is a unique play. Can grow 15-20% for the next 10 years. Only way to play gyms in India. So bought at Rs140

ENIL: Radio Mirchi waiting for Phase III auctions with lots of cash on books.

1 Like
2

)- Your stock selection is good but bit more diversification. Only stay with 10-15 Stocks max. Else your returns will be diluted.

)- Exit from few stocks which become over valued. Like GRUH, Eicher

)- Also reduce the stocks which has less than 6% holdings and combine by good one.

)- Few sector has not been covered in your folio like FMCG,Construction(Not Infra stocks). Add some stocks like CERA/Kajaria/Suprem & Emami/Relaxo/LaOpala

3

Not a good idea to sell GRUH and Eicher at the moment. These 2 companies have there growth story intact. Do not sell the growth company just because they have become overvalued.

2 Likes
4

My 2 cents (subtract 3% from it if you wish :))

Never listen to advice of folks, you haven’t known for years, and have no proven track record. Never listen to folks who give you unsolicited advice on portfolio concentration/diversification (because there is no magic formula here). And especially keep a deaf year to those who feel GRUH/Eicher are over-valued (Wish this was whispered to my ear bit earlier, wouldnt have missed eicher/motherson).

Keep reading, keep learning :slight_smile:

)-

)-

)-

2 Likes
5

Either was overvalued in my opinion when I sold it around 4k. A few months later it’s at 3x that amount and all I can say is that nobody cares about minority opinion! :frowning:

1 Like
6

Thanks everybody. I have made the maximum money in Atul Auto. Interestingly I find it more over valued than Eicher Motors. Further, in yesterday’s carnage of mid and micro caps I was happy I owned Gruh as it did not fall much. I also used to own 3 consumer stocks. Zydus Wellness which I sold when sales growth faltered, Agrotech Foods which I felt was over hyped because of Rakesh Jhunjhunwala ownership and Britannia which I bought at rs650 and sold at rs900. I used all this to fund buying more pharma. I regret selling Britannia. Also recently sold il&fs investments to fund purchase of Eicher.

7

I Liked your crisp investment logic on your picks.

i remain bullish on the housing finance companies besides some others in your pf.

8

Well, What to say, but couple of points to be consider here

)- Current valuation of Eicher is 60+ p/e, Does any one knows the historical P/E of Eicher between 2012-14 yrs ? It was trading at 30 p/e. Why market gave such low p/e to Auto Sector on those years ? If you answer me this Q than It would be great. (Not take it personally but it’s learning for us)

Why market give the high p/e for Consumer stocks like Page/Dabur/GSK in bad time+good time and why market give low p/e to cyclic sector is learning point here. Don’t carried away with anything because it’s increasing is not good idea. Be careful in market.

)- Royel Enield contribute less than 50% revenue as per my analysis and we can’t depends on RL’s growth story while doing valuation.

)- I am also holding Eicher which I bought at 4500/- on 35 p/e :slight_smile: but now I am not buying due to high valuation

My 2 cents (subtract 3% from it if you wish :)))

Never listen to advice of folks, you haven’t known for years, and have no proven track record. Never listen to folks who give you unsolicited advice on portfolio concentration/diversification (because there is no magic formula here). And especially keep a deaf year to those who feel GRUH/Eicher are over-valued (Wish this was whispered to my ear bit earlier, wouldnt have missed eicher/motherson).

Keep reading, keep learning :))

)-

)-

)-

9

IN RESPONSE TO AMIT

Thanks for your feedback. Congratulations on getting in early at Rs4500 (stockhas doubled since then). Unfortunately I discovered the stock only 1 month back. My loss. I agree on trailing numbers Eicher is super expensive > 65x P/E on FY14. I am aware that Royal Enfield contributes < 50% of sale but contributes interestingly 70% to PAT. Please see the profit break up below

Dec31 (Rsmn)

CY09

CY10

CY11

CY12

CY13

Recurring PAT

834

1,889

3,088

3,243

3,939

PAT Margins (%)

2.8%

4.3%

5.4%

5.1%

5.8%

- Royal Enfield

375

754

1,246

1,448

2,786

- VECV

550

1,407

2,250

1,797

1,568

- Others

(91)

(272)

(408)

(2)

(415)

