Bull therapy 101-thread for technical analysis with the fundamentals

phreakv6 · August 3, 2023, 8:09am

Just a quick update, since its been awhile. Been away from markets and most things digital and just catching up on things.

Spandana, discussed earlier in this thread and in the company thread. Playing out alright so far fundamentally with pretty good results last quarter. Q1 is seasonally weak for MFI so not much to read in general but pretty much everything is moving towards the Vision 2025 guidance. Lot of branch additions should drive growth strongly in H2. Padmaja’s stake sale is the only overhang here and that too seems to be getting underway with Goldman Sachs buying 1.2% earlier this week. I believe Spandana deserves a much better valuation so intend to hold for few more quarters and see where it goes.

Technically seems to be trading at 3 year highs. Taking out the ATH levels 1350 or so should happen in the next couple of quarters with continued execution

HOEC - Results not out yet but setting up nicely for taking out the highs made last year in anticipation for B-80 wells producing. Now with them producing and contributing to numbers well from last quarter, this should happen sooner, rather than later. I believe its still trading cheap as per my calculations earlier in this thread

Ugro - Business momentum is strong and I see management delivering on past promises and moving towards the FY25 goal. If they do manage to deliver a 18-20k Cr AUM, 18% RoE and maintain asset quality as promised, hopefully this can re-rate over time further. To put things in perspective, Five-star business finance and Ugro both have an AUM of ~6500 Cr but the former is valued nearly 10x - the difference? Stellar execution, asset quality, class-leading 8% RoA (and low float). But Five-star perhaps has a lot priced in at current valuations (growth in new regions won’t be as easy + model not as scalable) where as Ugro can at least aspire to get better from here with some re-rating opportunity

PML - I thought it was expensive at 1000 but it has got even more expensive. I think this is going to be a great business over time if they manage to execute the NdFeB magnets opportunity well with the base business growing at 20-25%. Growth in the smart meter opportunity as well could be a kicker. Results not yet out for the quarter and I dont think it is going to be stellar (maybe ~8 Cr PAT) for the valuation (and yet I couldn’t bring myself to sell). Technically I think it could consolidate between 1300-1500 for sometime perhaps

Welspun corp - Like the MFI space, this space as well is on fire with strong orderbooks, execution and results. Results tomorrow and I dont expect it to be great when compared to Q4 since Q1 is generally a very muted quarter and most of the execution happens in second half. Technically though discounting has already started and it has broken out of the 300 levels and is trading at a 15 year high.

I feel market in general is a bit overheated. I would have perhaps sold if the valuations weren’t in favour (except for PML which is expensive). Throwing darts and sitting tight has given excellent results since last week of March when the market bottomed out. I believe there’s more to go at least where valuation is in favour as overall economy seems to be in great health. But its definitely not a throw darts market now

Disc: No recent transactions and am just a novice sharing what I am doing as it helps build clarity for me. Not to be construed as advice

Madhav_Gupta · August 8, 2023, 6:25am

Deccan Cement - Current mcap ~700 crores
price consolidating since more than 1 year. Good r:r for making fresh entries. Can pick momentum above 510-540.

Some excerpts from crisil report published in feb 23:

Abundant availability of limestone in its mine and captive power generation result in strong operational efficiency. Thus, operating margin has remained above average even during adverse business cycles.
Company is having an ongoing capex of around Rs 1218.61 crore which will be funded through term debt of Rs 730 crore and the rest through internal accruals.

At current mcap and current capacity EV/MT comes out to be near 50$
Sanghi deal was done at EV/MT 100$

DCL is having captive power plant and mines.

Company is almost doubling its capacity through current capex and the mcap seems to be undervalued.
FII and DII have also increased stake in past 1 year.

Update on previous post -

Had a good run up of >60% fundamentals seems to be intact.

Madhav_Gupta · August 14, 2023, 5:38am

Dhanlaxmi Bank
Market cap 550 crore, P/E ~5
Very beautiful set up on monthly chart. Can pick momentum if sustains above 23.

