Sachin Abhyankar's portfolio - requesting feedback


(sachinabhyankar) #1

Hi,

I have been in market since 1993 though started developing on portfolio since 2010. in last 8 years realized the magic of compounding. I expected markets (particularly small/mid caps) to crash in 2017 so sold several multibaggers like National Peroxide, Tata sponge, Ashok Leyland, Camline Lifescience with decent return.

My capital allocation is 50% FDs (need secured cash for kids education), 30% equity (15% MFs, 15% direct equity mostly mid/small caps), 15% real estate, 5% gold.

I am focused on building a portfolio for coming cycle where first selection gate is management quality then growth potential with focus on cash generation to be bought at decent pricing (rarely buy stocks at >15 P/E). I expect some more correction/volatility over next 6 months due to election while I am also carefully watching global macro environment. Hope to add on some value stocks over coming 6 - 12 months.

I regularly read ValuePickr to gain insight on stocks and am highly impressed by thought process of fellow boarders. I request you to analyze the current portfolio and provide feedback.

Stock Avg purchase price % of PF holding period
GSPL 125 10% 5 years Believe that gas consumption will increase in coming 5 years. GSPL is a low risk play on gas consumption in highly industrial state. Acquisition of Gujarat Gas diluted the value to a certain extent. Still holding on as PNGRB has finally increased the transmission tariff.
Gujarat Ambuja 18 10% 7 years Has become a play on consumption with diversification to maize derivatives, Sorbitol, liq. Glucose, etc… Sold some shares to maintain 10% share in portfolio.
Piramal Ent. 1500 10% 4 years Initiated based on pharma story and Ajay Piramal’s record. Now it’s a play on real estate and Shriram group. Holding on based on conviction that management is ethical and is best allocator of money.
Trident 55 10% 3 initiated when expansion was ongoing. With capex completion operating leverage should play out. Its taking longer than expected but company is continuously reducing high cost debt and generating adequate cash flow. Entry into domestic market will be key to increase capacity utilization. Adding below 55.
Persistent 550 10% 1 Entry into digital while IT infra maintenance pie should continue to deliver cash. Partnership with IBM to develop products should deliver results as they started before other players boarded "digital" bandwagon. Adding below 550.
Suven 160 5% 2 Play on Mr. Jasti. Like cash generation from CRAMS. Company follows prudent policy of considering 100% R&D as expense. Any upside on new molecules will be a Diwali Bumper lottery but without it the business is valuable and will grow steadily.
Abbot labs 3000 5% 8 Growth focused; introducing new products in market; removal of price caps on stents at some point will further improve the potential
GIC Insurance 912 10% IPO Holding on to loss, not willing to accept mistake. Government stake/interference/regulatory hurdle does not allow management to focus on profit.
Capital First 470 5% 0.5 CEO has proven track record, believe that merger with IDFC will create value.
MOIL 100 5% 3 only Manganese producer in country, expansion plan set in place with capacity likely to increase by 50% in coming 2 years. It’s a commodity play still plan to hold on to it as Manganese is expected to find application in electric vehicles as well.
Mcleod Russle 330 5% 5 Bought as the largest tea producer in India but tea prices are not supportive. Sold some quantity to reduce loss. Hope to sell remaining at opportunate time.
Lasa supergenerics 165 5% 2 Lured by quick gain expectation, loss to retrain me that "management quality" is first criteria to be used for stock selection.
10% Tracking position in 10 - 15 stocks including PI Ind, Lupin, Indigo, Aurobindo pharma, Galaxy Surfactants, Dai Ichi, Bodal Chemicals, etc.
100%

#2

You are holding abbott since 8 years. It’s 2.5X from your buying price. It’s 5 % of portfolio.

Now Indian pharma has faced many headwinds since 2015, many stocks are available at Multiyear lows. Sector is out of favour. How does Abbott stack up against all these. What’s your view for fresh entry, from a 3 year perspective.


(sachinabhyankar) #3

Thanks for your comment. I am actually holding some shares of Abbot since 2009 bought at 450. Its a great stock and key difference vis-a-vis Indian companies is exclusive focus on Indian market. Most of the issues faced by leading pharma players are related to FDA and margin erosion due to consolidation of pharmacies in US. Abbot does not suffer from these but it suffered due to change in Indian regulation e.g. stent price cap and Jan aushadhalay scheme.

I bought additional quantity when Abbout was ~4300 last year. The market was at peak and many MNCs like Abbot, Sanofi and GSK consumer were at multi year low, when I picked up all these stocks.

Abbot has corrected from 8500 in Sep though it still seems fairly valued. You can consider entry if Abbot shows good revenue/profit growth in next quarter or there is 10-15% price correction.


(sachinabhyankar) #4

Working on portfolio balancing in 2019. My assumption is that market may crack in January to go up around budget time and then it will be volatile till election results. Though for me the only reason for analyzing the market is to consider best time to buy stocks from long term perspective.

I sold off Lasa and Mcleod and accepted the mistake.

