Akashdeep Portfolio : Learning along the way

[Akashdeep]

Hi Valuepickr community,
I have been a part of this forum for a while now, but sadly I haven’t been as consistent with my investments. I have vouched to be more disciplined with my monthly investments as well as with my stock selection.
I started my investment journey 15 months back and after a gap of 8 months I am back.

My investment option is through monthly SIP’s on stocks with my income savings, and since I have built my emergency fund, I will be able to invest all of it.
I generally pick my investment ideas from Valuepickr, screeners and SOIC. Mostly I follow Valuepickr and in the lines of Mohnish Pabrai " Everything in my life is cloned…I have no original ideas ”.
I am still not sure what should be the best allocation strategy per stock, per sectors, the best strategy? Is long term the way to go or be a more techno-funda guy like a lot of people here? How many stocks to keep? Is it 3-4 names or 30-40 ?

As of now (and for the next 2 years) I have decided to invest into 20-25 stocks with allocation per stock ranging from 3-7% of my folio depending mostly on my conviction and will not go beyond 15% on a single stock at any point of time in future.
I will only sell a stock if there are sectoral headwinds or something fundamental changes in the company, which I hope I will be updated through ValuePickr.

Since the time I have started I have exited the following stocks-

1. Laurus Labs (Still tracking through Valuepickr and Investor Presentation; had exited at a 20% loss a month back, as I needed some cash and I was unsure about the company prospects)
2. HFCL (Exited on a 10% loss; had it since the start with the 5G and Defense theme in mind but results never reflected the “order book”)
3. Yash Pakka (Exited on a 20% profit; in recent quarterly result revenue from their molded products did not show growth; prices might come down once paper cycle is over)
4. HUL (Exited on a 10% profit; Took it as a swing trade months back)
5. Dr. Lal Path (Exited on 10% profit a quarter back)

My current folio :
My current folio has 19 stocks which I intend to keep it in the range of 20-25 at any given point of time. I am still looking for ideas and the right price to buy some.
As I have been very sporadic with my investments, the per stock allocation is off the place and I will rebalance in the coming months and update accordingly.

Current Return on overall folio as on 09/02/2023 - (-1.20 %)

Companies and Current % Allocation:
Balaji Amines------5.60%
Deepak Nitrite----6.20%
UPL----8.00%
Vinati Organics—3.50%
Carysil-----16.30%
PNC Infratech-----3.60%
Surya Roshni----2.50%
Apar Industries-----3.50%
Rolex Rings----3.20%
KPIT----6.80%
GPIL----11.00%
SAIL----2.20%
Galaxy Bearings----1.80%
Bank Bees----1.10%
Caplin Point----6.70%
Divis Lab----2.90%
Cosmo Films----5.40%
Tata Power----8.10%
Avantel----1.50%

Rationale behind stock picks:
1.Well mostly like I mentioned before I have come across these companies through Valuepickr, screener and a few Youtube channels like SOIC. That is my first source of vetting companies.
2.I will try to balance my portfolio on individual allocation as well as on a sector basis but going forward at least for the next 1.5 year I will be a bit more inclined towards API/Pharma (Current holdings- Divis, Caplin, looking to add one), Specialty Chemicals/ Agri Chem (Vinati, Balaji Amines, Deepak Nitrite, UPL) ( Both these sectors seem out of favor now), Infrastructure/Capital Goods (Stocks like Surya Roshni, Rolex Rings, PNC Infra, Galaxy Bearing, Apar Industries, Tata Power are part of my Infra play), Defense (Currently I only have Avantel, rest big names either I have not build the conviction as of now and look expensive to me for eg Solar Industries, HAL, shipbuilding names), Financial ( I am confused on which 2 or 3 names to pick hence will go ahead with the ETF as of now).
Rest names that I have taken according to my limited understanding are undervalued like Carysil (Huge potential in international and Indian market; might pick up once Europe crisis ends), GPIL (Well came across this through screener and added it with time because of the extensive coverage @kumar_manas had on this company, Cosmo Films (Screener plus potential unlocking in value as I understand it is moving away from its commodity part of the business and the pet care business might be a big hit), SAIL (Will buy on dips; when it is around 0.4-0.6 P/B ratio)

As a safety net I have 10% of my folio’s total allocation on Gold ETF and will readjust the amount as my folio grows in the coming months and years.

