Karan's small/micro cap portfolio

Q&A: Questions & Answers Portfolio Q&A
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I am posting my portfolio here for feedback from fellow esteemed boarders.

Before I delve into the portfolio, let me give you a small background about my investing journey. I am a pretty new entrant to this world of investing, having started on 3rd April 2017. The year as many of you would know was a smooth sail and by the end of the year, in Nawazuddin’s word “kabhi kabhi lagta tha apun hi bhagwan hai” I have always liked to catch the “smaller” companies, and during 2018 I learnt a lot about the mistakes I made. I started with a very basic model, of listing all the companies by sectors, and then drawing a scatter plot of P/B (value) and ROE (earnings). From there on the model has become more complex as I discovered new mistakes and new learning and finally have been able to build the following portfolio. Any constructive feedback that I receive will enhance and accelerate my learnings.

Stock Name Position Size
Associated Alcohol 15%
Waterbase 6%
Kuantum Paper 6%
Rajratan Global Wires 7%
Cenlub Industries 6%
Lancer Container 9%
Alufluoride 17%
Astec Lifescience 9%
Pradeep Metals 7%
Sandur Manganese 4%
Beekay Steel Industries 4%
JTL Infra 11%
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Can you please write a line or two on thesis of picking these small caps!

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Hi I am not pro But If i would you i would ask first question will these sustained for next 15 to 20 years and that will be the worst case and write the Rejecting Rational first .

Associated Alcohol for me it is not ethical business ( Being Liquor ) and largely influence by the Govt regulations
Waterbase : it depends on your entry price Although there are some head winds on the sector for a year or more
Kuantum Paper Low net margin and commodity based product However the better bet than the previous three : My personal take is to allocate the resources at last to Commodity Businesses

Rajratan Global Wires : Main Product : Tire bead wire Application : Auomobile tires, tires of earth moving equipment’s and aircrafts But again but due Raw material is cyclic in nature Your entry Price make a lot of difference on long term investment Current valuation is just right as per the graham number and intrinsic value You need to do competitiveness analysis of the company

Cenlub Industries ; Company has reduced its Debt level But still along way catering to niche product may need a greater allocation

Lancer Container : Some hoe the images put on the website is seems to be Photo shoped check the Edge of the containers and the Company Logo . I may be bit skeptical Performing a lot in number as compare to peers but Business comes from operations and than we write he numbers in accounting form not the other way round .May need Further dive to least five annual return . I am not interested in the sector as the Too much variables , Dependency on Rubber ( Tire ) Crude(oil) ,Premium (insurance) Govt regulations etc

Alufluoride ( I don’t know )

Astec Lifescience ( Pharma is getting into shape but if you are comfortable in valuation of pharma companies that is asset) VP is just Gold mine which I discovered very late …

Pradeep Metals & Beekay Steel Industries ( Cyclic stocks )
Minerals and Ores->Alloys Manufacturing ( Value addition ) or Metal or Steel Manufacturing . In these the main thing one need to check is the Sales Value / Production Capacity Utilisation / Power Cost (This is main cost check these with the peers )

Sandur Manganese ( Again metal stock and cyclic) Better option may be Maithan Alloys

regards and all the best

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Hey,

Thanks for sharing your PF. Wonder if you still track and invest in these ? I am invested in a few of these and planning on studying a few others.

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Hi @sahil_vi , Thanks for the response.

The portfolio has changed somewhat from March 2019. In the past 1.5 years I has some new learnings and so many new mistakes. My biggest mistake was to sell Astec Lifescience just post budget 2020 as I was not confident on the future of the stock. I also sold Garware Technical Fibres, Divis Labs and Apollo Pipes way too early.

Along the way I have sold Kuantum Paper (when they went for a split), Lancer Container Line (though it is something I can add back again - the images on their website are not assuring enough), Sandur Manganese (when they pledged their share), JTL Infra (again I would like to add it back).

The portfolio has grown to 24 companies. Their have been a few entry-exits in the middle - Apollo Pipes, Garware Technical Fibres, Datamatics Global, Galaxy Surfactants, Kaveri Seeds, Divis Labs, Paushak, Shaeffler India.

