Hitesh portfolio

Q&A: Questions & Answers Portfolio Q&A
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@Vikky9995

I often have scuttlebutt chats with employees of Schaeffler India and of late there seems to be a lot of confident overtones to the way they communicate about their company. The usual feedback I get is of big order wins, higher margin orders, capex, plants running at good capacities. That does provide good visibility about the business.

In the near term there can be some pressure due to auto sector problems. The other problem could be postponement of capex due to high commodity prices and hence higher cost of capex, and hence companies might prefer to be on a wait and watch mode and take a call at appropriate time.

At a company level Schaeffler has been able to put out very good quarterly numbers in what has been a difficult macro environment.

Besides historically these top notch bearings companies have always enjoyed healthy valuations.

I had sold off my holdings as the technical targets at 9000 (1800 post split) were achieved and too much upside based on fundamentals and valuations also looked difficult. But it remains on my watchlist for any possible re entry.

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@Mandar_Chatufale

I do not follow the companies listed too closely but have seen a lot of them being part of portfolios and giving good solid returns.

So as a theme, one can consider a portfolio of high quality stocks where “difficult to dislodge” theory applies. These companies should be in such a dominant place that competition finds it difficult to displace them. In those kind of companies even if results are a miss for a quarter or two, these companies make up lost ground quickly and hence over longer periods of time say 3-5-10 years, these quarterly blips are easily covered in the overall picture.

Only thing to look out for is to keep a tab on the competetive positioning of the company in question. Say in case of Asian Paints, two big groups namely JSW and Grasim are in the fray to enter the segment. How Asian Paints deals with competition needs to be seen.

The other thing is to avoid cyclicals in these kind of long term portfolios. So companies which deal with chemicals, autos etc should be avoided or should be considered only after a lot of due diligence.

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6242

Hello Hitesh sir,

If we look from a 5+ year investment horizon, for a fundamentally sound company, can one start to accumulate once the stock goes below 200 dema and continue the SIP.

Thanks.

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6243

Dear @hitesh2710 sir,

Just saw an article in livemint that govt may increase capital gains tax in next budget to fund spending on welfare schemes. When they made 10% LTCG tax there was a market crash. What will be the effect if the govt increases capital gains?

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@Sudhakar_Subramanian

Try to avoid getting distracted by news/rumours which might or might not be fake.

One thing I have noticed is that these negative news/rumours pop up when markets are going down. And after a sufficient time, there are denials/refutals of these negative news.

One thing you need in the markets is balance and the ability not to get swayed by the constant newsflows, especially in this day and age of social media.

@Gaurav_Bhandari

I am not too much of a SIP guy, but I guess the best way for them is to be consistent in their approach rather than try to be too clever and cute.

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6246

Hello @hitesh2710 sir ,

Do you track “TITAN BIOTECH” ?. If yes then please share your views as fundamentals are very strong for this company.

Thanks !!

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6247

Hello @hitesh2710 Hitesh sir, need your help. Are you tracking packaging industry?

I have cosmo films in my portfolio.its a packaging company mostly BOPP. It was a pure cyclical company were margins were very volatile hence use to trade at very low pe multiple. However the company has Been de comoditizing there business and now almost 60% of there volumes are raw material linked contract were margins are better and sustainable (management claims). Company is also entering into textile chemicals, adhesives and masterbatches (started manufacturing textile chemicals and masterbatches) were margins are high and company is trageting 10% contribution from chemicals and 10% from masterbatches in next 3 years.

I bought the company at 200 when PE was 4 and now share price trading at around 1700 with 8 pe.

I am not able to figure out wather to still hold or sell. Because it is almost 50% of my portfolio and so any major fall in the stock can bring my overall portfolio value down significantly. The reason I am still holding on is because I still feel the stock should comand high PE.

Can you please share your views if possible?

Thank you

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@Mohsinkachwala

Cosmo films appears to be a well run company. It’s predominant product is bopp films. Management claims that 60-65,% of this bopp revenue is speciality films revenue.

Now these days I find this speciality word being used and misused by a lot of managements very loosely. The real test of a speciality product is when margins are protected during a strong downturn and that’s when men are seperated from the boys. It’s okay for most companies to suffer margin pressure for a quarter or two, but beyond that if the co is really a speciality co, it will be able to pass input costs to customers.

