ValuePickr Forum

Chins' Portfolio - Two Parts

Hi everyone,

I’m currently in the middle of my PhD in applied mathematics, and I’m very new to the stock market, having started only in July. I found Screener to be a wonderful testing ground for different ideas, and through it I discovered this forum. The threads for each individual stock has not only allowed me to complete my investing thesis, but has also chronicled how the story behind each stock has changed over time - something a price chart or a few articles from across the web just cannot do.

I’m creating this thread to share my portfolio, my ideas that I’ve been running through Screener, and to keep a record of new metrics that I learn over time.

Most of my capital is invested in the core portfolio. Further down, I explain what Screener idea lead me to invest in a particular stock. The fun begins with the second portfolio. The idea is that any profits that I book go directly into a second portfolio comprising of companies with < 1000 Cr. market cap. This allows me to invest without risk into companies that could potentially correct sharply, and also controls the amount I invest in them at a time, allowing me to see how the ideas develop.

Core Portfolio

Entry

With the current bull run, most of the stocks I’ve been watching are trading above their historic multiples. Interestingly, since July, many stocks have been trading with their 50DMA acting as a support line. I don’t want to search for value for the sake of it, and I’ve found comfort in entering around the 200DMA as funds also use that as a metric to enter. To account for huge movements that have happened over a short period of time (JK Tyres recently), I’ve also included the 170DMA to understand how the 200DMA will evolve. In the past, I’ve also found the Keltner channels and Starc bands to be useful.

  • Trent, CaplinPoint, and IOL Chemicals have the closest entry to the 200DMA and I’m using this opportunity to buy more.
  • Hindustan Foods, Apollo Tricoat and Laurus Labs have the highest entry compared to the DMA. I currently have one tranche of each. Equally, these three have seen earnings growth of 70%, 161% and 323% respectively, perhaps the price movements are justified.

Stock Selection Themes

I first found data on the sectors that are expected to see the most growth in the next five years, sourced from IBEF. Some highlights are:

  • Retail is expected to grow at 13.1%, with online sales expected to increase by 31%.
  • Financial services and e-commerce are expected to grow upwards of 30%.
  • Steel, FMCG and speciality chemicals clock in at a modest 11-13%.
  • The automobiles sector is expected to grow at 2.7%, while auto-ancilliaries are expecting 7.3%.
  • Biotech and healthcare are expected to grow between 16-20%.

Obviously, these numbers are far from rigorous if you’re an expert in these sectors, but it suffices at the level of deciding portfolio allocation/sectors.

Screener Highlights

I like companies that have a 5 year sales growth median of over 20%. I use this filter along with positive return ratios and low debt to narrow down a search before applying other ideas. Once I find a smaller list, I then read about the business model through the annual reports / ratings reports. This automatically excludes turnaround stories, and requires a different screen for those ideas.

  • Hindustan Foods and Apollo Tricoat
    Found these while looking for companies that have improved their net block by over 1000% in the last three years, while keeping their debt low. Other companies that turned up in the screen include HUL and SBI cards.

  • CreditAccess Grameen and AU Small Finance Bank
    These came up in a screener for MFIs with a large growth in sales over five years. CAG caters to rural women, and does three things that make its business model unique:
    They hire people from the same families they lend to, enabling them to penetrate rural markets. They follow up on clients weekly to ensure payments, and also choose smart office locations at the junctions between different villages.

Microcap Portfolio

The theme here is to look for small companies that have a presence in global markets through their exports, have a good cash flow, and low working capital days/debt. Since I don’t see threads for some of these names, I’ll talk briefly about them in this thread, perhaps in a later post.

Note: Digispice ran up significantly since my entry, and I used that as a way to withdraw my entire initial capital. I still have a lot invested in it, but I’ve changed the allocation to 0 to account for this.

Digispice Technologies

Screener currently displays this stock as Spice Mobility which used to make and sell mobile phones, but it rebranded to Digispice in 2018. Their business model is to enable kirana stores in rural areas to serve as micro-ATMs for banks, and allow them to make other online payments at these hubs apart from cash transactions. Their quarterly results are expected at the end of the week, I’ll make a post about the company after the results.

