Sachin Abhyankar's portfolio - requesting feedback

Q&A: Questions & Answers Portfolio Q&A
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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%
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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.

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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.

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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.

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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?

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

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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.

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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.

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@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.

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@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)

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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

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Stocks to BUY from 10 year perspective

Since start of current crisis, I initially considered buying and purchased some stocks. Though by early March realized that the crisis is going to hit the world and therefore started exiting the market. Slowly exited from many non-core stocks though continue to hold some from current portfolio like Piramal Enterprises, TV18, Gujarat Ambuja Exports, Trident.

Expect coming quarters to be very difficult for Indian and global economy due to this deep crisis hitting whole population hard. Economic impact is enormous and particularly for India consumption will be hit for coming period (depends on how long the crisis continues).

Opportunity for India will be large home market so now focused on companies which are leaders in India and as well can make some additional margin from exports / international market. A lot will depend on how government reacts to Chinese imports post crisis. Any support to Indian industries will be very helpful for some of these stocks.

With current market valuation have considered a focused portfolio with top companies in some sectors. Idea is to wait till lockdown ends and extent of crisis is clear. Then start buying when stocks are in identified range.

Stock - target buy price range - comment

  1. ICICI Bank - 225 - 250 - India will likely have at least 4 -5 top banks and ICICI is likely to be one of the top 4 -5. New management is likely continue for next 4 -5 years which removes the management risk vis-Ă -vis HDFC Bank, IndusInd Bank. ICICI is well diversified in corporate and retail, therefore will be amongst first banks to come out of current crisis.

  2. Hero Motors - 1400 -1500 - Leader in 2 W in India. Expanding globally. Is likely to extend the range into electric vehicles as well. Strong balance sheet with good level of cash. BSIV stock is big risk and is likely priced by market.

  3. Sumitomo Chemicals - 150 -170 - Well entrenched in India since last 20 years. Acquisition of Excel Crop Care gives it a wide range of products. Has been growing well and considering strong trading expertise of Sumitomo, can maintain growth if Indian subsidiary starts supplying products for global market. Post Corona crisis, agriculture will be one of the key sector with government support and therefore this stock is well positioned.

  4. Godrej Consumer Products - 400 -450 - GCPL is consumer driven company with impeccable management, leadership in its product range, long runway with focus on world market particularly well placed in Indonesia as well.

  5. Exide / Amara Raja - 110 -130 - I am inclined towards Exide due to its leadership position but Amara Raja is also growing well. Johnsons support is not longer there for Amara Raja. Electric Vehicle batteries is biggest opportunity and threat to these companies. If Chinese companies capture e-batteries market in India then these companies will be finished in coming 5 -10 years. On the other hand if they capture e-batteries market then with Indian scale they can export as well, leading to handsome stock performance.

  6. MRF / Ceat - 45 -50000 - Automobile is biggest industrial sector and is ready for disruption with electric vehicles. MRF is a safe bet as its technology agnostic. MRF is a leader in India but has suffered for last few years on account of Chinese import. If it can compete with imports then it has brand image to maintain slightly higher margin. Replacement market is a very important play for tyre sector from corona virus crisis perspective.

  7. CRISIL - 900 -1050 - Assuming India will become one of top 3 economies in world, credit rating agency will have business. With S&P support, CRISIL is well placed to continue its dominant position in India. Also it will expand its research business which is key differentiator to other listed rating agencies.

Note - Personal views and not stock recommendations. I do not hold the mentioned stocks at this stage though can buy depending on market. I am not a SEBI listed investment adviser.

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Hi,

Since last year closely monitoring the market. I was very apprehensive about investing last April though by June started investing slowly in small and mid-caps. Throughout last year (and even now) my fear is that market is running ahead of itself and can correct. I could not understand the role played by immense liquidity injected by global central banks and the fact that one cant fight the FED. Since June I picked up slowly till January where the identified stocks were higher than my target price and am monitoring the situation closely. Tempted to take some profit though considering the ample liquidity still available, holding back. If market continues it forward march and some portfolio stocks move beyond their reasonable valuation, would not hesitate to take profit.