My thesis: It is expected that Royal Enfield volumes will go up from 1.7 lakhs in CY13 to 3 lakhs+ in CY14 to 4 lakhs plus in CY15. Basically they can sell as much as they produce (6 month waiting period). So volumes will dooble in 2.25x in 2 years. I assume give pricing power Royal Enfield sales value can go up 2.5x which will cause EBITDA margins to expand. Consequently PAT would grow > 2.5x in 2 years. So Rs278crs PAT in CY13 can be > 700 crs in 2 years. So the call is can VECV (Volvo JV) contribute more than 300crs in 2 years. I am unsure if it can. But people are assuming Ashok Leyland CV business is going to recover. So why not Volvo? If Volvo JV can deliver 300crs we are talking of Rs1000crs PAT in CY15 =Rs370 eps in cy15e which <30x CY15E P/E.

Having said all this I am aware it is expensive and is not a value buy. The above analysis might also be colored because I now own the stock. But there is analysis and there is gut feeling. I had IL&FS Investments bought at an average price of Rs13 which I sold out at Rs22-23 because I felt Rs26 is fair value of the business. I needed to invest the money in something else where I expected >50% return and hence Eicher was bought.Interestingly Eicher has been included in certain global indices after run over last 2 years. I believe quite a few FIIs will be forced to buy the stock.Last but not the least I believe Royal Enfield can do well globally. So good company is niche segment. So I did not think too much about valuations.

IN RESPONSE TO SUBASH

Thanks for some simple and valuable words

IN RESPONSE TO HITESH

Thanks. I have been reading your inputs on valuepickr and TED.

IN RESPONSE TO DHANANJAY

I am doing exactly as you say. Infact if I had more free cash I would buy more Gruh at current levels. It has has been stuck at Rs200 for quite sometime. The gut feel suggests it will make its next move post 2Q results

10

Updated portfolio

1 Atul Auto 16.8%
2 NESCO 8.1%
3 MPS 7.2%
4 Swaraj 7.2%
5 Accelya Kale 6.8%
6 Alembic 6.7%
7 Gruh Finance 6.0%
8 Ajanta Pharma 5.0%
9 Torrent 4.9%
10 Ratnamani 4.9%
11 Eicher 4.4%
12 Can Fin 4.3%
13 Talwalkar 3.2%
14 ENIL 3.0%
15 Kitex Garments 2.9%
16 Anuh Pharma 2.0%
17 Cash 6.7%

Trades since last execution.

Sold Sasken: Ashish Dhawan sold. Then the bombshell that Anjan Lahiri quit. Collected Rs20/share special dividend and sold at Rs250+

Natco Pharma: Sold because copaxone getting dragged on and 50%+ have converted to Teva's 40mg. But want to buy it back at some point in the future. Like the company for it innovation

Poly Medicure: Got scared when I read the Indian Express article on land purchases, Poly and Vadra. Stock is anyway super expensive 50x P/E trailing and 40x FY15E

NESCO: Bought 2 more tranches

Atul Auto: Bough some more

Swaraj Engines: Bought some more and waiting capacity increase from 1QFY16

Ajanta Pharma: Bought one more tranche

Kitex Garments: Bough a decent bit. But not fully convinced. Stocks seems expensive to me.

Anuh Pharma: Cheap, zero debt, high RoE and RoCE, good dividend payout. Bought it. Not sure if management is growth minded though.

11

Looks good venkatesh…

What is the thesis on 2nd highest allocation to NESCO

12

See attached note by Professor Bakshi which should explain the thesis.

http://www.scribd.com/doc/210179963/Nesco-Sanjay-Bakshi-28May2010#scribd

And yes in my view this is the best listed real estate stock in India. I am not a fan of Ashiana Housing I think it is overhyped and too expensive.

13

great picks with solid brief reasoning.

I missed MPS due to price anchoring as I first looked it at 100 rs but cud not understand its business.

Cud you in your inimitable style explain the business ,opp size n future for thsi co?

Why are you not that positive on Kitex considering great SB is v positive on it?

also some more details on reasoning behind picking ANuh pharma?

Also wud love to hear from you on 2 stocks with great potential imho CCL product & Premco Global

14

Thanks for your kind words Vivek.