The fundamentals -

There have been a gradual reduction in nnpa and gnpa on qoq basis,

Book size is also increasing along with deposits

Continuous increase in reserves and surplus

Gold Loan Portfolio registered a growth of 25% to reach Rs.2451 Crore (y-o-y)

According to their presentation, “Share of Digital Banking Transaction @ 76.39% as on 30th June 2023 Compared to 69.23% as on 30th June 2022. 100% achievement in Digital Transactions & Merchant Acquisition in the Bank Score card for FY 2022-23 released by Ministry of Electronics & Information Technology (MEITY).” It shows that the bank have provided good e-banking infrastructure and have tech savvy customers.

One more comfort point is that their current MD, CEO who joined in 2021, has served as Chief General Manager of Stressed Assets Resolution Group of State Bank of India and worked with EY India as Senior Advisor.

I believe fundamentals have already shown a real turnaround, now only mcap have to follow.

anupam.kr · August 17, 2023, 7:17am

@phreakv6 I see It has double of the industry PE. ROCE 10.9 % and ROE 4.08 %. It looks to be pretty expansive and at current level we will not be able to get good returns.

phreakv6 · August 21, 2023, 4:44am

Some updates - This was a quarter in which I had made negligible churn until last week. All that changed with the HOEC (management) performance. I have had my trust evaporate overnight with what transpired last week, so I have booked out almost all of my position.

I have added to my positions in Coastal Corp, Time Technoplast, Mold-tek Technologies and Dhanlaxmi Bank (thanks to the poster above) from some of the cash raised from selling HOEC, while retaining rest of p/f as is (Mostly Spandana, Ugro, PML, Welspun Corp, VBL, Apar).

Coastal Corp, Monthly - I think this video is worth a watch to understand the business. The company is diversifying into ethanol (grain based) and also has found Oriental markets to export shrimp to, to diversify away from US. They seem to have long-term contracts here, so I think Coastal’s performance could diverge from other US-focused shrimp players over the next few quarters. Chart looks good technically as well.

Risks:

Unsure of margins in Oriental markets
Govt. sets the price of ethanol, procures it and also provides grain and presumably chooses grain pricing - you can’t have a worser business when it comes to being at the mercy of the govt.

Time Technoplast, Monthly - I have had an earlier trade here around 80 levels but had a SL hit (should be in this thread). I added again at 110 when it looked about to breakout and again around 135-140 levels last week. Fundamentally business has delivered highest PAT while still trading at much lower than ATH levels. The composite cylinder business is doing well and I believe its trading at cheap valuations

Risks: It has been historically cheap, so expecting it to re-rate might be based more on hope

Mold-Tek Technologies - What I understand is fairly basic from the first concall of the business. The promoter appears ambitious and seems to have built a good business. The mold-tek thread has had some very good posts of late. While the employee cost indicates this is low-tech work, I think the differentiating factor of the business is their ability to train people and to have presence in the US to play the cost arbitrage. Acquiring an architecting firm in the US should strengthen the moat and also improve margins further, if they do manage it. Seems like a decent play, given the valuations. The risks are that we might be overpaying for a business that might have no moat. I am following the thread to understand the business better, as I have a very average understanding at present.

Technically, current month needs to close above 350 to ensure continuation of the uptrend from the previous breakout

Disc: Exited HOEC. Have positions in Coastal between 200-250. Time Techno between 110-140. Mold-tek Tech between 310-335 and Dhanalakshmi Bank around 24 levels. I am no expert and my understanding of these businesses is very shallow (and allocations reflect that)

Surender · August 21, 2023, 5:05am

Hi @phreakv6 : Look foward to read your rationale.

Akashdeep · August 21, 2023, 5:24am

Hi @phreakv6 , what is your view on Apar? I did not add beyond 2,700 ,(avg price is 2,200, and reduced it to 5% of folio) and inspite of management saying there will be margin correction in the conductors business (which is a huge chunk of their overall operations) as well inventory destocking on customer side, the price has gone higher and higher. Is the company going through a rerating because of the domestic wires & cables business and strong domestic growth prospects or is it just momentum pushing the price up? I do not see much volume but the stock keeps going up. If you are allocate more money to Apar what would your strategy be?

phreakv6 · August 21, 2023, 5:47am

There are certain things which are unavoidable in a business like HOEC, which are outside the management’s control and I understand and appreciate that. What I did not like is the fact that serious troubles with B80 were not disclosed though production was stopped from July 2nd. Even in the presentation, all that was mentioned was production had resumed on Aug 16th. I took the info at face value and stood by the management but they should have communicated better. This isn’t the first time such a thing has happened either. If you go back from and read concalls from 2019, you will this is a repeating pattern here. How can someone not learn from the past?