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Note - Can sell any of this stock at any time. Not an investment advice.

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Stock Average price Portfolio Wt % Holding period Comment
Gujarat Ambuja Export 15 10% 9 GAEL has now ~20% share in Maize segment and plans are in place to continue expansion in same good margin value added products.
Piramal Enterprises 1400 10% 7 Added some more during last 1 year around 12-1300 range. Acquisition of DHFL and demerger of Pharma and Financial will create value. It remains play on Mr. Ajay Piramal’s business acumen and the consistence bottom line growth demonstrated by company for last 25 years.
IIFL Finance 85 10% 4 Among top 5 NBFCs focused on retail with phygital capability with ~2000 branches for gold loan segment. Consistent management commentary that 20% loan growth is achievable. Bet on Mr. Nirmal Jain and Prem Watsa, Fairfax.
GHCL 140 10% 1.5 Added over last 1.5 years. Professional management. Oligopoly structure in soda ash segment with proven ability of GHCL to increase capacity. I believe India will be a $5T economy in which case soda ash segment will continue to show good growth ensuring strong cash flow for GHCL. Demerger will unlock value. Not sure about prospects of textile division but seems next few quarters textile companies have good orders and govt support.
PTC 95 10% 0.5 PTC is an established player in energy trading and with govt policies seems trading will increase. PTC management has clarified that 50% of standalone profit will be distributed as dividend while no new unrelated investment will be done. PTC needs some cash due to delayed payment by govt utilities but again management is on record that in last 20 years PTC has never written off single rupee on account of distribution company default in fact PTC earns good surcharge income on delayed payments. Hope sale of PTC Energy, launch of exchange with ICICI and BSE (PTC holds 22.6%) and no new investment in PTC Finance, along with growth in standalone business will lead to rerating / increased dividend yield.
Abbot + Sanofi 7500 / 3500 10% 5 Strong pharma MNCs focused on India
Bharti Airtel 475 7.50% 1 With Voda losing market share and ARPU increasing, expected that Bharti profit will increase and thereby rerating possibility
Tata Power 45 7.50% 2 Growth in utility scale renewable, solar roof top and solar pumps, distribution segment, improvement in Tata Mundra business and expected deleveraging will lead to sustained performance.
Tata Steel Long products 300 5% 2 Tata Steel subscribed rights at Rs. 500 so when share price corrected due to COVID picked up the stock. Company has generated good cash flow leading to deleveraging in last 1 year. With focus on value addition, company can continue to perform.
S H Kelkar 75 5% 2 100 year old company, as India per capita income increases consumption on fragrance and flavours will also increase. Also a bet on Indian companies acquiring global market for some consumer products like Godrej Consumer who buy products from S H Kelkar.
Suven Pharma 40 5% 5 Bet on Mr. Jasti. Holding it since 5 years.
Tracking position 10% IEX, Steel Strip Wheels, MOIL, Dai Ichi, Lasa Super generics
100%

Note - Views are biased. Not an investment advice.

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Sachin Abhyankar portfolio February 2022

