I dont track care ratings too closely. Ratings business has moat but moat without growth is useless. Classic example of such situation is Hawkins.
If you want views on Care, there is enough high quality discussion on Care Ratings thread on VP. You can read both side of views and take an informed call.
While looking at small/midcaps I think the first thing to look is opportunity size. There has to be a big opportunity for the company to grow. (It always happens that most small/midcaps get stuck after reaching a particular level of sales/profits. Those that cross the chasm creat big multibaggers.) Next comes management quality and scalability. If the opportunity size is limited, even great management cannot take the business anywhere.
Once the above criteria are fulfilled then comes the deeper dive. That should include company’s history, promter’s history, products, past track record, future prospects, financials including balance sheet, cash flows, capital allocation, and so on and so forth.
Titan is one of the best way to play the consumption theme. It has been a big wealth creator in the past too. But one has to keep an eye on how the company develops businesses other than jewellery. Jewellery itself in India is a big market and there is a perceptible shift towards organised players so the company should not find it difficult to growth. But in an environment like the current one, where there is overall slowdown, guys like titan will also find it difficult to grow as the consumption is discretionary in case of titan.
Britannia as a business remains robust with few players dominating a growing market. But I would not rate the promoters in the same league as Hind Lever or Colgate etc. So one has to apply appropriate discount while evaluating the company. Ness Wadia news is now pretty old news so should not impact much. I have no idea about Varun Berry rumours or the truth about them. I like Britannia as a business but havent taken a deep dive.
Dmart is a fantastic business and has a long runway especially in a country like India where the saturation in the segment it operates in is a long way away. Competition will always be there and keep on coming but the way Dmart has negotiated its way lends a lot of confidence about the management and strength of business model. One needs to take valuations into consideration. Another overhang is the impending stake sale by promoters to bring their holding to SEBI prescribed levels.
Hitesh bhai ,
what’s your view on Jyothy labs from growth perspective and Wonderla holidays ? Thanks in advance
Hitesh bhai, Are u tracking Micro finance sector…? there is visibility of growth in this sector considering indian urabn/rural poor aspirations…
Ujjivan having good promoter background and currently trading at decent valuation due to Holding company overhang…whats ur overview on this…?
And looking into current fall, when can one start buying and which sectors u think can lead next rally…?
Hi Sir,
Please check today’s result of hawkins.I think from last 2 quarters growth seems to be picking up.Your views on the result please.
Thanks,
Deb
@A_shah Not tracking either jyothy or wonderla.
@sanu1802 The NBFCs have lost favour with the markets so its no use trying to be too clever and finding value in the sector. I can see only 2-3 companies which seem to have weathered the storm and markets also seem to have spared them the special punishment meted out to the rest of the companies. Bajaj Finance, MAS Fin etc just to name a few. Ujjivan and Equitas both have the regulatory overhang of having to list the SFB. How they do it needs to be seen.
As of now I dont track the sector too closely barring MAS which comes across as a fantastic company in an otherwise sector which is in pain. Dont own any financials though.
Hawkins has as you say posted decent numbers esp for June qtr. Earlier markets used to give it a long rope and kept hoping for consistent growth. But after a string of lacklustre quarterly numbers, with the odd ocassional good quarter, it seems investors have lost patience with the company and it is being treated and valued as a slow grower.
For significant wealth to be created, it needs to keep posting consistent numbers for a few quarters in a row or else investors may make money if the company is sold off. (as of now the latter option seems far fetched. )
@hitesh2710
Sir your view on recently listed Affle india ?
Roce and roe are very high about 65 nd 50 respectively…
More Microsoft backed company operating in niche segment!
Malabars sumeet nagar invested in pre ipo placement!
Hi Hitesh,
Thank you for your reply.
One thing I found that both cash flow and free cash flow both are negative for the previous financial year.It is quite surprising to see Hawkins having negative cash flow. Have you marked that??
Thanks,
Deb
Sir hats off to your clarity of thought. I remember you had same thoughts the moment the crisis began in NBFC, even before it was evident to us less mortals as a systemic issue! This is beauty of experience. I wish I would have understood this crisis the way you did early and taken actions likewise. Just curious how you managed to gauge the extent of this crisis early on and understood that NBFC will not be a simple bounce back or a 1-2 quarter correction and then sharp bounce back but rather a long painful period? Thanks!
I think anyone who observes markets will realise that once a sector loses market fancy it usually takes a long time to come back.
We have enough examples to validate this point.
e.g Real estate sector took a tumble during 2008-09. Post that most stocks took a beating and it was only during 2017 that some signs of life emerged in the sector. Since then the sector leader godrej properties has had a good run and the smaller efficient guys also had a good run.