On MPS

Honestly,I look at the past more than future and invest. I bought MPS at Rs335 in Jul14. the stock was trading at 13x P/E trailing FY14 with 50% RoE and 72% RoCE. For the last 3 years the company had paid out 53-66% of profits out as dividends. So genuine money was being made which management was sharing with investors. Ajay Relan of erswhile CVC and current CX Partners was vouching for it. Esteemed VPicker Mahesh Shah was putting out information regularly justifying that the margins were sustainable. With the rupee depreciating I thought MPS would only get more competitive besides translation gains.

This was the though process to buy. Now at Rs740 20x FY15E P/E stock is not cheap. But you see Inormally dont sell just because stock is expensive if I have got in cheap. So I am holding on currently.

On Kitex

- Kitex trades at 30x+ P/E FY15E

- There are unresolved issues on KCL and KGL ownership

- I cannot understand why there is not enough interest income in P&L.

See you make money because of 2 things according to me - rerating of valuations (5x -> 10x -> 20x -> 30x - 40x) and growth. To me it looks like valuation re-rating is done or perhaps overdone in Kitex. And by buying Kitex we are betting on growth.

As for SB. He might be a great investor and professor. But please note he wrote thisafter it became amulti bagger for him and not immediately post buying. So how can you be sure he is not selling his shares to us why we keep buying at higher levels :)

To compare this to my MPS purchase. It is like me buying MPS at Rs1000 bucks and hoping it grows. But then why did I buy. Well it looks like the opportunity could be scalable. And the I decided to respect the collective wisdom of the VP forum. If it does not work out I can always sell.

Anuh Pharma

- Trades at 14.5x trailing FY14 P/E.1H15 profits at Rs11.3crs up 49% YoY.

- Zero debt company

- High RoE and RoCE

Year End Mar31 (Rsmn)

FY09

FY10

FY11

FY12

FY13

FY14
RoE 19.8% 25.6% 26.3% 19.7% 17.3% 21.8%
pre tax RoCE 31.6% 34.8% 32.9% 26.7% 27.0% 35.9%

- Decent dividend payouts

Year End Mar31 (Rsmn)

FY09

FY10

FY11

FY12

FY13

FY14
Payout 0.0% 22.2% 27.6% 35.8% 40.0% 36.8%

Reminds me of FDC when it cheap and I dont know why it reminds me of Atul Auto when I first bought at Rs81 (split adjusted) when it is was a Rs200-300crs mkt cap company. Maybe it is the return ratios. When I bough Atul I had more information. In the case of Anuh I seemed to have hit an information wall. I am hoping someone digs up more information on this forum which will let me decide if I should double up or sell.

CCL Products and Premco Global

Never looked at Premco Global. I did see CCL Products. I dont remember why but something about CCL made me uncomfortable. I just dont remember what it was. If I remember I will get back to you on this.

15

Venkatesh

Hope u remembered on ccl. Waiting for your inputs.hv u studied premco.30 year old co with ethical promoters but recent turnaround started with his dynamic young nephew becoming ED 3 years back .now ROCE 44%,OPM22%,6 PE,60 Cr Mktcap ,EPS doubling from 12 to 25 in last 2 years,marquee client list like Hanes,Gap,Oldnavy,n others n now wexpanding to Vietnam the textile factory of the world implying further iincrease of huge opp size n co moving to next orbit.Your views please

any other scrip u like at CMP?

16

Dear Vivek,

_Hope u remembered on ccl. _

When I started my investing process I was looking for high RoCE, RoE, +ve cash flow from operations and positive free cash flows,zero debt, no share pledging, high dividend yield. As the list of companies with all the above things started getting exhausted I started relaxing some of the above filters. Like I was ok with slightly less dividend +ve CFO but no FCF if growth capex was happening and so on.

CCL might have faltered on one of those filters. Or it could be something as innocuous as stayingaway from a Hyderabad basedcompany.Anyway I dont like owning 15 to max 20 stocks. I already own 17 stocks. So everytime I buy something I need to compare it with something else. And I get it wrong multiple times. For eg. I did not buy Ajanta Pharma in May 2013 because it had share pledging. Instead I bought Alembic Pharma. I came back to Ajanta in Sep 2014 and bought it even though it has share pledging when I read on value pickr that they are pledging shares to buy more shares. I am still uncomfortable with this. So if your research is solid on CCL Products I guess there is nothing to worry about.

Waiting for your inputs.hv u studied premco.

