Atirek portfolio

[royatirek]

@Mudit.Kushalvardhan I could have gone with the midcap 150 index fund but I am trying to do active investing in small and mid cap.
Amount that I transferred from midcap quality 50 to parag parikh tax saver was not huge and hence did not think much about changing the cap.

Reasons:

1. Midcap and small cap active funds are getting a lot of money and they are finding hard to beat benchmark. There is no midcap and small cap active fund with lock in like 3 years in case of tax saver to dissuade the investors to invest in them. This has lead to a lot of increase in their AUM. In active fund I like low AUM and low beta funds.
2. I am able to beat the benchmark in small and mid cap currently though as we are in bull market, I might overestimate my ability but let us see how it goes. I have mostly small and mid cap in my indian direct stock portfolio.
3. Midcap 150 index is not a low beta fund and hence did not went for it. I prefer low volatility(low beta)

Though as low volatility is the one major thing stopping me to invest in midcap 150 index, hence things might change and I could also start investing in it in future.

[royatirek]

@phreakv6 Thread accelerated my portfolio rebalance
On September 10, after going through the @phreakv6 thread after it got mentioned in the SOIC tweet, I became little uneasy. Bull therapy 101-thread for technical analysis with the fundamentals - #2282 by phreakv6
In the back of the mind there is one question that keeps going on,

Am I guessing the direction of market ?
I like that the answer for it to be No.

I have also learnt that staying in the market is more important from my first mistake that I did in 2020 by selling my mutual funds and trying to guess the market.

I like to think that the asset allocation change is not the guessing of the market. It is the things that people like me can do if they don’t want to guess the market.

I was already going for the portfolio rebalance earlier as 50 percent of the incremental amount was being invested in the arbitrage. Though after this tweet and going through the @phreakv6 thread, overnight I sold some amount of small cap mutual fund and shifted it to parag parikh tax saver and some amount to the arbitrage(fixed instrument). This helped me achieve asset allocation between caps. Also, this led to 20% in gold and fixed instruments which is good.
I am planning to further increase it to 25 percent with more incremental SIP in the arbitrage fund.

The reason behind the selling smallcap mutual fund instead of direct stocks were

1. Canara robeco AUM has grown and hence its long term returns might suffer.
2. I was more confident on my Indian stock portfolio and hence did not sold it
3. I could easily get off the market in downturn but the canara robeco might face liquidity issue

I also stopped putting incremental money in canara robeco small cap through SIP.

Sold ITC in mother portfolio
In my mother portfolio, I sold the ITC to increase the allocation in fixed assets. One more reason was that I currently don’t see much growth in ITC now. It has been in the downward trend since some time and hence booked my profits. I sold it near to Rs. 440.

Exited HCG. Rumour of change in the management of HCG and HCG not declining this rumour
My whole thesis of HCG was for margin expansion but if the management is changing and I don’t know who the new management will be. It looked safe to exit it. It has given me 31 percent returns since I bought it sometime near the start of the year.

Story of GPIL
I entered into GPIL on 3 October with the stop loss(2 percent allocation) and took the exit on 4 October with 2 percent loss.
Few things about it
I did one thing right here was that I entered it with the stop loss as it has been commodity play and even though the cycle has not turned, it is showing growth in stock price.
It has variable margin and hence it has cyclic nature. At the first instance I should have never entered into it but still gave it a try.
One point to ponder is that, if the slope of the graph has flatten(Stage 3), maybe I should have not taken the technical entry. Maybe I am going too much in technical. Also there has been the case of Syngene which I bought when its slope was flat(Stage 1) and it has given me good returns. I should not think much of it anyways. I should remember that fundamental is the first filter for me.
I like the GPIL though as it has the lease of the mines till 2055.

[royatirek]

Entered into Goodluck India
Took position into Goodluck India today. It is nearly more than 3 percent of my total portfolio. I have decided to focus on its Precision tubes and forging business only for ease of understanding for myself.

