ValuePickr Forum

Dinesh Sairam's Portfolio: Requesting Feedback

GOI reimposed ADD on some Chinese Tyres during 2016-17. You can clearly see that the Margins of all Tyre players jumped for a couple of years during this time. Of course, it is not black and white, because many other factors (Like RM Prices) also impact the Margins.

Unfortunately, no. They don’t reveal those statistics. But going by the fact that there has been higher than normal investment in Fixed Assets for the last couple of years, I’d guess they are operating at high utilization levels (A part of this could be for their latest experiments with the CV market though).

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Can be off topic but good time to know this as well :slight_smile:

Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks, and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.

Stanley Druckenmiller

This is something Im learning during this run. Very tough to get wrap your head around it, since it confuses a new investor as to whether he should play for the momentum or value pie.

Of course, Liquidity moves the market. But Liquidity doesn’t exist in a vacuum. Someone has to own that Liquidity and there’s a reason why they’re converting that liquid cash into a stock or set of stocks.

If that reason is overt (Which most of the times it is not), you can “play” the market. But if it isn’t (Which is the more likely case), your energy is best spent studying only the businesses you track or own and whether they are cheap or dear.

Liquidity was also moving the markets in 2000 and 2008.

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Hi Dinesh,
Can you please throw some more light on Orient Refracrories. As per my limited understanding Refracrories are usually a proxy play to the steel industry and that’s what makes them cyclical. Cycle goes up and down with the steel cycle usually. So I would like to understand how Orient is different and not cyclical in nature. Looking at the EBITDA margins of Orient refractories we can see that they are better than its peers like IFGL and Vesuvius and in line with Morganite Crucible. I am more keen on understanding business per se. What are the things that make it non cyclical and hence different from its peers.

Please pardon my ignorance on these topics and also feel free to ignore the question if you think it is not relevant.

Thanks.

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I owe my understanding of ORL’s business to @Chandragupta. He answered some of my important queries regarding its business.

The Steel industry is cyclical because supply/demand moves the prices a lot. But Steel producers cannot magically reduce capacity at will. It’s a capital-heavy business after all. They keep producing Steel and try to manage the inventory in order to make profits. In effect, crucibles / refractory products are more or less continuously used regardless of volatility in steel prices.

India’s total steel production (Volumes) has grown at about 7% in 2011-2019. ORL’s Revenue has also grown at about ~8%, while that of Morganite is ~6% during the same time. There is also a strong correlation between steel production and the Revenues of these companies (You can check the numbers and see if you wish to). Also yes, there is almost no cyclicality in the production of steel itself in India. In fact, we overtook China a year or so back and became the second largest producer of steel in the world. In any case, a growing country like India needs a lot of investment in infrastructure. Investment in infrastructure means investment in steel as well.

To me, ORL and Morganite are interesting ways to explore the growth of infrastructure in India, without taking on a risk in cylicality. Both are great companies in my opinion. ORL seems to have a lot of “triggers” in place, like a pending acquisition and support from a global parent. Morganite, on the other hand, has a slightly better cashflow profile and B/S strength. Scuttlebutt tells me Morganite products are of very good quality.

I need to do more research, obviously. But this is what I have as of now.

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Thanks @dineshssairam… This indeed helps as a starting point to understand the refractory business in India. These are some great insights provided by you. Thanks Again!

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Late update, but I exited Cera Sanitaryware a couple of weeks ago. I still believe in the management and the company has a long way to go. But I think I under-estimated the length of the Real Estate slowdown in India. COVID19 has only increased it. So, selling is admitting that I overpaid. Luckily, I was only in single digit (percentage) losses. Even now, Cera has just moved into the top spot in my watchlist. I will be quite interested in buying it at lower levels (I haven’t re-valued it yet however).

In other news, Cash is closing in on 70% of the portfolio.

Watchlist has grown a bit. I am trying to catch up on some reading, since it is Annual Reports season.

Cera Sanitaryware, City Union Bank, DFM Foods, Inox Leisure, Jamna Auto, KPR Mill, NESCO, Navneet Education, Orient Refractories, SIS, Suprajit Engineering, Swaraj Engines, VIP Industries and VST Industries.

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Hello Dinesh Sairam,

I have one question for you.
Regarding investment style do you read any company quarter balance sheet and then invest onto it the next day.
For eg- on Thursday laurus lab posted very good results and it was obvious that stock would rise the next day and it did around 18% and still can do good next week.
Similarly kilpest posted good quarter. Since you have a good percentage of cash, do you use or recommend these type of strategies to invest.

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hello dinesh sai ram sir ,
thought process behind choosing heritage not hatsun ? please tell your decision ,happy value investing.

