It appears the perception of the reputation risk is now playing out in the recent IT raids. If the unaccounted cash and revenue as reported in the media is proven to be correct, there’s a lot more pain in store for Krsnaa investors.
In that sense, the incumbent players like a Dr Lal or Metropolis or Max provide relative comfort on the corporate governance side.
Discl: Invested in Metropolis
Hey @Chins, I recently read a reply of yours on a twitter thread which indicates that you have GPIL in your portfolio. Could you please update us on your portfolio?
Thanks.
Sure, Dr. Lal will always be Dr. Lal. 
It’s a confluence of negative sentiments, IT raid, tepid results and more conservative guidance. I think if everything didn’t happen at once, the picture would be different.
I don’t own GPIL. I’d be tempted if it falls back to book value, as the clean balance sheet, eventual revoke of the export duties etc will bode well for the stock.
Had a nice discussion with Harsh about how cyclicals in India are punished on sentiment, even if they put out excellent RoCEs in the downcycles. Ex: Maithan Alloys. This is the only reason I’d like a little more safety.
With regards to the portfolio, I’ve been aggresively rebalancing in the last 3 months, trying to reduce the overall valuations and improve on quality.
Major reductions:
Laurus Labs is now <2% of the portfolio
Have started trimming Deepak Fert.
Sold Lux and Piramal.
New additions:
Shivalik Bimetals ~ 5% position size at 410.
Aegis ~ 7% position size at 205.
Avanti Feeds ~ 5% position size at 440.
Tracking:
On the family portfolio front, have been aggresively rebalancing there too, and HDFC is now the largest allocation. Have trimmed Tata Elxsi significantly.
Will continue to give disclosures on company threads when I do post. This quarter has been a tremendous learning experience for me.
In what ways? Would be great if you could elaborate and share your learnings.
Also, could you please share how you came across these names? Any particular screens that you used and if so what were the criteria?
Can you share the reason for selling Lux and Piramal?
Hi, I wanted to ask some follow up questions:
How did you discover these ideas? Also, you said that you wanted to reduce the overall valuation of your PF. However, SBCL is trading at pretty high valuations.
I am curious to know what is the PF CAGR Returns you aim for?
Finally, it will be highly appreciated if you could share your current portfolio (PI Chart/Table). Thanks!
Hi Chinmaya,
I recently started a tracking position in Arvind Fashion and the result of this quarter looks really good with the company coming out with its best ever quarter with Stellar growth in power brands. What is your view on the results?
Didn’t want to make a gyan giving post.
With that disclaimer:
I’m thankful to everyone who has taken the time to comment, point out flaws in companies I follow, and share their knowledge of industries with me. That’s been the major learning for me this quarter - reaching out and talking to more people helps, as like minded investors work hard in their circle of competence, and it’s impossible for us to learn many different things alone.
Through them, I’ve learnt about industries, how to track different moving parts, and companies that I earlier placed in the too difficult basket. Aegis is a prime example of this, and it’s all thanks to friends like Harsh, Anish and Chet who explained the different moving parts in Aegis in detail.
This has also helped me with discovery. I’m not into taking credit for an idea, and being first to a good idea isn’t important to me. What’s more important to me is clarity in a thesis. Through talking to all of you, I’ve been exposed to new ideas, new case studies to look for and learn from.
Malhar, it’s amazing how many interesting companies you’ve sent me.
The next learning has been for me to just reach out to people at different levels of management. Not for guidance, but for insights into data that would have taken months to understand better. This is through writing to them, organising calls, or just through earnings calls. The most recent example that comes to mind is the Spaces with Dr. Velumani where anyone listening had the chance to ask questions.
On Lux, I sold after listening to people from the industry explain the dynamics of cotton. I didn’t think the results would be this bad. Will be keenly watching if the market punishes it in the next few quarters.
On Piramal’s pharma side, despite my love for pharma, I’ve had my hands burnt in the sector repeatedly now. I’m thinking of either playing the cycle (Alembic with capex optionality), or look for companies where there’s a clear specialisation that’s available cheaper (maybe Artemis). I initially thought Piramal’s NBFC would be a really nice play, as it’s trading at roughly 1 year forward book value, but then realised I already have bet on an average lender that may slowly do better, in AB Capital.
As said before, if I become a better investor, it’s largely a function of those around me. I got very interested in Shivalik after talking to Sahil, as I had placed it in the too difficult basket.
I’m slowly getting over my valuation bias of rejecting expensive companies, and instead studying companies that are of great quality with a well positioned industry structure before thinking about the valuations I’d like to pay for them. Aptus is an example for this, but I’d still like it cheaper.
