Dhwanil's Portfolio

Q&A: Questions & Answers Portfolio Q&A
41

Centrum has come out with a buy on HIL at 366.

Any change in your view on HIL?

Are they shifting their Hyderabad unit and selling the land?

Rgds

Bharat

valueof 450odd crores.will inmost of the categoriesand

42

Dhawanil

This is a very useful thread. Please keep the updates coming.

Thx

Rajeev

43

Hi Everyone,

Apologies for not responding to some of the post as was preoccupied with other activities and hardly got time to contribute.

Thanks Rajeev for your post, I almost forgot about this thread! But, will update it to mirror my current portfolio.

Regards,

Dhwanil

44

welcome dhwanil, now that you have returned kindly comment on prospects of Hyderabad Industries Ltd. the stock has been a dud for almost a year now ā€¦ would it be wise to cut losses and look for better investing opportunities?

45

Yes, Amey that would be the most prudent strategy but not because it has been dud for a year but because of following reasons. I must admit, it was a wrong call and I did pay tuition fees for the same! :slight_smile: Some key learnings

  1. Pricing power is extremely important. In this case HIL has hardly any pricing power as it operates in hyper competitive industry no matter whichever segment you take. Inspite of being leader and having 60% market share in some of the markets, it canā€™t raise prices so when RM and operating cost goes up there is no other option but to take a hit on bottom line. Very difficult to grow bottom line significantly (2X-3X in 5 years) in such environment

  2. Take management guidance/goals with handful of saltā€¦With all good intentions and plans, dynamic business environment can prove them completely wrong! The growth of increasing sales to 2000 crores seems very optimistic given current conditions. AAC blocks as product are gaining tremendous traction but so are number of manufacturing units for AAC! Now HIL is planning to enter CPVC marketā€¦will it work? I donā€™t know. But it surely doesnā€™t instil confidence

  3. For a mediocre business, profit is not necessarily converted into cash, rather most of the time it goes towards building inventories and increasing credit lines to customers! So, sustaining dividend (leave alone increasing) becomes question mark.

Having said all this, I still believe that in next 5 years, one will make decent returns as eventually things will improve. So with dividend yield of 2-4% chipped in, getting 15% return may not be a tall task. But the upside is limited. So to me why play a game, where tailā€™s I donā€™t lose, but heads I donā€™t gain either!

Best Regards

Dhwanil Desai

1 Like
46

thanks dhwanil - that was crisp indeed :slight_smile:

47

I think hyderabad inds should be played as a cylicalā€¦ There are phases of ups and downs for its business.

Just to bring out the psychology behind itā€¦ currently no one recommends it as a buyā€¦ And things might look black and gloomyā€¦ thats the time to buyā€¦valuationwise also price below 300 looks attractive with limited downside.

If price goes up and say 6-12 months down the line guys like tulsian etc come and recommend to buy it around 400-450, it might be time to start cutting your positions.

Technically monthly candlestick pattern shows an interesting reversal pattern. at 255 odd levels it seem to have formed a good bottom.

I think this one needs to be on the watchlist for any improvements on fundamental front.

48

Co-incidentally I am reading the chapter on cyclicals in Beating the Street. Below is an apt quote -

'The fact that the cyclical game is a game of anticipation makes it doubly hard to make money in these stocks. The

principal danger is that you buy too early, then get discouraged and sell.ā€™

49

Thatā€™s a very interesting angle, Hitesh! But, it means, one has to time it properly to make some decent money out of such cyclicals. Is that impression correct? Also, some other cyclicals like auto/metals provide high growth opportunities for a long time (some times as long as 8-10 years!), but can it be true for cement sheet business?

If one wants to play cyclicals, arenā€™t there better opportunities?

will be interesting to get your views on the same.

50

So very true! I can vouch for thatā€¦:slight_smile:

And still Peter Lynch made tons of money out of cyclicals! Truly marvellousā€¦

51

dhwanil,

I am just attaching a monthly candlestick chart of hyderabad inds with the pattern i mentioned aboutā€¦ There is a combination of three candlesticksā€¦ first a black candlestick where price opened higher and closed lower. second is an indecisive candlestick but doesnt break earlier low. And the third candlestick is the one most interestingā€¦ price open lower and close higher, negating all the selling of the past two candlesticksā€¦

Coming to the point you raised, often at times like the current time, the picture will often appear very gloomy and things seem as if company wont turn around and so onā€¦ But with all the negative news thrown in the price factors the worst news possible. These kind of prices are a value investors delight.

Regarding timing it perfectly, fundamentally I guess it is often difficult but charts sometimes provide a good indication. The other safer alternative is to buy at first sign of improvement in fundamentals looking at quarterly results improvements or some other fundamental indicator.

Lets see for practical purpose how this plays outā€¦ the call is buy at cmp of around 290 and on declinesā€¦ with a stop loss of recent low of 250-255 levels. disc: no positionā€¦ just a hypothetical exercise. :slight_smile:

regards

hitesh.

52

forgot to attach the chart. here is the attachment.

53

attached chartā€¦


54

Playing cyclicals must be akin to self-flagellation :slight_smile: Anyway, to echo what Hitesh said above, a few paragraphs further down the book Lynch says -

Just when it seems that things canā€™t any worse for these companies, things begin to get better. The comeback of a depressed cyclical with a strong balance sheet is inevitable.

55

Hi Hitesh/ Dhwanil,

Permit me to add my view on this stock.

http://chartink.com/pointfigure/hil.html Link: http://chartink.com/pointfigure/hil.html

On the Point and Figure chart, the stock after making a low of 255, which was also its low in December 2012 has moved up. Currently in the X column on BUY signal. It has made 2 double tops. One at 275 and 290. It broke out from that and touched 300. Now the stock has resistance at 310-350. Support is at 275-260-255.

Tony

attached chartā€¦

56

Current HIL has PE 9.97 - highest since 2006. Currently 3 cement cos are trading below book value including JK Cement.

HIL is riskier bet, not everyone can dare to play.

Perfect stock for ā€œriskier slot allocationā€ in oneā€™s portfolio. I keep 5 to 10% provision for riskier bet.

Kunal

57

The time to buy cyclicals is when their p/e is high. Counter-intuitive, isnā€™t it?

1 Like
58

This is a great post why to avoid cyclicals over long term.

http://www.theequitydesk.com/forum/forum_posts.asp?TID=279

59

this was mentioned by Peter Lynch in his book. The logic is simple, when earnings see the bottom and price move up a little in anticipation of better timesā€¦lap on it.

But mind itā€¦itā€™s not easy to judge the peak and trough of cycles :slight_smile:

60

Raj,

Absolutely - in fact, I am reading Lynchā€™s book now. Iā€™m experimenting with cyclicals for the first time with JK Lakshmi. Lets see how it plays out.