Karan's small/micro cap portfolio

Q&A: Questions & Answers Portfolio Q&A
44

Hey Shivam,

Good point about the ilmenite situation! Yeah, those beach sand deposits are running low, which isn’t great news for Cochin Minerals. It sounds like they only have about 15-20 years left at this rate. But hey, they’re not just sitting around waiting for the sand to run out! They’re digging deep (literally) and exploring these new inland deposits in Tamil Nadu and Kerala. Could be a game-changer if they find enough there. Plus, they’re looking at these titaniferous magnetite ores, which have way more ilmenite in them.

It’s a tricky time for them, but I’m also excited to see them branch out into higher-value products like synthetic rutile and leucoxene. No more relying on just the regular stuff – they’re going all gourmet! And who knows, maybe these new products will make them less dependent on that ilmenite grade altogether. Fingers crossed!

Anyway, just wanted to say you’re on the money with that ilmenite observation. Keep those insights coming!

Best,
Karan

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45

Hey Lary,

Just wanted to chat about this crazy market, especially in the small and micro-cap space. It’s all frothy and bubbly like a latte art competition gone overboard, right? Makes me nervous when things get that hot and spicy. As they say, “Even ugly ducklings look like swans in a bull run,” and I don’t wanna be fooled by feathers!

Remember, I’m a “Ralph Wanger wannabe,” always on the hunt for growth stocks at fair prices. But in this market, it’s like finding a needle in a haystack wearing a price tag saying “50% off!” Two big hurdles pop up:

Will this growth last? Can these companies keep soaring like kites with helium rockets strapped on?
Where’s the fair price? Everything’s inflated like a birthday balloon! Bargains are rarer than a unicorn riding a T-Rex.

So, my crystal ball sees high inflation (think roller coaster prices but even crazier) and broken supply chains (like trying to order pizza delivered to Mars). That’s why I’m playing it safe in commodities, pharma/healthcare, utilities, and staples. Think boring stuff like sugar, medicine, and electricity – the essentials, you know? It’s tough finding exciting startups in utilities, but hidden gems lie waiting in pharma/API/CDMO land. If you’re curious, check out this gentleman called Sajal Kapoor – he is a rockstar in that space. And for commodities, keep an eye on green options, carbon black, and food (gotta eat, right?).

My article on the same - LLama Research on LinkedIn: #llamaresearch #investmentinsights #indiamarket #globaleconomy…

Anyway, feel free to hit me up outside the virtual world if you wanna explore this further, as I cannot name stocks anymore (Regulations).

Cheers,
Karan

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46

Thanks, Karan. This was really helpful.

47

What is ur view on saksoft.Is it a good buy for long term.Valuation wise it is not cheap.

48

Also, I reckon there’s a probe going on against CMRL. What is your take on that?

49

The corporate governance issue surrounding CMRL has been a topic of discussion for some time, and similar challenges are not uncommon in the microcap space. While this can raise concerns for some investors, others may prioritize potential growth and strong market positioning.

Previously, I made a similar observation with Associated Alcohol, where governance concerns ultimately impacted the valuation. However, it’s important to remember that each company’s situation is unique.

Cochin Minerals boasts a promising product line and niche market, potentially leading to attractive long-term prospects. However, the ongoing governance concerns remain a factor to consider. Optimizing operational efficiency, as you mentioned with the hypothetical OPM increase, could significantly improve profitability. Ultimately, you must carefully weigh the potential of the business against the identified risks before making your own decisions.

50

Hi Abhishek,

While the valuation seems a bit on the pricier side, it’s not entirely unreasonable. That could explain why the company hasn’t joined the recent tech rally. Considering current market conditions and my expectation of a lagging US slowdown after interest rate hikes, I’m currently focusing on sectors outside of IT.

51

Hi Karan, with JTL Industries management announcing they are debt free now and their recent implementation of DFT technology, do you consider to re-enter in the stock.

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52

HI,

Do you still track Mangalam seeds.