I will be grateful if the experienced investors like @StageInvesting, @hitesh2710 bhai, @ranvir, @harsh.beria93, @Malkd, @basumallick whom I have been following religiously take a look at my current folio and suggest me on the way forwards keeping my constraint that I can only deploy money on a systematic basis monthly.

[ranvir]

Some observations -

1. No representation of Banking and Financial services is a little perplexing. The likes of IDFC First, AB Capital, KVB, Federal Bank, Axis Bank are availaible at cheap to fair valuations.

2. Can consider adding some Hospital names like - KIMS, Narayen Hrudayalaya, Rainbow Children Healthcare, HCG etc. High EBITDA margins, low to no cyclicality , High RoEs, RoCEs are almost a given in the well run hospitals.

3. Allocation to a small cap like Carysil looks too high. ( I also have it, about 2 pc of portfolio ). Caplin Point’s allocation also looks to be on the higher side.

4. FMEG space is kind of bottoming out. High cost inventories are out of the system. RM prices are relatively stable. Can consider adding CG Consumer, V Guard, Stovekraft, TTK Prestige etc

[Akashdeep]

Thank you @ranvir bhai for replying.

1. Correct I do not have any banking or NBFC names as I am not able to understand differentiation between different banks and not able to rationalise why I should choose HDFC over ICICI and vice-versa. Same goes for NBFC and small finance banks, hence I have decided to invest in NIFTY Bank BEES till the time I reach a certain level of conviction on particular stocks in the sector.
2. Carysil, Caplin are high and actually I loaded up on both of them in the last 1 month guessing they have reached their bottoms. I will not deploy any further cash on them hence the allocation will balance itself to 3-5%(which I intend to allocate per stock)
3. Regarding hospital stocks, currently I am evaluating them and have narrowed down to KIMS (Good operating margin, Tier II presence, Best margin in the industry because of owning lands, good capex in progress+ recent acquisitions) and Max Health (Market leader with best occupancy rate plus good capex), but I am not sure this is the right price to make entry or any further correction is pending.
   Regarding FMEG, funnily enough I sold Crompton Greaves Consumer Electrical at a loss after holding it for a long time and the next day you had posted that you bought into it. Recent results were a bit off as well. (Impatient me I was founding it undervalued at 420, and now I am selling it a much lesser price)

Thanks for your suggestions @ranvir bhai, helps a newbie like me. I am still in search of 6 stocks to complete my list of 25, will update the thread once I do that.

[Akashdeep]

My Market Cap wise Distribution and Last 1 Year Performance:
I had stopped investing Feb '22 onwards and again started adding since November.
I have added a few stocks in the last 2 days but the position sizing is very less, will update my portfolio here once I built my desired positions in them.
Market Cap Wise Allocation:

Portfolio Return vs Nifty 50

Risk-Reward and Valuation

[Akashdeep]

So, spent this 3 months re-evaluating the companies I am holding and the strategy forward. On the strategy part, its still an ongoing process. As of now, I have decided to have an universe of 20-30 stocks, where I will be adding money on SIP basis for at least the next 1 year before churning any, until and unless some major headwinds arise.
I would like to have 70% of my allocation across 12-15 stocks and the rest will be spread across lesser conviction bets or tracking positions.

For example, after the recent result of Apar Industries (which I thought had multi year tailwinds), there have been opinions suggesting that it’s a more cyclical business. But after going through the concall, I am mentally prepared to keep the stock to see how it shapes up, I may reduce the allocation depending on coming quarter results, but I intend to hold it without exiting and booking whatever little profit I have made on it as of now.

Anyways, this is my current folio, overall folio is up by 8%, since March '23 when I made the major rebalancing.