The management comes across as very honest and so I gave them the long rope - why attribute to malice what can be explained by incompetence (Hanlon’s razor). So if its not malice and they are competent (production was going OK as of Q4), then there’s nothing to worry about but now the question of malice or incompetence is back to plague my mind yet again - and this time I am bordering on thinking this is malice. See the price-action on Monday before results came out for eg. Or the fact that 200k was the min parcel size for sale, which became 200k barrels should remain in FSO and on top of it they will sell 200k. Then it became 400k in the last presentation. This makes me wonder if the oil even exists. Clearly, I am biased due to my recent sale, so please take it with a pinch of salt. I might come around given sufficient time

I had a ~20% position in Apar from 1700-1400 levels but booked out most of it at 3000 levels. I just have 3% left which I dont intend to sell anytime soon. Management has been very conservative and understandably so, because somethings like macroeconomics and geopolitics are not in their hands. So far it has played out very well for them and exports continue to remain strong and margin continues to hold in conductors while cables too continues to do well. However, all this can change on a dime if geopolitical situation changes (if Chinese exports tariff changes). Betting on Apar was/is a bet on geopolitics and grid upgrades due to EV demand. As of now FIIs are loading up on Apar playing momentum but that hot money can quickly vanish, so I am not willing to add further to my position. I do regret a bit that I sold out large chunk too early but that’s my process and I have to live with that. I felt Apar deserved to trade at 20k Cr market cap if you check my earlier posts and am happy that today it has touched 20k Cr mcap.

manhar · August 22, 2023, 5:50am

Doing pretty well, 1250 is big resistance, once this is taken can see 1500 to 2000 levels

Inox Wind Ltd

Management guiding for 500MW(2000cr-2500cr) installation this year and will conservatively do 700MW(2800cr-3500cr) my estimate in FY25. Current sales of 700cr.
Company will be debt free by Q4 FY24 (current interest cost is 330cr). They did a 500cr QIB on 8th august which will be used for clearing debt.
Current wind installation run rate is 4GW per year which will easily cross 5GW in FY25 and Inox historically maintained 20% market share hence ideally they should do 1GW.

Their current order book is 1.3GW and we still have 2.5GW of auction to be done this year from center (private not included) so as per me the demand> than supply. Hence the key thing now is execution apart from that everything is in place

Once of the biggest reason for the collapse of wind industry was tarrif. In a 1.2GW auction in June 2023 by SECI only 600MW qualified as bidding price were above cut off tariff. Margins will be at historical level 14% - 15%. Tariff went as low as 2rs per Kwh in 2019-2020, Currently at 3.24

TECHNICALS

Recently gave a big breakout and I expect from H2 we would see significant improvement in numbers.

Current suzlon valuation is 17-20 times FY25 EPS ,if inox gets these valuations they should trade at 300 to 350 (Please note I am assuming a PE of 17-20, this is my base case assumption) @fundoo

I have already posted about them on their thread the reason I putting it here again is after the recent fall I have increased my initial position by 35% and at these levels the RR looks good..

Disc – Invested, with average price of 175

phreakv6 · August 22, 2023, 5:18pm

Garware Hi-Tech Films, Monthly - Looks all set to take out highs made in '21.

Fundamentally, this is a different business from the one that existed pre FY18 or so. The contribution from speciality films (Sun control in automotive and architectural, Paint protection and Shrink films) has increased consistently and as of Q1 is at 83%.

Market is still valuing this like it is a commodity packaging film manufacturer while a large portion now is speciality, margins are much higher at ~17% even in low cycle for the commodity business

There is significant growth prospects in the PPF segment with a total revenue contribution upto 400-450 Cr per year on full utilisation. As of current quarter, there is guidance for this line to be fully utilised from a utilisation of just 50% in FY23. So we can probably expect 100 Cr from PPF in Q2 which is phenomenal

The company is also making a foray into B2C segment for its PPF films opening Garware Application Studios. Increasing awareness for the product and vfm pricing could help them do in PPF what they have done in sunfilms in the past in the Indian market

They are not however fully backward integrated for PPF like they are with SPF and seem to be buying certain things like self-healing films from XPEL.