Important things to note

• Precision Pipes & Auto Tubes segment contributes 24% to the overall revenue and 42% to the entire EBITDA proving that this is the high margin segment.
• Forgings contributes 14% to the overall revenue and 22% to the entire EBITDA and this might increase going forward.
• Issue of warrants to promoters of 30 cr. 25% percent payment is upfront.
• Company faces no competition from European and Chinese players in CDW pipes.
• Goodluck is the 2nd largest player in Precision Tubes after Tube Investments which is 2-3x in capacity plus a dominant player in the domestic markets and Pennar Industries is also one it’s competitors in India.
• Oil Refinery company needs to replace the refinery units below the sea water every year as those get eroded due to salt water and the company foreseeing a huge demand from Oil & Gas companies based out of Gulf nations
• Organised the plant visit for the analyst in August

Negatives

• Need to look into the Auto cycles
• The management keep buying and selling the the stock after the issue of warrants. Hence have a volatility stop based stop loss here.
• Company going into defence and other government contracts, hence CFO might not increase with the increase in Profits. As defence and other government contracts are minimal part of its total revenue, hence bought it. Defence is 2 percent of its total revenue.
• Overall utilization around 80%. Precision tube capacity utilisation is 90 percent as per some reports.
• Type of contracts the company is taking. As per the credit reports → Exposure to volatility in raw material prices and intense competition: GIL is susceptible to volatility in the price of key raw material, hot-rolled coils, which accounts for 70% of the total raw material cost, as the company is unable to pass on the impact of increase in raw material prices to customers in short-term contacts. In the long-term contracts, change in price is passed on only after 1-2 months.
• Government facing contract companies are mostly involves in bribery.

Thing to track
Need to look into their long term debt and their cashflow from operation in coming quarters.
Precision tubes capacity utilisation
Need to find the reason why the company cash flow from operations is volatile → Maybe due to GI pipe business
Tracker tubes growth and less percentage of revenue from GI pipes

Growth

Increase in margins
The forging business and the Auto tubes(and precision tubes) is the high margin business. It started with GI tube and is expanding into the value added products. Even for the low margin business of GI tubes they are forward integrating into Tracker tubes essential for the Solar energy sector to increase the margins.
Sales guidance (Overall): FY24 - INR 3,500 crores and FY25 - INR 4,200 crores.

Capex
60ktps capacity in Precision Pipes & Auto Tubes, should start running by Q1 FY25
Forging capacity increased from 12k MT to 30k MT recently

Deleveraging
Plans to reduce the long term debt but the short term debt required for the working capital needs is increasing.

New products introduction
Going to build the tracker tubes required in solar industry from the low margin GI tubes

Profitability
Company is increasing the profits and sales at the healthy rate.
Over next three years Management plans to increase share of value-added products to around
75% from current levels of 64%

Exit criteria
Volatility stop on monthy candles

Managment
Still learning about it but there is one thing. In one of the concall they said they have pass through agreement in case of raw materials but it seems from the credit report that the pass through agreement is not there for the short term contracts.

Valuation
PE expansion is possible as it is not highly valued in comparison with its competitors like TI and Bharat forge. But its competitors are market leaders and hence it might not get that valuation until and unless it becomes a leader.

Tailwinds
Got of good investors like Sageone entering it.
Capex and margin expansion
Warrants issued to promoters
Auto cycle upturn

Few important metrics
ROCE = 16.5(It is increasing which is good).
Cash Conversion Cycle = 106(It is decreasing which is good)

Competitive Intensity
For precision tubes, not too much. It is Tube Investment and one other company.
For forging business, maybe there are competitors and need to look into it.

MOAT
Still analysing.

• It seems it has distribution MOAT in precision tubes.
• Also the margin it earns from precision tubes is less than 1 percent than the Tube Investment.
• Industry structure in India due to low cost of labour, especially in forgings where manual efforts are required.(Need to confirm this).

Final Note
I have been looking into the business since a week. I only was able to buy today after I thought I might miss the train at 696 average price. The average price that I paid in my sister account is more than 700.

Reasons behind not buying it earlier

• I was not looking into the infra play as it is not the industry that I could understand easily(I have been reading about it though)
• Its cash flow also looked volatile but it seems things have changed this time. Waiting for quarterly results
• Also infra play stocks are cyclical.
• Also, I think the automobiles industry as cyclical, hence was avoiding it. Though entered it after noting down everything.
• For forging business, I had no idea. Even now I don’t have much idea. I am still studying it.
• Also as I am not confident, hence I have volatility based stop loss and the entry was techincal in nature as after it has given a breakout, I entered.
• Government facing contract companies are mostly involves in bribery. Hence there is question on the management integrity.

[royatirek]

I digged deep into the goodluck india, it seems I might have entered the cyclical business though we are in the tailwinds. I will play it like a cyclical business only for now until it becomes structural.

