I like the thought process. What do you think would be optimum percentage you would allot in the PF for a high conviction stock. And do you have a plan as to how much a median stock gets alloted in the PF.
Thanks @hardik_shah1 for asking.
I am still not sure about the optimum percentage for the high conviction stock and I am still observing myself and learning.
All the comments below are based on my observations of my behaviours and I like experimenting.
I manage multiple portfolios - my sister, my mother, my father and mine.
I donât remember putting more than 7 percentage at buy price of my net worth at any time in any of the stock in my portfolio. Reason behind not putting a lot of money in one stock is that I am not confident of my abilities.
With time I have started taking bigger position in stocks at my net worth level as I am learning with time.
I use SOIC allocation framework of 2-4-6-8 as the starting point for deciding allocation.
I donât understand the companies in too much depth to take 8 percent allocation at the buy price of net worth. Though someday, I aspire to reach there.
Mostly I donât hold the company with 2-3 percent allocation at buy price of my networth due to efforts invested in tracking and understanding the company. It either scales to 4-5 percent or I take the exit as my understanding improves.
The other reason is that I donât get many stocks to invest.
I have 5 stocks in my Indian portfolio.
Other than 5 stocks, I also have 1 share of protean just to understand the business through the investor relations.
In my US portfolio, I have underperformed the US nasdaq 100 and due to tax complications, I am not looking forward to put more money in US stocks and hence not discussing about its allocation.
Not discussing the portfolio allocation of other members of my family due to privacy concerns.
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Monthy Updates
I reassessed my thesis in NH after the Supreme court ruling. I donât like to be a guy holding a company when fundamentals have deteriorated(the contra guy). Hence tried to analyse the NH again in response to the supreme court ruling.
THE CLINICAL ESTABLISHMENTS (REGISTRATION AND REGULATION) ACT, 2010
THE CLINICAL ESTABLISHMENTS (REGISTRATION AND REGULATION) ACT, 2010 talks about transparency in prices instead of fixing of prices.
The only short term negative is that if the government will not be able to come to that price range to be charged, the supreme court might enforce the CGHS rates which can destroy the hospitals economics.
Though that thing will be temporary in nature until and unless the government fixes the price based on region.
The implementation of the CGHS price can not be the terminal status even if implemented, it can just be a temporary status as CHGS rates are very low and unaffordable for the hospitals to operate profitably.
I am also in favour of giving people good healthcare but the things should be sustainable.
This thing might impact the hospitals like Max or Medanta though.
Probability of impact on NH looks low
- Many NH hospitals are running at scale
- NH charges less prices of its procedures and surgeries compared to other hospitals(Still in verification)
- More than 50 percent of the profits of NH comes from Cayman Island
Ref 1 â https://www.indiacode.nic.in/bitstream/123456789/7798/1/201023_clinical_establishments_(registration_and_regulation)_act%2C_2010.pdf
Ref 2 â Price transparency puts hospitals in trouble
Revenue growth of 6 percent YoY in NH
The lower revenue growth in NH seems to be due to disruption in North and West which is a temporary and does not change things substantially when the demand is concerned.
I think considering the management is honest and ethical, I can live with it.
Syngene reassessment
- Syngene never discloses the amount of the drugs that are in different phases in clinical trails which makes their business difficult to understand and less transparent. Low transparency is not directly proportional to the good and ethical managment.
- Then there is the concept of the Group CEO which I am unable to digest.
- If there is not more scope to earn more than 20 percent in direct stocks, it is better to put that money in mutual funds.
Out of all the stocks that I hold, it is the lowest conviction stock that I hold.
Some positives are industry structure and better and informative annual report(increases transparency) when compared to other companies. They also reply to questions raised in investor emails sometimes which is good(increases transparency).
Mutual funds updates
The things I am doing is more towards increasing more percentage of my net worth towards direct Indian stocks.
I have closed the SIP of my mutual funds since more than 1 month now.
Reason is that since few months I have been skipping SIPs for direct investment in stocks like Neuland and Kama Holdings and putting directly certain percentage in SGB and Arbritage.
Hence it made more sense to close the SIP.
On the day where the small cap lost 5.5 percentage on single day, I sold 2-3% of my networth in smallcap to come in cash. Reasons
- To limit my drawdown
- Canara Robeco small cap is not doing too good a work when compared to other mutual funds to limit the drawdown
- To prepare money for buying direct stocks
I have been holding more than 20 percentage in fixed assets like Gold and Arbritage since few months now.
Direct Stocks Update
I have not bought anything or sold any anything.
Peculiar behaviour
Sometimes, when I think the market is overvalued, I put money in NPS. This month also I put more than 40% of my investible salary in NPS. I have put money in NPS 3-4 times in this financial year.