Company aims for a 2000-2500 Cr topline with its installed capacity. I think there could be significant operating leverage and any turn in commodity business could add to the EBITDA margins and I believe it can go up above 20% when utilisation is full and cycle is in favour, earning an EBITDA of about 400-500 Cr in the next couple of years, which would be a double of earnings from current levels. There is also plan to sell Nashik land which could bring in 80-90 Cr.

I also believe this company can rerate considerably, considering its just at 14x P/E. The 15-20% earnings growth, coupled with an expansion of P/E to a 20-25x levels can probably make this a 3x from here

Risks:

There is a processing charge of 35 Cr paid out to Garware Industries every year which has been a thorny issue, along with other corp. gov. issues

In today’s call again this issue came up (50 Cr this year). Management says this is for some dyeing process that only two companies in the world do and this charge is lower than market rate. They will consider merging the company in the future perhaps

Company very likely does contract manufacturing which contributes 30% of PPF revenues while 70% is brand driven. How they deal with conflict of interest remains to be seen

Disc: Invested from 1000 levels

nirvana_laha · August 23, 2023, 5:41pm

Karur Vysya Bank: Stock is on the verge of a 6 year breakout on monthly charts. Bank has been reporting good results consistently with the last 2 Qs clocking 16% ROEs. All numbers are looking quite good - cost to income ratio, PCR, credit costs and CRAR. Has reported 16% ROEs in last 2 Qs. NIMs have compressed by 20bps QoQ but that hasn’t impacted ROE. Management expects NIMs to contract by 20bps further in the coming Qs. Bank is trading at 1.18x BV now, if they can maintain 16% ROEs for the next few Qs I won’t be surprised if it trades at 1.5x BV. Bank has traded at 1.3-2x BV consistently between 2012-2017.

Karnataka Bank: Very similar in profile to Karur Vysya Bank, regional private bank with sub 10k Cr MCap. They have recently appointed a new CEO - Srikrishna Harihara Sarma. Sarma was part of the founding management team in HDFC and has worked at Yes Bank and Jio Payments since. The new CEO is guiding for aggressive growth in advances and plans to take the Credit Deposit ratio higher soon. Very similar numbers trajectory to KVB, all metrics look healthy. Last 2Qs have seen 17% ROEs inspite of NIM compression in Q1. Stock is at ATH but only trades at 0.87x PBV. If the ROE trajectory continues, I don’t see why it can’t trade at 1.5x BV. Bank has traded at such valuations previously.

Disc: Invested in both near CMP with stop losses. I am new to this approach of blending technicals with fundamentals, so my analysis may be completely off. Please do your own due diligence. I may exit my positions at any time.

Lynch · August 29, 2023, 9:28am

Morepen Labs

Technicals:-

Chart indicating reverse head and shoulder on the daily and hence long term trend reversal
Volume pick up around downward trend line break on the right shoulder
RSI strong and comfortably above 30/40 WMA. Respecting 10 DMA uptrend with support close below

Business fundamentals:-

With the chemical prices coming down with China dumping, the entire API space is seeing margin expansion from raw material prices after a very tough 2022-23. Till Q4’23, margins were suppressed for these companies due to operating deleverage as there was a high amount of destocking all across
Morepen delivered a great quarter with 32% topline and 73% EBITDA growth, although on a subdued base. This was mainly contributed by strong growth in core API business and diagnostics business

Company has been delivering good growth YOY for a long time now. Despite a large COVID base, CAGR continues to be ~19% for the last 4 years.

