Ishaan's Longterm Portfolio

[ishu]

With the markets going down for the last 2 weeks, I on the other hand have had 2 peaceful weeks to myself. Focused on increasing my knowledge on Investing and my health. I think this break was really necessary to reset my brain, which has been following stock prices for a long time. Sometimes even a 20rs fall would upset me, but today my whole portfolio is down 12% but I am completely okay. I do not vex over such trivial things. But now that my break is over, I have tried to analyze some good opportunities in the market.

1. Buy the NAVI NIFTY ETF. The market is trading below its long term avg of 19.5 and any price below this number is a good time to buy. Many stocks if you notice have gone back to its pre-covid levels, which means, these companies haven’t grown in the last 2 years, which is insane. Nifty EPS has grown considerably above FY20 levels and these prices reek of undervaluation. So buying the whole index can be a less risky way of benefitting from this opportunity.

This is the chart of KEI Industries. In their interviews they have mentioned that they revise their prices according to raw material prices very frequently and have better pricing power. This is a very important advantage, given that Inflation is soaring. KEI is down only 14%, outperforming its benchmark index by a huge margin. The valuations are also reasonable and if the Q2 results are good, we can see the PE value going further down making it a great investment opportunity.

Sbi Cards has seen quite the beating this year but I don’t know why this is happening. If we just go out on weekends and observe the long ques and malls filled with shopoholics and increasing expenditure on leisure and entertainment, you will rush to buy this stock. With valuations at 41PE and EV/EBITDA below 25, this stock with 23% ROE and 26% Sales growth provides a great investment opportunity. It does have a news overhang over UPI but there is still no clearance about this. They will find a way around it.

This is a bit of a contrarian view but I don’t know why this stock is falling. Everyday I see college students, normal people in trains trading everyday in options. People asking me for stock tips every other day. This is just to show that people are still interesting in the markets and this is the younger generation entering now. Apart from this, the overall view is that if market does better, companies like Angel Broking do well, so if your longterm view of the market is positive, one should also be optimistic about Angel One. Yes, the markets are going down and we can see trading volumes also going down but if you believe in 5yrs market will be much higher than where we are today, you should not hesitate to hold this stock.

Personally I have bought KEI and Banks a little bit and some REITs. Brookfield and Embassy REIT are good ones. They give 20rs in dividend and have given capital appreciation as well. With real estate boom in India, I feel there is a very good opportunity in commercial spaces as well.

These are my views not an investment advice. I welcome positive views and helpful debate but not unnecessary criticism.

[ishu]

Nothing much to brag about but I am happy my investment thesis proved to be right. Probably a month ago, I posted my analysis about Mahindra and Mahindra stock. Markets were at 16500 then and today it is 1k points down but the M&M stock is trading at all time high. This scenario indicates 2 important factors for making money in the market going forward-

1. Relative Strength Index- When markets are in turmoil, we must try to find stocks where the turmoil has caused the least damage or no damage. Today the 2 stocks in my portfolio which did not suffer from the macroeconomic situation are M&M and Kei Industry. Both the stocks are in positive territory while their respective benchmarks have given negative returns. This indicates that going forward, any upmove will benefit these stocks more than the over all index. No certainty but a high probability. Keep finding stocks which defy the overall market and make money.

2. Time of Investing- I do not believe in buying a good stock at any price. There is a certain headroom required for making a substantial return in any stock. I made this mistake with Angel One, HDFC Life and SBI Cards. I couldn’t muster the patience and knowledge to wait and find an opportune moment. But with M&M I was very cautious. I made my initial investment at 930 odd levels and didn’t buy a single share until it came to retest it’s Multi year breakout level of 1000. Once it broke I got a momentum buy. This trade outperformed the whole market.

I know no one can predict the market and prices and that if the prices were vice-versa, I wouldn’t be posting this. But it is good to appreciate if someone carefully and conservatively analyses and it turns out to be right decision.

Any more learnings one should consider for making money in such markets, pls mention them in the comments. Unnecessary criticism is not appreciated.

[ishu]

Got some time to read the concall transcript of Bharti Airtel and it gave me a whole new perspective about the company. I first thought that this company will only benefit from the increase in the number of 4G users and the data services to consumers but their bigger and much faster growing segments of broadband and cloud services and B2B business just blew my mind. There are a few positives that I would like to mention here and I am a bit tempted to increase my exposure to this company.