Reason are the NPS has very long horizon, invests mostly in large cap and to let my investment in equity going on.
My Pension fund manager of NPS is Kotak and I have 75% invested in equity.
I always try to be aware that I can not guess the market and hence take decision based on it.
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Mutual fund Update
By the end of the month March, I had some cash left undeployed and considering next month, I was expecting my salary which would increase my cash level to level I did not want. Hence I like to be aware to not guess the market, I deployed the money.
I invested in PPTSF, NPS and few shares.
I also invested some money in Arbritage and SGB.
I still hold more than 20 percent in SGB and Arbritage.
Stock Updates
I bought more shares of NH, Kama Holdings and opened position in Indigo.
I invested some more money in Kama Holdings when the SRF started touching new highs and Kama was near to 2500. I was not planning to put more money in Kama until and unless it has attained some stability but as SRF made new highs, I thought maybe technically things might have changed.
Indigo was not only stock which I was considering to invest to increase my allocation to consumer business.
The reason I am interested in consumer business is that it is very simple to understand, as SOIC says, look at double digit volume growth.
I agree with the SOIC point of view as B2C business are very difficult to scale when we are looking at the double digit volume growth then something good is happening.
I am also aware of the 80 20 rule.
The 80-20 rule, also known as the Pareto Principle, used mostly in business and economics, *states that 80% of outcomes results from 20% of causes.
I like business with very few moving parts and hence which can be easily tracked and lot less surprises.
Other options that I was looking was
- Zomato
- Mrs Bector
- Senco Gold
I avoided Zomato as it was highly valued and I canât pay that premium.
I am aware that Blinkit and quick commerce in general is scaling like anything and hence I considered Zomato for review.
One other reason for considering Zomato is that being from ecomm background I understand Zomato better than some people. If it was not for valuation, I would have added Zomato. One other reason for avoiding it for now is that I already have Alibaba and Amazon.
I have reviewed Mrs Bector in the past when it was near to 700 when many mutual funds were adding it. I again reviewed recently, I found other businesses showing better volume growth and hence ignored it.
Senco Gold, seems to be good business showing good volume growth. I was confused with Senco Gold and Indigo at last. Considering when opening new stores, it takes hit on Senco cashflows due to inventory a new store has to maintain, I avoided it. Also, recently in past 1 year in Lucknow, many jewellery stores are opening and I thought maybe competition is intensifying.
Looking at the Senco Gold growth for last quarter now, I think I might be wrong but I donât like business with unstable cashflows.
Hence Indigo looked as the perfect option to me which is showing good revenue growth. Also the competition in Airlines has consolidated. It also came in my notice few months ago when some mutual funds added it but at that time, Neuland and Kama looked better option.
The moat in Airline industry comes with low cost. Indigo airlines are 20 percent more fuel efficient than Tata Airlines for some busy routes that I checked. Considering 30 percent of the revenue goes in fuel cost. The Indigo airlines has 4 percent margin advantages in comparison with Tata Airlines just due to fuel efficiency.
The only issue that Indigo is facing is the Pratt and Whitney issues for their planes.
Indigo Thesis
Industry structure - 11 percent growth in airlines till 2030.
Indigo is the market leader with 55 percent market share.
Indigo uses moslty a320neo - one of the most economical engine.
Debt
Still analysing as it is difficult to analyse.
Pe expansion possible
Pe ratio - less than 20 and yes. Forward PE is lesser.
Margin expansion possible
Yes if Pratt and Whitney does not ruin things and competition remains consolidated.
There are high chances margin will decrease if competition increases as they are operating at their best margins.
Vstop
Positive
Stage
Stage 2
Tailwinds
Increasing ticket prices(short term)
More airports(mid term)
Consumption in india(long term)
More airplanes(long term)
Negatives
Operating deleverage can kick in if planes capacity remains unused due to Pratt and Whitney issue.
Need to check the tata airlines growth.
Need to analyse the debt
Pratt and Whitney issue - new planes are of Leap engine. Ratio of 50 50 on 350 planes will change going forward. Currently less than 40 planes are grounded as per Q2FY24. They are doing certain things to bring more planes on different models to overcome Pratt and Whitney issue. More planes are grounded as per new issue in Q3FY24.
Questions still need answering
What is the benefit of the company which gives planes on lease to Indigo?
Management needs to be analysed.
Exit criteria
Competition and Pratt and Whitney issues intensifying.
I have near to 1 percent in Indigo at 3500 levels which I will increase if my understanding improves.
I think if there are not more chances to earn 20 percent returns, it is better to put money in mutual funds.
Hence there are chances, I might sell it.
I think I will take the exit as margin might not be sustainable, p and w issue and return potential is not big enough to put the efforts.
