Prasad portfolio


(PRASAD V. K.) #1

HI all following is my portfoio

1)Gruh finance- wieghtage-62%- average entry price-140

2)Hawkins -weightage -38%- average entry price- 1700

Only two stock portfolio. I am trying to diversify it to three to five stocks from last one year but

not able to develope conviction and wisdom to buy anything other than above two (especially gruh).Hence I have joined this forum and presently reading each and every post and thread to hunt for new idea. Last two three years or so whenever I try to buy some stock invariably I compare it with gruh and again end up buying more gruh. Hope this forum will help me to develope courage to come out of my comfort zone and explore something new.Especially I want to come out of my hypnotic obsession with gruh.

Few years back I was a rgular common investor holding about 8 -10 stocks, winning on some loosing on some and making effective CAGR of about 15 to 16%. But after reading so called must

read books slowly all stocks vanished and without realising what is happening portfolio got reduced to just two stocks and increamental cash allocation going again to these stocks.Seniors pls share their journey when they passed through this phase and how they came out of this phase of holding comfort and developing all sorts to ability to find out negative points with new investment ideas


(Hitesh Patel) #2

Two stocks should suffice if you are thoroughly convinced about the stories.

For getting new ideas maybe you could take the top down approach and look at good sectors and then zero in on sector leaders and try and develop conviction.

Looking at your theories put up earlier I am sure that the bottoms up and undervalued themes wouldnt work with you.


(PRASAD V. K.) #3

Thanks hiteshji for the reply. Infact before taking to informed investing I was following bottom up approch without actually realising it. I used to buy cheap stocks and wait for valuations to catch up. In fact I used to multiply PE X P/B and if the figure is between 10 to 20 for a decent stock with credible management I used to buy it. But TED introduced to me concepts of ROE,ROCE,concept of free cash flows and most important SUSTAINABLE GROWTH RATIO (ROE-DIVIDEND PAYOUT RATIO) after that I started looking for high ROE stocks with low debt which can maintain high growth even with good dividend payout ratio and need small amount for capex which would be available from internal acruels . And after this filter all my stocks vanished leaving behind gruh and hawkins. But these two stocks appear expensive for naked eye and Iam in a need to find new alternatives to deploy further capital (salaried person)


(Rudra Chowdhury) #4

Hi Prasad,

Quite liked your invest thesis. Why don’t you start building the story on P&G Hygiene like you suggested ?

We all can chip in and let’s see if we can have the 3rd stock for your portfolio. :slight_smile:

However, I tend to disagree with you on the franchisee bit of the argument, and I do believe where there are remote chances of the parent coming on their own, building on the franchise story is good. (Page, Jubilant Foodworks, Madura Garments (Aditya Birla Nuvo))

Your opinions please.


(PRASAD V. K.) #5

:))

Thanks rudra for your thoughts. Reading your blog on hawkins has hepled me a lot to maintain patience with hawkins.

Regarding P&G I was trying to consider alternative for page since I was not comfortable with franchisee mode and also single large private promoter (genomals) I came across this.

1)P & G product whisper is more closer to body than page product and is a must buy for large part of population.

2)Whisper being costly than stay free was mostly used buy urban/upper middleclass women.But now because of increased education levels,increased earnings and increased feeling of self esteem among lower middleclass/rural woman there is exponential rise is use of whisper.

3)This is a straight duopoly between stay free and whiper hence increased marketsize is shared linearly by two players.

4)In case of page there is uncertainity after contract expiry.Here the business model is very clear. Both page and P& G india do not have external opportunity.In case of P&G they may source from India for their world operations.

5)I was doing some field work on kajaria/cera/HSIL ect and met distributors. They told me that basically this market is credit driven and whoever extends credit of three/four/six months people buy from them and they are not very particular about brand.They also told me that minimum credit period is one to three months before the companies actually get payment for distributors.On the way back I stopped at bakery for having some snaks. There P&G people were distributing whisper to the shop and collected entire payment in cash. Then I asked the shopkeeper and then the distributors also that the entire system actually works on advance payments and demand for product is always more than supply. Now that is the brand pull.