1] BROADBAND, CLOUD SERVICES, CPaaS, B2B BUSINESS, ETC

The company is very focused on increasing the returns from these segments of the business. They have been allocating a higher proportion of their Capital towards these high growth segments. This also kind of makes sense. If we see, there is limit on how much they can increase the prepaid plan tariffs and also the extent to which consumers will consume mobile data services. Personally I have a prepaid 1.5gb daily plan and I hardly use any of it the whole day. I stream music, videos on YouTube and even watch CNBC for 2hrs but I underutilize my plan every day. But when I home on my laptop my data consumption skyrockets to 5gb daily average data usage. So I don’t mind spending 15k a year for a 100mbps plan because that really helps me stream on multiple devices, use smart devices and have a complete home ecosystem of devices which require continuous data connectivity. Hence going forward it will be crucial for Airtel to increase their revenue and revenue share from these segments.

2] DEBT REDUCTION, AGR DUES AND 5G AUCTION
They mentioned in their concall that they have pre paid the 24000cr to DOT partly with cash on Balance Sheet, Cash Flows and from Equity raising and debt. We just saw 2 months of tariff hikes and we still don’t know to what extent hikes will affect the total earnings of the company but just from the last quarter if we take a 5% growth Q-O-Q we can see PAT for FY23 at roughly 9000cr. If this holds true we can see some great PE revaluation. Also an EBITDA of more than 50000cr and growing will cover the Interest Cost of 16000cr. Any increase in EBITDA which is highly likely to happen, we can see the CAPEX needs and Interest Cost being totally financed by the EBITDA. An article in Mint said that EBITDA in next few years will cover a considerable amount of debt and interest.

3] MORE HIGH FEATURE 4G AND 5G PHONES
Due to some chip shortage issues the conversion of 2G to 4G has taken a short term blip but nothing to worry about. With the kind of data consumption people have been used to for last 2 years, we can see a gradual growth in the 4G numbers henceforth. 5G growth won’t be substantial for the next 5 years since there is no ground breaking usecase of 5G as of now. This technology is in development phase and might take some time to evolve and thus turn out to be the next growth engine. Hence the management has decided to take a cautious approach to 5G roll out which if we see, would be considered negative from a growth point of view but accidents are less deadly when the speed is manageable. I am really impressed with the clarity of the management.

Coming the valuing the company, I use EV/EBITDA model since I find it easy to calculate and a bit reliable than PE. Here are my figures-

EQUITY VALUE	381551
ADD:
1) Total Debt	170000
2) Preferred Stock	63750
3) Operating Lease Liability	29056
4)Finance Lease Liabilites	7707
5)Non-controlling Interest	25381
LESS:
1) Cash and Equivalents	13500
2)Financial Investments	861
3)Equity Investments	60
4)Other Non-core Assets	20000
5)Net Operating Losses	-
Enterprise Value	643024

EBITDA for FY22 was 57000cr. Considering the 5yr avg EV/EBITDA of 10, we can see this company currently valued at 11 a bit overvalued. But pricing in a 15% jump in EBITDA owing to tariff hikes, also 5000cr for 5G airways, we can see EBITDA at 65000cr and EV of 6.5 lakh crore. Hence we can say that this company is either fairly valued with slight hint of undervaluation. Any surprise in earnings will be beneficial.

Values might differ so Please excuse if I have some wrong data. Also I would appreciate honest reviews over unnecessary criticism.

[Matt1985]

Hi Ishaan - Just wondering, how to track stocks with good relative strength index. If your time permits, i would appreciate if you could write more about relative strength and what values to follow? Also a screener or tracker or chartink link with your criteria (if that is not too much to ask for) would be hugely appreciated. Thanks in advance.

[ishu]

So Relative Strength is a mixture of technical analysis, news flow and Fundamental research. This concept helps to find stocks or any sector which outperforms the benchmark index in an event of turmoil. Take for example, Nifty is down 16% odd pc. down from all time high and Midcap index is even lower, more than 20% if I am not wrong, in such cases we find stocks which have not cracked at all, have risen in the mean time or have gone down marginally. Each scenario shows strength. Strength meaning, these are the stocks or sector where investors feel confident from a medium term perspective, say 6 to 9 months. There are 3 simple steps to find such opportunities-

1] Fundamentals

First you should look at the fundamentals of the business. Personally I find ROCE of >= 20%, Sales/ Revenue growth and Profit Growth <=15% and Market Cap of 20000cr. These are volatile stocks and hence can give great alpha. Now, one may ask why Fundamentals are important for a concept which is works only for 6 to 8 months? Well we are talking about strength and only fundamentally healthy companies can show sustainable strength. Now you can make your own parameters for Fundamental analysis but the theory remains the same in all scenarios.

