Rudra’s PF and Information attic

Q&A: Questions & Answers Portfolio Q&A
1

Hello All,

Here is my current portfolio. Cleared out of lot of stocks which looked promising, but never quite picked up. Clean up almost done, current focus is mostly on good growth stories, a few turnaround names with emphasis on strong cash flows and lower gearing.

Current Portfolio:

Stock

%age Holding

Mayur Uniquoter

15%

Ajanta Pharma

12%

Kaveri Seeds

12%

Opto Circuits

12%

Yes Bank

12%

Unichem Labs

9%

Cox & Kings

7%

Hawkins

6%

Page Industries

6%

Atul Auto

6%

Cera Sanitaryware

3%

Request senior boarders to comment on the above for improvements.

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2
[quote="Prudent_Invest_, post:1, topic:607992338"] Hello All, Here is my current portfolio. Cleared out of lot of stocks which looked promising, but never quite picked up. Clean up almost done, current focus is mostly on good growth stories, a few turnaround names with emphasis on strong cash flows and lower gearing. Current Portfolio: 15% Ajanta Pharma | 12% Kaveri Seeds | 12% Opto Circuits | 12% Yes Bank | 12% Unichem Labs | 9% Cox & Kings | 6% Page Industries | 6% Atul Auto | 6% Cera Sanitaryware | 3% Request senior boarders to comment on the above for improvements. [/quote]

Good One.

Stock

%age Holding

Mayur Uniquoter

7%

Hawkins
3

Barring opto and cox and kings, rest of stock selection seems good.

If I were you instead of these I would add more of page inds or some other stock where conviction is high.

4

Hello Hiteshji,

Opto and Cox & Kings are more for the short to medium term.

I have been closely following Opto since 2009 and had intermittently bought and sold since then. The cash flows would turn marginally positive by Fy13 end, and broadly by Fy14. The pessimism of high debtor days, poor liquidity and corporate governance issues has wrecked havoc over the last month.

I am invested precisely for two reasons. I have strong faith on the management led by Vinod Ramnani and this is by far the largest listed Indian medical technology company so I am propelled by one thing here - “Opportunity for growth”. The addressable market for Opto is $14billion+ so there is huge headroom for growth.

Had a discussion with Ayush regarding this, and he rightly pointed out some doubtful balance sheet pointers, typically the goodwill impairment treatment not being run through P&L ( not amortized) but write off. I have trimmed down my exposure in this stock and will closely monitor for a complete exit, if things do not turn for the better over the next 6 months.

Regarding Cox & Kings, the Holiday Break acquisition is a bit peculiar (company has Apr-Sep of high EBITDA followed by Oct-Mar of negative EBITDA) . Once a full year cycle plays out (Apr-Mar FY13) it will be easier for the markets. The growth shown in Jun quarter surpassed expectations. The very high operating margin (44%), strong brand moat in leisure travel now with the diversification from educational tours, presents a good opportunity.

The biggest concern naturally at this point is very very high leverage. (FY12E D/E of 2.98) The company recently raised $138million from Citi Venture Capital International (CVCI Private Equity) for a stake in its wholly owned subsidiary - Prometheon Holdings (UK). Although this dilutes earnings but is a right step towards addressing the high debt as the interest payouts were denting the bottom line.

Overall I am cautiously optimistic about a positive turnaround over FY13 and FY14, will closely monitor for developments.

Two stocks, I am studying in the interim, more from the point of replacements ( if things do turn out negatively for Opto and C&K ) are Astral Poly and Balkrishna. Also in their case, the price anchoring is playing spoilsport, need to get out of those mental blocks as well.

5

Quick Updates:

Added Amara Raja Batterie

s, even after this 25% run the stock looks

attractive for long term entry.

Quick take >> battery market is mostly a duopoly (Exide-Amara

Raja), strong growth numbers, robust balance sheet, no debt, high

return ratios, consistent dividend payments. 26% held by Jhonson

Controls - largest battery maker in the world. Huge first mover

advantage in new technologies.

Growth ahead >> Strong growth in Telecom and OEM markets; New OEM

contracts with Hero and Bajaj starting Q3FY13; strong replacement

demand from 4W and 2W market segments (also a margin booster as

retail commands better margins); new opportunities in UPS and

Inverter markets.

Additional market opportunity from greenfield setup for Reliance

4G; Indus Towers switching from diesel genset to battery power;

launch of battery powered cars in future.

The strong replacement market will only grow bigger with growth in

Indian auto sector. Seems like the best play in auto ancillary and

can be held for really long term without any immediate threat of

becoming obsolete.

As Lynch mentions the 2nd player cannot always trade at a huge

discount to the leader. Already the valuation gap is reduced

significantly with Exide and will reduce further going further.