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Sold Syngene
I sold the Syngene after the Q4FY24 quarterly results. I know the business of custom synthesis should not be judged QoQ but I was already planning to exit the Syngene because I think I can not understand enough in deep to predict its sales or profits. Not so good quarterly results causes the stock to go down and as I wanted to exit the stock, I thought it was a good time to exit.
Others reasons as mentioned here
I sold near to 700, my average buy price was at 550. I mostly added near to 50 percent each in 2023 and 2022.
Sold Indigo
I also sold the Indigo as could not got hold of their business with few percentage point profit.
Reason was my theory of margin not sustaining but it seems that at even the current elevated flight prices, the Air India is operating is loss, so maybe the margin expansion is here to stay.
Also top mutual funds have added Indigo in March and April.
Neuland concall question
I asked a question in recent Neuland concall.
I could not get the answer that I was looking. I later realised, maybe because my question seemed forward looking.
The better way to ask this question would have been,
Will it be fair to assume that our commercialised API and intermediates count will not decrease QoQ?
or
I could have simply asked, how to understand the decrease in commercialised intermediates count in recent quarters.
Something different that I tried
I tried one strategy for trading and I was able to predict a lot things but could not predict the people response and has to book near to 5% loss over 3.5% of my net worth.
It was difficult to book loss when the loss comes in just few days but we should maintain discipline.
Also the loss is permanent which makes it little difficult.
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Sold NH( Narayana Hrudayalaya Ltd)
I sold it after going through the Q4FY24 concall at around 1200.
Reasons - operating deleverage might play in coming 2-3 quarters.
- They will use only money earned in India for Indian capex(as they can not bring money earned in the Cayman to India due to tax issues). They might take loans up to 300-400 cr(1000 capex- 300 cr cash in India - 400 cr estimated profit this year in India), decreasing the net profit by 30 - 40 cr.
- Employee cost can become high going forward due to backlog as told in the Q4Fy24 concall.
- New facility of cayman will come in operation in Q2FY25 and depreciation and fixed cost will hit the balance sheet. My estimation is near to 40 cr in depreciation will get deducted from the PnL. As the capex is of category greenfield in the same city and it is in the city centre, it might take least 1 year to breakeven, till then it will decrease the profit in PnL(operating deleverage). The operating deleverage might be too high, it seems in the initial few quarters.
- The growth in revenue YoY is not coming even if the Northern Hospitals issue that they faced last quarter is gone(concall - Q4FY24). Considering they increase their prices by at least 5 percent on 1st of January every year, the YoY revenue increase of 5 percent has not been satisfactory.
I will judge the company again after the Q2FY25 results or if growth comes again in Q1FY24.
The reason why I looked at this company concall in detail was that, I studied it(and bought it initially) after I saw it being added in axis small cap fund as their top holdings and due to SOIC. But Axis small cap fund started selling the NH since few months, and I was looking for reasons.
Mutual fund updates
I could not find many stocks and hence have deployed the money that I got by selling stocks in the last few months in the Parag Parikh tax saver mutual fund. I have kept some cash(4.5% of net worth), to take a position in one stock if anything good arises.
Stock buying update
Added some units of Neuland.
Mutual funds have been adding SRF recently, the Mirae mutual funds which sold the SRF in April, added it back in May. Need to understand the reasons.
One interesting thing
One interesting thing that I tried was making my watch list again after the crash helps in bringing a fresh perspective to the portfolio. It was suggested by chartist in one of his tweets.
2 Likes
Entry and Exit in ICIL
In last month, added ICIL and even sold it.
The reason why I added ICIL was that it was a market leader in home textiles with growth when compared to Welspun.
Textiles are gaining market share from China and Bangladesh.
Cotton prices are dropping so there would be margin expansion.
I bought it before the result and sold it before the quarterly result.
I bought it near to 360 and sold it at nearly 380.
I made it 3 percent of the portfolio as it was a cyclical industry instead of the usual minimum 4-5% allocation.
The reason behind selling as it went to 450 and came back to nearly 380 and I could not find the below reasons.
- I could not explain to myself why India is gaining market share from Bangladesh and China.
- I could not explain to myself the triggers behind the management guidance.
Entry in Sandhar Technologies Limited
Industry structure -
- There has been an upturn in 2W and passenger vehicles which is quite evident now. Especially TVS and Bajaj are growing better than the competitors. Currently 30% revenue contribution from TVS and 19% from Hero as per Q3FY24 for Sandhar.
- More job creation due to budget, 2 wheeler and 4 wheeler sales increasing again.
- Good monsoon this year
- Increasing profits as capex will slow down and new plants will mature.
- Market leader in locks and mirrors
- Sandharâs business outperforms their clientâs revenue growth. In downcycles, their degrowth is not as bad as their clients. (Link â Sandhar Technologies - An emerging market leader).