The portfolio now is

Stock Name Position Size
Associated Alcohol 12.7%
Waterbase 1.6%
Rajratan Global Wires 7.0%
Cenlub Industries 2.8%
Alufluoride 15.0%
Pradeep Metals 1.9%
Beekay Steel Industries 1.1%
Take Solutions 0.5%
DCM Shriram 2.1%
Atul Ltd 7.9%
Keltech Energies 0.6%
KEI Industries 3.9%
Excel Industries 3.5%
Stovac Industries 1.3%
Esab India 2.7%
Ratnamani Metals & Tubes 9.7%
Poly Medicure 3.1%
Heidelberg Cement 2.4%
PSP Projects 3.6%
AIA Engineering 2.2%
Lumax Industries 3.2%
Cupid 4.9%
Vikram Thermo 4.8%
Voltamp Transformers 1.6%
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Over the last 20 days, have reduced the portfolio size to 21 companies. Over the long term, I would like to bring it down to 15 quality small/micro cap names.

The companies I have sold are -
Stovac Industries, Poly Medicure and PSP Projects.

Have redistributed the investments to existing holding - Associated Alcohol, AIA Engineering, Cenlub Industries, Voltamp, Esab India, Vikram Thermo, DCM Shriram, Pradeep Metals.

The portfolio now has the following weightage -

Stock Name % Market Value
Associated Alcohol 12.6%
Waterbase 1.5%
Rajratan Global Wires 6.3%
Cenlub Industries 3.3%
Alufluoride 12.5%
Pradeep Metals 2.6%
Beekay Steel Industries 1.0%
Take Solutions 0.4%
DCM Shriram 2.4%
Atul Ltd 6.6%
Keltech Energies 0.5%
KEI Industries 4.0%
Excel Industries 2.9%
Esab India 4.0%
Ratnamani Metals & Tubes 10.0%
Heidelberg Cement 2.2%
AIA Engineering 4.3%
Lumax Industries 2.8%
Cupid 5.9%
Vikram Thermo 10.2%
Voltamp Transformers 3.9%
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I have sold my entire holding in Alufluoride today as the company is facing issues with their plant operation and I feel this would be reflected in their next quarter results and this would bring a good buying opportunity in the company. I do have a replacement stock in mind. I Will update when I buy into that.

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Have moved around the portfolio a bit in January/Feb beginning. I have raised some cash by selling Atul Ltd. and Ratnamani Metals. Have added more into Cupid. The replacement stock that I have begun accumulating is Frontier Springs. I do have some cash, so still looking for different investment opportunities. Nothing coming as a screaming buy.

Stock Name Weightage%
Cash 21.3%
Associated Alcohol 11.8%
Cupid 10.2%
Vikram Thermo 9.7%
Rajratan Global Wires 7.1%
Esab India 4.7%
KEI Industries 4.0%
Voltamp Transformers 3.6%
Frontier Springs 3.6%
Cenlub Industries 3.5%
AIA Engineering 3.5%
Pradeep Metals 3.4%
Excel Industries 2.6%
DCM Shriram 2.6%
Lumax Industries 2.6%
Heidelberg Cement 2.2%
Waterbase 1.5%
Beekay Steel Industries 1.1%
Take Solutions 0.5%
Keltech Energies 0.5%
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Over the last two months, I added Vikram Thermo, Frontier Springs, Cenlub Industries, and Pradeep Metals.

New stocks that I have added here are Everest Organics and Agarwal Industrial Corp Ltd.

I have started nibbling back into Alufluoride.

Stock Name Weight
Associated Alcohol 14.2%
Cenlub Industries 9.7%
Rajratan Global Wires 9.2%
Vikram Thermo 8.7%
Cupid 8.6%
Frontier Springs 7.5%
Everest Organics 6.3%
Agarwal Industrial Corp 5.1%
KEI Industries 3.9%
Esab India 3.9%
Pradeep Metals 3.5%
AIA Engineering 3.2%
Voltamp Transformers 2.8%
Lumax Industries 2.7%
DCM Shriram 2.5%
Excel Industries 2.3%
Heidelberg Cement 1.9%
Alufluoride 1.2%
Waterbase 1.1%
Beekay Steel Industries 1.0%
Keltech Energies 0.4%
Take Solutions 0.4%
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I have been away for a few months, hence the miss on monthly updates to the portfolios. Since the last post, the portfolio is up 30.7%, which is in line with the Nifty Small Cap 100 Index, which is up 30%. I am trying to make a conscious effort to reduce the portfolio size, but it just doesn’t seem to happen.