Stock Average price Portfolio wt. Holding period years comment
Gujarat Ambuja Export 15 10% 8 as maize contribution increases, it’s likely to continue to improve profit margin and return ratios
Piramal Enterprises 1,400 10% 6 Purchased during last 1 year. Mr. Piramal is best allocator of money and demerger of finance and pharma will be beneficial for long term
IIFL Finance 85 10% 3 Added in 2020 when stock corrected substantially. Mr. Nirmal Jain has demonstrated his vision over last 20 years. Gold loan continues to be a major focus.
GHCL 140 10% 1.5 Purchased since last June 2020. Soda ash is oligopoly and with Make in India focus, hope soda ash consumption will continue to grow. Indian market is ~4mt compared to Chinas ~31mt. Thus my belief that GHCL can continue to generate sustainable margin for foreseeable future with greenfield expansion and backward integration. Yarn business is also stable EBITDA generator and can continue at steady pace. Added some more at ~370.
PTC 92 10% 1.25 Power trading on exchange is likely to increase over time in line with mature markets. PTC valuation is ~2800 cr. While PTCs investment in PTC India Finance and PTC Energy is ~1300 cr. Which means the standalone business is valued at ~1,500 cr. When it is generating ~350 cr. Profit and giving Rs. 7 or ~7% dividend yield. Only concern is PTC should not do additional investment in PTC India Finance or any other subsidiary.
Sanofi 4,500 10% 6 Indian pharma market will continue to grow
Bharti Airtel 525 10% 2 Airtel management provided very clear guidance on tariff increase in 2021 so picked up the stock. Mobile market is again an oligopoly and after recent issues government is unlikely to put excessive taxes/hefty premium on 5G spectrum ensuring steady return for telecom companies in coming period.
S H Kelkar 75 5% 1 100 year old company, proxy on India GDP growth, last few years impacted due to demonetization, GST, high raw material prices and capex. Expected to grow at 10 -12% for next 5 years with no capex requirement.
Tata Steel Long Products 300 5% 2 Purchased as Tata Steel had subscribed to rights at Rs. 500 in 2019 and stock corrected to 250 post COVID.
Tata Power 45 5% 2 Purchased as stock corrected post COVID. Deleveraging plus Solar EPC can drive performance in future. Play on renewable power growth in India in coming decade.
L T Foods 65 5% 1.5 Established basmati rice player, expect market growth and sustainable margins. Play on possibility of P/E expansion as speciality segment like organic and value added segment grows.
IDFC First Bank + IDFC 40 5% 5 Bought IDFC when it received banking licence. Since Mr. Vaidyanathan took over as CEO, added IDFC First bank over last 2 years.
Ujjivan Finance 135 5% 0.25 Purchased assuming credit growth once COVID normalizes and merger of Ujjivan SFB with Ujjivan Finance in 18 months leading to recovery of current holdco discount
100%

Watchlist - Phillips Carbon, JK Tyres, Alembic Pharma, Cadila healthcare, Zydus Wellness, Ajanta Pharma.

Disclosure – Not an investment advice.Views are biased. Please do detailed analysis before purchasing any stock.

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With the correction in market, focus on companies with good earning growth over 2 -3 years or with reasonable valuation. Feel market may move sideways till there is clarity on interest rate increase, impact of inflation on margins, etc.

Sold Sanofi - @ 7,200 as company is selling brands to its own private ltd company, a related party transaction, which raises concern.

Sold Airtel - @ 715, last 1 year Airtel has moved up after taking price hikes. Though its quite likely that telecom sector may take further hikes, with inflation ARPU may not increase as much as expected. Also 5G auction is expected soon where competition with Jio will mean high pricing.

Sold IEX - @ 215, while power demand has grown exchange share has come down / not kept pace with demand growth. Stock is still trading at very high p/e which may be a risk with increase in interest rates.

Reduced Tata Power @ 250, Tata Power debt reduction plan has not fructified despite many promises. Renewable sale is at decent valuation and likely to ensure that debt will not increase. If stock corrects to ~200 levels, will buy again.

Purchased Zydus Life - @350, 5% of portfolio, stock has corrected significantly due to concerns on margins in US business. Feel they have a good pipeline of drugs which can increase earnings in coming 2 -3 years. Stock available at good valuation ~18 p/e for a growing pharma sector company.

PTC India - holding on despite corporate governance issue as company can deliver strong results in current power sector scenario. very risky bet.

Stocks on watch list -

Reliance - Is firing on all cylinders; refining business is likely to generate good cash in coming quarters, renewable focus is likely to keep the company on right side of energy market disruption. Stock has correct to ~Rs. 2,450, would slowly acquire at this or slightly lower rate over coming months.