There are chances it can become structural. Here is how →

1. Management execution capability is good or exceptional
2. China downturn remains for few years which can give the management enough time to repay long term debts and expand their capacity of Auto tubes and forgings. It will lead to less volatile margins.
3. The automobile cycle does not turn bad.
4. Management should not focus much on the structure division of theirs if it is eating their cashflows.
5. No anti dumping duty by government on hot rolled coils as it impacts their regular business.

Need to understand more about management execution capability.
Also about the forging business in general.

I have found out the reason why the business have volatile cash flows and margins. Here is my thread for the reference → Goodluck India Ltd - #54 by royatirek

[royatirek]

Monthly Update
Sold goodluck India after management analysis.
I would have sold it much earlier but kept is little longer and sold it after the result near 850.
It is more about not painting the complete picture and the compensation of key members as percentage of the PAT since last three years.
Though it feels that management wants to build their business and keep putting money in the business which is good.
Their business in which they supply the tubes to the auto OEM is attractive and when they start becoming the category 1 supplier to the OEM, then obviously I might think again to buy.

Updates in stock filtering process
Recently added another source of stock ideas.

Reminder to myself.

• Buy stocks only in tailwinds or the tailwinds can be ascertained in upcoming quarter or two.
• Also, when a sector performs, all stocks in a sector performs.
• Everyone has different goals in life and one should focus on his path instead of diverting from it even though you might find other’s path attractive sometimes. We should always question whether following others path will help you achieve your final goal, if not then why to be in FOMO.

[royatirek]

Few learnings or testing in process

• I wanted to increase the allocation in NH and increased it when I saw the hospital sector was declaring good results. It seemed to work as the the NH results came out to be good.

• NH increases the price of the molecule at the start of the year. Hence following Q3, Q4, Q1 and Q2 results are just increase in volume and efficiency.

• When we find something is not good going with our stock price even when the benchmark is performing good, we should look whether all stocks in the industry in doing good or not. If all are not doing good, then we can look at the industry wide reason otherwise we can try to dig deep into the stocks.

• Using CANSLIM to buy the stocks sometimes works as the recent upmove in the stock gives us the margin to hold like in Goodluck and Neuland.

Monthly portfolio update
Added Neuland and Kama holdings and added more of NH.

[royatirek]

Kama holding
SRF - Playing it through kama holding as it is currently 75 percent discount and after the new rules that have removed double taxation on dividend distribution, I don’t know why it needs to trade at discount.
Also it is a CIC(like Maharastra Scooters) which can not invest more than 10 percent in activities other than investing in group companies.

From valuation front, Kama holdings, is trading at nearly 2X to 4X, 4 year potential income from SRF.

Earlier I ignored the SRF but now I think I have got few answers and also destocking seems to be bottoming out.

My answers

• Even after the patent is expired, innovator have process patent through SRF like companies which can keep the molecule margin high for 3-4 years more.
• The fluropolymer Capex is just near to 500 Cr and it has got delayed though they seem hopeful as per recent management meet. It is less than 20 percent of the capex. Then downside due to capex addition is limited.
• Size of the opportunity is looks high now as they seem to have entered the pharma custom synthesis which is huge.

Industry structure

Refrigent cagr - 7.9(fortune business) and 5% bloomberg

Flurochemicals - 5%

Fluropolymers - 5.2(fortune business)

Nearly 30 percent revenue is contract based whose margin are non fluctuating

Debt
Debt is Low and manageable

Growth
Huge capex majorly in custom synthesis and chemicals
Dividend opportunity will be high in Kama holdings
Product mix change towards high margin and stable margin products like agrochemicals custom synthesis and chemicals

Rerating

Chances of rerating is high as promoter needs to earn money and hence kama holdings discount will narrow

Margin expansion

Not there in short term as capacity is being commissioned(3 - 4 years)

Tailwinds

Capex and more than doubling of net block. (Long term)

Entry into floropolymers(Long)

Entry into pharma cms(long)

PI industries receivable has increased with good sales in Q2 FY24 and SRF has delayed the shipment. Q3 might be better as SRF has more stringent revenue recognition than PI industries(short)

After the inventory destocking stops, it margin might revert as its chemicals product are not too much dependent upon china. (Medium)

Moat

Patents in agrochemicals

Cow lost advantage in refrigerant

Negatives

Industry growth is single digit

Not sure when old agrochemicals molecule will expire(Process patent is there after the patent gets expire)

Not sure whether the process is PFOS free(yes it is as per the management meet notes)

Gujurat florochemicals have capitive mines but SRF does not have it, therefore may face margin pressure from Gujurat flourochemicals in flouropolymers. China has stopped procuring the fluorspar from their mines and hence it bring it on equal playing fields.