2] News Flow

There should be some positive news for a stock or a sector to show outperformance. Recently, Auto sector and Telecom sector have been the talk of the day. A lot of positive news has been coming in over the weeks and if you see, Stocks of these specific sectors have given <= returns as compared to its benchmark index. Take Bharti Airtel, M&M, Maruti, etc, each and every stock has showed strength, some even gave more than 25% returns, when the whole market is down in the dumps. Adding such stocks or sectors in your portfolio for short period of time can help you minimize the downfall in your portfolio and since these companies are available at reasonable valuations, they can offer a long term alpha and returns over the avg market returns.

3] Technical Analysis

Now this has to do solely with charts and patterns. On a chart we might see a stock trading at all time highs and we conclude this is showing strength in an otherwise negative market, but it might not be the strength we are looking for. We are not looking for resilience, we are looking at brutal strength which is breaking the resistance and ATHs with force. For example M&M broke 960 levels which was the ATH for many years. Once it broke it didn’t stop. No matter where the market went, it crossed 1000 then 1050 then 1100, making a new ATH of 1120. Now this stock is fundamentally sound. You can read my previous posts if you like, it has a positive news flow from Auto Sector growth, new successful launches and also technically it broke a major level. So I took a position in this stock and that has helped me manage the downside in my portfolio.

This is an example to help you understand the concept and not a reminder of how smart I am but I hope it helped.

And thanks for commenting.

[ishu]

This is not related to my portfolio but the news articles that I have been reading and the macroeconomic situations are so dynamic and volatile that I cannot help but get excited and write a short note here. There are 2 news pieces that really got me excited this week. I will list them down chronologically-

1] Bank Loan Growth

In mint newspaper today, there was a short article about the kind of robust loan growth witnessed by HDFC bank last quarter. A stellar 21% growth in loan book from 11.47 lakh crore to 13…95 lakh crore. The deposits also grew to 16.05 lakh crore. Why is this exciting? Well Interest rate hikes generally bring down demand for loans and leisure spending but the data is showing a very different picture. Loan Growth seems to be picking up, which proves that interest rate hikes may not necessarily mean slumping demand. Inflation pressure might go down but the consumption won’t. The kind of move SBI Cards gave today, was an evidence of the same. If HDFC Bank numbers are this good, one can only expect similar growth from its peers.

2] CRUDE OIL

As I type this post, Crude Oil fell below 100$ p.b. Nothing more positive for India than a crashing crude oil prices. And its not just a correction, on technical basis as well, The breaking of 100$ p.b can take it down 65$ by next quarter end which is really positive for India. But why is that? This is a huge positive because, India as a consumer market is cutoff from the whole world. Most developed economies have not seen inflation for decades and it is their first time handling this crisis. India has been going through such situations for years, hence we as Indians are quite used to high Inflation and we also have the belief that it will normalize soon because it always has, and I have no doubt it will be the case this time.
It is not only good for Cement, Auto and Construction sector, but also for FMCG, FMEG, Metal and all other indirectly affected sectors, since fuel costs might go down very fast.

3] Recession in US Economy?

Personally I am hoping for a Recession in the US. I am not evil or a bad person but just a logical investor. For eg, if you drive your car at hyper growth speed and it starts to heat up and might catch fire and blow up, you have to hit the breaks as hard as possible. In this case, you might feel jerks while slowing down or also get injured if the car comes to a sudden halt, but it is good thing, because in the long term it will keep the car going. Similarly, US needs to suck all the liquidity and slow down its economy for the greater good. And now comes the evil part. Whenever US is in Recession, India has done well for that period. That is because US plays a pivotal role in managing the Crude Prices, which are major cause of concern for energy import dependent economy like India. Whenever energy cost go down, Indian firms are able to maintain their profit margins, since consumers might marginally reduce consumption for certain period but we eventually start spending. Not only do these companies benefit, but it becomes easier for general population ot travel, buy a new vehicle since energy costs go down. It is like a domino effect. The lower the prices of crude, the better Indian economy performs as compared to it’s global peers.

I may be wrong about some things but the gist of this post is, India as an Economy is very much independent of macroeconomic factors because of it’s population. We are built different. We think differently because we have faced this situations before. If crude oil sustains below 100$ or goes lower, we might see markets bottoming out or even go higher, if FIIs find us attractive and start investing for once. Some stocks that I am positive about-

1] KEI INDUSTRIES
2] SBI CARDS
3] PRIVATE BANKS
4] M&M & TATA MOTORS
5] ANGEL ONE
6] CEMENT AND FMCG COMPANIES

I would love to read your opinions also.

