My viewpoint
1.Companies which have given “consistent” day in day out-of course good fundamentals-viz ABBOTT/PIDILITE/RELAXO/GODREJ/MARICO/HDFC BANK are safe investing.
2.SHAREHOLDERS return for 10 years are amazing.
3.PE ratio -high has LIMITED relevance so long as "earnings growth and self sustained growth"are achieved
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Hi @dineshssairam, Eicher has fallen more than 20% since you add to your watchlist two months back.
Apart from the entire slowdown + BS6 transition (though RE buyers should be lest affected, RE being a high price point product) It seems Hero might form a JV with Harley for India, if that happens surely it should impact RE negatively. whats your say?
China Coronavirus issue seems to be impacting some raw material sourcing for RE more than others… but thats temporary and if the fall is only due to this, current price might be good to enter…
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There’s been a sea change since I valued Eicher Motors first. The most prominent ones being:
- Gradual increase in competition in the local market. Feedback for Jawa has been particularly good. As you mentioned, Harley is also trying to up its game. Yezdi is also coming back.
- Shift of focus from Local to Foreign markets. I’m not saying it’s bad per se, but it is a Blue Ocean for Eicher Motors. I’m having a difficult time understanding the market size there. Although initial Sales abroad by Eicher has been promising.
- Electric Vehicles. Not a big deal breaker, in my opinion. But the change in consumer behavior due to the introduction of EVs may be a small thing to consider.
On a positive note, the company has started selling Value Added Products (Gears, Equipment) under its own name.
So all things considered, I would personally buy Eicher Motors if it came down to Rs. 13,000-14,900. Before you ask, yes, I am quite paranoid. But generally, I still think it’s a great company with an excellent brand recall.
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@dineshssairam Hi Dinesh as you hold IndusInd in your portfolio, would like to know your views on it? Is more pain left as PCR is only 52-53% ? As they eventually want to increase it to 60+ so in coming quarters we can see more provisioning and less of profits. Would you buy at current price ?
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More pain left? I cannot answer that question, obviously. In banking, you generally trust the banker and his word more than anything. It’s almost impossible to assess every single account. But I believe that the actions taken by the management to ramp up Provisioning has been acceptable. I would like to see PCR above 60% too, which is what the management has promised.
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Profits are fickle in a bank. The Book Value, CASA Ratio, Gross NPAs, Net NPAs, SMA1/2 Assets, PCR, CAR, Return on Assets, Financing Margin etc., are more relevant figures. As a side note, this is why Valuing a Bank or levered institution should be done cautiously. Claim as high a Margin of Safety as you want to without hesitation.
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I would.
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For IndusInd also you have done in depth analysis like RBL bank ? If yes pls share the link, thanks
Do you have any stocks in your watchlist and will be looking to buy if valuations are reasonable ?
Are you looking at any other auto stocks apart from eicher ?
No, I generally don’t want to post about things in my Portfolio because I will be very biased in doing the analysis.
My Portfolio
This is my latest Portfolio. Nothing has really changed, as you can see. But I did bring up about 11% in Cash during the first week of March. I invested all my cash yesterday (The fateful 09-03-2020). This is after I made the investments in my own Portfolio companies.
My Watchlist
Acrysil India, Bandhan Bank, Eicher Motors, Inox Leisure, ITC, KPR Mill, Marico, NESCO, Petronet LNG and Swaraj Engines.
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As ITC is in your watchlist and stock of the season, whenever you get time, can you do a post on its valuation?
As per your analysis on RBL it was a good buy below 420-400 levels, do you still believe that? If not can you let us know why ?
When it comes to IndusInd how do you see the risk of new ceo taking over. As economy is not doing good and their book largely comprises of corporate and auto loans, there are high chances of more npa’s cropping up. Is there are any other risk apart from above mentioned ones ?
Yes, I’ve been trying to explore ITC. I’m not a big fan of their FMCG division. But I’m trying to see if it is available at a Price that’s worth paying even if we exclude Revenues from the non-performing divisions like FMCG and Hotels. That’s how I am approaching this.
In my RBL Valuation, I explicitly mentioned that RBL plans to raise two large rounds of Capital. I’d assumed that they would be able to raise it at the Market Price back then of ~Rs. 670. This added about ~9 Crore Shares to the company’s existing base.
