Prasad portfolio

Q&A: Questions & Answers Portfolio Q&A
81

Prasadji,

while in general i agree about need to buy financials of high and proven quality and at lower end of valuations but here

the stock is new, but the business is old. they have been growing at high rates for past 7 years. look at their growth even in 208-2010 period (ipo prospectus). on the asset quality front, out of rs. 4600 cr lent over years, actual loss has been only 0.08% i.e. rs. 4 cr.

about gruh going in deep red in 90s, lot of NBFCs failed in 90s. since then lot of regulations have got changed and management expertise in general has grown. hawkins also went into red in 2002 due to change in excise rates etc.

disc. have a decent size bet in repco - will wait for some price consolidation to add more

82

Hi Prasad Bhai,

I too have doubts, if the Repco story is getting re-rated too soon.

However, i think “micro-finance” customers and “low ticket housing loan to people having no income proof” (Gruh/Repco customer base) are 2 different customer base and not very comparable.

Like you said, Micro-finance customers, are mostly poor people who need cash for just getting started on a small business or meeting their other small social obligations etc… the loans are mostly given without any collateral, and via their social circle so that a sort of moral pressure can be exerted for return of loan.Micro finance is spoken of as poverty eradication tool world over but in India greedy promoters had started charging rate closer to private money lenders. If you see it’s state wise presence, it was mostly doing well in states where income inequality is high and proportion of poor people is said to be high, like Odisha, AP, Bengal etc…

On the other hand, customer base of Gruh/Repco is said to be those who are earning decent but some times irregularly and definitely not filing IT returns. Sure the creamy layer (IT return filing type) is getting the loan at cheaper rates, but IMHO there is a market for this customer base too. If you see Gruh’s state wise presence they are intentionallytargeting high economic prosperity states like Gujarat, MH, Rajasthan etc…and Repco TN. Also this loan is backed bycollateralunlike micro-fin.

Conventional thinking is, a guy having credit history, with a job, and fixed pattern of income is safe to lend to because that’s whom the banks have lend to so far. But is it really so ? Sometimes i think my carpenter has more surety of future income than some of us have. He has no need for giving tax, lumpy but good income, normally lives a life well below his means etc etc… I mean there are many people who are doing well without a formal salary slip and need for filing returns. Why should they not get a loan for a building a house ?

Isn’t the Shriram Transport Finance Corp story similar at some levels ? Providing higher rate loans to customers which main stream banks ignored.

Would like to know your views.

Disc: Currently I am in aggressive approach camp that you described.

83

Amit jainji

Rupee,gold,copper,USD,interest rates in India and in us,inflation,current acot dfct,trade dfct -----these are the terms used by economist and not by stock pickers.I just do not understand these terms hence do not pay much attention to them.

Calulating intrinsic value is again a complex excercise and differs from person to person.Hence here also I am not an expert.But at the same time I am wise enough in not buying a 25% grower at 50 PE.

What I vaule most is the business model,validity and relevance of that model in next few years,quality of management,ROE and ROCE, payout ratio,free cash flow generation,ability of company to dilute equity at higher valuations,high asset quality,stronger brands,proven track record,ability to grow from internal resources,avoiding unnecessary diversifications,focus on profitability,positive customer

feed back about the company in real world ,gain in market share,increasing product visibility,etc—

These things I understand and I stick to them. I have already stated I am not a big time multiplier buy I am a long time compounder. Gruh and Hawkins suit my investment style

hence I have majority exposure to them.If they give 20 to 25% compouding for next ten years I will be very happy.

Regardless of investment era be it 1990 or 2020 general principles of making money would remain same and quality companies will always make money.

Again this are my thoughts which I am following for last decade with modest returns (25% CAGR) and I am happy about that.Diversified VS concentrated is again a separate topic which already has been debated here.

84

Raj pandaji,

I am absolutely with you when it comes to opportunities offered by microfinance field.But I prefer to stick with gruh rather than repco that is only difference.I feel that if one has next three to five years view gruh will outperform repco weighed on the basis of risk reward.