[hitesh2710]

Good to see a young man getting interested in investing at an early age. But I feel besides this field the focus has to be on pursuing a career and trying to make the initial capital, so that it can be compounded at a healthy rate.

Try to know yourself as an investor. That will be obvious after some time and after reading and learning a lot of stuff, to find out which kind of style suits you.

Another thing is I think with the kind of knowledge you have displayed in your posts, you should be focussing on finding multibaggers and latch on to them rather than investing in large caps and expecting tepid returns. At least my journey started with a lot of unloved and un researched companies aided with tons of luck and that started me off with my initial capital burst And besides this my regular govt job which provided regular cash flows so that I did not have to worry about day to day expenses.

[Gautam_Chopra]

Nice pf and thnx for the regular updates. I was looking for some broker report like iffl wealth etc to read reg : REITs. Brookfield and Embassy REIT
Can you share if possible

[ishu]

Yeah so first you need to understand the motive of investing in REITs. One might want to invest in the Commercial Real Estate Market or may want some sort of stability in their portfolio with some extra rental income. If your reason is one of the above, you can invest in REITs. They don’t give multibagger returns but give steady flow of income for an otherwise stressed or volatile portfolio.

For reports I am not sure where you can find them but maybe you can check it on Trendlyn.com. If you don’t find it there, I am attaching few articles that I read in Mint Newspaper. Hope that helps.

[ishu]

I agree with every point you mentioned. I am must be focus on building my initial capital and trust me I am working really hard on it. For eg. I get 100rs a week for travelling, since my classes are in Dadar, it takes a lot of time to get there. So instead of taking a taxi, I switch 2 trains and walk for 1.5km daily, just so I can make a 400rs SIP in my Midcap and Smallcap Mutual Funds. This is a very small effort but it does make a difference. Also I postpone all my purchases to the end of the month. That way I get a lot of time to think about the purchase. I get 2k as pocket money and at the end of the month I make sure my expenses do not exceed 600rs. As a result I get a lot of headroom for investing in SIPs and such. Also I do this because I understand that blowing my pocket money on things which can be consumed within a week or so, I can invest it for long term.

And about the investing in small caps rather than midcaps, I am still very inexperienced when it comes to finding good picks and to be honest I am a very risk averse person, hence I take a lot of time to decide whether a smallcap or midcap company is worth investing but if I am positive about such small companies, like KEI IND, ANGEL, VGUARD, BHARTI, OLECTRA and TATA POWER, I am really bullish about these companies. Except for Bharti Airtel all are either Small Cap or Midcap Companies with strong growth potential.

Majority of the stocks in my portfolio as you can see, come from the largecap category because for the last few months, I was more comfortable buying largecaps since they were cracking less than the over all market. I plan on exiting most of the largecaps eventually when macroeconomic situations get a little better.

Please let me know if my thought process in on the right track or not. I would really appreciate your views.

[hitesh2710]

@ishu

Investing is a long test match like game. So idea should be not to be in too much of a hurry to do things. BE YOUR AGE. Enjoy life a teenager and a young guy enjoys at 19. This is an age that will not come again. Learning and earning is a lifelong process and never ends. Take your time to learn and earn. There will be lucky breaks along the way, and idea should be to make the most of them. Wait for a fat pitch opportunity which markets throw at you from time to time and at that time, dont hold back… Throw the kitchen sink at it and try to make the most of it but in a balanced way.

Do not deny yourself the small joys of life just for the sake of saving a few rupees and investing it. Always have your sights fixed on monetary goals and try to work towards them, but not by being stingy. Once you finish your basic education and get a job or start a business, cash flows will be enough to invest wisely, unless you develop expensive tastes.

If you are aiming to be financially free, try to set goals in terms of doing so at the age of say 40-50 or later on. Meanwhile if you enjoy what you do to earn besides investing, then continue to do so. After a few years of proper learning, incremental learning comes at a slow pace and often involves keen observations of how markets work and how companies perform and how markets reward them. These kind of incremental learnings do not occupy all your time and often investment is a lonely pursuit. There should be time to enjoy things to do in your life.

The big risk I see in starting learning and earning at a very young age is getting caught in the trappings of money and fame. Once that starts, the slide is dangerous. So idea should be always to maintain balance in whatever you do.