Balkrishna tyres - Company has come out with strong results. Capex will ensure good earnings growth in coming years. Stock has corrected a bit though not to the levels of Feb yet. Watching closely to buy below Rs. 2000

Aarti Industries - significant capex plan for coming 2 years which is a risk as there may be delay in construction, commissioning, etc. Cancellation of long term contracts is a concern. Stock has corrected to Rs. 750 levels. Would buy if available at good valuation.

TVS motors, Rupa and Company, Lux, Intellect Design, Indiamart, PCBL remain on watch list.

Disclosure – Not an investment advice.Views are biased. Please do detailed analysis before purchasing any stock.

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Sold full 5% allocation of LT Foods at Rs. 82.

Initiated 5% allocation to ABSL AMC. All AMC stocks are hitting 52 week lows but ABSL is valued much lower than HDFC AMC. MF industry has long runway and operating leverage will play out. There is likely to be consolidation in coming years where ABSL can acquire some AMCs. Hopefully with rising interest rates, PE backed players will become less aggressive, meaning market share gain for ABSL.

Initiated 2% position in Amara Raja @ Rs 490 as IC engines and therefore lead acid battery has at least a decade in India. Amara Raja is working on Li-ion battery as well, which remains a key monitorable.

Initiated 2% position in Indiamart @ 4,200 to ride on a profit making tech company at reasonable valuation.

Disclosure – Not an investment advice.Views are biased. Please do detailed analysis before purchasing any stock.

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Instead of 5% allocation to ABSL AMC, changed it to AB Capital @ Rs.90 as it covers ABSL AMC while it also has NBFC and insurance business.

Sold Amara Raja batteries within a week, as EV batteries is going to be a battlefield with likes of Reliance likely to enter.

Increased position in Force Motors below 1,000 as steel prices corrected which means FM is likely to get back to black. They have introduced new lines and added capacity over last few years. With post COVID tourism at high, FM may benefit with new orders.

PTC India continues to be an issue as consolidated results are not announced and no clarity is coming on forensic audit timeline. Though PFS management seems to be confident of clean chit and showing that its back to business. With launch of HPX and PFS balance sheet clean-up completing, its likely that business will be better. So holding on patiently.

Disclosure – Not an investment advice. Views are biased. Please do detailed analysis before purchasing any stock.

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Update on second half of 2022 -

  1. PTC India keet the portfolio returns below par. Holding in the hope that issues would be resolved and as promised by management the performance would improve/sustain. Dividend yield is still reasonable ~8% so need ~7% capital gain to reach my target return of 15%/annum. Plan to hold PTC India for at least few more months hoping for clarity on (i) corp. governance issues at PTC & PFS (ii) sale of wind business (iii) performance of HPX as new products are launched and (iv) next quarterly results of PFS and PTC

  2. Allocated 8% to Piramal Pharma at average of ~Rs 150. Company has been a consistent performer for last 10 years and going through difficult time. Plan to hold for 5 years expecting average 15%/annum return.

  3. Initiated purchase of MOFSL. At ~10K Cr market cap I feel there is margin of safety and the stock may not fall much. I will average if it falls further. The company has investment of ~4300 cr which has delivered 19% IRR so on a conservative basis investments can be expected to be ~8500 cr in 5 years. Their broking, asset & wealth management and housing finance can generate average 800 cr/annum after 5 years which at 12 P/E is ~10K cr.

  4. Purchased Rupa and co ~3% allocation below 300.

  5. Slowly reducing the allocation to ABCL and selling some IIFL Finance stock to create liquidity.

  6. Continuing to hold GHCL, Gujarat Ambuja, Piramal Ent., IIFL Finance, SH Kelkar, Tata Steel Long, Tata Power, LT Foods, Ujjivan, Rupa and Zydus Life.

Disclosure – Not an investment advice. Views are biased. Please do detailed analysis before purchasing any stock.

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