Hi All - The below is the portfolio of my wife, Angel who has scant experience in investing. While she has started to read and learn from this forum, I have volunteered to create this thread as she is just making baby steps.
Just to give you a background, Angel used to keep her money in FDs and savings account. Also she owns some gold jewelry which is very common when we talk about female folks. On the other hand, I have been investing and that might have inspired / motivated (I don’t know… what has happened) which made her to seek my help to build a portfolio.The below is a humble attempt to come-up with a portfolio (in fact, the aim is to create a low churn portfolio) where she can add incremental savings on a going forward basis.
Angel has promised the following: (a) firstly, she would invest two times in a year, lumpsum money once in June and December which is a bit confusing for me as to how to hand-hold her. I would appreciate your thoughts as to, should she add the money in the form of bottom-up approach or should she stick with most consistent picks when she invest on a half year basis? (b) secondly, she would start interacting on this thread as well as share her thoughts and seek guidance
As you would see, the picks are largely centered around Angel’s circle of competence (as she is coming from a medical background) and her individual preferences. I have added a few names which are experimental as well as consistent compounders (likely coffee-can portfolio candidates). While we have started creating this portfolio from the beginning of 2019, it includes recent purchases / IPOs. As a house policy, we don’t wish to own sin stocks such as ITC / VST/ UBL and Manappuram / Muthoot / other NBFCs were exorbitant interest is charged from customers. Here you go with the portfolio as of today:
1] Aarti Drugs (10.7%) - Promoters of Aarti industries and Aarti surfactants, as such no promoter issues. A low cost API player and specialty drugs manufacturer. Also, it’s a play on Crams. No threat of USFDA issues as US is not their key export market. Aarti drugs enjoys market dominant position in select API products. I feel the stock is not expensive (at PE of 12) given the 17% ROCE it enjoys. Sales growth is tepid and hovers around 11% for the past three years. On the negative side, I feel that the management has focused more on the chemical businesses and this may continue. Apart from the above, the debt levels should be monitored.
2] Abbot India (17%) - Obviously, a pick from Angel. This was the first name my wife wants to buy given her expertise / knowledge. Well discovered story and well discussed in this forum. Its a pseudo consumption play. Ranks among the consistent compounders with MNC parentage. The stock has run-up in the last few months and boast a PE multiple of 51. ROCE at 37% and 3 year sales growth stands at 12%. On the negative side, the stock may undergo time correction / price correction given the sharp rally it had from 8000 odd levels. Would have added further positions into the portfolio, but couldn’t get a chance owing to the steep appreciation in prices.
3] Affle India (25.5%) - An experimental pick from my end which I believe has a long runway ahead. I heard about Affle after IPO listing and took a token position initially. Bought further after research and converted small position into the largest position of the portfolio. Currently sitting on massive gains after the price run-up. Affle is a Singapore based (i.e. Promoter settled in SG) tech company which is focused on mobile advertising. What attracted me is that Affle can generate incremental cash flows with less capital cost. In other words, it has an asset light business model which is scalable across the world at large (currently the revenues derived from ex-Indian market is 55%). On the flip side, it is an expensive stock with PE ratio of 76 after the run-up according to screener (read somewhere that the PE is higher than 100 which I don’t know is correct or not). ROE at 67%, negligible debt and enjoys good cash flows. On the negative side, one doesn’t have enough info on the company. Risk of time / price correction as Affle has almost doubled from its IPO price. I am having a thought of booking some profits as the run-up was sharp but the business model keeps me away from selling. In short, my heart is divided .!! Not sure what to do.
4] Avenue Supermarts (10.6%) - I selected this stock as Angel won’t find any difficulty in understanding the business. Was easy to convince her and she happily agreed. Indeed, it’s one of the most expensive stocks. However, I’m not worried as long as Dmart can consistently grow. High regard for the promoter and there is no second opinion on this. Dmart is trading at a PE multiple of 111 and enjoys an ROCE of 26% with three year sales growth at 33%. On the negative side, the promoter stake sale to achieve 75% threshold might be an overhang in the immediate future. Candidate for price correction as and when there is a lower Dmart sales / SSG growth / slow down in store additions (hopefully not.!)
5] Bata India (5%) - We are regular customers at Bata, so it was easy to include it in the portfolio. Bata’s offering has improved tremendously whether it is for toddlers / kids or adults. As far as I understand, they own and operate showrooms apart franchise model. Therefore, while we say that Bata is very expensive, one has to take into account the real estate it owns. I feel that buying a footwear is a low ticket item (as we were confused between Bata vis-à-vis Titan. I know, I’m not comparing apple to apple but still they all fall within consumer discretionary. Titan is a strong candidate in our watchlist and may be added going forward). The other reason for buying Bata is that it would be easy for us to keep a tap on the business as we are regulars. Other positives include MNC parentage and healthy balance sheet. Bata currently trades at a PE of 65, ROCE of 30% and meagre sales growth of 6% over the past three years (where as Titan has a healthy sales growth of 21%).