[manhar]

@hitesh2710
Hi sir I feel you have a major role in the participation of many people in this forum. Most of your reply are on point and makes lot of sense. But sir with due respect I have a different view/opinion on the post written above.
I have also started early and I am full time into stock market form the age of 16. I did open schooling after 10th and plan to do everything online from here after. I have a clear plan to build a continuous cash flow for me.

1. You have said that this is the age to enjoy. Sir what if I find enjoinment in analyzing new companies instead of handing out with my friends?

2. I see life in 3 different phase. I feel if you start working in phase1 (teenager) I can enjoy phase 2 & 3. Most of the people work hard in phase 2 to plan a good retirement which is phase 3. So sir I feel starting early has its on pros and cons.

3. Sir I feel by denying the small joys for the sake of each rupee teaches the value of money. You need to respect money and most of the people learn this when they are in their 30s if I can learn early it is going to be very beneficial. Many friends of mine who get fat pocket money don’t even know how hard it is to earn even 1 RUPEE.

4. Sir I think todays “world is fastest finger first” aiming to be financial free by 40-50 is good but If I want to reach financial freedom a bit early I have to start working today.

5.Sir starting early has a big advantage because we do lot of mistake and this helps to learn from our mistakes. The mistakes which I would make at a later stage and learn later in my life are being done now.

Sir everyone has different perspective in life these perspective helps us in taking decision in our life and I feel we are a net total of the number of right decisions we make in our life.

Thankyou

[hitesh2710]

Good to know about your progress. And congratulations to you. But you come across as an exception to the vast majority of people of teenage group who want to have a carefree good time when they are not burdened with financial and social responsibilities.

The other aspect to this whole post is that at the age I mentioned, you make good friends ( if you know how to select good friends) and this is a joy which compounds over a life time. There is no more thing valuable than this. If you are lucky enough to find a good girlfriend who becomes wife, then its the biggest multibagger of your life.

Just to give an example of what I mean … Three of my MBBS friends purchased a farmhouse back in 2013 in partnership. That place is now having plenty of mango trees, guava, jamun, chiku, mulberry etc, you name it. We cultivate vegetables there. Every Sunday we try to go there for tea-breakfast with a bunch of friends. Till date we have not made money from it and nor do we intend to. Its purpose is for something higher than money. I personally consider it my biggest multibagger idea, simply because it is my recharge station. There is joy aplenty for me and guys who come there. One cannot put a price to it. Similarly some friendships, memories etc have no price tags. So it makes sense to enjoy life when possible rather than only keep thinking about money. Money is a source of happiness, but after a point we have to figure out what is enough. And whether we are sacrificing things we need to enjoy for the sake of making money only. If you enjoy the process, I am all for it. But after a certain period of learning as I mentioned, additional learning is slow to come through. So there will be plenty of time left over to enjoy.

The main risk of doing things very early on in life is the risk of burning yourself out. I have seen a lot of people in IT field, even in my medical field, plodding on without really enjoying their work which they used to enjoy at the beginning of their career. And gyartions in stock markets take a heavy toll in your psyche if you are not able to maintain balance. Imagine your life with all the money in the world, but no near or dear ones with whom you want to enjoy it.

I started serious investing at the age of 42 and was lucky enough to be nearly free from financial worries by 50. So if you have pots of luck on your side, and reasonable skill, you only need a couple of bull cycles to make good money. The main point is at the starting point you need a decent chunk of money and for that you have to slog hard for a few years in a job/occupation that provides decent cash flows.

I appreciate your point of view about starting early. WB started at the age of 9. But he was an exception and not the rule. Life philosophy is a very subjective thing. Of how you want to go about your life and how it shapes up. Different brains, different perspectives.

[manhar]

@hitesh2710
Sir thankyou very much for replying. Your reply and like acts as a booster to me to work harder. Sir life is a topic which is very much debitable and everybody has a different point of view here. I know i am being a fool debating with sombody with 100 times more wisdom than me but cant help it.

Sir I dont come as an exception. I do enjoy doing things what all teenagers do but that is the cost i am paying to be financially free in my 30s or 40s. Paying cost doest mean i will be financially free but it just increases the probability.

Sir i feel only 5% or 10% of friends which i will make now or in 2 to 3 years will be good ones because you make life long friends when you gain maturity and when you take most of the decision in your life. So sir again those good friends which i am missing now is the cost i am paying. Just to give an situation how many school girlfriend become your wife or school friend become lifelong friends very few.