Upcoming Capex and past capex

Source Kotak

Screening criteria
Few good mutual funds were adding SRF and from SOIC.

Why the Kama holding did not rally after corona like SRF?
It was due to double taxation on dividend and low float.
Double taxation has gone.
Low float company will become high float company due to current split and increase in market cap of kama holding with time.

[royatirek]

Neuland Reasons for buying

I looked at Neuland after Q4FY23 result but after current result only I got the conviction to buy as I was already having Syngene and I did not knew difference between two. Also the profit looked non repeatable. Syngene is in big pharma and Neuland is in biotech.
Also Niveshaay seems to have it in its portfolio. I don’t know when they added it.

ROCE and ROE improving

Syngene told about problems in biotech company being headwinds due to funding issue still neuland was able to double their phase 2 molecule counts

Industry structure

Pharma growing at 6 percent but CNS area growing faster at 8

Directly buying biotech company might seem risky but cms company helps by diversification

Crams growth in double digit

Biotech company seems to be coming with new drugs more commonly than big pharma

Rerating possible?
Yes, as it current Pe is less than 25

Growth
Many molecule in registration stage(takes 1-2 years to get commercialised)
Capex - Have announced the capex of 120 cr
Unutilised capacity of 3rd plant at 30%+.

Margin expansion
Yes, it is being seen in the last quarter Q2FY24

Debt
Debt is negligible

Negatives

• Its revenue consists of developmental revenue and commercial revenue. Developmental revenue might be one time revenue. Need to check about sustainability of revenue.

• Why is the reduction of the commercial molecules from Q2FY23 to Q2FY24 when we have never lost a customer?(Need to check)

• How frequent is the situation where after going commercial with the molecule, the biotech firms with which we work change the suppliers due to any reasons like being acquired by big pharma, licensing deals with big pharma, due to constraint in capacity, etc. ? (Need to check)

• Management selling 10 percent of the company in a company with low promoter ownership.

Tailwinds

• Considering three months of revenue growth, it seems they might be getting recurring revenue. Also its cms manufactoring business has been growing month on month for few years now. In few years, things will become sustainable. (medium)

• Mostly 5-6 molecules is contributing with new molecule contributing more and 1-2 molecule more is to be commercialised.(short)

• Most of its molecules are in cns theraupaurtitic area which is supposed to grow by 8 percent cagr.(long)

• No patent expiring till 2030(long)

MOAT
Not lost a client since inception in cms(q2 fy2024)
Shifting client is cumbersome in custom synthesis
Trust factor with innovator
Many patents granted for Neuland(more than 50 when compared to 100 for SRF)

Optionalities

KarXT comes with no side effects of currently mental diseases medicine( like schizophrenic, bipolar) like hand shaking, weight gain, muscles rigidity. It is revolutionary and the profits from commercial manufacturing of this medicine can make it bigger than any custom manufacturing companies.

Why pharma companies come to India as per Neuland?

• Complex process

• Source of material is in India

• Cost of material

Screening criteria
Through unseen value.

[royatirek]

Neuland thoughts
In last few months after the management analysis, I think that management is minority shareholder friendly. Neuland answered my questions and helped me understand their business.
I was astonished when someone from the EY representing Neuland came to answer about my questions that I raised over email. This conversation happened before the Karuna BMS deal. It is the first time something like has happened to me.

I have raised questions to Syngene but my email went unanswered. I assume that they made this annual report more comprehensive by including the answer to my query which is great I think.

The major questions
Q1) Why is the reduction of the commercial molecules from Q2FY23 to Q2FY24 when we have never lost a customer?
Ans) It was due to molecule going off patent and its commercial manufactoring ended.

Q2) How frequent is the situation where after going commercial with the molecule, the biotech firms with which we work change the suppliers due to any reasons like being acquired by big pharma, licensing deals with big pharma, due to constraint in capacity, etc. ?
Ans). The answer that came was before BMS Karuna deal. It is seems difficult due to whole validation and US FDA thing. Even after the biotech firm gets acquired, it works with Neuland. Management needs to quizzed more on that btw.

