Yogesh's blue chip 10 Portfolio


(Yogesh Sane) #143

EPS has dropped to 430 in Sept 2017 as some of the automotive business is discontinued. company also bought back shares at high valuation. Company has average ROE of 16% so whatever moat company has is not reflected in profits. Overall Bosch is trading at 47 times earning so most of future growth is priced in. I don’t have visibility beyond what is priced on so not including Bosch.
Price has gone nowhere in 4 years because 4 year ago P/E ratio was 80. That’s the peril of paying a high price. In spite of growth in earnings, stock went nowhere as it was overvalued. During the Modi rally in 2013-14, stock went from 9000 to 28000 based purely on hope and expectations without much realizations.


(aceinvestor_75) #144

Hi Yogesh, Happy New Year. Wanted your thoughts on ICE maker, i read your write up, since then mk cap has moved 100%, how you see it valued now? Thank You.


(Susindar) #145

Hi Yogesh. What are your thoughts on ITC. What changed so much that price fell 30%. I think they have a bigger Moat than other FMCG stocks due to cigarettes as there is no Patanjali disruption. Do you see ITC heading back to 350 levels any time soon?


(Yogesh Sane) #146

@aceinvestor_75
Happy new year to you and all VP members.
Ice Make has rallied almost 100% from IPO price. Investors have priced in higher profits that will come from growth in next 2 years. Company is building even higher capacities so it will be able to grow even further beyond what is visible. Growth opportunities are there and company has demonstrated ability to capture those opportunities.
However, for manufacturing companies, growth is limited by capacity which cannot be added overnight. Markets always discounts certainty into the price. Only uncertain part of the future is not priced in. I will put intrinsic value of Ice Make at 90. That does not mean price will drop to 90. It only means I will be confidant that buying at 90 will reduce my chances of permanent loss of capital. At CMP, there is no room for error. company can still grow faster than expected and stock price can still go up without any any major pullback but buying at this price is risky but not speculative.

@susindar
When GST rates were finalized, effective taxes on ITC worked out to be lower than what ITC was paying which meant either ITC will pass on those taxes to consumers boosting volumes or retain those boosting margins. Either way it was beneficial to company and investors drove up the price higher. Govt quickly recognized this and plugged the loophole with additional cess on tobacco and the price fell. Overall, price hasn’t changed much in 2017. ITC has under performed Nifty 50 in 2017. It continues to be a cashflow story and FMCG play as a potential benefit that has been illusive for years. 350 is unlikely in 2018. This is a steady 15-18% story.


(GSApte) #147

Hi,

I would tend to agree with Yogesh on ITC story.

It basically spiked to 340 which was clear over valuation due to GST taxation being on lower side than earlier taxation. Now since this is corrected, it is a moderate to low growth story (probably in the range of 10%-12% EPS growth depending how taxation is done going forward.). There are chances that, Government would continue its stringent taxation policy on cigarette business thus keeping pressure on margins and volumes.

Earlier growth rates which have been there in MOSL Wealth Creation Report of Dec 2017 may not be seen in near future unless its FMCG business grows at faster rate of about +20%.

All in all, it looks like 10%-12% EPS CAGR story and Price CAGR of close to that or above depending on your purchase price.

It is a steady Dividend yielding Large Cap suitable for some investors.

Disc: Invested from below 195 levels with long term view with moderate expectations.


(Hamir Asher) #148

As per the DRHP ice maker capacity utilisation is appr 40%. Just for info … there could be sales growth without capacity addition for some time to come.

Not yet invested but actively tracking.


(aceinvestor_75) #149

Appreciate your reply .


(Prasad India) #150

@Yogesh_s, I truly admire your analyzing skills
Supported by analytics with numbers.
Learning is huge for me.
Thanks for being a part of this forum and educating us.
Wish you the best for 2018 and beyond.
Prasad.


(Susindar) #151

Hi Yogesh. Can you please share your views on IRB Infra? What is ailing this stock? It is quoting at single digit PE. Can it be considered as a blue chip or am I missing something?


(asvasanra) #152

Hi,

Did you follow any particular methodology for assigning the weights to individual scrips in the portfolio? Can you share on how you arrived at these weightages please.
Regards,


(Yogesh Sane) #153

A quick look at the segment data shows that while construction brings bulk of the sales, BOT business brings bulk of the PBIT. However, BOT business has large interest costs so I think after deducting debt servicing costs (interest + principal repayment), BOT business is not contributing much to the consolidated bottom line.

image
Source :2017 Annual Report

Construction businesses are typically not valued like an annuity businesses because road construction is not a repeat business. however, given the scarcity of infrastructure in India, road construction business will grow for many years. BOT business while being an annuity business, is not a perpetuity business as a typical toll collection concession period is between 10 to 30 years. That means at some point, toll revenue from existing assets will drop to 0 so it cannot be valued as a perpetuity business using PE ratio.
Overall, I prefer to value such businesses using book value after considering return on book value (ROE) and rate at which book value has gone up. Here are the stats:

image
Source: Capitaline

As you can see company has a book value of Rs 155/sh and it has grown at an average rate of about 12% over last few years. Growth rate as dropped in recent years as BOT business became larger part of the overall business. To me it looks like BOT business is weighing down on this company and that’s why they tried to monetize some of it by selling it to a trust using the new INV IT structure. However, I think it is not doing well going by the drop in price on NSE, which means company will have trouble monetizing more BOT assets.

Under the circumstances and given the low growth rate and heavy debt load, I would value the company at around 1.2 times book value or around 180 Rs/sh against current market price of 229.


(Yogesh Sane) #154

No methodology for weights. Undervalued companies get higher weights and fairly valued companies get lower weights. I generally assign weights between 8% to 16%.