Sir continuing your example you are enjoiying your sundays because you are financially free. People who are not are posting CVs on naukri.com on sundays. My point here is money is not everything but it is the bridge which connects 2 places. God has gifted me 2 multibaggers even before comming to this world so if i dont find new i am going to be happy with already whome i have.

Sir there is always a drive inside a human being the day that dies you become a machine. It is easy for me to say but i dont feel i am going to burn myself. Just to give example i do sometimes feel low in life but then you replying me just gives me a booster for a month. I just want such thing to be at a regular interval in my life to keep me active.

Sir nature is very beautiful some things are to be learnt with time. I hope i gain atleas 10% of your maturity/understanding in my life. I feel i need not worry about creating a decent chunk of money as of now ( I do have a plan as mentioned in my previous post but dont know weather it will work) what is in my hand is gaining knowledge which i will rest i will figure it out in the course of my life. Sir for me life is like a river it does not know which path to take but it figures it out at every moment and keeps moving ahead. I am sure i will also figure it out.

At last I feel either i enjoy now work hard later or work now and enjoy later. I am young and at my peak efficienct so i choose to work now and enjoy later.

Thankyou very much for taking time and replying me.

[Investor_No_1]

@hitesh2710

I started serious investing at the age of 42 and was lucky enough to be nearly free from financial worries by 50.

Hiteshji, first of all thanks for sharing your wisdom on diverse topic with young and not so young folks alike

I think one of essence of your thoughts was that “Passion should not become an Obsession” (irrespective of age) and chances of the pursuit going in a burnout direction is more when we are less mature. Moreover as you rightly said that investing can become a lonely pursuit and hence even more necessary to have a healthy & balanced pursuit!

I am amazed how you achieved financial independence in just 8 years of investing journey - A lot to ponder upon and learn. I think you can really write a book on it as no one else must have written on such an achievement yet!

Just wanted to know from strategy perspective - once you attained financial freedom at age 50, did you lock the profits in safe instruments as risk management or ploughed all back again in equity now? In short, How do you protect what you achieved and manage overall risk to maintain the financial freedom. Thanks!

[ishu]

Some interesting news came in related to few of the companies I have invested in. They are quite significant and I think will be a major factor of rerating in these stocks.

1] MAHINDRA AND MAHINDRA LTD

Recently they announced they new subsidiary wholly for the purpose of its EV business. This includes digital platform for EV sales, patents and licensing SUV models owned by M&M as the parent company. This is a good move by the company, because in M&Ms case, their 2 segments of ICE and EV are in a growth phase, ofc their EVs are not yet in the market but it will be a growth engine in next few months. M&Ms market share has been gaining steadily against its competitors, given their dominance in SUV segment which.

They also announced their first born EV, XUV 400 which will be unveiled in September. Giving their existing order flow for their new launches, 6.7k for XUV 300, 9.8K for XUV 700, 5.3K for Thar and 8.2k for Bolero. Numbers for Scorpio have still not come but I believe they will be like all their launches. The main positive is that EV buyers do not many options. A new alternative to Nexon and MG will be very popular.

2] TATA POWER

Tata Power last week announced they are building a 4GW manufacturing unit in Tamil Nadu for solar modules and something else which I cannot remember for now. This will help them manufacture their own modules for their EPC projects and reduce their dependence on the manufacturers in China which are known for using malpractices in Indian markets. Also this project, if I am right, most probably won’t be funded by debt but by their recent stake sale of 4000cr. The required investment is 3000cr, hence it won’t affect the debt to equity which according to me is the only negative for this company going forward.

3] OLECTRA GREENTECH

The recent allotment of an order for 2100 buses was challenged by Tata Motors and they have won the case. The bidding process will start again. This order was the main reason for my investment in this company. Fortunately I did not make a huge investment. Also I realised the flaw in my investment strategy w.r.t to this company. I did not take into account the stiff competition it faces in the market. So I am going to change my approach here a little bit. I will make equal investments in Tata Motors as well as Olectra. The market is big enough for both the companies to grow and I don’t want to waste my time selecting the sole winner in the market. I rather invest in both and wait for the market to choose the winner. For now I won’t buy more Olectra stocks. Any further investment will depend upon the new order flow for their EV Buses.

Let me know if your have any other info related to these stocks.

[ishu]

PORTFOLIO UPDATE!!!