Repco has been growing very fast in last few years and presence of opportunist PE player scares me a bit.Having said this there is nothing wrong in making some quick buck if one knows how to ride a tiger.

85

ashagarwalji,

Presently repco is a hot cake and if you feel that you should go for it then please go for it.

I was just cautioning some new readers of this forum who depend on borrowed conviction to buy popular hot stocks,debate ferociously in favour of them and then silently sell them when the origin of the idea turns negative about the stock.

Remember Titan… refer to my post on my thread on 9 th of jan 2013 and some of my posts on same topic on rudra’s portfolio. Please read them it helps some time to have a contra view.Investment is very personal thing and I really respect your way of investing.

but at the same time just a word of caution might prove useful…

86

ashagarwalji,

Presently repco is a hot cake and if you feel that you should go for it then please go for it.

I was just cautioning some new readers of this forum who depend on borrowed conviction to buy popular hot stocks,debate ferociously in favour of them and then silently sell them when the origin of the idea turns negative about the stock.

Remember Titan… refer to my post on my thread on 9 th of jan 2013 and some of my posts on same topic on rudra’s portfolio. Please read them it helps some time to have a contra view.Investment is very personal thing and I really respect your way of investing.

but at the same time just a word of caution might prove useful…

87

Posted byPRASAD V. K.at December 24. 2012

Titan seems to be most dangerously valued with presence of large leveraged investors.Company trying to venture out in a lot of different businesses is an indicator of maturing core business. New businesses would act as drag on high ROE,ROCE and free cash flow generations. Some times I even think about shorting this one.

Posted byRaj Pandaat December 25. 2012

Hi Prasad,

“Titan seems to be most dangerously valued withpresence of large leveraged investors.”

How do we find out if the current investors are leveraged or not ?

raj Pandaji -I hope you remember this discussion while getting in agressive camp

88

Prasadji,

well, i am already into repco since ipo at 172 and then added at 235…

any specific comments on the growth rates and asset quality aspects that i mentioned ?

nothing wrong with titan, i used to hold it, and sold out at 238 recently, after the weak hands were out. there was a rbi policy impact which everyone in the sector felt. look at the comparative price charts of titan, tbz, thangamyl, gitanjali and you will see which investors suffered least - especially investors who bought at reasonable valuations and did not think valuations don’t matter. the mgmt remains excellent, brand remains strong…

if tomorrow, RJ buys hawkins or gruh at cmp, will you sell your shares, thinking leveraged investors are in ?

about people talking own stock, people here are mature enough to do own diligence. no offence, but your pick techno electric is also down 50% and there is no talk on that. rudra’s brother must be happy - just joking.

http://www.valuepickr.com/forum/portfolio-q-a/591561173#926375688 Link: …/…/591561173#926375688

but no issues, all of us make mistakes - i also have stocks where i lost money or opportunity to make money - part of the process…

anyways, lets see how it goes…

stocks, debate

89

Ha ha ha… Prasad bhai, kya yaad dilaya, seriously.

but jokes apart, if we take a multi year view of a sector and company, these over bought/sold kind of things will keep happening no ? regular joes like me can hardly do anything to stop/encourage this. so, why bother ?

Link: …/607992338/597855521 Posted byPRASAD V. K. Link: …/…/…/author/prasadvk at

Link: …/…/…/author/prasadvk

Link: …/607992338/954724459 Posted byRaj Panda Link: …/…/…/author/rajpanda at

Link: …/…/…/author/rajpanda

** withpresence investors." **

90

ashagarwalji,

I liked the business model of techno,undervaluation of murudeshwar but I never owned it.Liking a stock is just first step, before buying the stock has to satisfy a lot of criterias. As I like to own only couple of stocks I cannot afford to own all the shares I like which can be owned by a diversified all weather long term portfolio.

In my thread I have clearly given my portfolio distribution,even when I sold some part of gruh I made disclosure and again posted increased allocation to hawkins. Hence let us be clear on that front.

