I have not finished reading the complete annual report however went through presentation and other details I could gather. A year back also I had a flirting with this stock twice but at that time I don’t remember what happened but I never made it an investment position. However the stock definitely deserve a closer look and may be a worthwhile investment case.
Well laid out fortified diversified business model, innovative and ambitious company, they seem to be in right spaces and are pacing up at right time.
I always maintained that Financial services like new age banking and NBFCs with a mindset of innovation in roots and powered by digital wave, fore front in best in class IT technology and data analytic adaptation would be biggest wealth creators in coming times. One needs to have perhaps a basket kind of approach just as in case of Pharma sector in a portfolio with a sizable chunk allocation. Look around and you will see even in worst times banks and NBFCs do tend to make profits and here the competition intensity does not matter much as the profit pool size is humongous. Many a times I am surprised not to see banks and NBFCs in portfolios. At best little allocation here or there with housing finance little more lucky. Why this is reserves for sometime later and I will write later on it but for now…
Few quick facts
Since listing always a dividend paying company without fail
Since inception every single quarter profitable with CAGR in PAT>30% for past 10 yrs
Company ROE ex insurance finally breaking 15% threshold and seems to be sustainable now. Sometime back I went through MOST 100 bagger study and there was an interesting theory of an inflection point wherein company passes 15% ROE for the first time and on sustainable basis and thus announcing the emergence of itself as a multibagger.
GNPA and NNPA are relatively better at 1.4% and 0.39% respectively
Since I have an Edelweiss trading and demat account I can vouch for their better digital interface platform and customer relationship service than ICICI or Sharekhan atleast. The research reports are good enough. Just gives me good confidence as a whole on the company though the broking side of business may be of little % as a whole.
RJ, Saif Advisors and Amansa Capital in Top 10 shareholder category. RJ investment here is sizable so he must have done due diligence. Same can be said about Amansa Capital as well.
P/B of 1.4 on TTM basis looks very attractive.
Their insurance business with Tokyo Marine of Japan as JV partner is the fastest growing insurance business in India and their funds are top rated by Morningstar. They also have the highest branch productivity in the country.
Agri Financing business, one of their new product has untapped and very large scale opportunity in coming times and has the potential to be a game changer.
Ranked no 1 in public issuance of bonds with 55% market share
Cost to income ratio very high at 59% and is negetive
There was a buy back by company in 2014 at a price of Rs 45. CMP is 55.
Promoter’s shareholding is low at 30.53% out of which 60% approx is pledged which is slight negative.
I guess for now above info is good enough for me to have it classified as low conviction stock and will allocate the capital accordingly. As and when the conviction builds up and the information flows to me then will make a case later.
I concur your views. Perhaps that is why the markets even at the recent high of the stock is not giving it any great valuations. My limited point is that there seems to be too much pessimism and fear driving the stock to ridiculously low valuations and that is why it may just be a short term investment case for now. One can alter the stand later on as the information flows and future becomes slightly more clear.
Portfolio Update-
Finally took positions in Edelweiss Financial services. Hope for a slide in banks tomorrow to load on Axis bank/yes bank for long term.
@varvp14 just for informative purpose want to ask your view on Edelweiss. I just checked screener for it. 2 things which bothers me is Promoter Pledging [~53 %] and its D/E 7.46. Doesn’t these things is a concern. Again I am asking this just for informative purpose as I am a naive and want to understand the thinking proces. Thanks in advance
D/E ratio in case of financial stocks do not matter and should not be looked into so much
I would suggest that you read warren buffet take on how he values financial stocks as he is in the past and even today the biggest investor of financial stocks especially banks - he suggest to always look into ROA and then ROE over long term - ROA should always be greater than atleast 1.5 over time and ROE >15 % on sustainable basis
As for pledging of shares I have highlighted this in my thesis - its a small issue looking at credibility of Rashesh Shah - am overlooking into it
When he made this statement the interest rates were not as low as today - and anyways in India as well ROE of above 15-18% is perfectly ok and is sustainable over long term for financials business - the more above 18% is better
Extract of Warren Buffet’s interview on valuing banking stocks
Yes, well a bank that … earns 1.3% or 1.4% on assets is going to
end up selling above tangible book value. If it’s earning six-tenths of a
percent, or five-tenths of a percent on assets, it’s not going to sell
below. Book value is not key to evaluating banks. Earnings are key to
evaluating banks, and you earn on assets.