I have more questions which I am thinking of asking in the concall
Q1) If we have not lost any customer and our patents will not expire till 2030, does it mean that our commercialised molecule will keep on increasing?
Q2) Have we lost any customer after they got acquired by the Big pharma?

One doubt that I had about significant stake sale by the Neuland promoter. Sajal sir have answered it as the promoter who has sold their stakes is very old and hence the reasons are mostly personal.
Also, stakes sale by promoter should not be looked negatively but it was significant stake sale by the promoter hence I was little unsure.

I was already thinking of adding more of Neuland after my experience with Neuland mangement.
After the Karuna BMS deal, the probability of approval KarXT increased significantly and I had no reason to not add more.
Hence, I increased my stakes by 50 percent more making Neuland biggest position in my portfolio.
It is more than 6 percent of net worth or 25 percent of my Indian stock portfolio.
Also, I made it nearly 20 percent of my sister portfolio.

My analysis of mental diseases

• Most people living on mental diseases have reduced cognitive ability due to side effects of current generation of medicine. It hampers their ability to live independent lives. There is some figure that more than 50 percent need some help in their day to day activities when they are on medicine.

• Though we have medicines for schizophrenia and bipolar but the chances of working of current stream of medicines is nearly 50 percent as said by some prominent psychiatrist in Lucknow. This thing I also verified through some sources on the internet.

• Even if the side effects gets reduced significantly by KarXt with no impact on the efficiency or even little degradation of efficiency, the demand of KarXt will remain very strong. It is the chatgpt moment in mental diseases as per my research based on internet.

There was one more company in which I was very bullish which was amplitude and had to sell it with 30 percent loss. Hence this time I am little vigilant. It was very painful to book the loss on high allocation bet. Hence this time, I have decided to do some ground work in terms of demand and the probability of Neuland getting the orders for KarXT api.

Kama Holdings Views
As it was end of the month when I increased my stakes in Neuland. I had no money and hence had to liquidate my holding of Kama Holdings. I sold Kama Holdings only as in other stocks I had some profits which I did not want to book and SRF earnings trigger might take some time based on my research.

Though, slowly till now, I have again put money into Kama Holdings though the amount is nearly 40 percent less than the earlier amount.

I have planned to increased my allocation slowly over this month as many research service are predicting correction(Note to self: No one can guess the market in the short term) and hence I might get better value for money.

For the simplicity of the understanding, I only analyse the chemical business of the SRF. Also it the place where they are doing major capex.

One thing that I came to know about SRF agrochemical business was that their contract is majorly of 3 years. From JM financial management meet notes

SRF’s ongoing capex includes six
dedicated projects in the fluorospecialty business, taking the dedicated plants’ count to
21. These products are likely to have a 3-year contract.

One doubt that I have about the SRF was, after the production cut of HFCs, how the refrigerant business of SRF would fare?

My doubts got answered after going through the mangement meet notes.
Mostly from Kotak management meet notes

• Management sees world HFC demand remaining stable over the next few years, with demand growth across the developing world offsetting declines in the developed world. In contrast, HFC production is expected to decline in line with Montreal Protocol regulations(30% production cut in HFCs looming in the US from 2024), leading to tightening demand-supply— particularly in R-32, the most important HFC given its low Global Warming Potential (GWP) value.

• SRF has the capability to make its production capacities fungible between HFC products (such as
  shifting from R-134a to R-32), but not every producer in the world has that capability. This flexibility
  should be an advantage for SRF in the years to come.

• HFC production is expected to
  decline amid production cuts in the developed world and production freezes in the developing world.

• HFO patent expiry and SRF has the lead over HFO chemistry in India

• (Negative) China would keep circumventing the anti-dumping
  duties imposed by the US on China

Portfolio Updates and Others
In last 2 months or so, my portfolio has not fared well compared to small cap index or mid cap index or my mutual fund portfolio(large cap increase in December).
I have restricted myself to small set of sectors that I understand and which I find structural.
Also, the sector should be either classified as defensive or secular.

