Hi All
I have reduced my investment on GHCL @156 vs cost of ~102 . GHCL was roughly 5% of my portfolio . It has been reduced by 50% to book 55% profit on it . Still keeping my “profit” invested in this while i have taken out my original cost ( mostly) . I have invested my “profit” in S P Apparels at ~75.
GHCL: Reason for partial profit booking
- As given in Initial rational, company product soda ash , i don’t think had a huge market in India.
- Initial investment rational was to take advantage of the market downside when it was made at 102. Company has always taken a shareholder friendly approach of continuous buy back ( last was nearly at 185 i think for 3% equity) and decent dividend. It has used its internal accrual to reduce debt, buyback and pay to shareholders dividend which is an ideal strategy hence i found this attractive
Reason for still not fully exiting it
- Although company product is something generic and domestic market is not huge, it has captive mines which makes it lowest cost producer of the product
- Company has filled with Indian government to impost tax on China on imports done by Indian companies . Indian government has taken such steps recently against lot of product and will not be surprised if it does in case of this product too
- Company is doing massive investment to expand its production capacity which if above point 2 if implemented by govt can make this company the largest producer in India.
So given story still has potential , decided by keep my profit invested
Now on S P Apparels, its a pure value play like i did with GHCL,i think it will do well…
Reason for investment
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good micro cap company with consistent performance which hasn’t really participated in bull run post March-20
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Company has disclosed that dispite its bad result in Q4-20 ( which was mostly due to 25cr of order … this is expected to come back once international operation resume so not a permanent impact…Company still has decent order book
- i like companies which focus on niche segment and this focus on children wear thus something unique -
With COVID and migrant workers situation, company did disclose that its 60% of the workforce is staying in company hostel facility this not expected to face shortage of labor
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Company has noticed significant order inflow from May 2020 and demand to be coming back. It doesn’t expect the demand in near term to be impacted
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Liquidity is fine and company is using nearly 70% of its working capital.
Concerns:
- MEIS withdrawal is a permanent impact on company profit even for future.
- Company management if we look in past has over promised and under delivered so lets see if it can stick to that
- Goldman sachs international holds 5% of this company. I take it as concern as it has been holding it since long time when price was around 450 type…i wasn’t able to find its exact cost price but it can be assumed that they might look to sell out once investment recovers
- Textile business is badly hurt but still have concerns on how badly demand for the children knitting segment hit by COVID. Company management has presented a very positive picture which needs further drilling and review of Q3-20 performance to check if that they telling is reality or not…story is still unfolding so lets see. Will review the development against Q3 result.
Thanks