The shopkeeper was very smart and when I told him purpose of enquiry he asked me a simple question suppose there are three shops

1)A selling whisper

2)B selling page products

3)C selling kajaria/cera/HSIL type of products

Now if all these shops have to be closed down because of some reason which shop keeper will be able to liquidate his stock quickly and at fair price. I was wise enough to guess the answer and moved quickly out of shop to avoid further discussion.After that event I started thinking about P&G.

But there are some negatives also

Only vicks and whisper are under listed entity.

stock is richly valued similar to page

Dividend yield is less than 1% which is again a strong sell signal.

YOY growth is good for last one year but not very impressive for last three/five years. Working capital requirement is rising YOY(I referred Edelwies )

There are so many other ratios which go agianst the buying decision. May be somebody expert in analysing them would help us.

Apart from P & G I am also considering ESAB INDIA and CLARIENT CHEMICALS from investment point of view.

regards


(Hitesh Patel) #6

prasad,

regarding p&g and whisper,

how much does whisper contribute to the overall revenues of p&g? and how much to overall profits?

about page and its license problems, i dont see too much by way of problems bcos license is there till 2020 or so and till that time there shouldnt be any problem. so for next 7-8 years if one is convinced about brand strength of page, it is an ideal investment candidate. problems of license expiry etc is a bridge u cross when u come to the bridge and not think and kill your idea beforehand.

Personally i think page is expensive and does not have the chances of positive surprises present in hawkins.

even to put an anecdote, just a couple of months back i bought two undies – one of jockey and other (the shopkeeper insisted) of amul macho. to my surprise, the macho thing was much more comfortable and has retained its full color and elasticity whereas the jockey thing has almost faded in color and even the elasticity is not as good as macho. I talked to the shopkeeper recently and feedback was that there was one batch of goods where there was such complaint from customers.

I did not like this thing about jockey bcos if u are charging top dollars (around rs 150) then your quality has to be definitely better than cheaper alternatives – read macho here (cost rs 60)

about the other ideas coming into picture, try reading and re reading peter lynch’s one up on wall street and there will be no dearth of ideas.


(Rudra Chowdhury) #7

Interesting :slight_smile:

First regarding Page, the external opportunity is already playing in for Page. The company has the license to sell âJockeyâ brand innerwear products in India, Sri Lanka, Bangladesh and Nepal. Also it is exporting for other Jockey franchisees out of India base.

Jockey International, US, operates on the franchisee model, wherein all its licensees pay
5% of their annual turnover as royalty fees. Presently, Page Industries has a licensing
agreement with Jockey International Inc. for a twenty year period valid up to 2030. So given the 45 year relationships of Genomals, I doubt that Jockey will ever venture on their own in India.

Also, there is huge potential from other brands like Speedo slowly gaining traction. So possibilities are quite huge.

FMCG plays will always command high premium for shorter PLC, high brand moat etc. But paying 32 times EV/EBITDA for a company showing < 1% Profit growth CAGR over last 3 years is beyond me :slight_smile:

And Gillette at 56 times EV/EBITDA with a -13% CAGR over last 3 years. I sincerely fail to understand these prices.

Anyways, will look into the P&G story.


(PRASAD V. K.) #8

Hiteshji I will dig in exact figure about whisper but meanwhile here is what Directors feel about company---

Directors Report Year End : Jun '12
The Directors have the pleasure of presenting the 48th Annual Report
 and the Audited Accounts of the Company for the Financial Year ended
 June 30, 2012.
 
 FINANCIAL RESULTS
 
                                               (Figures in Rs. crores)
 