- 300 Cr Operating cash flow when compared to 3800 Cr valuation
- Increasing ROCE from 8% to now 12%
- Management tries to attain the asset turnover ratio of 3 and it takes 2-3 years normally to attain it.(Q4FY24)
PE expansion
Not possible
Operating leverage
Yes as capex will slow down and new plants will mature. Already playing out.
Increasing revenue
Due to the shift from manual to smart locks.
Large scale launch for smart locks in october in honda and suziki
PV and 2W growth and this company is EV agnostic.
Tailwinds
New smart locks(Min 5x revenue when compared to manual locks) and large scale launch in Oct-Nov this year(Near to mid term)
Operating leverage for at least 2 years as the company can increase the revenue up to 50% without during any capex - Q4FY24 (Near term)
2W and PV growth (Near-term)
Deleveraging increase in profits as hinted by management(Least priority for management for now - https://www.youtube.com/watch?v=LTSwUsNFr1Y) - (Long-term)
Negatives
-
Low margin(near to 10%) means dependent upon the customer
-
Maybe have paid a little higher.
Exit criteria
- New smart lock adoption fails
- Check for Hero and TVS sales regrowth
Vstop
Postitve
Stage analysis
Stage 2
Moat
Make plants near clients and hence if new player needs to come, they needs to invest substantially to setup plant nearby
Patent in smart locks till 2038(Need to understand completely)
Market leader in locks (Need to look more into why its smart locks business can not be disrupted)
Optionatility
Entry in EV space.
Notes
Max the margin can expand to 12.5%(https://www.youtube.com/watch?v=LTSwUsNFr1Y)
Guidance - FY25 growth same as FY24
I have been tracking the Sandhar from 2023 but could not get the reason why I need to invest in it. Now I understand it, it is due to product mix change(due to smart locks), operating leverage, and growth in vehicle sales. Even if one trigger fails, other strong triggers can provide growth on their own.
I like to get into a company with long growth years, I feel that maybe smart locks can provide it but the competition risks in smart locks need to be analyzed and its success needs to be tracked.
Need to also understand whether the 2W growth will be sustained for 3-5 years if somehow smart locks fail to perform.
I paid a PE of 35 and I feel it is high but if it can grow more than 30% for a few years then it may be a bargain. Due to operating leverage, the company profits will grow 1.5 times the revenue growth.
Hence 30% growth in profits is on the cards as most of the auto ancillary companies grow near to 6% better than auto companies and Sandhar has been an outlier recently with more than double of 2W sales growth(normalised sales growth of TVS and Hero).(Sandhar Technologies - An emerging market leader)
Need to find the reason why the auto ancillary companies grow better than the auto companies.
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Exited Sandhar at a loss of 12%
I exited at 565 in the first week of October and it was 3 percent of my portfolio.
Reasons were
- The smart lock is not getting adopted well and it is a little complex to apply. Verified it from YouTube. I should have checked the comments on the new lock mechanism before buying Sandhar.
- Retail sales have increased by 10 percent in the past twelve months, and wholesale sales have been larger, which means we might face an inventory problem for 1-2 quarters. The festive sale should be good to overcome the excessive inventory.
As my two main thesis broke and just waiting to check the festive sales does not provide the good risk and reward, I sold the Sandhar in the first week of October.
Things triggering my sale decision
-
The price drop of more than 10 percent
-
The report by the IIFL named 2W industry â Entering a tricky phase in September.
-
I learned how the things that get reported in Auto sales are all wholesale sales. For retail sales, we need to check the Vahan portal. Wholesale sales are reported at the monthly level.
-
The review of new smart locks by looking at the comments.
2 Likes
Sold Equitas in my motherâs portfolio
Lost most of my profits on the Equitas. Booked single-digit profits in it.
Things I could have done â Should have applied the Volatility Stop. Never realized that it dropped to the seventies as it happened very quickly.
Someone shared the reason was an increase in provision coverage ratio to 70% from 55% by the management going forward which could decrease the profit YoY atleast for a year.
I reconfirmed it from the concall and it seemed correct.(From Q1FY25)
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Bought Garware Hi-Tech Films and Aditya Birla Capital in my portfolio.
Bought Strides Pharma for Onesource in the mother portfolio.
Garware Hi-Tech Films Thesis
Added Garware at 3820 and made it 2 percent of my portfolio currently mainly after the AGM.
Three main business(65 contribution)
Solar control films auto - 40
Solar control films archi - 10
Ppf - 15
Industry and moats
Mostly all have similar margins
Solar film industry is growing at 5.8% and there is constrained supply due to patents in solar films with only two companies.
Garware seems to backward integrated and forward integrated and hence have huge control over product. (But how?)
Debt is zero.
