Beginner Portfolio

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Hello Valuepickr members,

I got into investing during the COVID period and, like many beginners, started off by following tips from TV and Telegram groups—which didn’t end well. Over time, I discovered investors like Buffett, Munger, and Nalanda Capital, which completely changed how I think about investing.

ValuePickr has played a big role in that learning journey. I’m now sharing my thoughts here to get feedback, improve, and learn from the community. Looking forward to engaging with you all!

Over the past couple of years, I’ve been gradually building the following portfolio, and I’m now planning to start posting my thesis for each company here. I’d really appreciate any feedback—not just on the stock picks themselves, but also on how I can improve as an investor overall.

Current Portfolio:

  • RACL Geartech

  • Arman Financial

  • Shanti Gears

  • Thangamayil

  • Natco Pharma

  • Tube Investments

  • IDFC First Bank

  • CG Power

  • Cholamandalam Investment

  • Krishca Strapping

This is a bottom-up portfolio, largely focused on companies that show good capital allocation and have a decent runway for growth. One common thread across most of these names is management quality and potential for long-term compounding.

That said, I do have reservations about the current valuations in a few cases, which is why I’m actively tracking them and hoping to build better conviction over time. Posting here is part of that learning process, and I look forward to your inputs and insights.

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Tube Investments (TI) – Investment Thesis

Tube Investments (TI) was traditionally focused on auto manufacturing. In 2018, the company shifted its approach to performance tracking by setting four key financial goals: revenue growth, PBT margin, ROCE, and free cash flow to PAT. Given how cyclical the auto industry is, consistently delivering on all four metrics—especially revenue growth—is tough. To tackle this, TI rolled out a three-pronged strategy: TI1, TI2, and TI3.

  • TI1 includes the company’s core businesses, which are treated as cash-generating units. The idea is to run them efficiently and use the cash flows they generate to fund new initiatives.
  • TI2 is more of an incubator arm. TI looks for emerging sectors that meet certain criteria—like a ₹6,000 crore+ addressable market, scope for organized players to replace unorganized ones, or potential for import substitution. Once a sector fits the bill, TI makes early investments to build a presence. So far, they’ve identified electric mobility, medical equipment, and CDMO as focus areas.
  • TI3 is about opportunistic acquisitions. When valuations are favorable, TI steps in. The acquisition of CG Power is a good example of how this plays out.

By combining all three strategies—maximizing cash flows from core operations (TI1), investing in high-potential emerging sectors (TI2), and making smart acquisitions (TI3)—TI is aiming to consistently meet its performance targets. The thesis here is simple: by backing long-term growth sectors and maintaining disciplined capital allocation, the company is positioning itself to deliver sustainable returns to shareholders

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Arman Financials Thesis:

The microfinance sector saw a strong rebound post-COVID, driven by regulatory changes that allowed greater lending flexibility. The RBI moved from a fixed loan cap of ₹1.5 lakh per household to a FOIR-based system, permitting loans up to 50% of household income. While this expanded credit access, especially in rural areas, it also introduced new risks. Unlike salaried borrowers, rural incomes are volatile, making consistent repayment challenging.

As a result, issues like overleveraging began to surface. Many rural borrowers took loans from four or more lenders, often without adequate income support. These loans, mostly unsecured and sometimes used for non-productive purposes, significantly increased default risks. In response, the RBI imposed stricter regulations—raising risk weights, capping interest rates for certain players, and investigating questionable lending practices like evergreening. This led to a sharp correction in valuations, with stocks of major microfinance lenders like Spandana Sphoorty and IndusInd Bank falling over 50%.

Amidst this turbulence, Arman Financials has stood out for its disciplined approach. Led by Alok Patel, the company has consistently prioritized asset quality over aggressive expansion. During high-risk periods like demonetization and the pandemic, Arman halted lending entirely—an uncommon but prudent move that protected its portfolio. Its lending philosophy is clear: avoid extending credit if there’s any doubt about repayment capacity. The company maintains a strong focus on collections, ensuring minimal slippage in asset quality.

Arman is also gradually expanding, both geographically and through new products like Loan Against Property (LAP), which could provide more secured and scalable growth. In a sector under pressure, Arman Financials demonstrates that conservative management and sustainable practices are not just risk mitigants—they’re competitive advantages.

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At present, I am finding it challenging to identify companies that meet both my comfort level for investment and my valuation criteria. Most appear overvalued. Among the options I have reviewed, Arman Financial Services stands out as being within a reasonable value zone and aligns with my long-term investment approach.

After a detailed review of the company’s latest disclosures and strategic updates, I am comfortable holding Arman for the long term. Key highlights influencing this view include:

1. Asset Quality Over Aggressive Growth

Arman prioritizes asset quality over rapid expansion. The management remains agile to seize opportunities when appropriate but is equally willing to slow growth to preserve portfolio integrity.

2. Adapting to Market Realities

Acknowledging the decline of traditional rural joint-liability group (JLG) borrowing norms, Arman has evolved its systems to assess customers individually, ensuring a nuanced understanding of borrower circumstances.

3. Strategic De-risking of the MFI Segment

  • Reduced Microfinance Exposure: Disbursements declined from ₹1,895 crore in FY24 to ₹1,232 crore in FY25, with AUM down 23% year-on-year.
  • Robust Provisioning: Provisions of ₹90.22 crore cover 5.35% of consolidated AUM and 7.30% of on-book AUM. While this reduced FY25 net profit for subsidiary Namra Finance to ₹7.8 crore (from ₹138.8 crore in FY24), it demonstrates prudent risk management.
  • Strong Capital Adequacy: As of March 31, 2025, capital adequacy ratios stand at 37.34% for the standalone (non-MFI) business and 48.37% for Namra Finance.

4. Operational Realignment

  • Separation of credit and recovery functions at the branch level is fostering an independent credit culture.
  • Overdue collections have been established as a dedicated vertical, supporting improved repayment efficiency.
  • A new governance structure introduces Branch Credit Managers who conduct rigorous, customer-level assessments, including house visits and detailed income evaluations.

5. Encouraging Early Results

  • In Q4 FY25, over 75% of MFI disbursements were to customers with credit scores above 700; rejection rates remain high at 80% but are expected to decline.
  • Collection efficiency improved to 98.8% in March 2025, up from 97.3% in November 2024.

6. Forward Outlook

Management acknowledges that predicting the future of unsecured rural finance is inherently uncertain. They emphasize agility, data-driven decision making, and a shift toward more rigorous individual credit assessments. The company also remains alert to opportunities in MSME funding, a sector with a significant financing gap and long-term growth potential.

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