Hi Dinesh - many thanks for your continuous and balanced feedback. I would be greatly interested in understanding your logic for choosing Heritage Foods - assuming you looked at other value added dairy companies. I am already convinced the industry seems interesting - although extremely fragmented and subject to milk availability constraints - as is the case now. I am personally looking at Parag Milk Foods (which has a similar size but a higher margin - which I attribute to a higher share of value added milk products) - and although it has had some bad news in the past (share pledge, loss of a marquee FII), it seems to be solving at least the pledge issue. Appreciate any thoughts you may have.
I second your thought. I always thought there should be balance between valuation and business quality, moat, management quality etc.
Dinesh style of investing looks for deep value first with lot of MoS and then look for quality. Every one has different style but I feel even if Iyou pay 15% more I would look for quality then valuation but its very subjective
In general, What I have observed is that every investor has his/her own journey to finding success in the market.
We may have suggestions for the same but fact of the matter is some lessons are only taught by the market itself and there is no other way around it.
Dinesh would never be able to build conviction around your/our suggestions because he is process driven and he is not currently focusing on changing his mental setup of how he views value. He is focused on charting his path in a way which is comfortable to him and he surely puts money where his mouth is.
If you were to take my example, I have focused last 5,6 years trying to understand the investing cycles, but I am extremely weak in analysing Balance sheets and PL. I have tried to learn all things but fact of the matter is there are only so many hours in the day and one day I will get to a point when I learn valuations in earnest.
If Dinesh wants a 15 cagr on his portfolio and has an appetite for high volatility, even 2 bets in a portfolio of 7 can help him get there.
There is no single path to success and various paths can lead to success. I respect his journey a lot and track this thread closely.
I agree with all points. In fact, his portfolio thread is highly educative. It is awesome to see Dinesh defending his decisions with full conviction, rationale. We ask our questions to draw more from him to understand more. He has good sense of time management too like Hitesh, otherwise it is not easy to reply everyone daily with lot of logics.
Will u re-consider valuing Supreme Industries now??
I don’t mind paying up for “quality”. But I cannot pay a random 30-50% extra for it. I need to understand what the management is doing differently that increases the value of the company vs a competitor. As I mentioned earlier regarding Growth, it is not ‘Quality over Value’ or ‘Value over Quality’ for me. “Quality”, Growth, everything ultimately contributes to Value (High “Quality” and high Growth companies certainly have more Value). If that Value is well above the Current Market Price, I wouldn’t mind ‘paying up’. I just don’t want to ‘over pay’.
Case in point, VIP Industries is a well-known “Quality” company. I understand their business and like their strategy. But at Rs. 350 or Rs. 400, it was ‘over paying’. Currently, I wouldn’t mind ‘paying up’ Rs. 180-200 to own it (It did touch those levels a month ago, but I did not have Cash).
I would suggest you go through these videos (Look for facts, ignore opinions):
And these posts by our very own @rupeshtatiya
(Generally read the entire Heritage Foods thread in VP - it is amazing)
The bottomline is, the strength of a dairy player is in the procurement, storage and (to a smaller extent) distribution. It takes several years to build trustworthy relationships with farmers or build storage facilities that are able to handle massive volumes. Hatsun and Heritage are far ahead of the other players in these instances.
I have to disclose that I recently moved to London for work (Say, about 2 months ago). Due to the virus, I was stuck in a small Airbnb until a week back. I have just shifted to a new place, which has its own issue with connectivity. Hopefully in a week or two, I should get my wi-fi connection sorted.
I will think about Valuing any company only after I settle down here. So far, I have been sticking with companies I already researched and valued (Not that that’s a bad thing).
While going through you blogs and posts , I remb you saying that if a 2009 like scenario were to present itself, definitely more Market leaders would appear on your watchlist if they met your Margin of Safety price point
Eg - Ashok Leyland, Godrej consumer etc are just a few stocks in your blog that have hit that target price
Curious to know if your outlook for these stocks has changed or if you feel it more prudent to add cash on hand to existing bets in your PF
I don’t think many market leaders have corrected. For instance, Bata is something I would like to own. But I would need it near 600-700. Forget my purchase price, it has not even gotten below 1,000 in this fall. But I guess you could say VIP Industries, Solar Industries, Swaraj Engines and Eicher Motors fit that criteria.
Not particularly interested FMCG now. There are better bargains in my opinion. But I would still maintain that GCPL is a good buy below 550 (Maybe more like 500 or below if you account for the Coronavirus impact) for those who are interested. I have also stopped tracking Marico along the same lines.