I have also tried to weed out from the smaller positions. The portfolio has changed around a bit. I have exited Rajratan Global Wires (it was already a 9x for me, and it is at historic high valuations, so decided to exit), Voltamp Transformer (here I just lost patience with the stock), DCM Shriram (at 14000 Cr market cap, I am not able to imagine the size of the company, so decided to exit), Excel Industries (again lost patience with the stock), Heidelberg Cement, Beekay Steel, Keltech Energies and Take Solutions (as all were small positions, where I had no intension to add).

Over the same time period I did add a few smaller companies into the fold. The overall portfolio at the end of August is below. Views invited?

Stock Name Weight
Vikram Thermo 10.6%
Cenlub Industries 8.8%
Associated Alcohol 8.2%
Alufluoride 7.5%
Frontier Springs 6.2%
Asian Energy Services 6.2%
Agarwal Industrial Corp 5.6%
Cupid 5.3%
Axtel Industries 5.1%
Duncan Engineering 4.6%
Pradeep Metals 4.5%
Everest Organics 4.4%
KEI Industries 3.2%
Welspun Corp 3.1%
Competant Auto 2.9%
Esab India 2.6%
LKP Finance 2.6%
B N Rathi Securities 2.0%
Duropack 1.8%
Waterbase 1.8%
AIA Engineering 1.7%
Lumax Industries 1.3%
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Hi KARAN ,

Can u tell us more duropack and its business ,
what was your conviction which made you to invest in it

thanks

Regards ,
Hitesh Gangwani

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Hi Hitesh

It is a small company based out of Delhi. I just saw their factory structure in front of the MSME federation. The valuation looked reasonable at the price of 20. I sold out at 80 when the valuation became obscene, however, it did go up quite a bit post that.

The fundamentals at INR 20 a share were quite reasonable. I didn’t do much forensics and took their PnL and Balance Sheet at face value and it just seemed a good investment.

I have churned my portfolio quite a bit since September 2021, and currently don’t hold very small companies as I have consciously tried to reduce risk. The current portfolio reads -

image
image1048×613 25.9 KB

Feedbacks welcome!

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Dear Karan,

If you made an investment thesis on each of your new set of stocks would you mind sharing it in this forum.

Thanks

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Hi karan,

Thanks For sharing information

I liked the company and not any redflag in it , only hunger for growth from management is missing

They are doing simple business and filing it properly
It is on watchlist for me

Karan,

You can check Sirca paints, Fineotex chemical
In small cap, you will like it, please share your views

Currently also studying Pricol Ltd (got to know about it from Quant mutual fund holding and then i started atidying) , it is on watch list and will buy next month

And Why don’t you Hold Stocks for 10-20 years until retirement, or remove any stock if stops from growing/ serious management issue or Exit when reflag is seen in business

I might be bad at exit strategy but

If you have hold Rajratan for more long period, it would have given more returns

Also please look rule of 72 by mohnish pabrai
You just need 26% every year on portfolio and compounding will do the magic, it will more great after 20 years,

Please Also Study Dmart and Ltim

Thanks kiran

Just sharing aome information which you would like and invest .

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Some Warren Buffett Quotes which will help for your portfolio

“You should invest like a Catholic marries—for life.”

“The great personal fortunes in this country weren’t built on a portfolio of fifty companies. They were built by someone who identified one wonderful business.”