PE expansion
Maybe due to consumer business and high growth
Revenue increase
Guidance of 2500 in FY26
More share of value added product
Capex of ppf plant to go live in fy26
Operating leverage
Yes
Tailwinds
-
Margin expansion to 22 to 25 due to product mix change in solar films - short term
-
Kerala high court ruling on scf opens 500 cr market size in india - short
-
Debt repayment - 22 to 25 - short(ignore)
-
Move from commodity chemicals to value added product.They have already reached 80 percent value added mix. (Ignore as mostly yoy there is 3 percent points change)
-
Capex of ppf to go live in fy26 - medium
-
Scf on buildings - untapped and medium
Negatives
- Dependent upon the crude price which impacts it 1 quarter later on their non value added products and. Eg 14-15% margin in Q3FY23 and Q4FY23
- The average PE of this company has been 15. Hence paying the PE of 35 can back fire if growth drops.
- As per company auto scf market is usa has become saturated. Near to 40% revenue is from USA region wise. Near to 40% revenue is from scf.
Vstop
Positive
Stage analysis
Stage 2
Moat
Patents in scf. Need to research more on validity of parent and what the patent is about.
ROE looks depressed due to revaluation of its assets. Otherwise roe is in mid teen and roce is over 20. Roe will increase with increase in margins
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Aditya Birla Capital(avg - 222.8) and Strides Pharma(avg â 1600+) are the special situation stocks. It is the first time I have taken stocks to practice special situation investing.
Aditya Birla Capital Thesis
I was initially reluctant to buy this company. Sawing it in a smallcase portfolio that got shared on twitter and the special situation video by SOIC which talked about change in management helped in study in deeper.
Considering the management is not minority friendly and hence it is 2 percent of my portfolio.
Under new management it is doing very good.
NBFC is going to merge with the holding company which would remove holding company discount.
Currently considering growth of their nbfc business, their is a opportunity for rerating.
Gnpa and nnpa profile is as per chola mandalam and has been improving for few years.
Triggers
- Holding company discount to go away - near
- Amazing growth with good npa profile - near
- Interest rate cut. - medium
Negatives
- Corporate loan book.
Need to understand how their 70 percent loan book is secured.
- Management in the past have shown that they are not minority shareholder friendly.
Moat
Low cost of funds at 7 percent.
Stage
Stage 3
Vstop
Positive
Other comment on technicals
Stock price in a band
Valuation
Less than 2x of the book value
ROE is in mid teens.
Strides Pharma thesis
To get a hold of the Onesource.
I have been tracking Strides since it was first added by a famous smallcase though bought it very late at over 1600+.
- Just to get the child company which is valued at 1.6b.
- Child company is the supplier of injectible for majority of generic companies in GPL1. Things will start from Q3.
3.Injectible is major cost component in GLP-1 drug, even more than api.
Nearly bought it at 3.5x of sales
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Can you pls mention the past events which made you realise this important aspect? Thanks
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I have seen the links shared in the aditya birla capital thread.
Sharing it again for you.
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I always wanted to be a Pokemon master.
I was so fascinated with Pokemon that one of my initial emails to a company was a Pokemon title song in college.
Gotta catch them all
God has different plans for me though. 
To become a Pokemon Master, you need to understand your Pokemon deeply, very deeply.
Recently since a few months ago, I have learned that the stock market is like the Pokemon world. Stocks are like Pokemons.
So many stocks with their very unique identity and abilities.
To excel in this world of the stock market, you need to understand your stock very deeply and fundamentally.
I have been thinking a lot about why does technical works.
There is a concept of technical analysis which many people say is based on insider information and hence we should look into it to find the stocks that are supposed to give the high returns. I do believe that insider information is prevalent in the industry but the volume due to this is not that prevalent to get any information through price and action.
Then how does the technical work, I feel it works due to people playing at Level 2 and Level 3, not Level 1.
Generally, backend integration is seen as a positive step in businesses. Then why not backward integrate and understand why the technical analysis works by working on our Level 2 and Level 3?
Stock-related Updates
I looked more into the management of the Aditya Birla capital and Garware Hi tech.
Garware Hi-tech Films has a related party company from which they have borrowed the patent for the sun control films. The payment that company is nearly 4 percent of the revenue. (In detail it has been discussed in Garware Hi tech films thread)
Garware Hi-tech do answer the questions of the shareholders that get raised in emails.
Considering these two things I have capped my position in the Garware Hi-tech films near to 2 percent. Though recently after the yesterdayâs result, I have increased my position to 2.5% at the invested amount level.
I thought the Garware would give seasonally moderate Q2 but it surprised me.
I was comparing it with Varun which has a seasonally very strong Q1 compared to other quarters. The most probable reason is that as mentioned in the concall is as nearly 50 percent of the Garware revenue comes from USA and USA remains ice blocked in Q3 and hence Q3 would be seasonally weak quarter. In other quarters they donât face this issue and hence other quarters are normal quarters with peak in sale of SCF in Q1.
