Akshat's Portfolio

I have been following this forum for few months now. Finally, putting down my first post.

I have been investing in stock market for a few years now. My early style had been to stay out of market most of the time (with limited portfolio) and only get in during major/minor crisis (Lehmann crisis, demonetisation etc). The stocks would get liquidated in favour of real estate at specific times.

I am now done with real estate, which essentially means I need to be continually invested. My portfolio currently looks like this

  1. APL Apollo - barring last quarter, was quite impressed with their trajectory and almost the beginning of a brand here. Average entry - 1455
  2. Ice Make Refrigeration (SME) - IPO price (good upcoming space)
  3. RM Drips (SME) -average price of 56 (liked the MD)
  4. Kajaria - average price of 480 (market leader etc)
  5. Century Plyboards - average price of 210 (again market leader)
  6. KRBL and LT Foods (450 and 70)
  7. Exide and Amara Raja (200 and 800) (betting on lead prices to reverse direction)
  8. Lupin and Aurobindo Pharma (900 and 600) (expecting tide to turn)
  9. Star Cement and KCP (105 and 110) (Star has good brand in Eastern region - checked personally and KCP was good value at replacement level)
  10. NESCO (475) - getting 10% rental yield at these prices. So, a proxy for real estate and with land back that will slowly increase the yield.
  11. Jindal Saw (85) - interest arbitrage opportunity
  12. DHFL and Shiram Transport Finance (270 and 1200) - looked too beaten down and could not resist picking up. I like SRTR, which has been in my portfolio in my earlier journey as a small cap (so, old love maybe as well)

I have a fairly long term view - retirement view. I am currently also overweight on cash (parked in liquid funds + FD) as I anticipate more bad news to come in (30-70 as of now). So, I can add to existing positions or create new positions.

Would like view both in terms of portfolio as well as my equity allocation percentage.

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Hi Akshat. Could you elaborate more on your reason for buying Jindal Saw?

There are two triggers for Jindal Saw.

  1. A significant fraction of Jindal’s earnings are eaten away by interest costs. They have been steadily trying to reduce the borrowings. If you look at 2017, their PAT is less than the interest. So, with no major capex planned, the healthy cash flows can lead to almost doubling of PAT. This is the interest arbitrage opportunity. The management has also made it clear that this is one of their goals.
  2. There seems to be a demand pickup in two sectors that they operate in - oil and gas as well as water. So, I am expecting healthy group in the medium term (which will accelerate the repayment as well).

The rupee depreciation though has led to higher outgo for working capital and muted the first factor in the current quarter. If both triggers fire, then this had the potential for at least a 2X (and the downside at this point in the cycle is somewhat capped).

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How did you arrive at this 10% rental yield ? operating profit/mkt cap ?

Sales/Market cap (314/3260) as per screener (assuming rental income = sales)

operating profit is roughly 30% less (similar to what is given as standard maintenance expense on rental income). So, essentially, 7% with the regular increase with the optionality of increase in the rented area.

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Slowly adding SunTV to the portfolio - even though it is losing market share but that is likely because of increased pricing. So, revenue trajectory is good.

Doubled allocation to IceMake

For gas distribution, infrastructure has to be built. So Jindal saw can capitalise this opportunity and supply large diameter pipes for gas distribution channels. Can make tie-ups with Mahanagar gas Ltd. Or IGL

I’m not sure if large diameter pipes have to be used. U can check it once

None of the existing City gas distribution companies are Jindal SAW’s customer. I don’t think their prime products cater to intra-city network - they would cater more to inter-city. However, as more cities get connected, their may be demand (but not at that scale).

Adding Shiram transport as well. It is a leader in its field and once the current pain goes away, expect it to outperform.

The last year has been humbling in terms of expectations from the market. It has made me focus a lot on capital allocation as opposed to going really bullish on specific undervalued stocks. There are multiple reasons one of our bets may go wrong - headwinds that you are not aware of, hidden cockroaches etc. Hence, I have gone to a more diversified strategy. Would like views and comments on the strategy.