I’ll slowly add my favourite ratios that I use to understand how my companies are doing. I also keep track of the CapEx / developments of my companies by the quarter they’re expected to start functioning, and I’ll post that too.

These aren’t the only stocks I’ve invested in since July, but I don’t want to diversify my capital beyond 15 stocks. I’ve been picking up different stocks during the minor corrections, I treat them as trades and exit after they’ve run up closer to their 52WH.

I’m happy to hear your views on my metrics as well as the stock selection. Thank you for your time.

- Chins

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Portfolio consists of quality stocks. All the best.

Jus 1 suggestion : Keep a track on Insurance and gold financing sector as well. Sector has potential For growth

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Thank you for your suggestion.

AU Small Finance Bank offers gold financing. I’d prefer being invested through a company that has diversified offerings, rather than a dedicated gold loan company like Manappuram Finance (which still has excellent numbers), which is susceptible to changes in gold prices, as we saw earlier in the year.

On insurance, CreditAccess Grameen has ties with HDFC Life, Kotak Life, and ICICI Prudential to provide insurance coverage to its customers. This started fairly recently, and they have a license until March 2022. I’m waiting for the next annual report to learn more.

Would you still suggest direct plays in those two sectors?

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I think so .
If you wan to ride on sector growth story you have to be with atleast one of top three players.

Not a recommendation, I hold Muthoot finance and HDFc life…

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Digispice Technologies

Their business revolves around three verticals, I’ll share some of the highlights from their annual reports and investor presentations:

1. Rural Fintech -

Spice Money - They enable rural kirana stores to function as micro ATMs, allowing their customers to make cash transactions in areas with a paucity of ATMs. At the same hubs, they allow customers to also pay their electricity bills, and offer related services.
Their topline has been growing very well since 2018 and now contributes over 61% to the company’s revenue.



However, they’re reporting profit margins of ~4%.
In the December 2020 investor presentation, they posted an update to the numbers seen above:

They target onboarding 1Cr. rural entrepreneurs.
In addition to this, the management cites PWC’s report on the expected increase in Aadhar Enabled Payment Services related transactions in rural areas until 2025.


They have also started similar services in Bangladesh and Nepal.

There is one other competitor in this space called PayNearby which isn’t listed. They seem to offer similar commissions to the rural stores, and currently have similar numbers on GTV and stores onboarded.

2. Telco VAS -

They produce music streaming apps / digital content branded under telecom operators that they’ve partnered with. Their aim is to only focus on the top 2 telecom providers in the areas they’re operating on, and build a digital suite for these offerings. The 2019-20 annual report says they’re working on new products in this space, and I’m hoping to get more information about what they’ve done this year.

DigitalVAS

3. Software as a Service -

They also offer a marketing automation platform, data analytics, and are developing communication platforms that allow clients to reach customers better. I missed the detailed explanation in the December AGM. Perhaps someone else who tracks this company will know more.

They reported a loss of 45 Cr. in March 2020, which the management says was for a client in Indonesia that abandoned a platform that Digispice made. They’re focusing on select telcos going forward.

Finally, they have low debt, and promoters currently hold 85.79% of the stock, if you count the employee benefit trusts. A further 8.5% has been held by a company called Mediatek for the last 3 years, taking the total to 94.29%.

Takeaways:

  • Potential to grow in rural AEPS market, along with new telecom and app offerings.
  • Concern on converting topline into profits.
  • Competitor in the AEPS space may keep margins low.
  • Yet to prove developments on the SaaS verticals.

The last report was from CRISIL in Jan 2020, expecting another one soon if they’re doing it annually. Here’s the December AGM presentation.
Results are out tomorrow, I thought I’d post before the results so that we can place them in context.

Niyogin Fintech Ltd (listed in BSE) has a 51% subsidiary, IserveU, which is also into Payment services money transfer, micro ATM and distribution of financial products in unserved rural India.

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They started taking steps in this direction

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A video of Spice Money Partners, very informative on the new offers and future products.

Thanks for all the links! It’s nice to see more people following this company.

Posting the quarterly reports below:

And the product segments:

Highlights:

  • YoY revenues have doubled from 94 Cr. to 184 Cr.
  • Posted a loss of 5.6 Cr. in December 2019 which was due to old liabilities, according to the corresponding quarterly report. This year they’ve posted a profit of 2.84 Cr.
  • OPM has contracted to less than 1%.
  • The other income is from bank deposits and the leasing of properties held by the company, according to the previous annual report.