However there is one catch here, last year from Q2 to Q3, we saw the revenue increase, why was this?
I also need to understand their PPF business in deep which I did not read in deep about.
Aditya Birla capital has not replied to my questions even after two follow ups. The reason might be as they have nearly 5 lakh investors.
I have decided to cap my position at 2%.
To excel in the stock market we need to understand it deeply, I guess as Garware investor relation is approachable and would help me understand the company better which can not be said about the Aditya Birla capital.
The other thing that I am not comfortable with Aditya Birla Capital is its corporate book. The ATS is 65+ crore. I want to understand the median and the maximum ticket size of the corporate loan book.
For now, I am holding both.
Strides Pharma thoughts
Regarding Strides Pharma, I tried to understand the company in deep.
I am not really convinced that Semaglutide has a high chance of going off-patent in 2026 as there are secondary patents that protect it. Generic pharma companies have obviously filed for ANDA in paragraph IV, but to launch it they need to prove the secondary patents invalid or try to invent some other novel way to make the molecule.
If we talk about the settlement that was reached between few generic companies and Semaglutide maker, the settlement would never be something that would help the generic pharma companies launch the drug in 2026 based on past track record of settlements.
The most probable thing that can happen in the settlement is that it would try to delay the launch of generic version of semaglutide till a few years after 2026 in a change of the compensation. So settlement is not a good news for, Strides Onesource, the cdmo partner.
As per Natco Pharmaâs concall it seems that they are still in a legal battle with the innovator for some other version of semaglutide for which they are the sole FTF which provides some probability that we might see the Semaglutide generic version in 2026.
It is not as easy as it seems and hence baking Semaglutide thesis in the valuation of the Strides would be a mistake and aggressiveness on the part of the investor. It can be considered a remote optionality at its best till more information is shared.
But then is Strides OneSource all talk but not work?
I guess not, I do feel that management is being a little aggressive in committing things to the shareholders as they are in huge debt. It seems they also faced issues while servicing their debt and hence it makes sense on their part to paint the rosy picture to get investment.
The thesis on the Strides Onesource should be based on Liraglutide and its other businesses.
Even Liraglutide cost per month is $1700 per month which is nearly the same as Semaglutide.
When the cost drops to $340 dollar(80 percent drop in price when the generic molecule comes based on past data) per month, it would suddenly become more affordable.
The market for the Liraglutide is currently $5B and considering there is drop in the price of the molecule(near to 80 percent) and increase in the size of the market opportunity due to low price, we can assume the market size to be more than $1B.
Though Liraglutide looks a lot less exciting than Semaglutide as it needs to be taken daily in injectable form.
As Onesource is the sole drug device assembly partner for most of the domestic generic cdmo company, the supply seems to be less competitive here in this part of value chain.
Though there are a few other things that needs to be looked
- I am not sure how easy it is to change the Drug device combination cdmo partner. It seems obviously difficult than the changing the partner who is just making the injectables like Shaily Engineering Plastics Ltd.
- Need to understand whether there are other CDMO who are working on Drug device assembly. I could not find anyone who is currently working in the drug device assembly for injectables. Though the research is still in progress.
- Can the medicine be taken in tablet form? As the GLP is peptide, it is difficult to take it in the tablet form as it decomposes in the stomach. This can be ascertained by studying the tablets form and injectable form of the semaglutide. To take the semaglutide in the tablet form, there needs to be a lot of precondition that needs to be true. Also, tablets need to be taken daily in case of semaglutide. The sale of the tablet form is less than 20 percent of the total sales of the semaglutide and hence we can be rest assured that injectable would play major part in the sale of semaglutide.
As the Liraglutide molecule does not provide good risk and reward, hence I am looking for the right opportunity and right valuation to invest more in the Strides Onesource.
Reference
Sale comparison of Rbybelsus(Semaglutide tablet) and Ozempic+Wegovy(Semaglutide injectable)
Also look at the sale growth of Liraglutide brand â Victoza and Saxenda.
Different GLP-1 and their expiry.(Here Eli Lilly GLP-1 candidate is not mentioned which is supposed to expire after 2030)
3 Likes
Built a small position in anjani foods at 35. First time taken position in less than 100 Cr company. Very illiquid stock.
Valuation
High in PE terms but low in mcap/cashflow considering it is a fmcg company
Margin profile
Low and it is increasing over years
Management
1.From 2020 next generation took over the company and company is growing better.
2.Even the salary that they draw is less than 20 lakhs and it has not increased yoy from 2023 to 2024.