Added **Whirlpool of India. **

Quick take >> From -6 Cr in FY07 to 166 Cr PAT in FY11, the

turnaround has been quite robust. From D/E of 1.07 in 2008 to

becoming completely debt free in FY12.

The Company had issued 15.23 Cr 10% Redeemable Non-Convertible

Cumulative Preference Shares of Rs.10 each to Whirlpool Canada

Holding Company in the year 2005 redeemable at the end of twenty

years with call and put options.

In FY11 the company redeemed 9.84 Cr shares using the put option

and further the balance 5.48 Cr shares were fully redeemed with

dividend paid in FY12. With this the board served dual purpose

a) Reduce holding to 75% as per SEBI norms. The parent Whirlpool of

US holds 75% through Whirlpool Mauritius

b) Clears overhand of preferential dividend and paves the way for

payment of regular dividends for shareholders in future ( no

interest payment, no pref. dividend)

Result >> In Q1FY13, while the topline grew by 10% Net Profit grew by 26% due to EBITDA margin expansion, higher other income and

lower finance costs.

Recently the company launched 160 models across various product categories, plans to spend Rs. 100Cr each in capex and marketing and aims for leadership in its major product categories over next 18 months.

Although the stock looks expensive on trailing P/E because of poorer FY12 numbers, given the growth ahead and management pedigree looks like another turnaround candidate in the making.

Look forward to comments/suggestions from the active members as well any and all negative views and risk concerns regarding all portfolio stocks and capital allocations if can be bettered/ optimized in any possible manner.

6

What kind of earnings do you expect from Whirlpool for say FY 13 and FY 14? (with these kind of stocks its difficult to predict more than two three years).

Question that then needs to be asked is how much of this is priced in?

I think in case of Whirlpool which may be perceived as a turnaround, markets may pay a slight premium. Next couple of quarters will be interesting to watch.

I think on declines Whirlpool seems like a good buy.

7

Hi Rudra,

Can you please let us know, If you have any research report on Whirlpool India. I have been looking for one. The one I got by googling is not a convincing one. Heard that it has been recommended in a well known subscription-only forum.

8

Hi Hiteshji,

The play here is more on the margin front and hence a better bottom line growth even with moderate sales growth.

As per recent estimates (Q1FY13) company is expected to do revenue of 3,390 Cr in FY13 (yoy 12%) and 4,051 Cr in FY14. (yoy 20%)

Expected earnings are 167 Cr in FY13 and 220 Cr in FY14 translating to an EPS of 13.2 (FY13 yoy rise of 36%) and 17.2(FY14 yoy rise of 31%).

One major concern is the rupee depreciation (~35% RM is imported), while management has assured of price hike in this regard in June corresponding to 56-57 levels for the rupee.

The clean balance sheet, strong brand moat, rich parentage are the levers which can led the market to pay a slight premium.

Till now due to debt and preference share burden the company didn’t paid any dividend, so dividends seem to be a distinct possibility going forward.

Also management is positive on the exports front which clocked a turnover of ~188 Cr in FY12 with 11% growth.

9

Hi Subash,

I don’t have access to paid reports from subscription-only forums. However, looking at the AR 2012 and management intent in brand building, 100 Cr capex infusion in platform upgrades and introduction of new SKUs ( around 160 SKUs across product lines introduced in Mar 2012 to be marketed over Apr-Sep 2012 period ) seems like a good turnaround story.

Furthermore the clean balance sheet with strong cash flows and high debtor turnover (25.6x) provides additional comfort on the brand moat.

10

Recently, SPA The Financial Advisors came out with report.Check the link & see if it can serve your purpose.

http://breport.myiris.com/SPASL/KELINDIA_20120808.pdf

11

Hi Hemant,

I have seen the report. The issue with is that the target price of 245 is below CMP 253.

Recently, SPA The Financial Advisors

http://breport.myiris.com/SPASL/KELINDIA_20120808.pdf Link: http://breport.myiris.com/SPASL/KELINDIA_20120808.pdf

12

Bought back a major portion of Mayur (@385 levels) sold earlier @420 due to bonus stripping. Total allocation to Mayur remains firm at 15%. No plan to increase beyond 15% now.

Trimmed down exposure to Yes Bank primarily for two reasons:

a) Been closely following the Deccan Chargers story, Yes Bank with 170 Cr exposure to the receivables of DC team is at a big risk of getting some NPA. Moreover the bank is leading the SPV talks as the head of the bank consortium and infusing additional 36 Cr to clear player dues from last season. Will wait for sometime to see how this unfolds.

[Note: A 170 Cr NPA is a big hit on Yes with projected 1200-1250 Cr profits in FY13. Also tarnish the impeccable record.]

b) My average buy price didn’t provide adequate margin of safety. Will hold cash (Yes allocation) for now. Still bullish on the long term story in Yes and wait for opportune moment to enter again.