I also increased stakes in Maharastra Scooters and NH.
The reason behind increasing the stakes in Maharastra Scooters was because it was my top performer and when I added Neuland, it became the second biggest holding on current price on that day. Hence increased its stakes to keep it at the top. Though in last few days, Neuland has became my top holding due to 10 percent run up in it.
Mental model - The Neuland could have been a weed(think Amplitude) and hence wanted to give some water to the tree(Maharastra Scooter).

Allocation to fixed assets(gold and arbritage) is more than 20 percent currently and I would like to keep it same till we get some correction.

I started reading the book romancing with the balance sheet some time ago and then left it.
Now again, I have decided to finish this book to improve my knowledge on finance.

2023 was a good year though. Happy new year to all VP members.

Key highlights related to investing

1. Read few books
2. Increased my source of Ideas and information
3. Have been writing on this platform since a year now regularly

[Aditya_Mittal]

@royatirek The OPM has improved drastically to 33% last quarter due to shift towards CMS business but the question is if it is sustainable because historically they had margins in the range of 15-20%. My concern is what if mean reversion happens and margins decline again ? Although the current PE still looks reasonable but stock has already become almost 4x in the past one year and if OPM doesn’t sustain, we would see the PE ratio rising.

[royatirek]

@Aditya_Mittal Thanks for asking this question, I was also doubtful of their margin sustaining after Q4 FY23 result.

I don’t think there will be mean reversion to 15-20% as their product mix has changed. The operating margin in case of human NCE is more than 40 percent in peers. Check Suven for the example.

Considering 45 percent margin for the CMS business and 15 margin for their other business, the weighted average of margin comes out to be nearly 31 percent which is what they have attained.

It can obviously drop to 25 - 26 percent for some quarters going forward(as there is some economies of scale playing out) but it will definitely revert back to more than 30 percent once the share of the CMS business increases further and remain above a certain level.

Its revenue from the commercialised molecule from the CMS business is increasing QoQ for some time now. Hence product mix change is here to stay.

The volatility in the CMS business revenue is mostly due to the developmental molecule revenue which fluctuate on QoQ basis.

There can still be some quarters of the volatile earnings(which obviously is a buying opportunity) but as the share of commercialised molecule CMS business increases, the volatility in revenue will decrease going forward.

Other than this I think the KarXT optionality is not baked into the price currently.
Ex of KarXT optionality the valuation of the Neuland might seem on the higher side for some folks but with the KarXT optionality playing out, we are up for the surprise.

Disclosure: Please do your own research, I have a track record for being wrong.

[Aditya_Mittal]

@royatirek Thanks for answering, it was quite insightful, cleared my doubts. I actually went through this whole thread today and it was a delight to read. About your track record of going wrong, I did read about your investment in Amplitude, we all make mistakes and learn from them, your research was still very detailed and we don’t need to be correct 100% of the time to make money in stocks. You had also written above that you were trying to test the strategy of screening and picking stocks where mutual funds are increasing their holdings (after your own research too obviously), how has that fared so far ? I also thought of doing the same at one point of time but was not able to enter and exit timely. Also, if possible can you disclose the tool to find such stocks?

[royatirek]

@Aditya_Mittal Thanks for those kind words.
I am relatively newer to market and things that I say might be incorrect.
KarXT might play is not confirmed by management till now, we are all guessing and hence whole thesis may fall apart.
Neuland should be announcing more capacity for the manufactoring of KarXT as per my calculation but they not increasing much capacity considering KarXT as chatgpt in tech.

@Aditya_Mittal

You had also written above that you were trying to test the strategy of screening and picking stocks where mutual funds are increasing their holdings (after your own research too obviously), how has that fared so far ?

You will need to have a solid rejection framework as you will see many stocks being added every month. I have got single digit ideas worth investing since I have started tracking this.
For eg, in this year, in most of the months I did not got any idea and hence you might find it boring.

You obviously get some solid ideas like Maharastra Scooters, Equitas when you will be patient enough.

Also the kind of ideas you will get will be fairly large small caps or midcaps from tracking mutual funds data which impacts the returns. Stocks like GPIL, SBCL will never be added by mutual fund when they are small in size and hence I have recently added other sources also(not integrated on the website though).

My total investing framework is based on copying credible sources for whom I can know with certainity when they added and when they exit.
Though, for selling I don’t depend upon others as for now.

I can not comment about the performance though as backtesting any strategy of directly copying mutual fund did not result in any significant alpha generation.

I have sent you the website link in message, it is being maintained by me with no active development going on.
Also, most of the data refreshes by 15th of the month.

