Tanmay Jagtap's Equity Portfolio - Feedback is most welcome


(Tanmay Jagtap) #1

Hello VP,
I have been investing in the markets since the last 2 years (newbie). I am looking forward to feedbacks on my portfolio. These are the allocations:

ITC - 15.16%
Karnataka Bank - 13.34%
Tata Motors - 12.08%
BSE - 11.9%
REC - 7.32%
Repro - 6.78%
Reliance Industries - 5.92%
CSL Finance - 4.65%

Rest all is cash & short term debt

Investment rationale

ITC
Must have in every portfolio. Has a big cash cow in cigarette (almost 80% market share). Multiple drivers of growth. FMCG turning profitable recently. Already great distribution network.

Karnataka Bank
Highly undervalued bank if we see what the bank expects to achieve over the next 2-3 years. If the bank achieves RoA > 1% means the bank would start commanding a premium over its book value in few years. Expected reduction in NPAs by FY20.

Tata Motors
Again trading way below book value. Definitely no doubt over the credibility of the management. When a company is aiming for something huge in the longer term & not caring for the short term profitability, the market hammers such kind of stock. Similar thing happened with Biocon few years back. The future is in electric vehicles over the next few years.

BSE
Highly diversified. Trying to reduce it dependency on variable income sources (equity transaction). Pays huge dividend. Trading below its cash & investment value. Equities have a long way to go in India.

REC
Just bought it for attractive dividend yield + Power sector is not that good in India. So there is a huge scope for improvement.

Repro
Online book market is going to be huge & Repro has a benefit of early mover. Plus, they have the rights to sell kindle books as well (they haven’t started this yet).

Reliance Industries
Moving towards consumer business = Possible rerating. Reducing its dependence on Oil

CSL Finance

The first stock which I bought was CSL Finance. A highly niche NBFC with credible management growing rapidly. The company is not yet fully levered for a NBFC (Debt to Equity of just 0.56). Cost of borrowing is low despite the company being a very small size.

Feedback needed. Thank you.


(Vivek Mashrani, CFA) #2

I think there is concentration around financials. Unless it is intentional, some more diversification should help. Around 10-15 stocks are ideal in my view.


(Tanmay Jagtap) #3

Yes I am looking to add non-finance companies.
Sir, any view on the above companies


(amanbindra) #4

Good set of stocks Tanmay, i feel you have been conservative in your approach, since you mentioned Tata Motors with a long term horizon , i would suggest you add a few stocks to the kitty to not be prey to 1-2 stocks falling badly and damaging entire portfolio in long run.
In the above stocks just one note of advice: Keep a check on repro and their management credibility, i am from the Printing Industry and you would like to tab on them in terms of corporate governance.


(Tanmay Jagtap) #5

Thank you Sir.
I am looking to add more after the recent fall.
Is there any issue about the corporate governance of Repro?


(angrybull) #6

TBH I have a few reservations against a few of the companies mentioned
RECL : Would stay away from the company, traditionally the lenders to sectors primarily involved with utilities/commodities haven’t fared well since it is very difficult for these firms to earn more than the market wide cost of capital in the long run. Plus the aggressive electrification scheme carried by the current government and the rate at which RECL loan book has grown, there are bound to be more than a few bad apples in there.

Tata Motors : Any company with a legacy as long as Tata would care for its long term prospects. However the business faces major headwinds.Approximately 25 percent of the profits come from Europe (JLR) which is in severe distress due to Brexit concerns and the levy associated with that. Major Automakers Like BMW is forecasting a slump in profit margins.

The second headwind is coming from China, where the economy after decades one steroids is starting to cool off, also China is ground zero for Electric Vehicles. Combined effects have reduced profitability for Tata.
The good thing about the company is that it is aggressive in the Indian Utility Vehicle space and has a lot more new offerings in the segment as compared to other players.

I am skeptical about Repro in Electronic books segment; since the publishers are more than well equipped to handle the electric books surge on their own. Why would anybody give electronic publishing rights to a third party is not clear to me.
I would suggest a bit more diversification if you are even a bit unsure about your pickings.


(Tanmay Jagtap) #7

Thank you for your suggestions.

REC: Bought this as a pure dividend play. Need to consider this as it is a government controlled company.

Tata Motors: Yes, I agree that there are some short term issues

Repro: They are responsible for everything from publicity to manufacturing to sale, just the fact that the content belongs to them. After completing a sale, they pay a royalty to the publishers.


(Abhishek) #8

Could you explain why a bank generating >1% ROA should trade at > 1 P/B?


(Tanmay Jagtap) #9

Price is the sum of all the past + expected future.
Book Value is bank’s history.
RoA>1% signifies efficiency of the mgmt. of bank which means there is a high chance of bank existing in the future -> this is where the expected future value turns positive and hence the premium.


(Abhishek) #10

Why 1%, why not 1.2% or 0.9% or 1.5% or any other arbitrary number?

Arent there banks (and NBFC’s) doing significantly better than 1% ROA?


(Tanmay Jagtap) #11

Sir,
I am a newbie to investing. Whatever I have written above about RoA & premium to BV might also be wrong.
I would like to know how you would approach this & what kind of RoA are you looking in a bank?


(fabregas) #12

This post should help - How to analyze NBFC companies

Along with operating efficiencies, RoA is also a function of asset class (which in turn determines costs as a % of loan book). One should not look at RoA in isolation. Also look at RoE, AUM growth, NPAs, earnings growth etc.


(Tanmay Jagtap) #13

Great read, thank you.

But how do you go about valuing them?


(Sameer Wakude) #14

For a newbie, I would suggest you go for 20 stocks. Also I would encourage to have at least 5 industry verticals.
Have you decided upon your stock picking style? From the portfolio, it looks like a turnaround/value-pick style. Also, learn about other styles: Growth, Growth at reasonable price, Momentum, etc.

Include long term compounding stocks from Pharma, IT.

Look at ROE, ROCE of each of the investments carefully.

Some of the stocks I would encourage you to have a 2nd look:
e.g.
Karnataka Bank - High NPAs. Bank existed for decades but it has not reached great heights as compared to Kotak, HDFC. If you look to scout for value, have a look at Yesbank.

Tata Motors - Maruti is a leader, selling 50%+ vehicles in India. Have a look at it.

REC: Agree it’s a dividend play, but it’s a PSU and growth rate is super low. NPAs are rising. For Dividend yield, I would ask you to have a look at Castrol (Dividend Yield: 4.74% )

Reliance: In earlier days it was only Oil business, now it’s a data business. Has a great potential with 4G, Broadband, Digital business.


(Tanmay Jagtap) #15

Thanks a lot! Specially thanks for suggesting Castrol. Will analyze it.

Tata Motors: Bought it for Jaguar & CV.

Should I replace REC by something like BSE (growth + dividend)? What do you think?


(Sameer Wakude) #16

I am suggesting, Diversify more. At least 15-20 scrips. In India, you don’t know when black swan would happen. You can take a basket approach e.g. in Banks you can get Kotak, HDFC, RBL, Something like this. So that your portfolio is not wiped out. Look at consistent growing profits , good ROE, ROCEs.


(Tanmay Jagtap) #17

Yes, I’m looking to add more companies.