Similarly Sun pharma topped out at 1200 plus in April 2015. Lupin topped out at 2100 plus in Oct 2015. One of the market darlings Ajanta pharma topped out at 2100 plus in Oct 2016. Many other companies could have topped out in this time period. Since then the whole sector has underperformed. Still all during this time we have investors thinking about finding value in pharma stocks.
Most recent example is of NBFC which suffered strong headwinds a few quarters back and stocks from the sector have plunged.
In all these examples there will obviously be exceptions as there will be companies whose business model differs slightly from the representative companies of the sector.
e.g in pharma, Divi’s had its share of troubles due to regulatory problems but recovered lost ground quickly because it resolved its dispute quickly. Ipca inspite of usfda issues managed to post decent numbers especially in last few quarters. How torrent pharma has managed to stay up is something that has surprised me. It has a pending OAI (official action initiated) at Dahej plant. It means existing approvals have no problems but company will find it difficult to get new approvals. Still stock price is holding above the level of 1600-1700.
Similarly in the NBFC space, Bajaj finance which is in a different league altogether and which gained because of reduction of competition due to the NBFC fiasco outperformed. MAS Financial which has a different business model has managed to outperform.
Same thing applies across sectors. But the base rate of finding winners in a sector undergoing derating and losing market fancy is very low. So instead of wasting efforts in such sectors, one should look at sectors where there are strong tailwinds and where markets are rewarding such companies by lifting their stock prices. As of now barring FMCG and consumer durables not too many sectors look too strong. Whenever a sector that is going to outperform going forward is going to emerge, there will be definite signals from markets to that effect. Stocks across that segment will start moving higher in tandem and that will be the signal.
The other option is to look at individual company which has a good business model and which keeps posting good consistent numbers and is often misunderstood by markets and hence available at cheaper valuations.
In hawkins, according to data from screener.in, inventories which used to be in range of 60-80 crores in fy 18 and prior years, has gone up above 100 crores in fy 19. Trade receivables which used to be 40-50 crores has gone up to 78 crores in fy 19. Both these things point at deteriorating working capital cycle atleast at a cursory first look.
If I had to infer from these preliminary observations, I think company’s products which earlier had a pull now have to be pushed and hence these numbers.
hitesh bhai is the deteriorating working capital cycle a red flag , how should v read into it.
Sir, lots of cement cos. reported good sat of nos. this quarter…ACC,SAGAR,MANGALAM,DECCAN to name a few…what is happening in this sector?Which cos. will you prefer? Thanks.
Great find @hitesh2710 . Most of the investors who focus only on reported sales/eps growth will always miss this. They will happily celebrate the p&l numbers.
Having said that, I still think Hawkins is one of the cheapest high quality names out there in the market.
Superb practical insight this is . These things can never be found in any book . Thank you so much for sharing these gems ,Hitesh bhai , with us amateur investors 
1 A query I had is , is it correct to think that contrary to popular perception, there are higher chances of success in known stocks as these are well recognized as opposed to stocks that are not yet recognized ( although unrecognized stocks can give multi bagger returns theoretically) as chances of success of small cap/mid cap is very low compared to known quality names as very few become large caps and also difficult to be recognized by market and takes a long time . Many a times out of 10 stocks touted as the next Nestle or next HDFC bank seldom turn out to be so and only 1 in 10 turn out actually to be true whereas in case of known stocks where there is secular growth , chances of growth are high despite being well recognized as base rate is high . Also many a times , management transparency is an issue in some small caps ( though not all) and many a times they promise high performance but than for some or other reason fail to meet targets and have growth lower than recognized quality names . Am I correct in assuming this ? Request your guidance
2 Another query is on "perceived quality premium " . Many stocks continue to have perceived quality premium although they dont have hdfc bank like continuous secular growth and text book execution. However they dont face pe derating . How can one determine whether the " perceived quality premium " is long lasting despite lack of growth as many companies despite not growing for last 3 years to 4 years have actually faced pe expansion. Is perceived quality greater than actual performance and hence should one place an importance on this factor while deciding to invest ? If yes , how to determine if perception is sustainable?
Many thanks
In this regard do you think ITC is a fit ? Growing Fmcg revenues apart from tobacco.
Hi sir, what is the way to findout which stock price are moving higher in tandem???
Hello Sir,
Whats your view on the recently listed affle india.
Lot of big investors present in it. Also the management has guided for 30% + growth in revenue for next 3-5 years. The company is into advertisement on mobile.
Thanks in advance.
Regards,
Jugal
