Harshal's long term folio for wealth creation

harshal_7 · October 10, 2022, 8:55am

Creating a thread to keep track of my Portfolio and get some insightful suggestions/feedback regarding the same from the esteemed ValuePickr community. Following is my portfolio which I have build for long term (min 5 years) to create wealth.

 Company Name   Allocation          Investing rationale

|1| BAJFINANCE ------ |6.6%| ----------- Largest NBFC, Consistent Compounder, huge growth ahead, Evergreen stock

|2| NAUKRI --------------|6.2%|-------------Apart from naukri.com and other brands which
I feel have decent growth prospects, what I like about this company is the management and their investment in startups having huge growth potential. So for me investing in InfoEdge is like indirect investing in startups.

|3| DMART ---------------|5.7%|------------Largest Retail chain, excellent growth prospects because of low penetration. Good business model and good management.

|4| ASTRAL---------------|5.6%|------------Leader in Pipes and fitting, foraying into new business to remain competitive, consistent compounder.

|5| POLYCAB-------------|5.6%|------------Leader in wires, cables and switches, I see huge growth ahead for Polycab due to increasing demand for wires and cables

|6| LTI-----------------------|5.6%|------------LT brand, good management, Market cap is still pretty low compared to other IT companies, good growth ahead

|7| LTTS -------------------| 5.5%|-----------LT brand, good management, Good ER&D business, future prospects for ER&D looks great

|8| JUBLFOOD-----------|5.3%|------------Good brand name, low penetration, good future prospects with increase in spending on dining, good track record

|9| RELAXO --------------|5.2%|------------Consistent Compounder, Great management, low penetration of footwear industry, can increase the market share by grabbing it from the unorganized market

|10| DIVISLAB ------------|5.2%|-------------Consistent Compounder, Good innovation track record

|11| TATAELXSI ----------|4.3%|--------------Riding on EV theme, TATA brand, bright future and excellent growth prospects considering the EV’s growth and penetration

|12| ALKYLAMINE--------|4.0%|--------------Leader in Aliphatic Amines as well as global
leader in other molecules, low market cap and good growth prospects, china+1 beneficiary

|13| TATACONSUM --------|3.7%|------------Have being expanding aggressively their FMCG brands, leader in various products

|14| ASIANPAINT------------|3.6%|------------Leader in Paints, consistent compounder,
evergreen stock

|15| KPITTECH----------------|3.4%|-----------Interesting innovative business and the services which they provide, good R&D happening at the company, riding on EV theme

|16| DEEPAKNTR------------|3.4%|------------Leader in sodium nitrite, excellent track record, caters to various types of industries, consistent compounder

|17| PRINCEPIPE------------|2.8%|------------Betting on the growth of pipes and fittings industry in india which is still at a very nascent stage, low market cap, huge runway ahead

|18| SRF------------------------|2.3%|------------One of the best diversified business, excellent track record and good management

|19| FINEORG----------------|1.9%|------------largest manufacturer of oleochemical-based niche additives in India, caters to various industries, good future prospects

|20| AFFLE-------------------|1.8%|-------------Exciting business with huge runway ahead

|21| CLEAN------------------|1.6%|-------------with main focus on green chemistry going ahead, this company is the best bet when it comes to green chemistry, also caters to high growth industries

|22| AWL ---------------------|1.5%|-------------FMCG brand which is a market leader in edible oils, also foraying into new businesses

|23| NEOGEN---------------|1.3%|-------------Bromine and lithium manufacturer, lithium is required for EV batteries, small cap, huge growth potential

|24| KEI-----------------------|1.2%|-------------Proven track record, with small market cap and growing demand for wires and cables, I see huge growth potential

|25| VBL----------------------|1.1%|--------------Key player in beverage industry and one of the
largest franchise of Pepsico. Also have other famous brands such as KFC, Pizza Hut under their belt. I see it as a consistent compounder. Will make it among the top 5 holdings in the portfolio.

|26| FLUOROCHEM--------|1.0%|------------It is one of the leading producers of Fluoro-polymers, Fluoro-specialities, Chemicals and Refrigerants in India. Focusing on EV and renewables market.

|27| TRENT-------------------|0.8%|------------Retail brand of TATA, excellent track record and excited about its future growth potential with zudio doing extremely well. Will increase the allocation and make it close to 4%.

|28| AETHER----------------|0.6%|-------------Exciting small cap in chemical space, good innovation and focus on R&D, good profit growth as well. Focus on niche and complex products.