3. Could not find anything wrong is the related party transaction
4. The auditor firm does not seem fishy. Checked other companies audited by them.
5. In 2023 they said they would grow by 30 percent but they did not grow. They did not mention that thing in FY2024 annual report.(negative)
6. Management seems to looking towards growing the company as they have kept their ownership percentage at 75%.
7. The notes to the balance sheet and other financial metrics are descriptive. Even they have mentioned and provided the breakdown of their other cost. They have a investor relation website and it seems they are investor friendly. They also talk about the busines at high level in the starting of the annual report in words by chairman. I think that the knowledge and overview they give about their company is adequate.
8. No operator as no of shareholders is less than 10k.
9. Promoters do not own any company in same domain
10. (Negatives) management guidance is not reliable.
11. (Negatives) management does not talk about negative thing that has happened in last year in annual report.
12. The promoter family run a private college. Could not find anything bad about the college so maybe they are ethical.
Tailwinds
- Capex in Unit 3 is live for production
They were operating at 90 percent capacity and with this increase in new capacity in new region they can expand to new cities. The new capex has potential to give 25 cr sales.
In FY22 Q3, they launched unit 2 which led to increase in sales in the few years. Hoping same to happen now after Unit launched in Q3 FY25. - New retail bakery stores - For last few years the store has been remained 18-20 even though 3-5 stores are added every year. As they have open factory in new region, it has improved its market size. They have started expanding to nearby areas of new factory like the new store in Bhimavaram.
Negatives
-
Totally dependent upon the palm oil price. When in 2022 the palm oil price nearly doubled its operating margin removed to zero.
Eg - Palm Oil - Price - Chart - Historical Data - News
It reverted to normal in 6 months.
Now since 3 months the price increased in 30 percent. It might impact its coming quarter.
The palm oil cost 5 percent of the total sales. With 30 percent increase, it can reduce margin to 3 - 4% if it does not do increase in prices of its products. -
The debt is high. The long term debt is more than 6 crore now. Every year nearly 1.5 cr debt will mature going forward. Considering the cashflow of more than 2 crore, it can service this loan for now.
-
Need to understand competition. It has won the zomato big restaurant in cake and bakery segment in 2024 in vishapatnam. It is also provide 60-70% bread and buns in vishapatnam. So it is a marginal market leader.
Company product
- Comparison with bakery in Lucknow
Avg cost of cake in Brijwasi in lucknow - 500
Avg cost of cake in hazel nut factory in lucknow - 650-700
Avg cost of cake in fresh choice(anjani foods) - 500 in some store and 700 in others.
The cost of the products in more than 20-50 percent higher than Brijwasi.
- The fresh choice was awared best restaurant by zomato in 2024 in bakery category in vishapatnam.
- Major market share in bun and breads in vishapatnam.
Debt
Debt seems high at 10 cr. Every year they need to pay 1.5 cr as principal plus interest. Considering its cashflow, it can manage it**.**
Operating leverage
Except for 2022 where the palm oil prices doubled, the company is able to manage to increase its operating margin since 4-5 years. It could continue to do so with the start of new factory(unit 3).
Industry
With just 50 Cr revenue, I donât think we need industry analysis here as there is more than 1 lakh bakery store in India.
Moat
Needs to be checked
2 Likes
Jan Update
Added few more quantities of anjani by mistake at 31 when GTT got triggered today.
Sold kama holdings with near to 5 percent loss and bought Piramal Pharma at 230. Piramal Pharma is 2.5% of my networth currently.
Reasons for selling Kama Holdings
- Have been holding it for more than year and still things are not looking good.
- I was hoping for things to improve in 2024 due to increase in demand for HFCs but it did not happen.
- Many moving parts. Complex business.
- Exports have not recovered in AI as well as refrigents.
- Shifting to better business with growth as market has corrected.
- Might come back if their is some permanent rise in profits
Thesis for Piramal Pharma
Top three CDMO from india.
11th largest in world. As big pharma works with few CDMO companies as they consolidate the cdmo that they work with, it might have more chances to success.
Present across 3 country, america, india and europe and hence might provide supplychain security to big pharma.
Industry
The CDMO industry is growing in double digit
Growth
Healthy pipeline of drugs. Two new drugs launched from big pharma in 2024
EV/Ebita Expansion
Possible as least among companies
Valuation wise seems to appear as 10PE as per 2030 projection which is high. Neuland seems cheaper as of now but Piramal has better pipeline than Neuland.
Margin expansion
With increase in Cdmo revenue the margin will increase
Triggers
- Deleveraging - 1k reduction in net debt(near term but insignificant as they can increase cash to decrease net debt)
- Two new molecule from big pharma. Among them one molecule is recently approved in europe and usa for other medication.(Near)
- Robust pipeline of drugs(Long)
Debt
0.6 Debt by equity ratio.
They donât seem to reduce debt to gain operating leverage due to debt.
Negatives
Equity dilution has happened recently which is sancrosant
The drug in patent gets replaced.