                                             2011/12        2010/11
 
 Sales including Excise                         1301           1037
 
 Net Sales (less excise duty)                   1295           1000
 
 Profit before tax                               223            177
 
 Profit after tax                                181            151
 
 Proposed Dividend plus tax thereon               85             85
 
 Transfer to General Reserve                      18             15
 
 Balance carried forward                         407            329
 
 BUSINESS ENVIRONMENT
 
 The Indian macroeconomic environment has looked turbulent during the
 past year. After a promising start to the decade in 2010-11, with
 achievements like maintaining GDP growth rate around 8%, bringing down
 fiscal deficit to 4.8% of GDP as well as containing current account
 deficit to 2.6%, the fiscal year 2011-12 has been challenging for the
 Indian Economy. The year started on a note of optimism through
 impressive growth in exports and high levels of foreign exchange
 inflows, only to moderate as the year progressed through continued
 monetary tightening in response to the untamed inflationary pressures.
 Gradually, high levels of inflation gave way to a slow-down in the
 growth. Additionally, as fiscal conditions worsened over the year,
 export numbers were revised in light of data discrepancies leading to a
 widening of trade deficit. In light of a perceivably weak macroeconomic
 environment, a well-planned economic revival policy from the
 Government''s part is required to get back the Indian Economy on the
 path to stable and prosperous growth. Fall of rupee against major
 currencies, new norms of standard-size packaging, increase in raw
 material costs due to upward spiraling interest rates and inflation,
 together might adversely impact the performance of the FMCG products.
 India needs sustained capital inflows to finance its growing
 current-account deficit. Although economic reforms appear to have
 slowed down, it appears that FIIs are continuing to invest in India.
 However, it is also an undeniable fact that the Government continues to
 face challenges in attracting foreign direct investment (FDI). As per
 World Bank''s report titled ''Global Economic Prospects'' the Indian
 economy will grow by 6.9%o in this Financial Year (2012-13)
 notwithstanding problems like policy uncertainties, fiscal deficit and
 inflation.
 
 BUSINESS PERFORM ANCE
 
 Your Company''s strong performance continued in the Financial Year
 2011-12, despite difficult economic conditions, new competitive
 entrants and inflationary market conditions. With a focus on balancing
 needs of the consumer, the customer and the members, we are delighted
 to report very strong financial results for your Company. Your Company
 achieved a healthy double-digit sales growth during the Financial Year
 2011-12. Sales for the Financial Year increased by 25% at Rs. 1,301 crore
 as against Rs. 1,037 crore during the previous year. Earnings after tax
 increased by 20% at Rs. 181 crore as against Rs. 151 crore during the
 previous year.
 
 Feminine Hygiene Business
 
 Feminine Hygiene business has been a major growth driver for the
 Financial Year with business up strong double digits with the various
 variants of Whisper Sanitary Napkins showing consistent growth. Your
 Company continues to deliver amongst the sales and share growth for P&G
 across the globe, with Whisper increasing its market share and Whisper
 Ultra being the largest value share brand in the market behind
 strategic initiatives. This growth is driven both by increase in
 penetration among non- users and consumption among users.
 
 During the Financial Year under review, a number of initiatives were
 designed to meet the consumers'' needs across segments. All these
 initiatives led to the Whisper share crossing its all time national
 high of 54.1 with growth across all major Brands.
 
 Healthcare Business
 
 The Company''s Healthcare sales posted a double digit growth this
 Financial Year across Vicks VapoRub, Vicks Cough Drops, Vicks Action
 500 and Vicks Inhaler. This growth was driven by a combination of
 product initiatives and increased investment behind proven equity
 advertising. Vicks VapoRub had a record year posting the highest ever
 market share. The Vicks Cough Drops business was the fastest growing in
 the Vicks franchise. Vicks will continue to innovate to ensure it stays
 the most trusted cough and cold care solution in India.  The Healthcare
 business further strengthened Vicks equity as one of the most trusted
 Brand in India driven by the launch of Vicks VapoCool, a premium throat
 drop with the dual-benefit of soothing the throat and giving relief
 from blocked nose.
 
 Overall, the Company continued to focus on driving consumer meaningful
 innovations backed by distribution expansion and strong advertising
 support thereby recording a consistent growth across all areas of
 business. Earnings have also benefited from focus on mix, pricing and
 cost control.
 
 Cash generation continued to be strong arising from significant
 improvements in the business performance, efficiencies and cost savings
 across the organization and a continued efficient collection system.
 Your Company managed investments prudently by deployment of the surplus
 funds after ensuring that such investments satisfied the Company''s
 criteria of safety and security.
 
 Strong results have been possible due to several key initiatives which
 focused on consumers, retail customers with a stronger focus on
 innovation, greater effectiveness and efficiency across all costs,
 while strengthening organizational leadership.
 