I glanced at Premco Global. Looks like a promising micro cap. The tiny market cap worries me though. Will be difficult to get in and get out. Have had a bad experience with Premier Explosives in 2012-2013.

any other scrip u like at CMP?

There is no margin of safety in 99.99% of stocks now.

Amongst stocks on my radar there is valuation comfort on Swaraj Engines. 1105crs market cap trading at 16x P/E trailing FY1434% RoE, 48% RoCE pre tax, 4% dividend yield, zero debt. Company running on full capacity so growth in 1HFY15. Capacity of engines will go upto 105,000in April-Jun 2015 from 75000 which will give you growth next year. Solid promoters (Kirloskar and Mahindra). Supplying tractor engines to Mahindra and Mahindra. Last year base of tractor sales was very high. So this year no growth on high base. Next year market expected to growth 10-12%.

I analyzedNirlon and regretted missing it (especially given I holdNESCO and could appreciate Nirlon).The stock has run up now.

I also workedon Mayur Uniquoters. Looks pricey and looks like I have missed it.But I still hope to buy it sometime.

Given the expensive markets even Vardhman Acrylics looked promising when it first was brought up for discussion on Valuepickr. Before I could make up my mind it ran up.

I also bought some more MPS at Rs760 yesterday at 20x FY15E.

A bubble is forming in small and mid caps and honestly I dont know what to do. Valuation wise I have comfort on only 1 stock in my portfolio “Swaraj Engines”

17

I just glanced through the Nirmal bang initiation report and I remembered what I did not like about ccl products. Look at inventory days and receivable days. It is very high. I don’t think the company makes too much cash flow from operations. If a cfo/pat is less than 0.5 then the pat is meaningless. No wonder the company has too much short term working capital debt. Reminded me of midcap construction companies like I ivrcl and Nagarjuna who are also from Hyderabad. Also similar to future retail.

So CCL failed on the cash flow from operations filter and I did not do any more work on it post that.

2 Likes
18

Thanks Venkatesh.Its a pleasure to go through your comments n sage reasoning.

Any views on picking Kaveri n Mayur which has corrected substantially from its 52 week high .Overall story remains intact.

Any views on OCCL,Avanti & PFS.

One needs to have few quality microcaps which can multiply boosting one PF besides the 20-25% fast growers in the PF?last year Avanti & PFS helped me

Any microcap u may be tracking with this perspective?

19

I have looked at Mayur. I don’t own it and want to buy it. Tad expensive though. But good long term holding. Big thumbs up to the company

Kaveri Seeds … Have not looked at it closely to have a view.

Oriental Carbon and Avanti are beyond my circle of competence. I don’t know what PFS is.

I am not tracking any micro cap. I was looking at Gujarat Automotive Gears. But I realised I am not getting enough time to research it. In micro caps due diligence takes too much time. I am not getting enough time away from work.

20

Hi Venkatesh,

On CCL and in general, one has to understand the business model first before making sense of cash flows. CCL/coffee processing industry bears no similarity to the construction sector. CCL actually not only generates operating cash flow but also FCF if one excludes the recent heavy capex on their Vietnam plant, take a look at their annual reports. Below are some numbers and comments;

11). From FY11-FY 14 CCL ( on standalone and consolidated basis) has generated positive operating cash flow every single year

22). CCL has generated total FCF of 63 cr from FY11-14 on a standalone basis and even on a consolidated basis ( including the Vietnam plant capex) it has started generating FCF from FY14 which will increase as the capacity utilization of the Vietnam plant increases.

33). Debt is very low ( interest coverage of 27X for 3qfy2015) despite the high Vietnam capex underscoring the cash generating nature of the business.

44). CCL has a back to back model of doing business where it orders green coffee only when it receives a confirmed order for instant coffee, this eliminates exposure to coffee price fluctuations. Supply contracts in this industry are normally for 3-4 months hence the ~120 inventory days. Receivable days are around 42-44 and payable days are 20-23. This leads to a rather long cash conversion cycle of 140-150 days which coffee processors finance through working capital loans. The interest for the working capital loan is deducted from operating cash flows. So it is a very clean and repeatable operation as long as you have a strong customer base.

55). A friend of mine works in this industry and he was quite amazed at CCLâs return ratios and the way it has scaled up. Its ROE of 18%+ ( once the Vietnam operation is fully up the ROEs will move up further) is quite exceptional for this industry.

Disclosure â invested

Bobby

1 Like