|29| HNDFDS----------------|0.5%|-------------Exciting small cap, Contract manufacturer of FMCG products, showing good growth so far, the company will benefit from increase in FMCG penetration

|30| VINATIORGA----------|0.5%|-------------Leader in IBB, excellent track record, excellent management, will continue to grow further. Will allocate 3% of the portfolio.

|31| TIINDIA -----------------|0.4%|-------------A murugappa group company, excellent management and good future prospects. Various and exciting business divisions, as well as exciting subsidiaries. Will allocate 4% of the portfolio.

|32| CHEMCRUX-----------|0.3%|------------Exciting small cap chemical manufacturer, very good profit and sales growth.

|33| ZOMATO----------------|0.3%|------------Betting on the delivery food business which is still at nascent stage. Once the company gets profitable, will increase the allocation further.

|34| KPIGREEN-------------|0.2%|------------Bet on renewable energy and it’s great furture prospects. Brilliant sales and profit growth with great management

|35| KSOLVES---------------|0.2%|-------------Promising Microcap IT service provider with good profit and sales growth. Risky bet though but hoping the company would perform well going ahead.

|36| HAPPSTMNDS--------|0.2%|-------------Exciting IT service provider with great future
prospects if executed well, Good management.

|37| RAJRATAN---------------|0.1%|-------------Leader in bead wire and high-carbon steel wire with specialisation, excellent track record and hoping the same in the future as well considering low market cap. Will be 3% of the portfolio.

|38| ADANIGREEN-----------|0.1%|------------One of the Adani companies which I feel can do really well in the future with increase in focus on renewables energy, though extremely high valuations (but that’s the case with every adani company).Will increase allocation when I find it on support levels.

|39| METROBRAND----------|0.1%|-----------One of the fastest growing footwear brand in India and having sticky customers, considering low penetration of the footwear industry in india, I see the company performing well in the future. Will increase allocation once the valuations are comfortable.

Following are the companies which I am tracking and will consider investing once i find them at reasonable valuations.

Vedant fashions
Campus activewear
Jyoti resins
Shivalik bimetal
Nykaa

I like to have a mix of companies with good track record, consistent compounders and a few risky bets but with strong balance sheet and good future prospects.

Looking at the above portfolio, some might find it overdiversified with way more companies one should actually have, but my aim is to keep at the most 35 companies in my portfolio so expect some names to be removed in future updates. I want my top 15-20 holdings to have 70% of my portfolio.

Awaiting your valuable feedback and suggestions.

Cshar · October 10, 2022, 9:13am

Your portfolio growth will limit to 10% per annum, better buy a mutual fund than holding 35 scripts. Its hell lot of work to monitor

harshal_7 · October 10, 2022, 9:34am

Thanks for your feedback, really appreciate it. I completely agree with your point that managing 35 holdings would be very difficult. Also, my allocation isn’t equal across all the 35 scrips, as i mentioned, i want to concentrate my portfolio across 20-25 holdings, with cumulative contribution of those 20 scrips to be around 70-75% or even 80%. Remaining 20% would be allocated to high growth scrips with massive growth potential. So, i have to disagree with your 10% per annum growth limit, that would have been true in case of equal allocation to all the 35 scrips.

Ketan_Chheda · October 10, 2022, 9:50am

For investors who want to create wealth in the long term…I dont see how Adani Green will help (speculation is a different game)…it has HUGE debt…all the company will have to do is just service this debt for the foreseeable future, and given the kind of ambitious target the promoter has, there is no other way but to take on more debt (and its not an independent company, it has deep linkages with other group cos, any trouble with any other sister company and the group could come down like a pack of cards)…just think about it…for how long can you keep going with that kind of debt…I know you’d say the allocation is very small…but instead buy another gem (clean management/promoter, free cash flow generator, decent ROCE, reasonable valuation, etc.)
PS: too many words for 0.1%

harshal_7 · October 10, 2022, 9:57am

Exactly, too many words for a meager 0.1% allocation. I have Adani Green as a bet on renewable energy. Having said that, my allocation in adani green won’t go beyond 1-2%, and i plan to track this company on a regular basis and would get out as soon as i don’t see my expectations getting fulfilled. I have a strong belief that renewables is going to be a big theme in the future and Adani Green can become one of the top player. Just my thoughts. I would not like my portfolio to depend on any of the Adani group companies , hence less allocation of the overall portfolio.