Some correction in the pharma space is but natural as some profit booking sinks in and appreciating rupee takes some sheen off the pharma export euphoria, still nothing fundamentally negative on the pharma space. Added some Dishman Pharma.

Mostly a liquidity and sentiment driven rally. No considerable fiscal steps yet which can point towards sustainable rupee appreciation or interest rates coming down. Diesel hike directly impacting inflation will add to the worry. Nothing exceptional in the short term.

13

Added some Amara Raja, although the price has run up quite a lot (25%) and it may correct in the short-mid term due to profit booking, however for a long term perspective, seems to be a very good story.

Sustainable strong demand arising from shorter product life cycle is the key differentiator. Also there is scope to garner market share from smaller unorganized players.

Based on my feedback from local auto dealers in Gurgaon, people do not bother paying more when they have peace of mind guaranteed. And the Amaron brand is steadily finding acceptance.

Since it dupoly market with enough room for both, it is unlikely that Exide will go into a price war to challenge ARBL.

Also the RIL tower deployment of 1,00,000 towers may be good boost for the battery segment. Many existing players are also switching from diesel gensets to battery.

Added to existing positions @ 375, plan to add more on dips.

14

Added some Techno Electric and more of Amara Raja. Fully invested now, no more cash left.

Portfolio :

Stocks %age Holding
Mayur Uniquoters 15.6%
Amara Raja Batteries 12.8%
Kaveri Seeds 12.5%
Ajanta Pharma 11.5%
Unichem Labs 9.2%
Opto Circuits 7.9%
Cox & Kings 6.4%
Atul Auto 5.9%
Whirlpool of India 5.4%
Page Industries 4.9%
Techno Electric 2.8%
Dishman Pharma 2.6%
Cera Sanitaryware 2.5%

Replacement candidates (old >> new) [Review period till March '13]

Opto >> Yes Bank

Cox & Kings >> Astral

15

Rudra,

You seems to have exited Hawkins. Any particular reason for that?

16

Hi Subash,

Had an interim smaller position, where I was hoping to add more. Was waiting for clarity on the news front regarding clearance from the Punjab pollution control board. Exited with smaller gains to focus on other opportunities.

Since there is no material news, Q2FY13 results may not reflect the market euphoria, and stock may see correction post Q2 result making a good entry.

I am holding it in my brother’s portfolio since the buying price there is much lower giving adequate margin of safety. Fundamentally it is a solid company, and it is only a matter of time when this pollution problems and labor issues gets sorted out.

17

This is an example of price anchoring. Ideal way to invest is not to think about price at which stock is bought. Only question to be asked is how much upside/downside can I expect in case of positive/negative surprise (or lack of any surprise) from current market price. Other consideration to be taken into account is tax implications in case of holding of less than 1 year.

Though I agree about Hawkins that the recent upsurge in prices provides a lightening opportunity in case better alternatives are visible.

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18

I recall reading from Abhishek’s blog about chucking your online portfolio Link: http://valueinvstr.blogspot.in/search/label/portfolio%20tracking

And today another related article from Prof. Bakshi’s latest blog post Link: http://fundooprofessor.wordpress.com/2012/10/07/how-to-boil-a-frog/

and a relevant quote from the same blog.

//The Prof also quotes Daniel Kahneman:

Investors should reduce the frequency with which they check how well their investments are doing. Closely following daily fluctuations is a losing proposition, because the pain of the frequent small losses exceeds the pleasure of the equally frequent small gains. Once a quarter is enough, and may be more than enough for individual investors. In addition to improving the emotional quality of life, the deliberate avoidance of exposure to short-term outcomes improves the quality of both decisions and outcomes. The typical short-term reaction to bad news is increased loss aversion. Investors who get aggregated feedback receive such news much less often and are likely to be less risk averse and to end up richer. You are also less prone to useless churning of your portfolio if you donat know how every stock in it is doing every day (or every week or even every month). A commitment not to change ones position for several periods (the equivalent of locking in an investment) improves financial performance.a //

Need to divert the attention towards reading more quality books. Seriously lacking on this part.
__

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19

In the last weeks,

added more of Whirlpool and Ajanta Pharma. Welcome correction in Pharma stocks. Long term remains well in track and further corrections should be bought into.

20

I believe it is very very important to fill one’s mind with the best that the collective wisdom of the ages has to offer (on investing and otherwise)…I have a to-be-read book list and an “annual-refresher” booklist. Poor Charlie’s Almanac, Seeking Wisdom (another Munger book), Intelligent Investor and Margin of Safety are the only books on the second list. Keep going back to them once a year atleast and every time I learn something new.

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