I will take these speciality tag with a pinch of salt. As of now, Cosmo is a well run company enjoying strong tailwinds. Looking at strength in bopp spreads even now, all these polyfilm guys are going to report good q4 and even q1 fy 23 numbers. Beyond that we will have to see.

Other products of Cosmo like textile chemical, pet foods are optionalities, which may or may not play out.

While investing in these cyclical companies, we should not lose sight of the fact that these should not be confused with structural growth stories.

@Mayank14 Few posts back only there was a wonderful suggestion to avoid answering one or two liner questions about companies. If you have any idea about Titan bio, you can put up relevant details here or preferably in the thread on the company. I have no idea about it.

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6249

Hi Sir,
What is your view on Natco Pharma? Do you think market has priced in the upside with respect to revlimid as it didn’t had any impact on the stock. Or street is pricing in the write off which going to take place in the coming quarter

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@hitesh2710 What are your views on Jindal Poly Films’ stake sale to Brookfield Asset Management?

Highlights from the above story

  • Brookfield will make an investment of Rs 2,000 crore in Jindal Poly Films.

  • The structured equity investment in JPFL consists of compulsory convertible preference shares and equity shares of the new subsidiary, giving Brookfield a 25 per cent stake and downside protection through a ratcheted equity structure tied to financial performance.

On the face of it, a 25% stake in JPFL is being valued at 2000 Crs, which means the full company is being valued at 8000 Crs compared to JPFL’s current market capitalization of 5243 Crs. Yet the stock fell after this news today.

Any ideas what am I missing here?

6251

Hello Sir,

I hope you are doing well and a Big thank you for all the great work you do to help this community.

I also have some questions that I need help with and would love to know your thoughts and guidance on these.

  1. Do you have any thoughts on the business of Neuland, Strides, Jubilant Pharmanova and how I can do a SIP to bring my average cost down for these stocks considering I initially bought without margin of safety in some of these (down ~30% - 40%).

Best,
Rahul

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Hitesh sir, with the recent price hikes in steel prices due to coal cost, don’t you think steel companies are able to dictate the prices now and what stopping them from getting cement companies kind of valuations?

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@jagdishwadhwa

The news today of Jindal poly partial stake sale brings to the fore an interesting observation, which is of utmost importance to a lot of retail investors wanting to play these kind of news stories.

Markets follow “BUY ON RUMOURS SELL ON NEWS” strategy, many a times. And we have to align our strategy with this type of strategy not be caught on the wrong foot.

I remember my earlier days when I used to buy companies when they reported stupendous results and the stock prices were down. In many cases I made money but usually in the short run I was always disheartened to see the stock price going down for many days before recovering.

Now I usually don’t jump the bandwagon on any sudden newsflow or results unless I am very very sure of the impact. That has saved me from a lot of uncomfortable situations.

Coming specifically to Jindal Poly, we have to first understand the management antics and how they are going to benefit us as retail investors. First of all we need to know the management’s willingness to share the earnings with retail investors. A quick look at the dividend payout ratio tells us that the management is not bothered about paying decent amount of dividend. Div payout ratio in last 2-3 years has been a princely :pensive: 1%. Compare this to the div payout ratio of cosmo films which is around 20% and polyplex which is hefty 50-100% (including dividends and buybacks).

So a stake sale in such a company is highly unlikely to benefit the retail investor. It will depend on how the deal is structured and what kind of guarantees Brookfield guys have got from management. Whenever management goes creative in “carving out” subsidiary to house the main business of the company and then sell stake in that subsidiary to a PE guy or big investor, it smacks of something fishy. (Its important to know history of such instances too. In the past Riddhi Siddhi gluco biols did a similar thing where they carved out a subsidiary to a foreign major and the retail investors were left in the lurch inspite of the deal being very lucrative. Guess where the money goes. :grinning: )

In my view these kind of deals reflect poorly even on the guys taking the stake. Mainly because they dont want to go to the hassle of a potential open offer and hence they too are in a way complicit with the management in their antics. In my view, real honest guys taking stake will also make sure about the rights of minority shareholders.

In what was a very significant stock action today, Polyplex (where also similar stake sale or total sale rumours/news have been floating around since past few months) stock price went up 5-6% whereas Jindal poly ended 5% lower. That tells us about how markets view the two companies. You can compare the valuations also. I think polyplex is quoting at twice the valuations of JP.