Thanks.

ishu · October 10, 2022, 11:26am

Just one question. Polycab and Kei will both benefit from revival in housing sector and also green energy revolution. Then why not give equal weightage to both?
PS. I have invested in both of them, hence the query.

harshal_7 · October 10, 2022, 11:46am

Thank you for your question. I completely agree with your point, the reason my allocation is less in KEI is because i have recently started adding positions in it, while i have been invested in Polycab at lower levels. I am going to increase the allocation in KEI, maybe not as much as Polycab but certainly around 3%-4%. The reason for slightly less allocation in KEI as compared to Polycab is because of the following reasons

Polycab being the market leader.
Polycab having higher free cash flow generation.
Higher promotor holding in Polycab.
Polycab having slighly higher OPM.

Having said that, I have high hopes for both of these quality scrips and they are capable enough to provide tremendous amount of return.

Thanks.

sreeram_market · October 11, 2022, 11:03am

Good portfolio. Are you tracking all these companies on Quarterly Basis.

harshal_7 · October 11, 2022, 11:44am

Thanks.

Yes, I do track each of my holdings on quarterly basis, but few I track more extensively as compared to others. For example, scrips such as bajaj finance, dmart, polycab or scrips which are a part of my top holdings (allocations > 3%) are the ones which require less tracking as they are all market leaders in their respective segment and has proven track record, but the scrips which form the bottom part of my portfolio and are also capable of generating exponential returns, are the ones which i track extensively every quarter, if these are consistently performing better i increase my allocation in them steadily.

Thanks.

sreeram_market · October 11, 2022, 12:14pm

Thanks for your reply.

Some of your Scrips are well known and large cap companies. Do you think it will give multi-bagger returns in the long term? The reason for asking this question is already valuations are comparatively higher and Market already factored in all the positives.

harshal_7 · October 11, 2022, 12:44pm

Thanks for your question

I am not expecting multi-bagger return from the large cap scrips which i hold, but that being said, these scrips are extremely important part of my portfolio as they offer me the balance that i am looking for, and honestly if you look at the so call large cap companies which i hold, i am of the belief that these companies will compound my money way faster as compared to “mega large cap” companies such as reliance or TCS. So my focus has always being to choose scrips with good market cap but at the same time having huge runway ahead. That is the reason i have put equal allocation to quality mid-caps (compared to large caps) which are capable of providing me multi-bagger returns. By having equal allocation to mid-caps and large-caps, my portfolio will have a good cushion because of large-caps in case market is hit with another tragedy and will equally provide me more than above average returns because of high growth quality mid-caps and small-caps. Ultimately i want my portfolio allocation to be as follows:
40% - large-caps
40% mid-caps
20% small-caps

Having said all that, i never compromise on the quality of the business, management, balance sheet, and the future outlook of the business. And speaking about valuations, i have realised that, good quality businesses always trade at higher valuations, these high valuations are always backed by the future growth of the business, the quality of the management and the market leader position of the company, so i don’t mind investing in scrips with high valuations as long as they are properly justified.

Hope that answers your query

Thanks.

sreeram_market · October 11, 2022, 1:24pm

Thanks for your detailed investment framework. Please do post your updates of your holding companies going forward.

All the best!!!

vishnu_pravin · October 11, 2022, 4:18pm

Your following saurabh Mukerji I believe a big fan too love his promoter authenticity checking procedures but not a big fan of buying at any price and expecting good returns. I don’t know your avg buying price I see many over valued companies in my perspective.Try searching concentrated bet on bargain price those companies will be a huge boost in annual returns.

All the best …

harshal_7 · October 11, 2022, 5:31pm

Yes, I do follow Saurabh Mukherjea. Even I am not a big fan of buying at any price, but there are few criteria which i follow when it comes to deciding on entering the scrips trading at higher valuations. No one should ever buy a scrip at any price no matter how good the company is, but just looking at the valuation and finding it high should not be the only deciding factor for not entering that scrip, by doing that you are going to miss on a lot of good scrips. And i am a growth investor, and high growth companies mostly trade at higher valuations, but having said that, i look at few different things before deciding to enter a high valued scrip.

All the best to you too.

Thanks.

harshal_7 · October 11, 2022, 5:37pm

I am glad you found the details helpful
I will make sure to update my holdings going forward.