The margins finally saw an uptick from Q1’24. This company has done 9-13% EBITDA margins pre COVID and even a move to the bottom of this range would be a big positive for earnings on the current base of 6% margins in 2023. Margins finally saw an uptick and conference calls from other companies (notably Divis) indicates better margins should be ahead with RM prices and high stock inventory being out of the system

Promoters infused capital in the company through warrants recently. This is almost a debt free company which has faced debt issues in the past due to being in CDR for a while. With this new capital, capacity addition is now happening, reflecting in the CWIP.
They have an interesting consumer portfolio. Morepen as a brand is as it is well known in diagnostics, and new products in the consumer space look interesting

Valuations not too demanding due to last year margin erosion, still at 1.3x sales, far below its favourable cycle multiples and much below peers

Risks:-

Corp governance has had issues in the past - this is covered on the Morepen thread.
They have seen debt/financial issues in the past and underwent corporate debt restructuring
No concalls for the last 1 year, and hence not much details about growth drivers/margin scenario etc
Thesis assumptions have been taken from industry trends in the absence of concalls

Disclosure : I am invested in self and family accounts with transactions in the last 30 days and hence am biased. I am still learning the industry and technicals so might be entirely wrong. I am not a SEBI registered advisor.

r8b8 · August 29, 2023, 10:25am

You are understating the corporate issues with this company.

There is too much liquidity in the stock market currently. And usually in the last leg of such rally stocks like morepen tend to move up.

Just a curious question, why will you invest in morepen when there are similar / better opportunites available in companies without shady past?

Lynch · August 29, 2023, 1:42pm

I believe ‘last leg/rally’ etc are not for me to predict. I prefer to build in a strong thesis and invest after evaluating if the risk/reward is favourable. Have mentioned both risk and thesis pointers above clearly.

Just food for thought, but the corporate governance shady past could be priced in already being quite old?

What remains to be seen is if the business fundamentals improve and the market perception of the company can become slightly better if these issues don’t crop up again. Blind pessimism can be a friend in the market sometimes!

phreakv6 · September 7, 2023, 5:27am

Smallcap 100, Weekly - We have had a steep runup since March with 6th continuous month of serious gains. The trigger that caused this runup was cheap Russian crude, strong Rupee, easing inflation and relatively benign macro. Some of it at least might be changing just as we near crucial resistance in the smallcap indices - usd-inr breaching 83 (not a big problem of a runaway decline since we have good reserves and can defend), crude breaching 90 and russia crude imports declining in Aug, as Russia has cut production. So most of what to me were good positives when market seemed to be bottoming last week of March are now reversing and that too right post a frenzied runup in everything.

I think its better to be cautious with fresh entries and not run after sub-par bets - either lacking in quality of business or in risk:reward in terms of valuation. The only good valuation bets either lack a good earnings trigger and the ones that have good earnings trigger are fully priced in. This is not an easy market for great gains. I feel its better to unwind bets and not go down the quality curve in new bets (which is what I feel has happened with some of my picks lately).

The other signs in terms of fresh issues, block deals, SME market, microcap focused funds, all indicate we are getting too greedy. That doesn’t mean we reverse anytime soon though. When market topped out in Oct '21, it took several months before actual decline started in Jan '22. Everytime it retests tops, it can make you feel like a fool, so a strong bull market like we have had is not going to reverse overnight I feel. Any sign of liquidity vanishing and market depth shrinking will be a good indicator (I see market leverage is already at an ATH)

I intend to hold PML since its more a purely fundamental bet for me but wind down some of my other bets which are fairly valued or appear topping out/exhausted.

Disc: Writing helps me gain clarity and is not advice

Prateek_Shrivastava · September 8, 2023, 5:53pm

If you watch today’s CNBC Editor’s round table today, they will multiple data points explain that we are in BULL market, and NOT Bubble.

Watch it here - https://www.youtube.com/live/OJcWdnfl15A?si=yDu91FB0OdWCTwjL

It is indeed excellent analysis.

humbleInvestor · September 9, 2023, 4:30am

Bullish breakout of a trading range for CNX-IT and also confirmation of a (weekly) triple bottom formation.

CNX-IT had been trading in a broad range of 26150- 31655 since its crash from jan 22 levels.

A weekly close above this range with a strong bullish candle confirms the bottom at 26150.
This level was also a strong resistance for about 5 months in jan-may 2021.

From a RSI perspective, a weekly crossover at 60 levels is also bullish indicating the probability of a bullish uptrend

CNX-IT is also in the process of making a U-shaped rounding bottom for atleast 15 months ( more like a saucer shape really)

The next logical target should be a test of all time high levels of 38900 levels.
IMHO, the real opportunity lies in midcap & smallcap IT !
[Discl: No positions, purely for educational purposes ]

pravinamirth · September 9, 2023, 5:57am

Hi ,
Where can I download the leverage report on regular basis and how do you say it’s at an ATH (any chart we could refer to find it ?)