However, if we assume that they will raise it at way lower levels, like the CMP of Rs. 208, then it would add ~32 Crore Shares instead. At this level, the Expected Purchase Price roughly becomes Rs. 280. Again, this is assuming they will able to raise Capital at all.
I cannot comment on the new CEO until he’s taken over and communicated his strategy for the bank going forward. Regarding NPAs, yes, a prolonged slowdown is a genuine Risk. Let’s see how it unfolds. I haven’t the faintest idea when recovery will happen in these pockets.
But one thing is for sure - good times and good prices seldom occur together.
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Dinesh,
IndusInd Bank has concentrated portfolio of 50% in Auto which is creating trouble. Auto portfolio is comparatively easy to build and is always risky in downturn. Also this bank has Microfinance after acquiring Bharat Financial. It is risk itself. While HDFC has very low cost of capital, diversified portfolio, no micro, less leverage. Also low cost of capital helps it to lend at low rate which helps it to select the borrower with less risk of default, hence good ROA. This is the moat. Still you put your money in IndusInd. Your thoughts ?
Also ITC is a diversified company. VST is comparatively very small. It has cheaper brands and focussed, no divorcification. Growth in VST is clearly visible. You agree with this rationale. Still you think of ITC not VST. Your thoughts ?
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I don’t disagree. HDFC Bank is clearly less-risky. But that also means less returns. Please note that I did have HDFC Bank in my Portfolio some time back (Look at the first few posts in this thread). If I remember correctly, I bought near Rs. 1,000 and sold near Rs. 2,000 (Pre Split). Currently, I do not think it is a bargain.
Yes, agreed again. But the same reasoning goes here too. I think VST Industries is a bargain well below ~Rs. 2,900 (If I use my regular 15% Cost of Capital, it is around Rs. 2,200). I Valued it on my blog, in case you want to go through the numbers:
Price is very important to me. “Quality” is important too, sure. But I cannot pay any Price for it.
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Dinesh,
Are you adding to your current holdings in the current mayhem or are you looking to add/adding any new holdings? What’s you approach in times like this where there is a plethora of choice for long term investors in terms of valuations.
What’s your opinion now. It has touched ~ 160 levels.
I personally don’t think there are “plethora of choices”, at least for me. It’s not that many stocks aren’t crashing down, they are. But the amount of businesses I understand is still only a moderate figure. I’d much rather buy 1-2 new businesses I know very well, rather than 8-10 businesses I know only moderately.
Coming to whether I’m buying anything, I don’t have any cash right now. But I will gather some more by the end of April. Whether stocks would still be cheap then is anybody’s guess.
I’ve specifically added companies like VIP Industries, Inox Leisure and NESCO to my watchlist (Mentioned a few posts above), which are directly impacted by the Coronavirus issue. Even if I’m able to get one or two companies in my watchlist at bargain levels towards the end of April, I’ll be happy.
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My opinion remains the same. RBL Bank needs Capital and they’ve openly admitted that they do. Any fall in the stock’s price only delays the fund raising, and hence an increased Risk of business continuity.
They could reduce the size of the Loan Book, take a hit on the P&L and live to fight another day. But I’m sure the management knows much better about their book than I do.
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They did raise approx 2100 cr at 340, they are well capitalised for next two years, infact ss of now their CAR is higher than IndusInd.
What looks good in up-cycle is amplified in the downcycle. Many parallels between what happened to Anglo-Irish bank and the Indian guys lending to Real estate. Be it Indusind or Real estate NBFCs.
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True. I don’t disagree.
On a related note, some other Banks are starting to look good now. I’m especially interested in CUB. I wouldn’t be above selling IndusInd to buy CUB. Currently, I’m gathering Cash and taking care of some trading restrictions at office.
Let’s see what comes to pass.
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As of today, valuation of CUB to IndusInd is thrice of what it was in April last year. If you think CUB is better investment today than IndusInd, then would that not make it even better investment one year back (or when you invested in IndusInd)? Or has something changed fundamentally?
Not tracking CUB or IndusInd. My question is of more general nature, as I observe more severe correction in low/moderate PE stocks as compared to businesses having strong moats even if they were quoting at expensive PE ratios. If you are not trying to time the markets, it makes more sense to invest in great business over investing in low/moderate PE stocks and waiting for correction. Not only the churn would be lower, but as the CUB vs IndusInd example shows, you would have been better off if invested directly in CUB than to switch during correction.
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