What I am trying to tell is a lot of people entered titan on borrowed conviction from somebody,argued that any growth portfolio is incomplete without titan,bought it,gave it healthy allocation and suddenly it is out from the portfolio for no reason.(probably person with original IDEA turned negative).This is what getting into sucker rally.

Management of repco is coming on tv chanels every now and then and projecting very bullish forecasts,coincided with sudden rise in share price is not healthy sign at all.

Pls do not get attached to the share. I am not saying anything to you or your investing approch I am just trying to caution the readers who read my thread.You are correct people in this forum are well informed and they will take proper decision.

About titan, again there was a lenghty discussion between me,rudra and raj panda in dec 2012. That time titan was perceived to be a indispensible poster boy of consumer bulls

and nothing could go wrong with it. Hence I just reposted some parts of discussion for reference to raj pandaji. No offence meant to anybody even in joke.

I am certainly not comfortable with presence of leveraged investors,promoters borrowing against equity etc. But again that is my personal feeling.

91

Prasadji,

no issues. respectfully, whether one buys a stock or just recommends others to buy it, it counts and shows.

investing is all about probability. repco might turn out to be the worst investment in history, but based on my analysis of repco, my average cost (200), and current price, i like the probability over medium term, hence am invested. But opinion in investment change with facts and time, and I might change mine tomorrow.

i also donât like the sudden price rise, but markets donât go my likings :slight_smile: as I mentioned earlier, such madness earlier also happened in gruh, hawkins, zydus wellness, gsk consumer, jubilant foodworks, grp etc. if the business continues to perform, stock consolidates like it happened in gruh, gsk consumer, jubilant. If the business falters, stock falls big time like it happened in hawkins, zydus, grp. so we need track the business.

i didnât buy titan on borrowed conviction, nor do i sell/ stop buying repco on borrowed conviction. If i buy and it falls by 50% or i sell and it goes up 100%, nobody is going to compensate me, right? If today i buy/ sell on borrowed conviction, i will end up living on borrowed money tomorrow!

about titan, i continue to disagree with you. the original idea was of rakesh jhunjhunwala, way back in 2001. if the business has done so well since then, the stock has done so well, and he held onto it for 13 years, I think he deserves some credit. I did my own analysis of titan, and bought when it was at reasonable price of 175 in dec 2011. i would have continued to hold onto it for long term but for rbi policy change. so most people rightly sold titan for a reason â the change in govt policy which effected fundamentals. but I did not panic sell at 200-210, I waited and sold at 238. that is where own conviction comes handy.

any company can be affected by policy change. suppose rbi comes out with a circular today saying â there is slowdown and price correction in real estate, we need to ensure integrity of financial system, housing finance companies need to reduce leverage to 5-6 times (reasonable scenario). hdfc/ gruh business will be severely impacted and their ROE will halve and stock price will collapse. so fearing possible policy change, should one stop investing in hdfc/ gruh?

take another situation. Elections are coming. congress says along with food security bill, pressure cookers are a basic necessity, so it will buy 1 cr pressure cooker at say rs 500 from two L1 bidders (L1 so will likely be prestige and maybe vinod/ butterfly) and distribute through ration shops/ army canteens at rs. 250. (cost to govt only 250 cr â possible scenario). now people buy pressure cookers once in 5 years. how will it impact demand for Hawkins for next 2-3 years. what will happen to this illiquid share with concentrated holding in 1 group, with little demand outside?

there is never a canât miss stock. not titan, not jubilant, not gruh, not hawkins, not microsoft, no stock is a canât miss stock. ttk prestige was the best stock in the last 4 years, most investors missed it, but still did ok, right ?

about repco interviews, such noises happen when a stock goes up. there were anonymous reports on hawkins when it came to 1800 for the first time, multiple magazine articles and blogs on gruh when it came to 230 the first time, hype over new product launches of zydus wellness etc. lot of investors wait for full clarity, pushing the price up â like I mentioned some people buying hawkins only at 2000. some bloggers even advise buying a stock at 100, continue buying on way up and stop buying if it comes to 80, without using brains!

presence of large leveraged investors is discomforting, but a point to ponder â such investors of titan are also most probably holding hawkins and gruh? Does it change your investments? not for you maybe, but for many people, hawkins and gruh is also borrowed conviction.