Book Tao of warren Buffett

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I do agree that i need a lot of work on my exit strategy. My IRR over the last 5 years is around 29-30%. So, i am quite happy. I have flip flopped a lot in last 1.5 years while the market has been sideways and there has been a lot of sector rotation. I am trying to find a balance between portfolio age and wondering if i age my portfolio well, can I look at going 35%+? Another reason that i feel my exits are not good and that many of you have pointed out is the rationale to enter stocks. Also, i don’t discuss my stocks much, so in that regard, it’s a very lonely battle, i feel. Still a work in progress, for someone who does have a lot of commitment issues, once the age of my portfolio was more than 18 months which astonished me as well. :smile:

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Could you please share your thesis on Pradeep metals… is it still intact looking at it recent runup.

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Hi Khalid,

I hope this post finds you well.

I’m writing to let you know that I’ve sold my position in Pradeep Metals. I know you are interested in this company, so I wanted to give you a heads-up.

The main reason for selling is that I need some cash for personal reasons. I know this is a bit of a pain, but I couldn’t help it.

I still think Pradeep Metals is a good company with a lot of potential. I’m just in a situation where I need to sell some of my holdings.

As far as the thesis is concerned, I still believe that the oil & gas sector is poised for growth in the next 3-6 months. This is why I’m still positive about Pradeep Metals.

However, on a total portfolio basis, I’m neutral on equity. This is because I’m concerned about the overall market volatility.

I hope this helps.

Please let me know if you have any questions.

Best,
Karan

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Greetings, fellow investors,

It’s been a while since I last shared an update on my small micro-cap portfolio, and I’m excited to provide you with the latest developments. Today, I want to discuss my revised investment thesis, adding new companies to my portfolio, and the growing focus on commodities, capital goods, and infrastructure.

As the market landscape evolves, we must adapt and diversify our investments to capture emerging opportunities. With this in mind, I have made significant changes to my portfolio, retaining only two stocks from my previous update, Saksoft and Andhra Paper.

Commodities Outlook:
One of the key drivers of my investment thesis centres around the promising outlook for commodities. Global economic recovery, increased infrastructure spending, and rising demand from emerging markets are expected to bolster commodity prices. Commodity sectors such as metals, energy, and agricultural products offer attractive investment prospects.

Capital Goods and Infrastructure:
In conjunction with the commodities thesis, I believe capital goods and infrastructure sectors will play a pivotal role in driving economic growth. As governments worldwide ramp up infrastructure spending to stimulate economies, companies involved in construction, engineering, and capital goods manufacturing are likely to benefit. By adding exposure to these sectors, I aim to capture the potential upside from these developments.

With increasing market volatility, I believe diversification is crucial to manage risk effectively, especially in micro-cap investing. Each company was selected after careful analysis of its financials, growth potential, and alignment with my investment thesis.

It’s important to note that investing in small micro-cap stocks carries inherent risks, including volatility and liquidity concerns. Thorough research, staying updated on industry trends and regularly reviewing financial reports are essential for making informed investment decisions.

As always, I welcome your thoughts and insights. If you have any suggestions or recommendations for further research, especially within the commodities, capital goods, and infrastructure sectors, please feel free to share them. Together, we can navigate the ever-changing market and uncover hidden gems.

Disclaimer: The stocks mentioned in this post are for discussion purposes only and should not be considered investment advice. Please conduct thorough research or consult with a financial advisor before making any investment decisions.

Stock Name Weight
Benares Hotels 9.3%
Cochin Minerals 7.9%
Andhra Paper 7.6%
Cupid 7.6%
Chamanlal Setia 5.8%
Pricol Ltd 5.2%
Axtel Industries 5.1%
SKM Egg Products 4.9%
Univastu India 4.9%
Mangalam Seeds 4.5%
Alufluoride 4.5%
Revathi Equipments 4.5%
Maan Aluminium 4.5%
D P Wires Ltd 4.4%
Shree Ganesh Remedies 4.3%
Mazda Ltd. 4.3%
Saksoft 4.3%
Diamines & Chemicals 4.2%
Beardsell Ltd 2.1%
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Good list of companies there. I especially like Maan Aluminium and DP wires. Those 2 have some great financials over the years.

I recommend JK paper instead of andhra paper. Also for the theme you mentioned Agarwal Industrial and Gravita are good companies you may want to study.

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