Here is the overall capital allocation strategy -
Equity - 33%
Debt - 33%
Real Estate + Reit - 30%
Liquid Funds/cash - 4-5%.

Right now, my cash allocation is higher.

As far as equity is concerned, here are the broad contours.

Sector. Allocation Number of stocks
Micro Cap 20% 8
Financials 25% 8
IT/Telecom 15% 4
Pharma/Cosmetics. 0% basket investment via low cost mutual fund
Consumer Durables+Real Estate 15%. 4
FMCG/Retail 10% 4
Processors 10% 4
Index 5% 4

Micro Cap Portfolio -
Ice Make
Acrysil (still adding)
(Need to add a few more here)

Financials - HDFC Bank, Federal Bank, Shriram Transport Finance, ICICI Bank, HDFC AMC
IT/Telecom - Airtel, Sonata Software, LTTS, Cyient
Processors - APL Apollo, Jindal Saw, Trident
Consumer Durables + Real Estate - Nesco, Havells, PolyCab, Century Play, Kajaria
Index - SBI Nifty ETF
Pharma - Mirae Pharma fund
FMCG/Retail - ITC, Marico

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One final disclosure. This is my planned portfolio strategy and I am about half way to it. Many stocks in the list only have a tracking position and waiting for dips.

Hi Akshat
I liked the approach of buying at significant correction time and book out. I am still learning the art of profit booking.
In financials , sticking with leaders having strong parent/promoters and corp gov would only work in India. I would suggest you to also look at KMB,Sundaram Finance/Chola -you may. also want to wait for gold financing stocks to correct.eg. Muthoot finance.

Also please look at below stocks .I am holding some of them .again. the reason is better mgmt+balance sheet + growth prospects.

IT/Telecom - Persistent and Tata Elxsi
Consumer Durables :Poly medicure , only listed co engaged in pharma devices prod
FMCG/Retail - VIP ind

In last couple of years I have put significant portion of pf in the platform based product co stocks and the one which have significant fee based earning . Most. of pvt banks are also have high fee based. income.I. have these in my pf :MCX,IEX,CDSL,IGL. You need to be very selective in their buying price.
They all have run up a lot in last 2 months.fI am holding few of them since 2-3 years plus. have bought during may-june.
Do you expect more than double digit return in REIT ? if not then you may also look at gold bond. $-rs movement , inflation in india , 2.5% fixed coupon return guaranteed by indian govt and tax free capital gain after 8 years of holding are good enough to compete with long term fixed income product.It would also give balance to pf in case. of market volatility.

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Chola is also in my watchlist - waiting for a price to book of 2.
Muthoot has run up a lot and have stopped tracking it as likelihood of it coming at my entry valuations are low.

Persistent is also on my radar. Between Tata Elxsi and LTTS, I liked LTTS better - is more aggressive on growth and the dependence on one player is lesser.

Will take a look at Poly Medicure - have never dug deep into it.

On utilities, I have IGL and GSPL on my radar. I owned IEX in the past but ran out of patience after holding for a couple of years. It is not clear to me what is the trigger on IEX for earnings growth/rerating. IGL is something I would be comfortable at a P/E of 20 (March 2020 PE) so need it to come down by another 10%. On a side note, I am using the March 2020 numbers for valuation in any industry that will not get impacted significantly medium term due to COVID.

REIT is a tax-free 6.5-7% return at current prices and slightly less than 5% growth (baked in many lease contract), which makes it very close to double digit post tax. I do hold a small amount of old Gold ETF (at 2950) but the overall growth for the past 5-6 years has been really low. REITs, if bought at 7% yield, will also have less downside in my view and given that dividends are now taxable, this seems to be the safest bet for ensuring stability in a part of the portfolio.

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Portfolio update: I have started to exit the Index fund and move the allocation to cyclicals - currently focussing on commodity

Can you elaborate that by mentioning that you are done with real estate means that you have reached your allocation levels or are fed up with hassles, if any, in real estate and created portfolio by sales proceeds or something else? Real estate has indeed lost its sheen, specially in metros and tier 1 cities…also the portfolio you have are risky bets so not sure if they are from sales proceeds of real estate where you would have looked to protect capital?