 DIVIDEND
 
 The Directors are pleased to recommend a dividend of Rs. 22.50 for each
 Equity Share of Rs.10/- each for the Financial Year ended June 30, 2012.

(Ayush Mittal) #9

Hi Prasad,

Very interesting to see you having such a concentrated portfolio. One stock idea which could fit into your parameters may be Poly Medicure…have a look.

Ayush


(Shashi) #10

I think prasad ji you can study colgate Palmolive also .


(PRASAD V. K.) #11

Thanks Ayush for suggestion. I had bought GRP/balkrishna reading your blog and made handsome gains few years back. Hence when you or hiteshji (I own vivimed labs to him) say something it warrants attention.

prasad


(PRASAD V. K.) #12

Colgate dominance will come under serious threat if P&G launches CREST in India.

Also ji is exclusively for hiteshji and nobody else. for mr simply prasad.


(Hitesh Patel) #13

Not for me too.

ji se mukti do bhai.


(PRASAD V. K.) #14

**

Not for me too.

ji bhai.

Because of legacy created by hit2710 on TED atleast for me it will be hiteshji.

**


(Raj Panda) #15

Hi Prasad,

I am not a very experienced investor myself, so no need to take my comments very seriously :slight_smile: But given my current mental struggle about cleaning my jungle of a portfolio into a decent looking one, here are some thoughts.

1). The thing i like about your thought process is, thinking just like how the promoter of a company would think, i.e., very long term. However as an individual investor i think we are in a little better position than the promoter himself because we are not really married to any investment, and we have the flexibility to change course, at the first sign of trouble ? i.e., sell and take the cash out. The same may not be as easy for the promoter himself for various reasons. However, the promoter will probably be the first person to know about the forthcoming trouble in his business and retail investor will many times know long after them. So, the point on my mind is, in an extremely concentrated portfolio like just 2 stocks, are we not exposing ourselves to a possibility of very huge risk in case something goes wrong with a business ? See, am no way suggesting any issues with the 2 stocks specified here or anything like that, it’s just a point about extremely concentrated portfolios and risk that might come due to the unknown, like an act of god ? Are we not exposing ourselves to some kind an unforced error ?

2). IMHO the stock prices of very good companies (like the 2 in your portfolio) sometimes tend to over-run the fundamentals and remain so for long period of time and in times of general market trouble they might correct to near fair valuations. That presents a problem in putting our fresh cash to use. Wish mere mortal like us were patient enough to wait for years and invest it all in one go at the right time, like Charlie, but that’s easier said than done. So, how do yo handle this ?

Am still not sure how many is too many or too less. But am trying to bring my portfolio down to 20-25 stocks (as it’s a magical number) and both Gruh & hawkins which i hold for more than a year now hold their places tight.


(PRASAD V. K.) #16

Hi Raj,

In following cases people tend to hold multiple stocks.

1)Sometimes the portfolio is so huge that by buying or selling in a single company becomes difficult from liquidity point of view.Fortunately I do not fall under this category.

2)Putting all your eggs in one basket is risky- Here we must understand that buy buying shares of different companies basically we put our eggs in same type of basket with same risk. Hence diversification means different asset classes like equity/gold/real eatate/FDS etc and not owning different company shares.

3)My aim for investing is to make serious money . I am looking at multiplying my present net worth ten times in ten years and anything less than that would be under achievement. Hence when I look at the company the first question I ask that can this grow ten times in ten years? Whether the business would be relevant after ten years? Whether management would be able to maintain competative age for that period?Can I sleep peacefully if share price falls 50% or increases 50%? Can muster courage of averaging at reduced price?If the answer is yes why not own single company?