Shivalik was at around 24x trailing when I bought in, I thought it was reasonable given that there are maybe 6 players that have their capabilities globally, and their addressable market falls in multiple fast growing end industries.
Aegis is another example of a top quality company that could potentially be a coffee can candidate.
No fixed aim. I’m focusing on process, getting better at framework, entries and exits. I think those affect outcomes more than aiming for X%. Taking on larger risks doesn’t guarantee returns. I hope to be just contrarian enough to be right eventually. Currently Krsnaa and Ugro polarise people well beyond this point…
I don’t think this is Arvind’s best ever quarter, but it’s nice to see EBITDA margins rise. The point I’m trying to work out is what the best case is for their margins. Global peers in their space can do 20% EBITDA margins. Can they ever match this?
I have a short write up on Twitter if you’d like to read general thoughts on Arvind.
Think this is a good time for a general update.
Actions in my portfolio:
Sold SJS at 520. I was up over 45% on my purchase with no change in earnings. Incremental risk-reward at these levels is unfavourable to me, and I took the decision to go into cash. I have no problems with the company at all, and continue to wish them well.
Sold Deepak Fertiliser at around 900 levels. Given the energy situation in the EU right now, looks likely that the cycle will remain until the capex comes in, but gas supply is a top priority for most governments right now. As TAN prices are unsustainable at these levels, I’m happy to sell at these levels. Deepak Fertiliser was 10% of my portfolio and gave me 15% returns on a portfolio level.
NMDC (3%) - At book value, I don’t see tremendous downside even though Q2’s results will be horrible. When the cycle eventually turns, I expect it to be rated around 1.3-1.5 times book. Additionally, the demerger of the new steel plant should also add to the upside. I’m being paid a nice dividend while waiting.
Punjab Chemicals (3%) - Looks like a well differentiated company in the agrichemicals space, can possibly grow at a comfortable 20-25% with the added optionality of margin expansion.
HG Infra (3%) - The infra basket has been beaten down, earnings have not been impacted. At 6.5 EV/EBITDA, I’m very happy holding for the short term.
Zydus Wellness (3%) - This too has felt pain with the FMCG pack, earnings will look very good on paper in the next two quarters. I don’t think valuations are too demanding for the market share they command in their product basket.
Equitas Small Finance Bank (3%) - While the financials space is showing better asset quality, higher disbursals, this is a candidate that can grow earnings at 20%, and is at 1.3 times book. It doesn’t need to be the best underwriter, I think there’s a mispricing at present.
Outside of Punjab, I’ll probably churn out these positions into longer term holdings of better quality as and when I find companies that fall into my valuation zone. However, I’m optimistic of generating atleast 20-25% returns from these 5.
Top Holdings at present:
PS: This is not investment advice. I can be very very wrong in my assessment of value.
Wanted to share where I am with my investment philosophy/portfolio approach, as a lot has changed from the start of the thread and this year in particular.
In the last two years, Strides has been my largest mistake, followed by Vaibhav Global and IOLCP in the family portfolio. There is a common reason behind these mistakes - I had assumed something was secular, only to find out quickly that I was oblivious to the underlying cycle.
Post these learnings, my approach to buying something has changed drastically, especially in the last 3-6 months. I’m finding a lot of comfort in owning cyclicals at the moment, and I’m looking to buy companies going through horrible headwinds and playing for eventual mean reversion. I feel even better if there is an additional optionality for free.
Most of my recent purchases fit this template: Headwinds, Valuation, Optionality.
Headwinds: Soybean prices.
Valuations: Favourable, even better taking the cash on hand into account.
I now have a 4% position in Globus Spirits
Headwinds: Rice prices
Valuations: Not at all time lows, but I think discovery has sent the bottom valuations higher.
I have made a 3.5% position in Godawari Power.
Headwinds: Export duty
Valuations: Since they’re now debt free, book value should be the bottom for the stock, at 257.
Optionality: A reversal in the export duty, either in Q3, or Q4.
Along these thoughts, the next sector I’m interested in studying is in PVC pipes. With prices falling, Q3 should be horrible for most of them, giving me a couple of months to study the sector.
My three long term holdings continue to be Ugro Capital, Krsnaa Diagnostics and Shivalik Bimetals. They form 50% of the portfolio, and the remaining 50% is formed out of cyclicals, and those that I’d like to own for a shorter period of time.
In the last 30 days, I have scaled up my position in Punjab Chemicals to 7% of the portfolio.
What about Mastek & Piramal Pharma. Did you evaluate these. Should match as per the latest strategy. Piramal may need to fall more though.