Avenue Supermarts results are in and they are really impressive. This is the first Q1 quarter in 2 yrs wihtout any Covid disruption and it is stron, even in an inflationary environment where spending activity was expected to be subdued for a couple of months, Profit growth of 8 times and QOQ growth of more than 30% is very impressive for me. The only thing is the valuations are still elevated but with the recent corrections in price, comprised with the outlook the management has on the business, we can see some rerating in this stock. I have not yet done a DCF calculation on their earnings but by simply adding the shortfall inearnings due to last covid disruption the TTM profit comes in at 2100cr and on top of that a 25% growth in earnings which is their 5yr avg gives us FY23 PAT estimate of 2675cr and an EPS of 40rs. Now taking a PE of100, quite lower than it’s 5yr avg, we get a price of 4000. I know the valuations are still very much elevated but then why am I planning to buy this stock? Well instead of why I am buying this stock I should explain, which stock I am selling in order to buy this and why.

I have been struggling to align with the thought of having Ambuja Cements in my portfolio. There are multiple reasons for the same. My inititial investment was on the basis of housing market boom and infra and capex spending my govt and corp. alike. The story and investment thesis still holds but there are some changes w.r.t to the fundamentals of the business. Here are 3 factors that are bugging me

1] Takeover by Adani- A majority of Adanis investments have been financed through debt. The equity infusion has been minimal and with rising interest rates they may face some interest cost challenges. Similarly Ambuja Cements has been acquired through debt and not equity which will reflect in its Balance sheet and I do not feel the need to have an Adani stock, mainly because of the debt scenario, in my portfolio.

2] Growth metrics- Avenue Supermarts has much better prospects in terms of growth. Their ROCE, Sales and PAT growth outperform Ambuja. Their margins have stayed strong even in an inflationary environment and are not directly affected by high fuel costs, etc. They have been investing their FCFs into expanding their network of stores, whose revenue have not been to the highest levels, because of covid. Their numbers from new stores will start coming in this year and will surprise us. As for Ambuja, their PAT has been in the 2000cr range for nearly 5 yrs now. Not only they are loosing market share but also they are affected by high fuel costs, interest rates, supply disruptions, etc.

3] Better and Stable Opportunities elsewhere- My main objective of investing in Ambuja was the Capex and Housing boom, but I believe these both cycles are fairly eratic. I have started investing in REITs for Real estate boom and have LnT in my portfolio which is a major beneficiary of Capex not only in India but also in the middle east, where we can see huge infra projects coming soon.

Due to these factors, I believe my investment objective of Ambuja has become obsolete and its a right time to invest in growing businesses and not a stagnant one.
I welcome all your views and opinions.

[ishu]

PORTFOLIO UPDATE!!!

With all the volatility in the market, I have been looking to invest in some stocks or REITs in order to get 10% ROI, with out much volatility and limiting this allocation to less than 10% of my portfolio. The kind of volatility we experiences in the last 6 months did not break me as an investor but I realized that if I do not have steady cashflows, I won’t have money to invest when there are real opportunities in the market. I struggled to find money when the markets were at 15k levels. I had to cut back on my spending and postpone some buys in order to make funds available for investing in ETFs. If I had enough cashflows, I could allocate a certain amount for investing in a period of turmoil. So here are a few Investments I will be making in coming months.

1] REITs

Brookfield and Embassy REITs have given great returns in the past 2 years. When office spaces were completely empty, they did suffer but since the unlock, we have seen people flocking to offices and hence their rental income has gone up. They have also leveraged their existing properties for investing and building more office spaces. They have given a <= 6% returns and upto 5% capital appreciation. 5% Capital Appreciation is quite healthy for a commercial property. Even when markets were in turmoil due to inflation and supply chain and war related problems, the prices have gone up, providing some sort of hedging to a market meltdown. Hence a 3% allocation will provide enough to reinvest that money into more REITs or high growth stocks, etc.

2] REC

This is a very well know company for giving high dividends but many people argue that this does not provide any capital appreciation, which is very evident from their technical charts. The price is in a 80rs range from 80 to 100. So if one wants capital appreciation and dividend income, buying it in a 80 to 100 range will be the best level to buy and since the price is in a tight range, the stock periodically provides great price points to invest more. A dividend yield of 11% with an ROI of 40rs if bought at 90s gives a overall return on <45%, quite enough to make further investments in high cashflow investments.

3] FD OR CORP. BONDS

I know this is a very unconventional and bad investment advice for or by any young investor but with interest rates on a rise, we can soon see higher than inflation FD rates closer to 7% for a short period of time until they come back down. It goes without saying, that Bond investments need to be significant for making any worthwhile return, so a one can explore options on Wint wealth or Kotak Cherry for the same.

The allocation for these investments won’t be more than 7% of my total equity investments.

I welcome any views or suggestions.