Thanks

Rj_Arora · September 9, 2023, 7:32am

Bull market, and not a Bubble acc. to them

phreakv6 · September 9, 2023, 12:50pm

The argument that we are not in a bubble in the above video of TV experts is the following two comparisons

Midcaps

Smallcaps

We are substantially lower than Oct '21 (roughly 30% lower), so we are not in bubble, goes the argument (We are merely in euphoria it seems). Lets go back to Oct '21 - back then RBI repo rate was 4% and US 10Y was at 1.5%. I think we can all agree that risk-free rate affects P/E multiple a LOT, especially when it’s closer to 0. We had 8 RBI meets without a cut to the Oc '21 meet (yes, “cut”. We were expecting a “cut”). Inflation hadn’t yet reared its ugly head. Fed was caught napping saying inflation is “transitory”. That’s Oct '21 period in a gist.

Are we going to get to that P/E now when RBI repo rate is 6.5% (fed funds rate now at 5.5%) and there is no sign of a rate cut at least until March '24 and worse still, we may have to tighten rates in a surprise move if crude goes above $100. Sometimes risk can be very visible, but we can still be blind to it because it suits us. Instead of looking at these “avg” numbers, ask yourself what % of stocks you have looked at of-late are trading under 10-year median P/E (for me its probably 1 in 10 at most, or 10%)

Crude has broken out and is at Nov '22 levels. We have had a very benign period in the last 9 months, with Russian oil powering our growth (acquired at a significant discount which kept narrowing until it vanished recently) - this kept our deficit low, currency stable, reserves intact and also we played energy arbitrage really well as lot of European manufacturing moved here - European growth as well depends on crude being low, since they are net importer and discretionary income there can come down dramatically with crude above $100 - so what we can potentially have is a lollapalooza, a vicious cycle of global demand compression - which is not priced in.

Also, my previous post is not a prediction (I am not in the news dispensing business). As a practitioner, we have to stay on top of potential outcomes and their probabilities. I feel

There is a 25% chance of another 10-30% rally in small caps
75% chance of us being close to the top, with maybe another 5-10% to go at most - A top which can be a short/medium term top, depending on how worse macro gets. If crude goes above $100, we can be nearly certain we have made a top.

The reason I think that is purely macro driven

US has not had inflation at these levels for over 40 years

The US 10Y hasnt been at this level in 15 years

These two are known things and market has pretty much forgotten these since these are worries of '22 (right?). It has gone to the back of our minds mainly because US managed the crude situation last year using its SPR (Special Petroleum Reserves) which it built in the '80s because the OPEC spooked the West causing the inflation in the '70s by cartelising Oil.

The SPR was built specifically for this purpose to counter financial terrorism (through oil). It has helped see through a year or more but now the SPR levels are at levels last seen in '82 (US sold bulk of it to bring down oil from 120+ to 70+ levels)

There isn’t much the West/US can do to defend crude here on (unless it works out some peace negotiation or lifts sanction on Iran or something completely left field - or of course, raise rates further). For an oil importing country like ours, this can be collateral damage.

I am not totally bearish but I think lot of concerning things are happening. The “euphoria” in small/micro/sme is real. In '18, there was neat switch from Micro/small to largecaps. So I am not at all bearish on the Nifty which I think is still only slightly expensive. There’s a good possibility of similar thing happening again but the market participant composition has changed substantially since '18 - so am not sure how well this might work (There was significant herding into HDFC, Asian Paints, Pidilite, DMart etc., the so called quality stocks at 100 P/E)

Extreme caution is warranted in SME space and microcaps - these can turn completely illiquid overnight when tide turns and notional gains can evaporate. Also be wary of all the storification. I haven’t stayed abreast of all the demergers, promoter stake sales, cooked up numbers etc. - but these were very common in several names - if you haven’t yet, do temper your optimism by going through the carnage thread. There’s no need to see through the end of the party when all the single malt is gone and only arrack is left

Disc: Been fully invested since July '22 and it has been a great run. Started reducing exposure to market this week by scaling down NBFCs. I am still ~85% invested and will progressively scale down as performance weakens