I’ve tried to understand IT well, and despite watching seminars from SOIC and Ameya, it isn’t intuitive to me how to play the cycle, or what capabilities deserve a higher multiple. I’d prefer to either play a basket here (when Infy/TCS fall below median valuations), or find outright cheap plays like a Black Box.
On the latter, I’m interested in Piramal’s financial arm again. I swapped out of AB Capital into Piramal Enterprises for a 5% allocation. Below 800 it looks supremely cheap, and at this price one is effectively getting the Shriram stake for free.
I’ve also given up on the idea of only looking for great businesses - Piramal and Arvind Fashions are horrible businesses, but Piramal Enterprises currently looks like a great candidate to make 30% returns.
None of this is investment advice. I could be horribly wrong with my assessment of value.
Do you think the title of this thread is still valid given the experiences you’ve had and change in your strategy?
With the US generic cycle turning back for the better, and Strides turning EBITBA positive again, how do you equate Strides to your other headwind buys like Avanti and Globus, from a risk-reward perspective, given that valuations are at rock bottom and optionality is whatever they manage to do with Stelis?
I’m going for the basket approach with US generics in the family portfolio. Currently considering a basket of Pharmova, Strides, Aurobindo and maybe Dr. Reddy’s.
Just a suggestion, i dont know if it turns out to be wrong. Why us generics?? And one of the companies here had their Md arrested not so long back 
i think he has talked about this:
here
Im also interested in outcome of this experiment.
Business momentum is 1 approach, mean reversion of biz cycle is another approach (not very dissimilar from buying commodities at bottom valuations)
Im thinking of doing something similar but with cos with superior underlying economics like NIIT, PB Fintech etc.
At this moment, too many ideas, too little capital
I understand where you’re coming from, the US generics space is horrible, and the companies I’ve mentioned above are even worse. Pharmova is a soup, Aurobindo has a horrible USFDA track record and Strides has made some questionable decisions in the last year.
The way I’m looking at it is that if the US market is a commodity business, it isn’t an automatic avoid, but one should treat it as so and have strict entry/exit conditions. The worse the sector, the more strict one would want to be with entry valuations. The entire pack is trading at cyclical lows, and has already felt pain for an entire year.
Aurobindo:
Strides:
Pharmova still has some way to go:
I’d like to get Strides below 280, Aurobindo below 400, and Pharmova below 300. On the exit side, I don’t think they’ll ever see valuations seen in 2016, but the strategy would never be to hold these for long term, rather churn out as soon as I get a decent exit.
Maybe my earlier answer was too quick. I’m interested in the following sectors due to valuations, and would like to narrow down investment ideas either on quality GARP ideas, or on prices/value.
PS: this doesn’t take away from wanting to study quality companies and great business models (I’m happy with what I own), rather have a portion of the portfolio allocated to higher churn plays that one can enter and exit without any noise.
Minor updates for disclosures.
For similar reasons, I have scaled down my position in PDS Ltd. to around 1% of my portfolio. They have around 80% of their revenue coming from the UK/EU, and channel checks from friends in the industry suggest a tough time ahead, with retailers having high inventory.
PDS is the company I spent almost a year on, so selling was a difficult decision. I would like to re-enter as soon as possible.
Having bought at around 43-44 per share, I have sold a majority of my holding at 59-60 per share. It has generated 30% returns for me since, and I think risk reward from here is unfavourable as a trade. (This has absolutely no bearing to anyone who holds Equitas as a core investment.)
Consequently, I’m now in around 17% cash, and my portfolio looks like this:
Some thoughts on buying headwinds:
I got extremely lucky, with the export duty being revoked a couple of days after buying. It has given me 20% returns since. I will exit at around 1.5x book, at around 360-370 per share.
On others, if I’m extremely early on buying, the stock can languish for a long time (eating into CAGR) until headwinds recede. I made this mistake with Sandhar last year, and possibly right now with Avanti Feeds. It looks like pain will continue until April 2023, or atleast until there’s good news. There’s a lot plaguing the Indian shrimp industry at present.
To avoid this mistake, I was looking to buy Alembic Pharma, but I think the best time would be in a few months, after the plant has received its approval, but once depreciation starts to hit during ramp up. I could be completely wrong, as the valuations are very reasonable.
A few other companies I’m looking at right now include Maithan Alloys, and Caplin Point. I’ve owned the latter in the past, but I’m looking at it through a new lens, after a year of becoming a better investor.
I feel no hurry in deploying cash. Happy with how my portfolio is currently positioned.
3 cos which i find too cheap and might be worth studying :
Own 1st two. Have a small position & studying #3.