[Akashdeep]

Apar Industries Business Update Summary Q4FY23:

• Apar’s consolidated revenue for Q4 FY '23 was INR4,089 crores, a 36% YoY increase. Export of conductors and cables contributed significantly to this growth, with exports growing by 85% YoY.
• The power generation sector in India experienced the fastest growth in three decades, driven by intense summer heat, colder winter, and economic recovery. Coal and solar plants saw increased output, but India still faced a power deficit of 6.69 billion units.
• India’s solar capacity additions grew by 20% in FY '23, contributing to 22% of total power generation and reducing CO2 emissions.
• Apar’s conductor business saw revenues of INR2,121 crores in Q4 FY '23, a 41% YoY increase. The division experienced high profitability due to a higher share of premium products and increased exports.
• The oil division’s Q4 FY '23 revenues reached INR1,179 crores, up 28% YoY. Transformer oil showed faster growth, and margin pressures eased towards the end of the year.
• Apar’s cable business revenues grew by 38% in Q4 FY '23, reaching INR943 crores, driven by elastomeric cables and exports.
• FY '23 was a record-breaking year for Apar, with strong growth in all divisions and historic high top-line and bottom-line performance.
• The company is optimistic about future growth prospects due to a favorable macro environment, focus on infrastructure and renewables, but acknowledges that post-COVID demand and certain tailwinds may taper in FY '24.

Highlights - Future Tailwinds:

1. Favorable macro environment: Apar expects continued growth opportunities due to the positive domestic and global macro environment.
2. Thrust on infrastructure and renewables: The company anticipates sustained growth in these sectors, driving demand for its products.
3. Renewable energy sector: Apar foresees robust business opportunities in the renewable energy space, especially from solar installations.
4. Transformer oil demand: With infrastructure developments underway, steady demand for transformer oil is expected domestically and internationally.

Highlights - Future Headwinds:

1. Tapering post-COVID demand: Apar acknowledges that the demand and premium on quick and reliable delivery may taper to some extent in FY '24.
2. Competitive dynamics in Conductors Business: Intensified competition, including from Chinese suppliers, who are pricing sharply and seeking ways around higher tax regimes, poses challenges for Apar’s conductor business.
3. Inventory adjustments: Customers reducing higher levels of inventories built up to mitigate supply chain bottlenecks may result in a lower level of short-term orders.

[Akashdeep]

Surya Roshni Business Summary Q4FY23:
Surya Roshni Limited reported a record top-line and profitability for FY23, with revenue reaching nearly INR 8,000 crores. The company has focused on innovation, efficiency, technology, talent, and infrastructure to stay ahead of the curve. It has maintained a lean and healthy balance sheet and aims for sustainable growth with a comfortable working capital cycle. The company has repaid all long-term borrowings and plans to become debt-free within the next one-and-a-half to two years.

In the lighting and consumer durable segment, there has been revenue growth of 7% in Q4 and 16% year-on-year. LED lighting and professional lighting have shown healthy growth rates, with professional lighting expected to benefit from improvements in the capex cycle. The company is investing in visibility enhancement, advertisement, and strengthening its distribution network to support the growth of consumer durables.

In the steel pipe and strip segment, the company faced a decline in global steel prices during the quarter but achieved its highest-ever realization per ton. It exceeded its EBITDA guidance and reported robust growth in profitability. The company has reduced debt, improved its debt-equity ratio, and maintained a positive cash conversion cycle.

The company remains confident about future opportunities and continues to focus on geographical expansion, innovation, efficiency enhancement, infrastructure, and capital to provide the best solutions to customers.

Tailwinds/Positives:

1. Record top-line and profitability in FY23.
2. Investments in innovation, efficiency, technology, talent, and infrastructure.
3. Growth in LED lighting and professional lighting segments.
4. Improvement in the capex cycle.
5. Visibility enhancement, advertising, and strengthening of distribution network.
6. Debt reduction and improved debt-equity ratio.

Headwinds:

1. Decline in global steel prices.
2. Competition in the lighting and consumer durable market.
3. Market pressures on prices and margins in the steel pipe and strip segment.

When asked on the potential demerger- The CEO mentioned that it is the golden jubilee year for Surya Roshni and that the company has aspirations for growth. Serious discussions have taken place regarding the demerger, but the CEO cannot communicate any details until it receives board approval.

When asked regarding the sustainability of the margins, particularly in the API spiral and black pipe segments, the CEO explains that several factors have contributed to the improvement in EBITDA margins, including the start of API exports to America, reduced shipping costs, and overall market realization improvement in the steel pipe segment. The CEO believes these improvements are sustainable and expects a growth rate of 12-15% CAGR over the next 2-3 years. The company aims to eliminate working capital debt within the next 1.5 years. When asked about volume growth, the CEO states that the target for the next year is around 900,000 tons, representing a 13-13.5% growth rate. The focus is on improving EBITDA margins rather than solely increasing volumes. The CEO acknowledges the slower volume growth compared to competitors and attributes it to a decline in exports and API supply in India. However, the CEO expects improvements in these areas and anticipates better growth in export and API segments, while maintaining a minimum volume growth of 12-14% for the next year.
Lighting Division
The lighting division has not performed well in the past three years. however there is still growth potential in the market, with a significant share held by the unorganized sector. The company aims to capture a larger market share and improve its EBITDA margin by focusing on the LED segment, where market maturity and price stability are observed. There is a target of achieving a 10% EBITDA margin and ₹160 crores of EBITDA. The implementation of ATL (Above the Line) and BTL (Below the Line) strategies, along with efforts to expand the product portfolio, will contribute to this growth.

Through the Production Linked Incentive (PLI) scheme, the company plans to invest ₹25 crores over five years. These investments will drive innovation and contribute to the development of smart lighting solutions.

Regarding the vision for the lighting and electrical business, the CEO revises the target to ₹3,250 crores in sales within the next three years, with an EBITDA of ₹450 crores. The company plans to introduce a new product and strengthen its sales team to improve efficiency and expand into new markets. Despite the setbacks caused by the COVID-19 pandemic and industry cycles, the CEO remains optimistic about achieving the revised sales target by 2026.

Overall, the key opportunities lie in capturing market share from the unorganized sector, leveraging market maturity and price stability in the LED segment, and capitalizing on the PLI scheme for innovation. Steps taken to improve performance include implementing ATL and BTL strategies, expanding the product portfolio, investing in smart lighting solutions, and strengthening the sales team.

[Akashdeep]

Punjab Chemicals Business Update Q4FY23:

• The industry faced challenges in the last quarter, including inventory and price corrections, leading to a slowdown in demand for some products.
• Despite these challenges, the company performed well in certain product categories and has seen a pick-up in demand for some products in the current quarter.

Future Outlook:

• The management believes that the recent challenges are temporary and do not reflect the overall growth journey of the company.
• The company is recalibrating its growth strategy and improving processes to adapt to market dynamics.
• Efforts are being made to professionalize the management team, strengthen technical capabilities, enhance environmental health and safety (EHS) processes, and invest in asset reliability and renewal.
• The R&D team is being rebuilt and strengthened, with the development of new products and partnerships with universities for further research.
• The focus for the next year will be on signing formal contracts with multinational companies (MNCs) for product development and manufacturing, capitalizing on developed molecules, and continuing R&D initiatives.
• The company is exploring alternate sources of energy to reduce energy costs.

Tailwinds:

• Positive momentum and growth achieved in previous years.
• Strengthening of management and leadership team.
• Focus on R&D and development of new products.
• Potential contracts with MNCs.
• Increasing market share in the export market.

Reason for Current Performance:
The company acknowledged that the drop in performance was primarily due to lower domestic demand in the AgChem sector, which is the largest part of their portfolio. They also mentioned that there was a slowdown in the pharma sector and a drop in exports, particularly in Europe, due to inventory correction and price reductions.

The analysts questioned the explanation provided by the company, stating that the domestic AgChem business constitutes only about 12-13% of the total business and couldn’t account for the significant drop in overall performance. The company responded by emphasizing that Q4 was challenging due to inventory correction and unusual weather conditions throughout the year. They acknowledged that the slippage in Q4 numbers was higher than expected but expressed confidence in future growth prospects and reassured investors about long-term understanding with customers.

Regarding product approvals, the company shared updates on four products. They mentioned delays in launching a pharma intermediate product due to customer inventory correction and market turmoil. For two agro products, one herbicide already received EU approval and is expected to be registered in multiple European states by September, while another product is undergoing batch analysis and expected to be registered within the next six to eight months. The company clarified that the first two products, including a KSM and an AgChem for Brazil, have already been received and sales have commenced, with the sales reflecting post Q3.

In response to a question about Chinese manufacturers impacting pricing in the market, the company explained that China’s opening up after a prolonged period of closure has led to price reductions as they are desperate to sell their products at lower prices. However, they believed that this price reduction is a temporary phenomenon and expected prices to stabilize by Q2 for the European market and gradually recover in the Indian market from Q1 onwards.
Regarding future business, the company mentioned that it has been engaging in discussions with potential clients for specific products and molecules. These discussions have reached an advanced stage, with technology transfer documents and NDAs being exchanged, and some products already developed. In the coming months, the company expects these discussions to result in formal contracts, including multi-year contracts with take-or-pay clauses and clearly defined terms.

The company highlighted that these future contracts would involve multi-step processes, with most products requiring a minimum of five to seven steps. They also mentioned the possibility of backward integration within their factory or within India to secure the supply chain against market shocks. The company anticipates working with a product basket range of $50 to $300, which represents higher-value and more complex products compared to their current offerings.

In terms of market dynamics, the company discussed the entry of Chinese manufacturers and the impact on pricing. They noted that China, after being closed for two years, is now desperate to sell products at lower prices. However, they expressed confidence that the situation will stabilize by the second quarter for the European market and gradually in the first quarter for the Indian market.

The company emphasized that despite the challenges posed by the entry of Chinese manufacturers and inventory correction, they believe their competitive processes and efforts to develop local suppliers will help them maintain or increase their market share. They also highlighted their progress in Latin America, where they have gained market share against Chinese competitors.

Overall, the company remains optimistic about future growth and expects strong performance in the upcoming quarters, driven by the formalization of contracts, the development of new products, and their competitive position in the market.

[Akashdeep]

Ugro Capital Business Update Q4FY23:

Business Highlights:

• UGRO Capital’s AUM reached INR 6,081 Cr, a 105% increase from the previous year.
• Collaborated with ten co-lending partners, over 65 lenders, 35 fin-techs, and 1,200 GRO partners.
• Provided data-backed customized finance solutions to over 46,000 MSMEs in India.

Future Growth and Opportunities:

• Intends to gain a 1% market share with 1 million small businesses as customers in the next three years.
• Recently launched the GRO X App, a digital solution for small businesses, offering collateral-free instant credit and financial management capabilities.
• The equity capital raise will strengthen UGRO’s capital position and balance sheet.

Financial Highlights

1. UGRO Capital has shown impressive growth in its assets under management (AUM) with a significant increase of 105% YoY and 19% QoQ. This indicates a strong expansion of the company’s lending activities. The substantial growth in gross loans originated both annually and in Q4’FY23 further emphasizes the company’s expansion efforts.
2. UGRO Capital has maintained a relatively low level of gross non-performing assets (GNPA) and net non-performing assets (NNPA) with a ratio of 1.6% and 0.9%, respectively. This suggests effective risk management and a healthy loan portfolio.
3. The company has witnessed a substantial increase in total income, with Q4’FY23 and FY23 showing impressive growth of 92% YoY, 15% QoQ, 119% YoY, and 123% YoY, respectively. This growth demonstrates the company’s ability to generate higher revenue from its lending activities.
4. UGRO Capital has reported improved profitability, as indicated by the significant increase in net total income, reaching INR 126.8 Cr for Q4’FY23 (up 101% YoY and 17% QoQ) and INR 390.5 Cr for FY23 (up 123% YoY). The growth in pre-tax profit (PBT) further highlights the company’s enhanced profitability.
5. UGRO Capital has maintained a diverse pool of lenders, with the lender count reaching 66 as of Mar’23. This indicates a robust liability position and access to funding sources. Additionally, the healthy capital position with a capital adequacy ratio (CRAR) of 20.23% provides a strong cushion for future lending activities.
6. The company’s debt to equity ratio of 3.2x suggests a moderate level of leverage. It is important to monitor this ratio to ensure a sustainable capital structure and manage any associated risks.

Overall, UGRO Capital has demonstrated strong growth, improved profitability, and maintained a healthy portfolio quality. The company’s focus on expanding its lending activities and managing risks will be crucial for sustained success. Additionally, the diversified lender base and healthy capital position provide a favorable outlook for future growth and liquidity.

[Akashdeep]

Steel Strips Wheels Summary Q1FY’24:

Summary of the call:

Capex:

• Company invested in automation and is focusing on EV and casting businesses for future growth.
• Plans for another capacity expansion once the current order book is filled, expected to take around 15 to 16 months.

New Products:

• Increased R&D staff and capacity in aluminum wheels segment.
• R&D team focused on aluminum wheels and working on a new casting product.

Guidance:

• Expects improvement in EBITDA margins, aiming for 15% increase in absolute EBITDA in FY24.
• Expects margin profile to improve in H2 with increased sales in aluminum wheels.
• Expects substantial gains in operating leverage from new capex in H2.
• Alloy wheel business expected to lead the recovery.
• Revenue from new casting and Redler businesses expected in Q4.

Business Strategy:

• Gave up low-margin business with Maruti in passenger car steel wheel segment.
• Focused on improving profitability and optimistic about growth in alloy wheels segment.
• Awaiting NCLT order for AMW acquisition to contribute to commercial vehicle business.
• Confident in cost advantage and quality in the global market for aluminum wheels.

Financials:

• Generated significant cash flow in the past, considering deployment of next INR 1,000 crores.
• CEO de-pledged 50% of pledged shares, addressing investor concerns.
• Emphasizes conservative accounting policies and focusing on future ROCEs.

Staffing:

• Hired 60 people for R&D in alloy wheels.
• R&D team not fungible, but cross-functionality possible in the future.

Market Outlook:

• Expects raw material costs to increase in the coming quarters.
• Sold out in alloys and CVs, tractor business performing well.

[Akashdeep]

Elecon Engineering Q1FY24

Summary of the concall:

Growth and Future Guidance:

• Elecon Engineering reported strong growth in revenue from operations, adjusted EBITDA, and profit after tax compared to the same period last year.
• The company aims to achieve consolidated revenue of INR 2,000 crores with an EBITDA margin of 22% by FY24.
• The Gear Division targets consolidated revenue of INR 1,700 crores, and the Material Handling Equipment (MHE) division aims for consolidated revenue of INR 300 crores in FY24.
• The company plans to increase marketing and sales activity for its overseas business and set up a wholly-owned subsidiary in South Africa.
• Elecon Engineering has signed agreements with five OEMs in the European market, with an estimated annual business volume of approximately Euro 5 million.
• The company has a net cash surplus of INR 250 crores and plans to utilize it for future opportunities.
• Optimistic about growth potential in sectors such as defense, marine, railways, wind energy, and exports.
• The company aims to enhance operational efficiency, improve margins, and continue its focus on R&D and product development.

Headwinds and Tailwinds:

• Replacement demand for the Material Handling and Gear business varies from year to year but has been healthy in the first quarter.
• The open order book for Gearboxes and MHE division was 793 as of June 30, 2023, with 655 from Gear and 138 from MHE.
• The recent four new orders include a combination of engineered and catalog products.

Overall, Elecon Engineering is optimistic about its growth prospects, focusing on expanding its overseas business, improving operational efficiency, and exploring opportunities in various sectors.
Key Highlights:

1.	New OEMs: Elecon Engineering has successfully won contracts with five new OEMs in Europe, showcasing the company’s ability to secure significant business in a short time frame.
2.	Total Outstanding OEMs: The management did not provide a specific number for the total outstanding OEMs they currently work with. However, they mentioned that the OEMs are spread across regions like the Far East, Singapore zone, Africa (especially South Africa), Europe, South America, and the United States.
3.	Market Potential: The company is optimistic about the potential from the new OEMs in Europe, but exact figures are yet to be ascertained. The management is carefully evaluating the situation considering the economic recession in Europe and the ongoing Ukraine-Russia conflict.
4.	Supply Chain Strategy: Elecon Engineering intends to supply products to the new OEMs both from India and through its subsidiary Benzler Radicon group. The manufacturing location and supply mode will depend on individual client requirements.
5.	Opportunities in Africa: South Africa serves as a strategic hub for the entire African market, especially in the mining and mineral industries. Elecon Engineering aims to penetrate this market, which relies on gearboxes primarily sourced from Europe and the United States. Additionally, there is potential for replacement business and new requirements in South African mines.