[royatirek]

I am writing it late than usual this month. Though today I found the time to write it down as writing helps in controlling my behaviour and knowing, why I took the certain decision in the past.
After we start writing regularly and updating the thesis against the company(I use samsung notes) we start seeing the benefits.

Completed the book Romancing with the Balance sheet.
Key learnings

1. What is the operating leverage, financial leverage and how to calculate it?
2. What difference between expenses and assets?
3. What is the cost of funds?
4. How to find the liquidity profile of the company?
5. What is contribution margin?
   It takes me nearly a month to 2 to complete a 300 page book as I read few pages everyday instead of reading all on one day.

Ordered the book by unseen value though I am not liking it. Still trying to read it.

Let us talk about losers in my portfolio.
Out of 8 stocks that I hold, 5 in Indian and 3 in US, I am in loss in Alibaba and Kama Holdings.
Loss Stock No 1 - Alibaba - Near to 15 percent loss

• Alibaba is one of the reasons I opened my US stocks account on Indmoney as I found it cheap near sub 100 level. Though I have mentioned it earlier, opening the US account brings in a lot of tax complications and I hate complications especially related to government entity like taxes.
• This is one of the reason I have been honestly filing my taxes and this year selected the new tax regime as it is more beneficial for me in terms of amount saved and less complications.
• Though as I have not incrementally put more money in the US stocks and as Alibaba has not given me any profit, hence it has become near to 2.5 percent of my net worth.
• One important thing I have observed is that all the breakout given by Alibaba fails as currently China is in bear market. Hence I am not sure whether to add the stocks on breakout works in bear market or not. Even in the book “how to make money in stocks by william o’neil”, it was written how the technicals might not work well in bear market. Hence bear market seems to be unknown territory. I sometimes use technicals for the entry in fundamentally strong stocks with tailwinds.

Loss Stock No 2 - Kama Holdings - Near to 7-8 percent loss

• I have mentioned earlier, Kama Holdings I added first in my mother portfolio. As it started increasing, I added more which brought average price near to 2700. Later I added it my portfolio and last month, I added more which brought even my average price more than 2700. Thanks to the last month addition, it has become 4 percent of total portfolio. My last addition was at price 2590.

• As it is falling in last few months, it seems that I might be trying to catch the falling knife. One of the reasons, I added it initially in my portfolio as on one day when I saw many stocks falling, the kama holdings was able to hold its price at near to 2800 and hence I started adding it as I thought it has a better relative strength. Other reason was that its parent company SRF has been holdings its price now for few years and I thought Kama holdings might be able to do the same. Also, there were initial fundamental triggers already present. Though as per SOIC, if we want to put money in falling knife, we should only do it after it has stabilises and hence I have stopped putting money in it and also one more reason is that it has already become 4 percent of my net worth.

• The reason I selected the SRF vs other agrochemical companies was that because SRF is a market leader, its agrochemical business(more than 30 percent of business and more percentage of new capex is coming here) is not dependent upon china and hence less things to track.

• One more reason is that stock market is a betting game until and unless good amount of real money flows to your account and it keeps growing like here in this case, Kama Holdings provides good dividend due to holding company leverage on dividend of the SRF.

Portfolio updates
Addition of more of Neuland in last month and recent run of in it has made it nearly 8.5 percent of my net worth at the current price level.
Added more of Kama holdings making it 4 percent of my networth at the buy price level.
Added few shares of NH also. As NH has crossed my comfortable PE level of 35, not adding it anymore now.

Other updates

Last month I was hoping that stock market might give a correction as many people were telling to come in cash and predicting a correction but again market keeps surprising everyone. I will keep holding more than 20 percent in fixed assests(gold and arbritage) just to limit my drawdown(to drawdown I can handle) and my requirements of funds in short term.

This is the first time I have asked questions in concalls this quarter(Q3FY24). I have asked one question in Protean, two questions in Neuland and one written question in NH concall.

There was reduction in the Intermediate count in api under commercialisation in Neuland QoQ even though it was noted in Q2FY24 concall that no patents will expire till 2030. I need to ask Neuland, how to understand this change.

Few things important was noted by Neuland in last concall

• If it is a molecule which is already generic, right, if it is not in the patent. Then you could actually file an alternate source and get an approval within 1 to 2 years. However, if it is a molecule which is still in the clinic being tested on humans, then companies can easily add an additional source at that point, provided that it doesn’t delay their filing timeline.