92

Ashagrawal & Prasad,

Please do not make it a personal spat and spoil the forum. Respect each other’s thought process and keep your heads cool.

Admin please make these two to restrain personal allegations. Let the peace prevail.

93

Manishji,

i did not take the comments personally, and hope prasadji also did not take them personally. it was a discussion which went more detailed than necessary and more suited to an email discusion. sorry if people found it offensive. no further comments from my side on this.

94

Prasad Bhai,

I just want to say onething, keep writing more often.

in-experienced ppl like me need to hear different perspectives more often to keep my thoughts in balance.

95

"about people talking own stock, people here are mature enough to do own diligence. no offence, but your pick techno electric is also down 50% and there is no talk on that "

Ashagrawal,

Your above comments appeared personal. Please refrain to make such comments. Otherwise the arguements & counter-arguements are always a part of healthy discussion. I enjoyed the first part of your discussions but later on it looked heated up and hence commented.

96

All forum members-- the posts in my portfolio thread are part of my thought process and learning about investing. These purely reflect my understanding of current situation and my response to that. I post them in my portfolio thread so that I can revisit them anytime and compare how they fared and this process enhances my learning abilities.These are not investment advises or picks.Hence please read and treat them just as a thought process and not as a mature investment benchmark.

I was just wondering how thinly traded our much liked stocks like page,hawkins etc are.

What implications’ periodic call options’ system will have on them.will investors loose interest or it will help in true value discovery.

97

Fundamental review of portfolio

1)Hawkins–50%

2)Gruh–35%

3)International travel house–15%

1)HAWKINS

1)Manufacturing constraints were supposed to be a main factor affecting sales.These seems to be getting resolved in near future.But in the meantime the sector has become

very crowded.South based companies trying to expand north and north based companies trying to expand south.New players entering, some foreign PE based investments in kitchen appliances sector have suddenly made this sector very challenging.

Unless hawkins tightens its belt and focuses on profitability it seems unlikely that even though supply issues are resolved any meaningful impact will be visible on EPS.

2)Company is entering in induction market where it will face tough competation from existing players as well as potential big players like BAJAJ,HAVELS ETC.There may be positive impact on topline but very negligent impact on EPS in very near term.

3)Over a longer term hawkins seems to be a company with pristine balancesheet with superior brand fighting with regional small players on cost basis,fighting with TTK and facing potential threats from big MNC kitchen appiances brands entering directly or indirectly through PE route.Hence 25% compounding for next ten years looks a stiff target.

4)From very short term view resolving supply issues could take EPS to aboout 100-105 levels.Complete fragmentation of this field would take about two to three years during this time there would be a time the EPS may reach 150 levels.At the same time expected fragmentation of market will drag down PE to about 20 hence a target of 3000 looks possible here.

5)Any appreciation from 3000 odd levels will depend upon how company prepares itself for challanges and its ability to operate in fragmented market (competing cost wise with regional players and brand and qualitywise with MNC.

6)Overall hawkins is now a short term bet with potential immediate upside of 30 to 50%

Plan to exit partially after that.

2)Gruh Finance–

This one looks more solid than it looked last year.The sector itself is very huge and has

ample scope for profitable 25% growth without affecting asset quality.

Entry of new players including foreign players will not affect gruh because of operating

leverages it has attained for so many years and this company will go strength to strength.

Slowdown in property prices,potential meltdown (more that 30%) in property prices though may affect the asset quality.But even though most of the loans are small ticket

and end user driven hence there may not be any default on repayment.Hence company will come out relatively less hurt in this happens at all.

Stock pricing was always an issue in the past and will likely to remain same in future.Stock will always look priced to perfection (slightly expensive) in future also.