From the investor presentation that @nagesh_reddy linked, here is my takeaway:

  • Management believes that the AEPS payment network will grow enormously by 2025.
  • Close to 5,00,000 rural entrepreneurs currently onboard.
  • 66% of their customers are repeat customers. Currently have 2,00,00,000 monthly transacting customers.
  • The Spice Money app offers the services seen in the thumbnail, enabling what the management calls a Digital Dukaan. Have tied up with leading e-commerce players to increase their reach to rural India.
  • Have tied up with microfinance companies in rural India that want to lower their collection costs. They see their rural network through the 5,00,000 entrepreneurs as their key offering.
  • Aggresively targeting expansion of rural entrepreneurs by lowering barriers for them to partner with Spice Money, removing the rental fee for all current and new entrepreneurs.

Q&A Highlights

Q) How do you compete with banks offering the same services? How will the SMA get this remuneration?

  • Common Service Centres / Business Correspondents don’t have the same reach as we do. It comes under the financial inclusion agenda of the large national banks. The cost involved in rolling out the infrastructure such as a physical branch is large, opening a rural location is unviable, and that’s the reason we’ve seen growth on platforms like ours.
    You see digital growth in other industries such as the e-Commerce space which is growing faster than physical stores. We are a digital play and hope to extend the rural network in a way they can’t reach.

  • On remuneration, the SMA gets paid for every transaction that happens on the platform. The more transactions they facilitate, the more they are paid. We are increasing the number of services on offer, and the demand is there to utilise all of these. Going forward, we expect them to make Rs. 50,000 per month, which makes our platform significantly attractive.

Q) How will the zero rental initiative affect profit margins? When do you expect the company to turn profitable?

  • Our primary focus is to aggresively increase our rural network. When we think of margins and profits, we are taking a longer term view on the business. At Spice Money, we are already a profitable venture. We expect to grow the platform for the next 18 months, but will drive the number of transactions on the platform up.
    Per year, they had to pay Rs. 2000, and a Rs. 2500 to rent the device. We’re now investing to remove these barriers, and will enable more and more people to join our platform. We will still require the KYC in order to join.

Q) What are the charges to the rural common man?

  • We have tied up with banks to solve this problem. Either the banks set up physical ATMs to increase their reach, or they tie up with us to offer the service. Banks pay a fee to offer this service to their consumers. We use this fee to also pay our rural entrepreneurs. No cost is shifted onto the common man.

Q) Do you train the rural entrepreneurs?

  • We have training. We want them to understand the products they’re selling. They are given a lot of information through many videos that are available to them. Their training has been a big part of the journey. It helps us if they understand the products on offer.
    Secondly, we have a platform within the app where they can create and share videos to each other, answer questions from each other, and enable people from across the country to help each other.

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I’ve been averaging down on Apollo Tricoat as it hit its 50DMA this week. Picked up some more IOLCP as it’s fallen below its 200 DMA. Lux was a new addition to the portfolio. Averaged up on Birlasoft and HCL tech.

Still sitting on 50% cash, will invest slowly when I get opportunities. Currently overweight on Trent due to finding the right long term entry.

On the small cap side, I’ve entered BCL Industries, and will do a short write up. It’s always nice to see companies put up investor presentations. With Digispice, this run has to end at some point, but I don’t know how to time my exit, and whether I’ll be able to re-enter close to my original buy price.

Underweight on RACL because it moved up well before I could build a position.

Inviting views if others have better metrics to gauge fair entry prices.

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I wanted to share just how useful I’ve found google finance in automating data retrieval. It can retrieve quite a lot of information about a company with real time refresh, and I’ve used this to build a system of buying in tranches.

If my allocation for a particular stock is x% and total capital is P, the number of shares I need to buy to fulfil the allocation is ((P * x%) - current amount invested) / stock price. Simple enough. I compare this to the same results with the 200DMA price. I look at the difference in the number of shares I’d get if I waited till the 200DMA and take a call on days where I see an opportunity.