Also as mentioned a little earlier, I am staying clear of most PV / CV companies and related ancillaries. I don’t have enough understanding of how BSVI will roll out and what are the likely impact from hybrid/electrical transports. Particularly in the case of AL, a considerable risk is the upcoming freight corridors project by the GOI. I believe CVs will still provide last-mile connectivity. But for longer routes, railways is a formidable competition. In any case, once again I think the CMP for AL is a good bargain for those looking at this space.
I am not very good at timing the market. I invest (a) When I know for sure I can invest a sizable amount of cash and (b) there is a bargain. My recent moving to London and very recent relocation to a new place requires that I hold on to some reserve amount for now. But I am hoping it should be clearer within a week or two just how much I can save/invest.
Your comment couldn’t have come at a better time.
Hi Dinesh - I would like to know your opinion on some of the companies available at attractive valuations!
DB Corp - Leading Newspaper company with cash generation without any effect of economy cycles! Debt free, good dividend…
JK Paper - Leading Paper manufacturer! Good growth as well as attractive valuations! Debt is manageable for the company.
Sharda Cropchem - Conservative company which has paid off its debt. Healthy growth with undervalued prices in a growing sector.
Cyient Limited - Debt free company which got hammered because of current results! I would put my money on Debt free companies to survive bad economic situations rather than leveraged ones! Company can go through this year even with weak performance due to reserves and surplus.
I would like to open minor positions(>5%) in above mentioned stocks. But I don’t want to fall for value traps! I would like to know your view on my hypothesis and if you’re seeing something that I am missing…
At this point, paper companies could at best be Cigar Butts. I am personally waiting for a consolidation in the industry and maybe a clear winner in terms of online distribution (Ex: WSJ in the USA). While it is okay to dabble in Cigar Butts for 1-2% of your portfolio, I wouldn’t bother investing in them for the long term.
I think it is a good buy at CMP (90-100). But as it stands, there are better bargains in my opinion.
I have never tracked this. Sorry.
Yes, I think Cyient has the “capacity to suffer”. But post COVID19, I am not sure how Airlines will recover. Some may not recover at all. In any case, at least a watchlist candidate.
Thanks Dinesh for your views. While I am considering these companies for scuttle butt, I have alternative for every company mentioned here in my mind. Which again shows lack of my conviction in these companies. There is Jagaran for DB corp, Seshasayee Paper for JK Paper, Sonata Software for Cyient (Not exact match) which also have overlap in my reasoning for investing in these companies. I have all these companies in watchlist but not taken position in any of these companies.
Please see the circulation volume growth numbers and also the ad revenue growth numbers. The death prediction is greatly exaggerated. I have posted some links in the db corp thread. These businesses have a decent runway still(DB and Jagran). Market leaders and habit forming products
I did not say they will ‘die’. In my opinion, they will lose relevance over the years. It has already lost relevance in the rest of the world. India is a little different because of lower internet penetration and a lot of jobs that are dependent on the industry. I can’t point out when it is going to happen, of course. But I don’t see why it will not happen eventually in India as well.
Since these are trading at 3PE at 0.5 PB, the consensus seems to be that death is not far away. DB has the most popular Gujarati and Hindi website already also. Is it fair to say that there is a 2-3x opportunities in these stocks in the next 5 yrs?]
Nobody knows how much a particular stock will return. I don’t know at least. Some of them may be undervalued like you said. That’s why I said these could be good Cigar Butt bets.
But I would personally not invest against a permanent change in consumer behavior (Which I believe is going to happen to newspapers eventually).
Sir some time ago you tracking mirza international , in last some quarters their top line growth is good but margin not good due to they offered discount, they have many products then footwear,i am sure you know many more things what i know so please give your views for 4-5 years investing time
I exited / stopped tracking Mirza International the moment they decided to dive head-on into Retailing. Retailing is a different beast altogether. The fact that they don’t have any experience in the area and they’re diluting the Red Tape brand only adds to the misery.
I haven’t tracked them specifically since. But I do believe that there is a long runway for growth in the Footwear industry in India.
Wanted your opinion on Cupid’s outlook.
I can see that they have consistently gotten into the upper 30s and 40s for sales per qtr and were recently in the news for Winning a 15cr order from Tanzania as well.
With the virus still a problem worldwide, do you see Cupid winning orders consistently with governments probably focused on Other aspects of healthcare for now.
Is it possible for cupid to consistently post 40-50cr sales per quater going forward?
Thanks a lot for all your patient answers!
I’m not sure about the immediate few quarters. My guess is that Donor Funding would have dried up / redirected towards fighting COVID19. On top of this, there has been productivity issues in the plant due to the lockdown.
Over a longer term, yes, I’m positive about the prospects of Cupid. Apart from the regular tendering business (Which is good), I look forward to them entering the U.S. prescription market.
A considerable risk is that the CEO Mr. Garg is very old and partially blind. None of his other family members seem too interested in running the business. So the possibility of a sell-out cannot be ruled out.