The drug patent can expire and need to check with company when their latest cdmo drug will start expiring.
Moats
Not easy to change CDMO partner.(Need to ask have they lost any customer in past?)
Source of idea
The export was high(33%QoQ) for piramal in Q3FY25.
Though it is seen in the past even if high export from India, their QoQ revenue does not increase as it is also dependent upon Europe and America factory units.
This time though there are chances that increase in export can lead to increase in revenue as a drug is approved in europe and usa for new use.
1 Like
Sold Piramal Pharma today at 233 in the morning.
There was some issue in my thesis.
Piramal Pharma cdmo division consists of patent as well as not patent molecules.
For FY24, the patent molecule cdmo was 50 percent of total cdmo.
Currently it seems it would be 30 percent of total revenue after the release of Pfizer nurtec and could increase more with sumitomo drug. I only understand patent molecule cdmo business and I value the company based on this.
Currently there was some mistake on my side in writing the thesis as I thought their complete cdmo business is of patented drugs and hence I took the exit with negligible profit.
2 Likes
Few things that have happened in last few months.
I got married in May.
Neuland Q3 bet
I was thinking Neuland Q3 results would be very good as Q2 revenue was below average even though Q2 exports numbers touched all time high. I thought as Q2 exports number did not show up in Q2 results(due to late shipment as revenue is recognised in case of Neuland when shipment is received by customer), it would show up in Q3 results. Also, the Q3 export numbers were pretty good. I thought hence Q3 would be very good and tried to play huge bet(near to 20 percent of my net worth) on the Q3 result. Then came the Q3FY25 result, if we remove the other income, the result was not great. I remember, I was literally shocked in the night as the current price of the Neuland was near to avg price of bet. I set up the after market order to sell the stock.
I thought I would lose a lot of money. Though, thanks to god I just lost 2-3 percent of the the bet amount as after market order got executed at the start of the market.
Sold Aditya Birla Capital with near to 20 percent loss.
Reasons
- To pool more money in the Neuland bet
- Investor relation cell is not existent. Even the email to request the physical copy of the annual report go unnoticed. They donât reply to my queries.
- Even in the concalls, their business overview is soo long that not many people get chance to ask questions. I tried asking questions in their concall multiple times, but did not get the chance.
Bought JM Financial at avg of 135.
Made it 3 percent of my networth.
Valuation
1.2 times the book value.
If we remove cash of 5k, then trading at 7k. If we remove the home loan unit of 1.5k, then trading at 5.5k for its corporate and weath/asset business.
Providing dividend yield of more than 2 percent and plans to double it in 3 years.
Market leader in corporate investment section. 2nd in FY25 in terms of volume of deals.
PE expansion
Possible as available at very low valuation
Revenue expansion
Possible due to more ipo and in wealth and asset management business
Operating leverage
Possible in wealth and asset management business
Tailwinds
Running down low ROE arc and wholesale lending business(near)
Asset mangement business which containes some good mutual funds turns positive.(medium)
Wealth management business secular story(medium)
Write back of the provisions of 350 crore(ignore)
Write back of income back of 200 crore(ignore)
No of ipos is increasing every year(medium term)
Negatives
Syndicate based lending does not progress as planned or with low RoE
They again get into their wholesale loan by increasing the loan book size.
Optionality
Loan Syndicate business leads to lot of fees and commission.
ARC business one time income due to some settlement.
Queries remaining
Need to check Pnl of the assest and wealth management business to make sure that it can double in 3 years
Stock idea
Green Edge Wealth Services
Bought nesco at 1120
Made it 2.5 percent of my net worth.
Profits will triple after the IT park 2 operations
PE expansion
Possible PE expansion at 18
Revenue growth
New office 1.5 times the existing office space
Margin expansion
Can not comment
Triggers
1.Wayside office starting in 12 months(3 highways, 11 spots in total). Hand off in 1-2 months. (Short)
2. Renovation of Hall 1 to be completed within 1 year. Hall 6 already completed 1-2 quarters ago.(short)
3. 750 room hotel and 120 rooms- 150 cr profit(long)
4. 2.3 million sq feet new leasable office space in 5 years(long)
Optionality
63 acres of land in goregaon which was 6000 cr valuation in 2020.
Negatives
Delay in building of tower 2.
Nesco does not seems to have big trigger in the near term and hence I have limited my position.
Stock idea
Parag parikh mf
Current Indian stock portfolio
- Neuland(40%)
- Maharastra scooters(28%)
- JM financial(14%)
- Nesco(10%)
- Garware hi tech films(8%)
Concentration in Neuland and Maharastra scooters is mainly based on its returns.
I once bought more of Garware near to 2700 during the tariff fall and sold it at the same day as I am not too confident about the promoters.
7 Likes