4)Over a period of last few years some of the buy sale in my portfolio-

opto circuit-buy 80, sale 280

jubilant org-buy 80,sale 310

siemens healthcare-buy 320,sale 1400

spice tel-buy 31,sale 85

BOC india-buy 160,sale 290

Tata chem-buy 150,sale 320

Gail-buy 159,sale 390

petronnet lng-buy 78,sale 95

jb chemicals-buy 55,sale 110

alstom-buy 380,sale 410

glenmark buy 250 sale 310

kaveri seeds,buy 270,sale 360

AND SO MANYlike vivimed,GRP,TTK HEALTHCARE,IDFC,etc

Losses

ACGL,BUY 370,SALE 280

TIL,BUY 520,SALE 420

SANGHVI MOVERS,BUY 132,SALE 114

VINATI ,BUY 71,SALE 61

AND SO MANY like JP,PUNJ,GREMACH ,SINTEX ETC

Inspite of doing so many profitable trades portfolio went up just about 15% CAGR for last few years. Then I realised if we want to make serious impact to our net worth we should take very few but solid bets and do a 25 to 30% CAGR for about 15 years and I changed my investment policy and started taking these bets.

At the same time sometimes I do take trading bets like TBZ but gains are again invested in core portfolio.

But any how this has worked for me so far and only if it works for a prolonged period of 10 to 15 years then only I can say what I did was right. One should take bets in which he is comfortable and understands the rules and risks of game completely.

Regards


(Krishna) #17

nice points prasad… thumbs up


(Raj Panda) #18

Hi Prasad,

Well i was talking only about the stocks. I totally agree with your points about asset allocation into different asset classes. and also quite like your idea of trying to grow your networth 10 times in 10 years. Makes sense.

Let me try to explain it better with an example on what i was trying to say - suppose the 2 stocks in the portfolio passed through all the filter criteria’s and we are spot on to grow the investment 10x in 10 years. However, say after x years some untoward incident happened with one of the companies like earthquake in the mfg facility, death of key management personnel, satyam kind of event … etc… and the business outlook turns negative overnight with solid and valid reasons. Stock get locked into lower circuit for days and loses lot of it’s value. How will it impact our networth and how much setback we will get in our networth growth goals.

I am just trying to think through on different ways a portfolio can be structured and different things that can impact it both positively and negatively, lot to learn from experienced and wise people :slight_smile:


(PRASAD V. K.) #19

Hi raj,

I accept that there are risks associated with my investing style.

1)First risk is that I follow top down aproch and buy fast growing companies with high PE.Couple of quarter of muted growth can knock down these stocks.In my case I use it as buying opportunity.

2)Unfavourable macros beyond anybody’s control can ruin the entire portfolio.

But again Peter lynch has said that invest in stocks as much as one can afford to loose completely.This amount should not be so small that its impact is minimal both ways or so large that impact is devastating. Ideally I am invested upto one years annual income at any given time and hold equivalent cash/gold to inject in bear markets.When market sentiments turn positive or stocks double I book partial profits and again go back to previous old ratio of stocks and cash.

With diverified portfolio gives you something to cheer about every day and sence to security but on given bad day it gets clobbered down same as concentrated portfolio.

Hence one should set his policies clear

1)Stocks are risky asset class which carry huge risk but at the same time can get huge reward.Hence objective in this asset class is to get maximum returns by bearing maximum risk.

2)FDS/gold and liquid cash gives you feeling security and at any given time equity investments should be backed equally by these instruements.

3)Real estate for self use is a primary need and that should be satisfied before you buy stocks.

If you follow above rules you will realise that you actually have very less amount to invest than you actually thought and with that you can possibly buy very few stocks.In short owning diversified stock portfolio is not a risk mitigation for owning stocks.Financial advisers advise it for their own safety so that if some of their recomondations go wrong stll they can claim victory with few winning picks and still stay in advisery business.

Having said this I am not an expert on this topic and just follow my gut feelings and instincts rather than cutting age analytical tools.May be somebody like hiteshji,rudra,ayush or donald would put up a more proper and relevant write up on this subject on inter asset class risk mitigation vs intra assetclass risk mitigation.

Regards


(Raj Panda) #20

Fair enough Prasad, we all have to chose our own “horses for courses” :slight_smile:

One clarifications from my side:

I wasn’t talking about volatility that comes from few quarters of bad results or bad markets. I was talking about chances of permanent loss of capital due to unforseen issues and how it ‘might’ affect a super concentrated portfolio vs diversified portfolio.

Nothing more to add from my side :slight_smile: