@akshatinvestor Portfolio : Compounding + Outsized Bets

Q&A: Questions & Answers Portfolio Q&A
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Hello Vpickr’s

Immense gratitude for all of you on creating such a high quality community engaging in conversations that matter and impact the outcome of an invetsment idea rather than doing an academic discussion and creating hypothesis. I have been a long time reader of this wonderful forum and silently absorbing all the knowledge and methods of research, i have achieved some degree of understanding to share my thoughts and engage in meaningful conversations. Just like most of us, i started small with mutual fund, then scaled up to deploy significant part of my savings into it; then moving to direct investments slowly and steadily to building a portfolio of meaningful size and expecting financial non reliance on my day job by 2026 :slight_smile:

There is only one piece of advice i would give to young people entering their earning years, even if you are deeply interested in investing and have confidence of making it big in life through investment, pls treat your jobs with equal importance and try to grow in them and endevaour to increase your earnings potential, it will not only help you with good capital to work with but also deter you from taking huge risks.

I tested many investment philosophy and more or less figured out what works with my thought process and with what i can peacefully sleep at night. I invest largely in mid and small caps. The portfolio is into 2 sub category:

1) Long term compounders
Companies with good visibility of future earnings and comparatively lesser volatility with expected returns of 18-20%.
Investing framework is high quality earning ( high roce, stable margins etc.) with reasonable growth and valuation, long seemingly secular growth trends in industry with tailwinds.

2) Emerging Ideas
These are few bets where the return expectations are multifold with high degree of risk and volatility, hence expectation is to filter ideas which have potential for 25% CAGR in next 4-5 years
Investment philosphy is large outsized outcomes through large capex, new product line, margin expansion, deep value, special situation etc. Looking for topline growth X margin expansion X valuation rerating

Tracking Positions
These are companies where either i have done the research but waiting for valuation to correct or any specific trigger or waiting for performance improvement visibility.

My asset allocation is 55-65% in equity, 25-30% in fixed income and remaining in cash depending on market cycle and valuation of companies i hold or intend to buy.

Below is my current portfolio, it has undergone significant change in last 2 years.

  • LTI : 11%
  • Laurus : 6%
  • Metropolis : 7%
  • Affle : 8%
  • Route : 7%
  • Prince Pipes : 7%
  • Intellect Design : 6%
  • Mastek : 6%
  • Saregama : 5%
  • Tips : 6%
  • Neogen : 10%
  • Infobeans : 10%
  • Arvind Fashion : 9%

Allocation is basis current value, some have increased multiple times from buying price. Invested part of allocation into Equitas holding and intend to buy more post Q3 result if all seems in line.

Reading more on Rategain and Nykaa. Positive on MMI and Data Pattern, but limited information available, will wait for few quarter results, concalls and research analyst reports to have sufficient data points.

Below is a list of people i would like to thank on Vpickr for showing the light and maybe meet some day to personally thank :pray:
@Tar : Concentrated bets on high conviction
@sahil_vi : Research and some more research
@Worldlywiseinvestors : Crazy dedication for SOIC
@Vivek_6954 : Your journey and thankfully its documentation is such an inspiration and a guide book

My Favs & Inspiration
Fav Podcast: https://www.youtube.com/c/TheInvestorsPodcastNetwork
Fav Indian Investor : Sumeet Nagar (Malabar), Sunil Singhania (Abakkus) & Neil Bahal (Negen)
Fav International Investor : Howard Marks
Fav Teacher : Mohnish Pabrai & Richard Feynman
Life Guide : Warren Buffet
Inspiration : Nikola Tesla & Dr. APJ Kalam

I intend to be more proactive on VP and twitter (https://twitter.com/akshatinvestor).

Look forward to feedback on my thought process or companies !

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@Akshay_Agnihotri : Wanted to understand the rationale behind picking LTI & not LTTS?

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LTI i bought as a service company for digital transformation growing at fast pace, i started buying at around 1300 levels. Its a huge market and Infy and TCS at their size are still growing. In product company i prefer SaaS play where the scope of monetization is high and their is non linearity in profits once the product is widely accepted and hence have intellect in portfolio. I like LTTS but its more project driven and and once project is done there is limited monetization from that work, i just prefer saas play because of incremental profitability they can generate, also i run a fairly concentrated portfolio so there is always a choice that needs to be made between good and great. Just listen to last concall of LTI and you will see oodles of confidence from management and they have executed well also.

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Great, thanks for the insights.

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Year End Update-2021

Bought a small position in Meghmani Organics. Current market cap is 2800 Cr, the company expects to do 3000 Cr in sales by FY24. Doing capex equivalent to 700 Cr and capex on white pigment (titanium dioxide) is a big step, an import substitution product. It is one of the largest RM purchase by cos. like Asian Paints. AP buys it from giants like Dow and is very critical RM. Quality of whiteness is extremely critical here for rutile, let us see whether MO are able to compete on quality, if they are, they have a big winner on hand. Expect 600 Cr EBITDA by FY25, at decent valuation of 15X EBITDA it should be 3X in 3 years.

Supriya Lifescience seems interesting opportunity with seemingly honest promoters, some foothold in the market in a segment which will only grow as allergies and problems related to respiratory tract infections grows due to pollution and lifestyle. Listed recently, hence will wait for some more data to be available before taking a call.

Performance
Realised gains generated CAGR of 38% and unrealised is at 75% CAGR for 2 years period. Markets have been kind and pardoned for some of my stupid mistakes.

Winners

  • 6X on Adani Total Gas, exited due to extremely high valuation
  • 3X on LTI, holding
  • More than 2X on GMM Pfaudler, Asian Paints, Titan ; exited due to high valuations

Mistakes
Got swayed by bullish sentiment on pharma and entered Neuland and Solara at high valuation, took 20% loss and exited. Learning → Pharma needs lot of research and no two companies are even similar. This sector has low reward/effort ratio for my method of investing, will be highly selective in this sector.

Guidepath for 2022

  • FOCUS and structured research will be priority.
  • If current portfolio performs well and no black swan events, will read more about international companies
  • Will engage proactively in community learning here and on twitter
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Hi @akshat_investor. Your portfolio seems nice. I think you should take a look at GPIL, as like Meghmani Organics its going to do big capex and is extremely undervalued.

Thanks

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Hi, Can you explain rationale behind Infobean.
and why not DLPL over Metropolis and Tanla over Route?

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Hi Vedant,
I guess you are referring to godawari power, i stay away from cyclicals, too many variables to track, also i guess cycle is in mature phase hence you see price correction for most of power and steels cos. Again, i have not done deep research into this so just my view. thanks.

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One Callout on Meghmani Organics
There are past governance related concern which may adversely impact shareholder returns or the valuation may remain subdued due to this overhang. Hence have a small position, once have some confidence on improvement in governance and progress on capex will add more. They are expected to get 200 Cr from MFL, if it is settled soon will be a good signal. Even a slight bit of doubt on this aspect, i will be out. At current valuation, the potential reward outweighs risk and hence i am interested.

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Hi @Kushal_Gera ,
Infobeans
When i started investing in infobeans, it was at some 10-12 PE, an IT company delivering 20% growth at 20% roce with good CFO/PAT in an extremely large sector compared to its size seemed a no brainer to me. Promoter seem honest and have good experience of this sector. The work they do is not very innovative, more run of the mill but that is true for most of large IT companies as well. The runway to grow is huge and hence the opportunity to multiply the capital.
Also management is very aspirational, have guided to double revenue every 2 year :astonished: , even if i assume it every 3 year it is still 26% CAGR at topline. Have good dividend payout and does buyback as well.
Recently they acquired US based Philosophie which is an innovative IT company into design discovery, prototyping and building campaigns.
The company has been putting cash to work and acquisition is part of strategy similar to my other holding Affle.
The only risk i foresee is any challenge in execution and merger synergy once the organization grows in size.

Metropolis over DLPL
My view is both will do well, but expect high competitive intensity between these 2 as they try to enter into each others’ bastion. Bidding war has already started to reflect in the money they are paying in acquiring companies. I hope this competition remains sensible and they do not end up destroying industry profitability. I chose Metropolis because of below:

  • Better valuation when i bought
  • Large part of their revenues are from specialized test compared to DLPL which has large part as wellness which will get affected more by online players like Tata1MG
  • Management focus on profitability - i admire Ameera Shahs’ leadership and her insights are worth listening to understand how leaders think even if you do not intent to invest in this company and her resilience in current tough times of high competition
  • Expansion Plan
  • DLPL is a lot talked about story(promoted by a big fund manager as well) and when they change course, it can have consequences

Irrespective of above views, i expect both to do quite well.

Tanla vs Route
Frankly i never heard about Tanla till the time it began multibaggar :slight_smile:
But Route is an story which is ever evolving, it started with CPaas but it can grow into so many areas of communication and commerce. It is not a very high marging business but it is very high transaction volume business and with that you get huge amount of quality consumer data and it is up to company to how they can make business out of it and that is what they intend to do with pre data analytics, extremely interesting space, so much to learn.
Refer this:

Thanks

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Is it right level to enter in route mobile? Is it overvalued or not?
Please reply the best level to enter

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Hi Sambhav,
The management has guided for 30% topline growth for next few years, so from that lens if margins stay where they are (may not be the case due to acquisitions), it seems reasonably priced in current market. I guess the question to ask yourself is what is your return expectation and in which bucket you see this stock in your portfolio. If you are expecting 18% compounding kind of from this level, i believe it is possible but multi baggar return in short term does not seem tenable. Just to give you a perspective it is part of my portfolio since i see a huge runway for the company and management is quite aspirational, there are multiple adjacencies to the business which if fructify will be added over current run rate. May be you can buy a tracking position, wait for Q3 results and till that time, read more about the company and decide. Omkara Pathshala did a wonderful video on this.

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Thanks. I am also waiting for q3 results and i will try to buy on dips

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Hi

I am new member on site and this is my first post. The portfolio is very good with lot of effort put on understand company and future growth.I am only concern on Arvind.

All the best for long term

Regards

Vikas

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Thanks for kind words. Arvind is a turnaround play, it is high risk high reward investment. Business has shown significant improvement and management is pruning cash draining business, so directionally it seems to be going well. It is already 2X for me but there is a huge potential if management is able to realize business potential. I wrote a thread on this.

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Is there no regulation or threat of any new regulation on data privacy and use of customer transaction data for any other purpose?

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Excellent high risk high gain portfolio it seems…all major re-rated candidates…good to see high allocation to LTI

This portfolio can do well during rerating and high growth times…leaving very little margin of error from underlying companies

Do you have any exit strategy or is it long term buy and hold?

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Hi,
I do not have a deep researched answer to the query, but if you watch the management interview, they are hinting towards this and otherwise as well data mining is generally OK as long as PIA is not exploited and hence we also receive so many calls from real estate firms, banks etc. basis some of our transactions/credit score. Maybe once they kind of get into this, will know more about to what extent it can be utilized. But just to take example from GIS players, they have service of geo location specific advertisements so similar attributes can be monetized as long as customer agrees to it. But i agree in future with rising concern on data privacy it should be a factor to consider. But if we take a leaf out of these things discussed in detail on nearly all Affle concalls, we get a sense it is manageable.

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Thanks for your feedback. If i have to bucket my portfolio on valuation i see it as below:
Overvalued
LTI, Neogen, Saregama, Metropolis

Fairly Valued
Affle, Route, Prince, Intellect, Mastek, Tips

Undervalued
Infobeans, Arvind Fashion

The allocation % is on current value. So some stocks have appreciated and hence the allocation, LTI 5X from my initial buy. Neogen is 2X and Saregama 50% up. So the way i see this bucket is more of compounding gains from here 18-20% as per earnings growth, no rerating maybe some derating possible if growth slows.

Same is true for some other stocks like Tips, Infobeans and Arvind Fashion, they have appreciated from 50% to 2X and hence you see high allocation.

I am generally a buy and hold investor and sell only if valuation is obscenely expensive like i mentioned for Adani Gas, but it does not mean i will stick to laggards or if i see a better opportunity i will not flip. The challenge for me is i do not see many opportunities to replace any of my existing stock where i see comfort in terms of risk-reward.
Equation to crack is " incremental return on existing portfolio vs unknown better opportunity vs being in cash"
I am maintaining 25% in cash both as a hedge for existing portfolio risk or a new opportunity.

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Any view on Supriya results posted yesterday and drop in stock price ? How much substance in mgmt misguiding on margins? Or purely because anchor investors lock in period got over?