6] Indimart Intermesh (6.5%) - This is play on platforms which has done well in the rest of the world. This is my personal pick to portfolio like Affle India. I don’t agree or expect that IndiaMart would be next Alibaba but I honestly believe that for the Indian SME businesses, this is a blessing to host their products to the world at large. I personally likes the promoter who has built the business from scratch without any Private Equity (PE) money. This is a business where one need to see how Amazon and Flipkart would evolve. Anyway, I feel that all products can’t be listed in the latter two platforms, so there is field available for IndiaMart to play and consolidate. The stock is trading at a PE of 55, ROCE around 14% and sales growth at 26%.
7] Jubliant Foodworks (4%) - This was an easy pick as my wife loves to eat from Dominos when we dine-out. I asked her why not Pizzza Hut for a change, she rejects it abruptly. So I feel that Dominos has earned its own share of fans who are sticky and what else I need to include this business in the portfolio? As Dominos is expanding into Bangladesh and Sri Lanka, I feel we have good business which has many legs to grow. I’m unsure whether the Chinese restaurant business would be successful, however, turning around DD was impressive and gives a ray of hope. Jubliant food trades at a PE of 62 with an impressive ROCE of 44%. Three year sales growth are in the region of 13%. The key negative is Promoter who doesn’t have a good track record. Anyways, I have bit the bullet and let’s watch. Next is the competition from Swiggy and Zomato which I’m not interested to listen. My personal experience is that Pizza lovers will find a way to eat Pizza as well as force others to eat it.!!
8] Sanofi India (7%) - This is my wife’s suggestion after Abbot India and obviously there was no room for denial. My personal inclination was to buy GSK as their capacity expansions would start reflecting to the bottom-line numbers. The positives include MNC parentage and leadership in key sectors. The stock is available at a PE of 37. ROCE and sales growth stands at 29% and 9% respectively. The key negatives include inconsistent sales / profit growth.
9] SRF (6%) - This company was in radar since 1300 odd levels, but could only buy after sharp run-up. SRF is not a common name in portfolios shared here in VP. It’s a diversified chemical company with largest market share in Fluorochemicals. It’s first Indian refrigerant manufacturer to get ASHRAE certification (ASHRAE stands for American society of heating, refrigerating and Air-condition Engineers) for its patented formulation. Apart from fluorochemical business, it has a robust specialty chemicals, technical textile business and packaging films business. SRF is trading at PE multiple of 23 with ROCE of 14. Three year sales growth stands at 17%. Haven’t heard any Promoter integrity issues. SRF has demonstrated consistent track record of earnings growth in the past several years. Coming to negatives, SRF has planned for capacity expansions and its debt levels which one needs to monitor closely.
Other portfolio bets:
IIFL wealth, Colgate and Galaxy surfactants which are about 8% of portfolio
Watchlist
Titan, Kotak Mahindra, IRCTC, AIA, Marico, Dr Lal,
Syngene Vs Laurus Vs Divis Vs PI industries, Atul Vs Sudharshan Vs Vinati, Vguard Vs Bluestar Vs Whirlpool, MRF Vs BKT Vs Ceat, Timken Vs Schaeffler Vs SKF and one of the AMC business. Note that these are not comparable strictly, i.e. not an apple vs apple comparison. Just jotting down the names and still confused how to arrive which stock / business to be included in the portfolio.
As you might have noted, this is not a typical portfolio and notable absence includes bellwether stocks such as HDFC companies, paint companies, Pidilite, Nestle, Britannia, HUL, Page, Eicher or insurance players. I have tried to play a bit differently taking into account Angel’s circle of competence and individual preferences.
I specifically ask your valuable thoughts on these portfolio picks and / or which should be replaced or stocks that can be added. Secondly, how to allocate the money on an incremental basis. I expect the incremental money on an yearly basis would be about 25% of the current portfolio size. Should the approach be bottom-up or stick to consistent compounders? I seek all your help in assisting Angel with her portfolio.
Currently, we have 12 stocks and believe that we could add another 3 more in the portfolio. Therefore, the important question is which among the watchlist stocks would find its inclusion to the portfolio and similarly, which among the current names in the portfolio can be replaced (with a better name).
We look forward to hear your thoughts. Thanks.!
Cheers,
Mathews & Angel
Build your conviction gradually.