Now, it translates to book value, because it – to some extent,
because you’re required to hold a certain amount of tangible equity,
compared to the assets you have. But you’ve got banks like Wells Fargo
and USB, that earn very high returns on assets, and they sell at a good
price to tangible book.
Portfolio Update - Period of inactivity in this week except nibbling at Edelweiss and marginal increase of stake in Axis. Portfolio performed slightly better than Nifty benchmark.
Some positive news on Biocon - lets see how this pans out next few weeks. The consolidation with a slight upward bias in L&T finance and DHFL is inspiring confidence. Lupin now seems to head to 2400 before another consolidation happens.
Portfolio Update - Period of inactivity in this week. Portfolio performed slightly better than Nifty benchmark. Good traction seen in Care ratings, HSIL, Gati, DHFL and Kaveri seeds which help outperform the index marginally.
Stocks to ponder over and research further
a. Camlin Fine sciences
b. TCPL Packaging
c. Edelweiss finacials
d. SPARC
Thoughts - Patanjali growth can be slight disruptive event for many FMCG companies. Need to carefully watch out the FMCG stocks we are invested in.
lucky you, the above stocks all turned into multi baggers. Well you will make a living I guess out of the fortunes you made this bull run. 2014 was yours
Hi
Portfolio Update
Due to some finance requirements have to part away with few stocks like Rallis India, NRB bearings and Gati. While the first two have given very good returns with NRB clocking over 200% the same wasn’t the story with Gati. Exited Gati with some loss.
In the meanwhile have steadily increased allocation to few stocks in downturns
Axis Bank
Marico
Atul Auto - On Diwali Day
Have reduced some positions in
KPIT at 166 and Care at 1300 to finance above increased allocation
Finally started flirting with Camlin Fine sciences and Kitex Garments.
Will look to turn either of them into investments in next 2 days as after that I am going for short vacation to Singapore.
Will invite your views on above stocks. Even Elgi equipments started to look interesting.
Varun…ur stock selection is always good…no doubts there. Specially when people around tend to stop thinking independently and start aping the model valuepickr portfolio. Not that it is bad or anything like that ( infact it is superb ), but to me the process is far more important than the outcomes- because over long term no body can make money consistently on borrowed conviction and knowledge.
However I have an observation.
Dont u think that sometimes u trade too much. I feel so. What do u say and why?
varun,
both gsk and supreme have been reporting flat top line growth. does that not worry you?. patanjali also entering gsk space.
Novartis tie up should help gsk in fy 17.
Yes your observation is right and I am also concerned with this fact but as I am new to stock markets - only 3.5 yrs old and still learning the art of stock picking I keep on churning my portfolio to let go off low quality and add high quality. I am also learning to bet big on certain stocks wherein I have high conviction - sadly I made lots of mistakes in past and am still doing them. I have made big bets on certain stocks wherein my analysis have gone wrong and I have accepted them and stopped adding on to them and and in certain cases reducing them even at loss. For eg L&T Finance - I have realized that consistent low ROE, large equity size, absence of a passionate promoter, and too many verticals are spoiling the returns. Unless these things improve it would never trade at high valuations. Though its not trading at expensive valuations but there are little scope of upside. Similarly Somany ceramics I realized that NPM at 2-3% over long term may not be sustainable. In DHFL I realized that frequent equity dilution is a problem but its an excellent business with a good promoter.
I dont trade but yes I am churning quite often. However there are certain stocks wherein I am holding them for past 3-4 yrs and dont touch them at all.
I don’t know why I am taking that long and keep on making mistakes but I take it as a part of learning curve - I many not have made loads of money but I am not loosing capital as well.
Its ok when overall economy is slowing down to such an extent. They have been reporting good profit nos and NPM is increasing. I am not worried about Patanjali at all - I don’t think they can make an impact on GSK or Marico - may be a short term issue and that’s it. My opinion is that they will expand the market and thats how other companies will also grow more and launch their own organic products especially in the case of Dabur and Emami. The likes of ford, Honda, Hyundai etc have taken market share away from Maruti but they have expanded the market and that’s why even with a cut on market share Maruti keeps on growing. Competition is always good in long term - it takes out complacency and keeps everyone on toes.