Q-3 was exceptional.
But growth has fizzled out in lastest Quarter Q-4.

Wonder if Q3 was just a one off?

53

Hi Jhon Azhar,

I follow Mangalam Seeds, and to be frank, there are some concerning signs alongside positive developments. It feels like management could be more transparent.

Firstly, their financial reporting changed. Previously, production expenses and stock purchases were separate. Combining them this year makes it hard to analyze margin changes.

Secondly, recent results might be outliers. Seed companies like Kaveri Seeds and Bombay Super typically see stronger sales in June and December quarters, with March and September being weaker. Mangalam Seeds’ 37% margin last year seems unusually high.

Thirdly, margins have dipped in the last two quarters. It seems they might be prioritizing growth over margins, which wouldn’t be a bad strategy in itself. However, unlike competitors experiencing sales growth, Mangalam Seeds’ sales are down year-on-year, suggesting they’re losing market share even with lower margins.

On a positive note, two new additions – Kena Print (subsidiary) and Sharayu Mangalam Seeds (associate) – have significantly boosted consolidated results. These outperform the company’s other four subsidiaries. However, an investment in Sharayu instead of a full acquisition raises some questions.

Overall, Mangalam Seeds seems to be on a growth trajectory, but potentially with lower margins. Management focus might be shifting towards developing Sharayu. Additionally, their reliance on debt for growth is concerning, especially considering potential interest rate hikes and their negative cash flow from operations.

In conclusion, Mangalam Seeds presents a mixed picture. Their performance in the upcoming June quarter, typically strong for the seed industry, will be interesting to watch.

54

Thanks alot Karan.

Regarding Q4 in particular.

Results seem confusing to me me.

They are down in topline also YOY.

On contrary peers haven’t degrown yoy in last quarter.

But flip the coin and take it back to Q3, their results were surprisingly good compared to all peers.

Again like I said can’t make sense, how they have degrown in revenue as well this quarter when same is not reflecting in peers like kaveri etc

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55

You’re right about December being a good quarter for seeds. However, last year’s 37% margin for Mangalam Seeds is still a head-scratcher. It’s interesting to note their similar slump in March 2022, which is when Kaveri maintained positive YoY sales growth. This suggests last March’s results might be an anomaly for Mangalam Seeds.

Here’s where the comparison gets tricky: Kaveri focuses on cotton seeds in central and south India, while Mangalam deals in grains primarily for the western region. A more relevant competitor for Mangalam might be Bombay Super Hybrid (BSH) which deals in vegetables. Unlike Mangalam, BSH achieved rapid growth through lower margins. This suggests Mangalam could potentially achieve similar growth by strategically adjusting margins, as long as they manage their debt effectively.

Overall, it seems Mangalam Seeds is in a similar phase they faced in March 2022, but with the added burden of higher debt. Their financial health depends on managing this debt while potentially adjusting margins for strategic growth. If they can navigate these challenges, Mangalam has the potential to excel.

56

Hi Karan, How do you read Q4 result of Mazda. Would love to hear investment thesis if you still hold it? Thanks.

57

While Mazda’s stock price has shown some volatility lately, it’s important to consider the bigger picture. The company remains debt-free, a significant advantage in the current environment. Additionally, valuations seem reasonable. Long-term, I believe Mazda’s future is promising, particularly with its well-managed engineering division.

Current Investment Strategy:

Despite my optimism about Mazda’s engineering potential, I’ve temporarily allocated capital elsewhere. This decision stems from concerns regarding the underperforming food division.

Here’s the crux of the issue: Capital allocation is split equally between engineering and food, yet engineering generates roughly four times the revenue. Ideally, I’d like to invest solely in the thriving engineering story. However, with equal capital going towards the food division, it dilutes the overall return potential.

Future Considerations:

If Mazda decides to de-merge the engineering division, I would be very interested in revisiting the investment opportunity. A separate engineering entity could unlock significant value.

Overall, while Mazda remains a company with long-term potential, the current capital allocation strategy creates a temporary pause on our investment.

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