I am considering adding following stocks by increasing portfolio size:

Piramal Enterprises - below 2200 (close to rights offer subscribed by Piramals); solid growth over past 10 years, management quality, long term growth possibility in finance, OTC, pharma. Risks - real estate exposure; exposure to Sriram group not delivering strong return
IDFC Capital first - bet of Mr. Vaidyanathan. Merger can be beneficial if he can leverage bank licence to reduce cost of capital and increase margin and sale
Trident - ~50 - 55 - strong belief in cash flow generation; expect capacity utilization to increase over next 3 years delivering good return + dividend; risk - cotton price volatility squeezing margin; any capex plan before deleveraging
Ambika cotton - ~1000 - strong balance sheet and cash flow generation, strong management, quality sale (top clients and quality product therefore pricing power). Risk - dependence on promoter (key man risk), cotton price volatility, muted growth in sale
Dai Ichi Chemicals - <200 - risky bet - holding on for some time; strong balance sheet (first debt of ~90cr to finance expansion) backed by land in Pune, strong auditors (Top 4) indicating quality management; growth of chemical sector in Vapi belt leading to better margin; risk - delay in commissioning, low capacity utilization for couple of years.

Evaluating Can Fin Homes, Galaxy Surfactants, Jyothi labs, Mayur Uniquoters, Tata Elexi.


(Investor_No_1) #5

Issue is that such medical devices like Stent and even Pediasure etc. all good OTC brands, ABBott sells in India via unlisted Abbott Healthcare and not via Abbott India…Pls correct me if wrong. What are key brands of Abbott India?


(sachinabhyankar) #6

Annual report also mentions that Abbot India Ltd is planning to introduce 100 new products in coming 5 years.


(Investor_No_1) #7

Thanks. Above may be good medicines in respective segments. All I wanted to convey is Abbott India does not seem to be the OTC and nutrition play that it looks like based on brands we see in stores as all that is sold by unlisted Abbott healthcare.


(sachinabhyankar) #8

I agree. Though Abbot has been able to achieve sales & profit growth of ~15% & 24% over last 5 years. Indian pharma market is expanding and players like Abbot, Sanofi will have a role. Abbot is keen on expanding presence in India and cant introduce all new products via 100% owned subsidiary only. Abbot being fully focused on India does not have FDA overhang as well.


(Yogesh Sane) #9

@sachinabhyankar
Since you are holding stocks for many years, my suggestions would be to add your opportunity costs to your average purchase price so that you will get a better picture of real gain or loss from these positions. Your opportunity cost is the annual % return you have earned historically.

Even a mediocre stock will go up over a long term and will show a profit but it may not recover your opportunity cost.


(sachinabhyankar) #10

@Yogesh_s
Thanks for your comment.
I calculate my portfolio return on annual basis & have been able to match long term sensex return of ~15% (though my portfolio is risky due to higher weight on mid/small caps). I put 50% of my equity exposure via mutual fund and remaining 50% myself.

I am holding some stocks like Abbot, Gujarat Ambuja Exports for 5 - 10 years now and the key reason for holding/adding to existing position is based on my annual review that stock still has potential.

Some of the stocks like GSPL have not given expected return yet but I believe that gas share in Indian market will increase over next 5 years, so I am increasing my exposure my adding Petronet to balance risk with GSPL.

I am waiting with cash to add positions when my target stock reaches the value I consider fair (going against advice of “not timing the market” I believe buying high makes it difficult to get market return over 3- 5 year term). My target portfolio is -

Finance sector - 20% - Piramal Ent (add below 2250), IDFC Capital First
Textiles - 10% - Trident (add below 60), Ambika cotton (building position below 1150)
Chemicals - 10% - Bodal Chemicals (add below 110), Akshar Chem (starting now below 430) looking at others like Alkyl Amines
IT - 10% - Persistent (adding below 550), looking at Tata Elxsi
Gas related - 10% - GSPL, Petronet LNG (adding ~215),
Agriculture - 10% - GAEL
Pharma - 10% - Abbot, Suven
Commodity - 5% - MOIL - long term manganese May have more demand viabuse in batteries, MOIL being only large player in India with potential to increase production
Consumer demand - 10% - considering Jyothy Labs, Galaxy Surfactants
Miscellaneous - 5% - TV18 - RIL stake in TV18 and upcyelections providing advertisements; Mold tec ( watching)


(sachinabhyankar) #11

In 2018, cash flow is ~35cr which is ~10% of current market cap. Companies clients are all top global companies indicating that the product is of good quality. The expansion, other than silica is in same business line, providing comfort on management understanding of product. Capacity utilization may grow slowly compared to mgmt guidance of 80 - 85% immediately, which may reduce the RoE. If company can generate 400 cr in FY2020 with 15% OPM and 25% tax rate then NP can be ~45Cr.

The concern is volatility in VS pricing but the P&L volatility may progressively reduce with increased contribution of CPC green.

Chemical sector in India may be on cusp of tremendous growth if China continues its focus on environment.

Textile sector will continue to grow at 3-4% assuming world population growth and increasing per capita income in third world countries.

Disclaimer - not invested, tracking closely to consider opportunity at opportune time