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I think that’s a dangerous practice. It takes at least 1-2 weeks of regular 3-4 hours of reading every day just to familiarize myself with a new company. If it’s an industry I already know, maybe it will be a little easier.

The simplest and most effective practice is just to start with two things:

  1. Time Series Analysis (Compare your own company numbers with its historical numbers)
  2. Competitive Analysis (Compare your company’s numbers with the closest competitors)

While doing these, you should make note of areas you do not understand fully (Ex: “Why is my company earning less Margins than the industry’s average Margins?”). Once you’ve got all your questions, you can try to find answers from the Annual Report, Concall Transcripts, Management interviews and so on. If you can get an insider from the industry to answer some of your more generic questions about the inner workings of the industry, that would round it up nicely.

I don’t see any way in which this will take just a couple of days. This will take weeks, if not months.

Hatsun is an excellent company with a vast array of familiar brands. But they have levered themselves up to the neck and ruined their Balance Sheet. Even now, after a recent massive round of equity dilution, their D/E is still above 1.25. On top of this, their Interest Payments are almost equal to their PAT.

If they have poor business for even 1-2 years (Not saying they will), their B/S will further worsen. This means that Hatsun’s managers are very interested in short term profits to keep the treadmill running. They cannot afford to take even small risks in terms of innovating new products or capturing new markets (Again not saying they won’t - but the leverage is an inherent discouragement).

Hatsun would have been my first choice had it not been for the leverage.

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Dinesh, it’s good to see your portfolio. Will you be able to add a price range which would reflect fair value after considering the MoS? Would help members to make a buy or sell decision based on your valuation.

P.S - Only if you’re ok with it and if it makes sense.

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I don’t think it makes sense as of today. I am very young in the markets. I might potentially reveal my returns 5 or so years down the line (So that I complete at least 7 years in the markets). Let’s see.

Besides, I don’t mind telling people at which price I would buy a certain business I am interested in (Given I am sure about the business prospects myself). I do all the time when they DM me here or on Twitter. I simply don’t want to post my average purchase price on a public forum just yet.

Even if I say so myself, I am fairly confident in my ability to value companies. I am here on this forum to discuss about the underlying businesses themselves, which you can never learn enough about.

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We have talked before about your cash allocation in liquid funds and want to explore this further.

In times of uncertainty & crisis, would you recommend moving a portion of cash to gold mutual funds or ETFs? Is there anything you have against this avenue of allocation? Please share your thoughts!

I would say, make it more micro. If you are uncertain about the businesses you already own, yes, move money into assets you consider are fairly safe. I consider government bonds to at least keep my capital, if not appreciate it. I have very little idea about gold.

We are currently in the midst of a crisis and I have 70% in liquid funds - I might as well sell the rest of my portfolio right? But the companies I am still invested in, I believe, are fairly guarded from any impact from COVID19. In case they are not, I don’t think that will damage the B/S by much (I don’t mind 1-2 years of bad results).

I sold Cera recently and IndusInd before that because I am very sure they will be heavily hit by this pandemic. Same goes for companies in my watchlist - some of them I’m sure the impact will be limited and others, I am not so sure. Of course, price is the common question for all of them.

So again, I would suggest a micro approach.

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hello sir , what is your opinion about put in liquid funds ( are they surely safe?), or we put money in cash only and wait for opportunity.

Liquid funds that invest 80%+ in Government Securities / Short term Debt instruments are safe in my opinion. Everything else carries risk.

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Your investing picks remind of me a few years ago. Your knowledge of investing is amazing.

I would suggest to invest in Coffee Can stocks available at good valuations now like Pidilite, Relaxo etc. and hold on to them. Cera is also a good coffee can stock. In your portfolio, I would say use the balance cash to buy Coffee Can stocks that are not ‘hot’ right now and available at reasonable prices.Invest in good market leaders and you will multiply your money.

DHP India is okay. I am invested in it too as it is part of Vijay Malik’s portfolio, like you highlighted from the annual report.

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Thank you for the suggestion. I don’t want to do a ‘Coffee Can’ as long as I am into actively managing my portfolio. Maybe that is a good idea for when I want my portfolio to be on autopilot. That day is not today, however.

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Dear DInesh pl share more on orient Refractories. It has fallen to RS 140 due rejection of their merger plan of 2 Group companies RHI India and RHI Calsil. To me they are mergin low margin RHI India and RHICalsil with High margin ORL. I feel this erode ORL Valuation. Currently it is hovering RS 160 to RS 175. How much more it will go as per your Valuation and expectation. I am watching to add. But unable to decide.