All the best to you too!!

never_overpay · October 16, 2022, 5:23am

Hi, I will only comment on the business that I know of.

a) D-mart: Don’t get me wrong, its a good business but there is no way in which one could justify the valuations that it commands. The promotors have a huge stake in the business and valuations will change when that is not the case. The business castle is not really impregnable. I wouldn’t buy the business and certainly won’t short it either! The music will stop one day.

b) Adani green: I understand its a very small position, but once again richly valued beyond imagination. What it does have is certainty of revenues over the next 25-30 years, but those revenues (and the costs associated) with it are not inflation adjusted. Costs will increase with inflation but not revenues and hence depressed margins. (Disclosure: I do not know if the revenue contracts are inflation protected. I did not read that part of the document)

No matter how good the story is, the numbers should match.

Regards

never_overpay · October 16, 2022, 5:28am

Isn’t this FOMO?

Would you mind sharing what those different aspects might be and how would you evaluate those?

Please understand, I mean no offense, I’m just trying to get my head around the difference in opinion we have.

harshal_7 · October 16, 2022, 8:09am

Thanks for your comment.

a. Speaking about D-mart, as you also accept that it is a good business, meaning it is worth having the scrip in one’s portfolio. Now coming to the valuations, yes, the valuations are high but that’s always been the case right from the start, if you go back and look at the historical PE, D-mart has always been trading at higher valuations. Back in June 2018, D-mart was trading at a PE of 200 and at the time, the EPS of the company was around 7, in the next quarter of September 2018, the EPS rose to 12 and the valuations dropped to around 100-120. Now coming to the current scenario, the valuations of the company is around 120 with an EPS of 32. So 2 years ago when D-mart was quoting at a PE of 200, EPS of 7 and the share price of 1500, everyone was shouting of company having higher valuations and suggesting everyone to stay away from it, and now everyone can see how the share price has performed since then. So in my view, the company right now is trading at historical valuations and since then it has grown tremendously. I do agree to your point, that the company seems to be trading at higher valuations by just looking at it’s PE, but at the same time the company has lot’s of positives to back it up, and on top of that it has tremendous growth prospects (at least in my viewpoint, but you can choose to disagree on that). So unless, there are no issues with the management, absence of any worthy competitor, and inflation stays at bay, i would always bet on the D-mart to grow further (and quoting higher valuations).

b. On Adani Green, I completely agree with you. It is a highly risky bet i am taking, this is the kind of business one needs to track every quarter, and the moment you think your thesis are not playing out, that’s the moment you get out of the scrip, but i am betting on Adani Green because i believe in renewable energy theme.

For Adani Green the numbers don’t match but for D-mart the numbers do match (again you are completely free to disagree on this).

Thanks!!

harshal_7 · October 16, 2022, 8:37am

No, definitely not a FOMO. I am not the kind of investor falling to a FOMO. If i believe in the business and it’s future growth prospects, and have properly studied the historical performance of the company, i would consider investing in the company. For detailed explanation you can refer to my previous comment.

You can refer to my previous comment to understand my investment thesis in D-mart and other high valued scrips, but to summarize i look at the following things before investing in high valued scrips

The historical performance of the business - The business should show a consistent growth in topline and bottomline.
The business should have a good cashflow.
The business should have some kind of MOAT as compared to it’s peers.
The future growth prospects should be high.
Along with PE, another metric which is consider is PEG ratio.
How aggressively the company is expanding.
Company should have low debt, preferably less than 0.1.
Good management and what their vision is towards the company’s future growth (it is a must, can’t stress enough how important this factor is).
Consistent increase in the OPM. The OPM should remain consistent or should atleast grow at a decent pace. Continuously decreasing OPM is a big red flag for me.

Now again, please understand that not every company will fulfill all the above criteria’s at once, that’s where your judgement as an investor comes in to decide whether to invest in a particular scrip or not, varies with every individual which is completely okay. What matters is that you should have a SOLID investment thesis and when you see your investment thesis not playing out, you should be wise enough to get out of that scrip.

No offence taken, it’s always good to have a discussion with your peers having different opinion than yours.

Hope i was successful enough to clear your doubts.

Thanks!!

never_overpay · October 20, 2022, 5:20am

Much appreciated. Thank you very much for sharing your thoughts. I did do a back of the napkin valuation for D-mart around COVID but haven’t had the opportunity to do another one after that. I do intend to do one (for contradicting/confirming my own biases), and I’ll share my thoughts once I have it. Let’s see how Iong I take on that. haha.

Anyways, keep sharing, keep learning. Ciao!