Welcome to the digital log of my humble attempt to learn and invest! I will document everything I do with my portfolio and my strategies here to learn from others while helping others learn from my 4 years of investing in the Indian Capital Markets.
Needless to say, everything posted in this section/topic is my understanding of the world of investing and is in no way an investment advice or a stock recommendation. Kindly consume information with the intent to learn and help me learn with your perspectives and constructive feedback. Cheers!
My Portfolio as of June 2023:
- Jash Engineering Ltd
- KPIT Technologies
- Tarsons Products Ltd
- Divi’s Labs
- Alkyl Amines
- HDFC Bank
- MAS Financials
- HDFC Life Ltd
- Dr. LalPathLabs
- IDFC First Bank
- Ultramarine & Pigments Ltd
- Asian Paints
- GMM Pfaudler
- Saregama Ltd
- Westlife Development Ltd
- Fine organics
- Gokaldas exports (Currently building position)
- MK Exim (Microcap Moonshot Bet)
Aforementioned list is in the descending order of position sizing in my portfolio. The top 5-6 stocks make up for over 40% of my portfolio. It has taken me over 2.5 years to find, research, build conviction and complete buying in these stocks and I would be more than happy to discuss rationale and indulge in stock specific discussions.
Please do share your research and confidence building measures.
I am curious of your choice of GMM Pfaudler and Zomato.
Let me start with Zomato. This is relatively a small allocation (~2%) in my portfolio. There is a 2 fold reason why I bought Zomato:
Borrowed conviction: Mr. Sanjiv Bhikchandani (InfoEdge Partners) happens to be one of the earliest investors in Zomato (InfoEdge invested in Zomato in 2010). Sanjiv is a genius business mind. He has built Naukri.com (a colossal cash cow) and is one of the most successful investors in the country. Even today, he is extremely bullish on the discretionary spending trend in the country and Zomato’s trajectory. In fact, till date he has not sold a single share of his holding in Zomato. He constantly guides Deepinder (CEO of Zomato) in his endeavours. On the valuation front, the dean of valuations Prof. Aswath Damodaran of Stern Business School, NYU had valued Zomato. He estimated the stock’s fair value to be about 40INR back in 2022. These are two people I have followed all my life and admire a lot. Frankly, a part of my investment rationale happens to be borrowed conviction from their stance on the company.
The Duopoly Fallout: Zomato and Swiggy are the only two players in this industry and lately both have been focussed on getting to profitability as the funding winter stares them in their faces. However, if one looks at operational metrics closely, barring Blinkit (the quick grocery delivery arm), Zomato soars way ahead of Swiggy even though Swiggy was the first to turn its core business EBITDA positive. Zomato guides for PAT profitability by FY26 and a positive EBITDA margin by FY25. Once company turns profitable, given its dominance in consumer technology, operating leverage will kick in and unlock the next lever of growth. Currently, since the past few quarters, Zomato has gained market share and is now the bigger than Swiggy. There is a bright chance of M&A action possible in this space in the years to come where either one of the big players will buy out the competitor.
The above two themes in conjunction with the founder’s focus on growing the franchise profitably and delivering disproportionate returns to the shareholders made me a buyer of the stock. However, it looks like a 10 year story to me and the story has just started!
What’s your thesis on mk exim?
MK Exim (India) gets the smallest allocation in my portfolio. It is a micro cap bet for the future. My investment in this is based on:
Management Change: The new management since 2019 has turned around the financial health of the company. For instance:
- Working capital days have gone down from 410 days to 170 days
- The return on capital employed (debt free) has gone from 3-4% to 30%+
- OPM has improved significantly from single digits to 20%+
And many such metrics of improvement.
The company is looking to grow its Moroccan oil business and its textile business with priority focus. The promoters have aggressively ramped up their stake in the company ever since 2019 (management change) which also gives me enough confidence to hold the stock. However, I am monitoring the cash position of the company very closely. I personally think that the EBITDA/CFO conversion is not up to the mark. This certainly is a risk as on the CMP/FCF front, the company might look slightly overvalued. Although for micro cap investing, these standardised valuation ratios are almost never used.
