Chins' Portfolio

Q&A: Questions & Answers Portfolio Q&A
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The following is my base case expectation from my companies before FY23 starts. Will adjust after every concall.

CAGR Expectations

Investment Secular / Cyclical Earnings Expectations Period Implied CAGR Rationale
Ugro Capital Cyclical 45 Cr. FY23 200% Sharp reduction in OpEx for FY23, improving off book AUM.
PDS Limited Cyclical 300 Cr. FY23 20% FY22 was inflection point for profitability.
Deepak Fertilizer Cyclical 520 - 700Cr. FY23 -ve Margins depend on commodity cycle. Enormous trigger in Q1FY24 which changes estimates.
Krsnaa Diagnostics Cyclical 140 Cr. FY24 41.5% Conservative estimate on management targets, dependent on ramp up of new centres.
Laurus Labs Cyclical 1100 Cr. FY23 31.3% Management targets, backed by cyclical ARV data, and new capex.
Deepak Nitrite Cyclical 1000 Cr. FY23 Flat Key triggers depend on capex, and commodity cycles.
AB Capital Cyclical 2150 Cr. FY23 25% Higher disbursals, possible credit upcycle.
SJS Enterprises Cyclical 65-70 Cr. FY23 25% Management guidance, visibility of order book, and resilience to macro trends.
Sandhar Tech Cyclical 80 Cr. FY23 40% Ramp up of new capex, low base in FY22.

  1. One of my biggest learnings from last year has been that every company is cyclical.

    1. There are different kinds of cyclicity in a business: that of demand, prices, costs, OpEx, CapEx, behavioural, etc. If I think a business is secular, it means I haven’t identified the cycle yet.

    2. Krsnaa may not be cyclical in demand - diagnostics are crucial - but it went through a rapid cycle of expansion through the government’s drive of PPP tenders. If they hypothetically stop expanding new centres, discussions surrounding revenue growth would revolve around ramp up of utilisation (these two are not mutually exclusive).

    3. A large portion of Laurus’ current revenue is dependent on the Tenofovir + Lamivudine + Dolutegravir cycle, which has a terminal risk approaching in a few years. Sure, the puck moves to non ARV molecules and many other verticals, but they will always have an associated cycle (molecules going commercial, off commercial, off Para IV protection, etc).

    4. For the financials, it’s a credit cycle in availability of funds, lending requirements and RBI landscape, interest rates, creditworthiness, etc. I have exposure to a number of the larger private banks through the family portfolio.

    5. Sandhar and SJS have the most obvious cycle, which was impacted by fuel norms, covid, semiconductor issues, and the lot. We’re firmly in an auto downcycle which should eventually turn.

    6. The Deepaks are in the unique postion where I don’t believe FY23 will be a year of growth, but FY24/25 will be much much better due to various triggers.

    7. Anyone hands you a forecast for PDS and claims to have done it accurately is lying to you (including me). One would need to individually forecast the 82 companies that make it up, and then argue a sum of the parts valuation. Management’s own targets amount to a 5 year CAGR of 30%.

    8. Lux is facing unfavourable prices of cotton, and the single biggest question in economics: is underwear a discretionary spend?

A number of these plays I believe deserve much better multiples from the markets. For example, if Krsnaa is successful in trebling its profits by FY24, it’ll trade at single digit multiples. FY23 is also Ugro’s inflection point, and every quarter should be better than the last. Secretly, I believe if Ugro delivers on the NPA front as well as the RoE front, it should trade at 1x AUM, not 1x book.

For these reasons, even though there’s tremendous volatility, I’m optimistic for FY23. I still have maybe 6-7% in cash, and will add 5% more cash to the portfolio after planning for three years of expenses. I’m not tempted to sell companies where I think earnings can still deliver, as the drawdown is on market sentiment, and last year I got it completely wrong.

I am mentally prepared for a 20% fall in portfolio value.

@valorem I hope this answers your question on Ugro.

Disclosure: This is not investment advice, please do your own due dilligence.

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