This is my core holding for last so many years and has never disappointed me.I have used this stock in so many ways (trading,moving out and in again for cashing some other immediate gain etc–) and every time I am rewarded.

Proceeds of hawkins would be deployed in gruh again.

3)International travel house-

I am been tracking this company since hitesh bhai and donald were discussing it few years back.Because of compelling immediate opportunities I think people are not invested in this.But since script was entering periodic call options the script got corrected and I grabbed a good chunk from that. Presently it is tradind below book value at an dividend yield more than 3% with single digit PE.This is ITC group debt free company and has tremendous potential when things stabilise.

This has potential to give multibagger returns from long term view.The sector in underrepresented,company is debt free,has a cash rich parent like ITC.

Over next ten years I see a lot of unorganised business in this field will come in organised hands and this will benefit ITH. More information about this can be read from company thread on valuepickr.

Over last couple of years desire to participate in all nearterm opportunities and fear of lost opportunity cost had kept me away from this one.But finally I have decided that time has come that we look beyond our comfort zone and align atleast 10 to 20% of portfolio to future bearing the opportunity cost.

Petronet LNG also looks very interesting.(NO INVESTMNETS FROM MY SIDE AND NOT ADVISING OTHERS) simply because from next 20 years view they have chartered huge LNG capacity.This sort of chartering of ships is unprecedented and if they are able to sell it without any burden from govt company can really enter in totally different league alltogether.But again this is my observation only and not my pick.Those who are tracking this one can throw more light.

98

A thought process-

can zara act as a game changer for trent

I went to a shopping mall last sunday with wife to watch movie while strolling I was surprised to see huge crowd of girls,women in zara shop.Lot of them were coming out

with zara bag. Then I observed keenly in the mall on different times most of the young girls and women were carrying zara bags. Went on net and found out zara, international mass fashion brand has a 51;49 joint venture with trent.They have clocked sales of over 400 crs this year with a profit of about 40 crs. Zara seems to be real hit with Indian girls and is poised to do women apparel market what jockey did to premium innerware.

I talked to couple of guys in this field and they were pretty sure that in next four to five years ZARA will capture a significant market in metro/semi metro/aspiring metro area and can be be a 2500 to 3000 cr brand by then.This is huge positive for trent. I think present valuation of trent does not take this in acount.

views invited.

99

Prasad,

what is the source of info for this? In the AR they had displayed only a cooker model which is suitable for induction. Are they entering to induction based cookwares and cooktops?

Could you kindly share the source of info please?

100

krishna Kumar

you are right. As on now officially they have come up with only a cooker model which is suitable of induction. Hence I said it will have minimal impact.

People tracking hawkins closely are expecting a full fledge entry in cookware (pots) not cooking tops in near future. But these are all pure optimistic speculations. People are tired

of inaction and lack of imagination of hawkins management.Passiveness and stock market aversion has worked so far very well with this company and people have always treated no news as good news. I expect very tough questions will be put to hawkins management in this AGM and they should be made to answer the reasons behind failure to capitalise on opportunity inspite of having a very strong brand. I hope investors stop

cajoling management and remind them about their duties towards shareholders.

Over last few years management has increased dividend payout to pacify investors and is

trying to offer false comfort.As investors we do not want that we want business to grow and share price to increase.FD having 7% return looks more attractive that hawkins as on today if these issues are not addressed immediately.

I feel all forum members should contribute,prepare questions,send few members to AGM

and get first hand response from management.

Also what is the point in increasing dividend payout without significant increase in bottomline. I am also not comfortable with concept of increased payout reflects confidence of management on future.

So far purely from cash flow and finance side management has really maintained a pristine balance sheet ( that is what kept me hooked to this stock for so long) but some where down the line the bottomline has to grow year on year atleast 30 to 40% for four to five years in a row. Without this kind of performance in my view management is a failure for share holders.

Earning 110 rupees per share and returning back 70 rupees to shareholders (when far superiorreturns can be made by investing same money in new product line ) is very difficult to understand