And analysing the price action of JP today itself makes for an interesting learning. News came in later “after market”. Stock price opened gap up at 1340 ( so no one got a chance to load up early in morning) then as stock price went up, maybe retail guys bought on the way up thinking about the lucrative calculations of a potential market cap of 8000 cr according to deal valuations, stock price went up to a high of 1449 and then went down consistently to go and close down by nearly 5%. This tells me that smart guys who probably guessed this kind of development (or maybe bought due to strong polyfilm cycle) had already loaded up the stock in last few days and on the day of positive newsflow unloaded all their holdings on to unsuspecting retail folks.

The main carry home message from this longish post is to avoid trying to get quick bucks as retail investors based on news/rumours because there are a lot of smart folks out there who can take you for a ride.

@Rudresh I dont track natco.
@rahulbhardwaj19 I dont track Neuland, strides or jubilant pharm, fundamentally. I look at charts of strides and neuland off and on only out of academic interest. I think the API/bulk drug story was over many months back and it might take a while to make a comeback. There can be a few outliers in this segment too, but the easy money is already made and one needs to look at the sectors where market fancy is or try to find out where it is developing.

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Hi Hithesh bhai,

Just curious to understand Zudus Lifesciences chart (erstwhile Cadila). The sales and operating profits in the year 2015 was 8651 cr and 1756cr, which has gone upto15102 cr and 3344 cr in the year 2021. i.e. a good 100% increase in 5 years. The cash flows also have increased by a good proportion, debt in last 3 years have reduced and gross asset block has increased.

But the stock has barely moved in 5 years. How do you read this when other pharma stocks have done decent. If one goes by the numbers alone, the stock has done good over 5 years.

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@ram1984

In the case of zydus lifesciences, you need to look at the chart section of screener for the company and you will get an idea what happens when a company (many a times as a part of a sector) goes out of favour with the market. There is often serious de rating, which leads to a slide in stock price.

And we cannot select a period of comparision for our convenience. Take the period from 2018 to 2021. Operating profit has been stuck in a range of 2800 to 3300 crores, which for a leading pharma company is not much growth.

This again re iterates the theory of not chasing sectors that are out of favour with the market. Even FY 22 numbers will be bumped up due to an extraordinary income of 2400 cr in Sep quarter.

When markets pay valuations of 30-40-50 PE for a company, the first thing expected is consistency and predictability. A blip for a quarter or two is forgiven but consistent failures are punished.

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Thanks Hitesh sir… I have stayed invested in Jindal Poly Films for a couple of months now but hadn’t foreseen this one coming at me.

This idea of connecting the dividend payout ratio to the current situation is a class apart.

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6258

Hitesh Bhai

How do you pick stocks in a roaring bull market when the indices itself are at lifetime highs. During this stage almost all sectors do well and those stocks which get lower PEs may actually deserve it. The chances of finding a good secular growth story at decent valuation seems to be 1-2 out of 10.

In such case, do you hunt for value in out of favour sector like in recent bull run NBFC/Banks did not participate and therefore, look for value there, anticipating a sector comeback, or take chances riding the momentum ?

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@ram1984

Picking stocks in a roaring bull markets is a problem of plenty. Its often difficult to narrow down to a few stocks in case you are a concentrated investor.

How to pick stocks usually depends upon individual investment style. There are different ways to bell a cat and we have to figure out what suits us.

I have been most comfortable following momentum investing. I find the combination of good chart structure in companies with strong tailwinds to be the most rewarding and as long as that style works, I am okay following it.

One thing I learned in recent past is not to venture too much into a style not suited to my temperament. I had a brief flirtation with buying deeply undervalued PSU and private banks as a basket, but in the market turmoil I was stopped out and I found that trying to find value stocks and sitting on such stocks till markets give them appropriate valuations is not my style. So its back to breakouts and momentum in good companies with strong tailwinds.

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Dear hitesh, I would like to know your views on chambal fertilizers. The urea had more than doubled in the last 6 months . They had shown good results for the last 2 years and earning positive cash flows from ops ( a rare feat in this industry) . While price had gone up, the pe is still at 10 and hence has scope for further increase in price.