[ishu]

POTFOLIO UPDATE!!!

Last week I bought Avenue Supermart Ltd and sold ambuja cements and Gujarat Gas. The rationale behind investing in the latter was to benefit from the CAPEX and increase in pipeline gas distribution in India. I have witnessed a shift in consumer demand in the auto sector, away from petrol to CNG cars, since they are considered to be affordable. But I realized that this growth although impressive is not a right fit for someone of my age. I have started early and should invest in companies with long term compounding opportunities rather than investing in market cycles, etc.
So I have been tracking D-mart for a long time but couldn’t manage to buy it for a simple reason, its PE and the way its price went up. I did not want to get caught in a bull trap, hence waited patiently for a correction and now that it has corrected, though the PE is still higher than expected but it may have a very good reason for being so high. Following are some reasons for choosing Avenue in my Portfolio-

1] HIGH GROWTH OPPORTUNITIES

We all have experienced the way D-Mart has opened their network of stores and managed to give its customers much liked discounts along with variety. We Indians just love these 2 things. Their 10yr Sales CAGR is <30%. If we discount this at 5% a year, still for the next five yrs it grows by <25%. This itself outperforms most of the market participants. With increasing levels of income and discretionary spending, profit per customer can go higher from current levels. Their home grown brands and products, along with GM and Apparels have seen the highest growth last fiscal, which is unlikely to slow down. If one believes in historic numbers, their PAT has grown at <30% like sales, than means their profit doubles every 3yrs. The price of any stock ultimately follows its earnings, hence the stock price also doubles at the same rate.

2] STRONG STORE ADDITIONS

D-Mart has a total of 294 stores in India with per sqft revenue of 30000rs. This revenue per sq.ft is likely to grow to 36000rs according to a report by prabhudas liladhar. Considering even 10% store addition rate, we can see a good growth in revenue per store. In the last 3yrs, they have opened 110 stores which could not operate efficiently. This year being the first year of normal operations for this store, we can see higher growth from these new additions. These stores are larger than the older stores, hence their share to the future profits can be much higher in coming quarters.

3] BENEFIT FROM INFALTION

This may sound a bit weird but during high inflation period of last few months, many families have been shopping in D-Mart owing to its good discounts. While buying we don’t compare the current and previous prices. We know they have gone up. What we do see, is whether we get a 100rs thing for 95rs. That makes up happy. So in an inflationary environment, middle income and lower income families flock to these stores to buy sufficient products within their budget. Their discretionary spending won’t be much, but the extra sales they get because of their unique ability to give discounts are enough to protect their volumes and revenues from high inflation. With India Inflation peaking out, we can see discretionary spending returning.

4] HIGH PE

Why am I considering this as a positive? High PE is generally attributed to a red flag, but I feel high PE is an indication that their PAT growth is higher than normal. With a 38% PAT CAGR for 10yrs, means that their earnings double every 3yrs, as mentioned in the first point. So if at current 3900 levels, the stock price does not move at all, with 2 years the stock price will fall to 40. But one should also factor in the Forward Earnings, since past can be an misleading indicator. So the current price of 3900 at 130 PE does not factor in the current earnings, but considers the earnings of FY25. Hence if we maintain such 38% explosive growth, we can see these High PE levels for a very long time.

5] DECREASED FII HOLDING

Why a decrease in FII holding is a good thing? Well, many foreign investors are very positive about the spending and consumption capacity of the huge population of India. But due to some macroeconomic situations they were forced to reduce their holdings in India. Since D-mart saw a lot of buying by FIIs during covid, it suffered when they started selling. With the macroeconomic situations easing, apart from US inflation, which is an absolute blunder in my opinion, these FIIs will make a return soon. They will have to buy Indian Markets at elevated valuations which will help our markets go even higher.

Now coming to my expectations, if I consider a 20% sales growth, way lower than its 10ys avg of 30%, revenues come at 36000cr and profits at 2600cr. Now taking a PE of 120, the price per share comes at 4800 for FY23. Considering the price does not move anywhere, the PE ratio for FY23 comes at 97, much below its 5yr avg of 143. Personally, I expect the price to consolidate for next 2 quarters and then we can see its growth phase do its magic. One can start accumulating with a 5yr horizon.

Any views or suggestions are highly appreciated.

[srebalaji]

One view I read or heard somewhere is DMart is facing competition from other retail peers as well like Reliance Retail. What’s your take on this?

And BTW, I’m convinced of the fact that DMart has a unique position in the market and it won’t affect their business that much