An example with the stocks in my portfolio. Assuming I own 10 shares of each stock, and an investment of Rs. 10,00,000:

Takeaways:

  • You would get twice as many shares of Deepak Nitrite and Hindfoods if you waited for them to retrace to their support levels.

  • If you’re overweight on IOL Chemicals for example, this method automatically tells you that you need to sell, and tells you the exact quantity.

  • This is purely based on your investment allocation. Even if stocks have run up to form a higher percentage of your portfolio, it’s calculated on your investment weightage.

  • As long as you update your buy price average and current quantity held whenever you make a transaction, the numbers will also change to tell you how much more you need.

I’ve found a lot of peace with this, knowing exactly how much of a stock I need to buy, and how it changes whenever I increase my capital, or my allocation.

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DiGiSPICE is on continuous upper circuits for more than a month. I see a subtle hint in the tweet of Dilip Modi that the count of Spice Money Adhikaris has reached a million. This was about 5 lakh before the scheme of 0 investment enrollment of Adhikaris was unveiled a couple of weeks back.
“While our mission to digitally and financially empower the rural population had wings, @SonuSood helped it fly and impact a million lives. Thank you @FinancialXpress for recognising the campaign @SpiceMoneyIndia has built among campaigns from other leading brands”

I wouldn’t read into Mr. Modi’s tweet. I think he means that they’ve reached so many people, which could also include the customers at these kirana stores. Given that the update was 5,00,000 SMAs by December, it’s improbable that they’ve doubled their numbers in three months.

The new initiatives also include easier ID generation for the SMAs, which seems to be the biggest barrier to people joining from my scuttlebutt.
It’s been on continuous upper circuits since November, which has slightly ruined the long term picture for me. I’m now thinking about the profits rather than the company’s growth story. Are you thinking of booking profits?

When it first came to my notice, I liked it instantly as the reason for depressed price was obvious and lot of triggers were lined up including brand ambassador Sonu Sood and I took a very large position and added some more. The unexpected offer was very disruptive. It has become very large portion of my portfolio (about 25%). Only 25% because the other stocks in PF like Affle, Tanla, Justdial, IRCTC and Route Mobile have also been appreciating well and I have also been adding position in these stocks and some other stocks My decision to sell or hold is very crucial from the overall profit point of view. I don’t want to let go off a winner. I sold a small portion at Rs.77 and the urge to sell has died down. Watching the developments closely.

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I agree with the others in the Apollo Tricoat thread that the merger is good news only for one of the two shareholders. I used the run up to APL Apollo’s price to exit from Tricoat completely, as I’m not convinced of being an APL Apollo shareholder just yet.

With this month’s SIP, the portfolio stands at:

And the microcap portfolio:

Four stocks have seen 100% returns. This week, I sold 35% of my holdings in HindFoods at 2580 (150% of the 200DMA), which was the first tranche I had bought around 1200 levels. I also sold half of my holdings in GRM Overseas, withdrawing my entire initial investment.

This bull market has rewarded all ideas, including bad ones. I’ve also learnt how you need some amount of luck to see the market reward your picks before you lose patience and exit. I’d be lying if I said I expected such returns from Digispice in a short time. In hindsight, I wish I picked up investing well before the last year, and had my current watchlist ready to buy during the April lows.

They serve 100 million customers (as per the website of the company), I think the reference in his tweet is about the families of Adhikaris.

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Congrats on the excellent call; I bought only 1% of my portfolio to watch how the story developed.

They seem to offer the best commissions amongst the various players in the sector, according to YouTube videos made by owners of the Kirana stores. We could write to them to ask how the zero investment onboarding has changed the number of people joining per week, for example.

The company (DiGiSPICE Technologies) uploaded the investor presentation. The Spice Money Adhikari accounts crossed 5 lakh.

All the data in the presentation is not of FY21. Only the Spice Money Adhikari data given is of FY21 and the other data are of Dec20.

You’re right. I’ll update the figures once the results come out. We can use this as a data point to see how much revenue they’re generating per SMA, and how much GTV per SMA to compare between quarters, but I’ll wait for the results.

We can also use these projections along with the PWC report to account for how GTV should grow over time, and if they reach their target of 1Cr. SMAs, how much revenue this would generate.