Shankesh Shah's Portfolio


(Shankeshs) #1

Hi,
I am shankesh Shah. I am CA and currently working in an NBFC. I started investing in stock market 4 years ago, as soon as i got my 1st job. I am a very passive investor. I have not had much success till date as I have tried to stick to Bluechip stocks to avoid capital erosion. Below are the stocks in my portfolio. I am holding stocks for long term and some of the stocks are in my portfolio since last 3 years. I have made investment in below stocks on basis of some basic research. I also subscribe to IPOs for long term. Please advise me whether to stick to the stocks in my portfolio or offload some of the scrips.

  1. Sun Pharmaceutical. 9.58%
  2. Reliance Home Finance 10.31%
  3. Rural Electrification 12.39%
  4. Mahindra & Mahindra. 9.76%
  5. ITC Ltd. 6.04%
  6. ICICI Prudential. 6.17%
  7. Hindustan Petroleum. 7.88%
  8. HDFC Bank. 7.49%
  9. Capacite Infraprojects. 6.30%
  10. Bharat Electronics Ltd 10.37%
  11. Bharat Dynamics. 13.69%

Sun Pharma and Reliance Home Finance are the most underperforming stocks in my portfolio followed by REC, ITC Ltd and HPCL. Please suggest how should I churn my portfolio? Also please express your stock specific views.
Sun pharma has been in my portfolio since 2015. This has been a bad investment decisions on my part. However, I was novice at that time.
Reliance Home Finance in my opinion is a growth stock weighed down due to negative sentiments on promoter.
REC has good dividend payout and is currently trading at very low valuation. There is NPA issue but I think same is already factored in the valuations. Also majority of lending is to govt. Owned discoms only.
M&M is posting great nos. Month on Month. It is trading well below its SOTP valuation. I think this stock has good potential.
ITC is a sleeping giant. There is no movement whatsoever in last many months.
ICICI prudential is my insurance bet.
Some pressure is expected in coming months on HPCL due to rising oil prices. Should I hold or move?
I try to maintain portfolio of 10-12 stocks. I am having one stock from each sector like Pharma, Power, Auto, Rural consumption, HFC, Banking, defence, insurance, infrastructure and Oil. Which stock in your opinion should I deal with within the sector.


(Dinesh Sairam) #2

I used to track REC once. But I gave up on the idea once I figured I couldn’t understand how Loans between States and the Central Government worked.

Reading their latest Investor Presentation and the immediate previous year’s Investor Presentation, I can see that their NPAs have been climbing since 2014, from what was 0.33% to a dangerous 3% now.

BFSI firms are highly leveraged and even a small percentage point change in NPAs have a doubling loss on their business:

  1. They have to allocate more Reserves, which means more business is lost.
  2. And of course, the risk of the NPA becoming a permanent Default (Assuming it stays as a NPA for the required number of years). In that case, their riskiness increases and again, they may have to add more to the Reserves. It’s a vicious cycle.

And what does the management have to say? “Fairly confident that 80% of the Loan Book may never see NPA”. ‘Fairly confident’ and ‘80%’? I don’t think that helps at all. I suggest you read the article completely. The interviewer asks some wonderful questions and the answers look very… cautious, shall we say?

Further, in their Notes to Accounts (Section 11.2), they have detailed their loans. It’s kind of a downer how many of their loans have caveats attached to them or some kind of performance issue. Is this because of the majority (70%+) lending to State Governments? Again, I have no idea. That is why I stayed out of investing in REC. It’s selling cheap for a reason, I guess.

The only saving grace I could think of about REC is that it’s a government nodal agency and is not likely to go bankrupt.


(Shankeshs) #3

Hi,
Thanks for your inputs. I agree with your conclusions. Also gross npa reported dose not include restructured assets. nim will fall down once npa starts increasing. Additionally, the npa are not on account of operational issues but due to factors beyond control of Power plants.This article perfect explains this


Power sector will not improve unless govt. Puts serious efforts in removing operational bottlenecks.


(amit.hardwired) #4

Hi Dinesh,
i invested in REC at 160 levels in February 2016,that time it was way cheap with dividend yield of around 8%. However,it has since gone ex-bonus and is no longer as cheap. Moreover, REC gives loans to state governments for taking up electrification projects in non-electrified areas. The execution cycle is too long with state governments even delaying payments for Energy meter supplier(case in point is HPL limited with 180 days receivables). However,they have been continuously rolling over loans,paying additional interest—reason for increase in REC profits over years.IN this case the cash flow anlysis done by you would be very helpful. When REC actually demands payment of principal,a PNB like situation may arise. Some governments like Punjab have run huge electricity bills and resslution is no where is sight.

before any investment in REC…always keep into account these issues.


(Shankeshs) #5

Hi, thanks for your inputs. I bought the stock due to dividend yield and cheap valuation. However, post investment I came across much deeper problems with the stock and the industry as a whole. I am looking a right time/price to shift my investment. I am looking to shift my investment in REC to RBL Bank. I have invested small sum in RBL bank to start tracking the stock. I think RBL can double from current price of 490 in next 2 years.