• But once they file, until they get the commercial approval, companies will not add an additional source unless there is a significant problem. Once it gets approved, then companies will add an additional source. But like I was saying earlier, that to take easily between 1 to 2 years based on the complexity of that molecule and in some cases, even go up to 5 years.

• It is the first time I think they have given some kind of guidance -

Now as we look into our future from where we stand today, we have much better visibility of
our business. We expect it to grow at around approximately 20% annually over the next 4 to 5
years. As the quality and size of our business grows, we’re getting a better visibility for our
future.
We will continue to commercialize molecules over the next 1 to 3 year time frame. We continue
to create capacity, keep ramping up with specific molecules in mind. As it stands today, FY25
looks like it will be a year of modest growth with some normalization of margins and operating
expenses rise due to inflation and ongoing investments.
Beyond FY25, which is FY26, FY27 and so on. We see a quicker growth on the back of both
existing molecules and new ones yet to be commercialized from the capacity that we’ll be
creating in FY '25.

• They said that FY24 has been a favourable year due to various factors like raw material prices, increase in utilisation of Unit 3, etc and hence might not be considered as a base year and also put doubts on sustainability of 30 percent margins.

• GDS Specialty and CMS business margins are similar

• Unit 3 utilisation at 57 percent.

• For commercialised drug under patent - Typically, if you want to do that, I think it’s possible, the key
  is, the complexity of the process, not just for the API, but for the finished dosage. And also the
  regulatory strategy, depending on how many countries that drug has been filed in. And
  depending on the situation, it could probably take a minimum maybe 2 years and maybe it can
  take even 5 years.

In short if any company want to add a new supplier(considering the new supplier has already FDA approved facility) for their commercialised molecule under patent then there needs to be

1. tech transfer(takes few months atleast)
2. raw material supply chain security for the API
3. supplier research plus the validation by the pharma company(takes few months atleast)
4. a regulatory filing with the new source to prove that the API made by new supplier is equal to the old supplier.(takes few months atleast and depends upon in how many countries the molecule has been commercialised)
5. Contracts obligations by existing supplier(Neuland hinted at it in the concall)

[prateekv]

Interesting thread. Thanks for outlining the thesis for your picks.

Current discount of Kama wrt SRF is near the peak. I believe it provides decent margin of safety at current levels. I believe low float is killing the price.

Disc: Transacted in last 30 days. Have capped allocation at ~4% to minimize risks of low liquidity.

[royatirek]

Thanks Prateek,
I totally agree with your points.
I like kama holdings especially considering its dividend giving potential. I have made it near to 4 percent of my net worth.
Every month, I like to document my ideas and thoughts and hence I discussed about it.

I am documenting my thoughts about adding new stocks and topping up so that I can improve over it after going through it in the future. I am more concerned about technicals instead of fundamentals of entry.

There is one more point, there was three levels of information at the fundamental level
Level 1) Insider information
Level 2) Predict sales based on data present like export or import data
Level 3) Understand the company fundamentally very well.

I currently play at Level 3 and want to graduate to Level 2 so that I can time the fundamental triggers before the increase in earnings is announced.
Even if we are at Level 3 and take margin of safety, we may do well.

I have no intention of playing at Level 1 as ethically I feel, there are many ways through which we can predict sales in some companies at Level 2 itself which makes us at par or better than even institution in some cases.

Disclosure: Added Kama Holdings in last one month.

[Mudit.Kushalvardhan]

Curious to know what you find not good in Unseen value?..As I was thinking of ordering it?

[royatirek]

Not a lot of case studies or stats to support his view points which makes it hard to digest the theory. Though, I have just started reading it and things might change as I read more.
Also, I had huge expectation from the book considering it was written by unseen value and that is why I ordered it on first day. Maybe if I would have kept my expectations muted, I might have liked it.

[Mudit.Kushalvardhan]

On a lighter note…
You bought the book at very high PE

[prateekv]

I have similar opinion about the book. Almost finished Section 1. IMHO the beginning of the book was dull with two many statements and quotes but no case studies/data supporting those. So far I have liked Chapter 3 where author discusses biotech business with analogy from Peter Thiel’s book. This chapter actually discusses some case studies and business models. Based on my experience so far, I am keep my expectations low.
Yes, the book has very high PE