Hi…I hold two chemical stocks namely Deepak Nitrate and Alkyl Amines…actually i hold 2 more, but for our discussion, out of these two stocks i am contemplating selling Alkyl amines. Both the stocks i purchased at higher valuations when they were at high margins too. Needless to say, in both stocks i had gone down upto 35% each and then recovered Currently Deepak is in positive and Alkyl.amines in minus 7%. But since i have gone through the journey and studied both, i came.to.conslusion that both are ordinary companies with bulk chemicals company, nothing special. But due to euphoria of China+1 , made them appear great companies. Since you are holding Alkyl.amines, what you think is special about it and given the option between above two, which one will you sell on business paramters , for long term.basis? You can ignore current valuations for time being, and only purely business sense, what appears to.you?
Apologies for butting in, Alkyl and Balaji are the only two major players in this industry, accounting for 90% of market share. The Amines industry have a moat in terms of technology as well as setting new capacities by other non existent players also is not that easy.
Deepak Nitrite has bulk business but they are foraying into specialty chemicals and their strength lies in process efficiency and backward integration which is again difficult to replicate.
Chemical stocks had given mad return in 2020-21 till October and then the sector itself has consolidated.
I am not holding any of them currently but I feel these are good companies for the longer term.
I think its better to sell off if the price doesn’t pick up even when the specialty chemical sector is on the rise.
I have some questions about MK Exim.
What was the management change & the reasons behind it? Why did old ones quit? Did the next generation take over or some other people came in?
Why is the company sailing on 2 boats? Textiles & FMCG. What is the correlation between them if any? Is there any kind of help that these 2 ventures are generating for each other?
Is there any competitive advantage that the company has in either of its business segments FMCG or textiles? On their website they mention that their textile business has a “niche”, what is that?
And the biggest one. There is a huge amount of related party transactions in the company’s books. 2 companies Manish Overseas & Laaj Internationals which are owned by the promoters of the company have been purchasing goods from the company & the percentage of that to total sales is pretty high. Any justifications to that for why it is being done?
Looking for your response, thanks in advance.
Thanks for your comment. To start off, both Deepak Nitrite and Alkyl Amines are good quality picks. You cannot go wrong with them in the long term. However, the drawdown in stock prices in the entire speciality chemicals basket was due to 3 key reasons: 1. FIIs Exit ; 2. COVID-19 inventory de-stocking and 3. Mean Reversion of margins due to raw material price inflation.
Poor policy in China and its divide with the west is indicating that the 200 billion dollar Speciality Chemical market will move to India (albeit over years). The FIIs have returned and this shift in manufacturing preference from China to India will bolster the flows of foreign investors. A major reason for a few poor quarters reported by Alkyl and Deepak was due to excess inventory as a result of overestimation of COVID-19 pandemic. Most companies have been trying to get the redundant COVID-19 inventory off their balance sheets which is taking time and hence the valuations (due to short term quarterly performance) have about halved from their peaks. Now that the international commodity cycle has peaked out, raw material has gotten cheaper and it has slowly started to show in the Q4FY23 results reported by these companies. So in my personal humble opinion, both these are good businesses in a large market that’s about to grow rapidly.
Now addressing my holding Alkyl in my portfolio: It is one of the 2 players in the country producing aliphatic amines. It is a leader in Ethyl Amines chemistry - a space that is moated due to regulation, licenses and the complex know-how. To understand the product they make practically, think of medicine syrups that we consume. The sticky solution in the syrup is due to ethyl amine derivatives produced by Alkyl amines. The valuation gap between Balaji and Alkyl is easily addressable- just look at the CFO/EBITDA conversion ratio of both, you’ll get your answer. Also it is worth noting that the CWIP/Fixed assets ratio currently suggests aggressive expansion plans. A professionally managed firm such as Alkyl (as opposed to family structure at Balaji) would not mindlessly increase capacity if near future did not look bright. The prudence in capital allocation decisions is in evidence from their previous cash deployment and capex success track record. The superior cash flows (as a result of high ROCEs), sheer dominance in the aliphatic amines space, near monopoly market share and an able management makes me a confident shareholder.
While Deepak Nitrite’s recent efforts into full backward integration seems laudable, I have not been able to build the same level of conviction in it yet to displace an existing holding in my portfolio with it.
I hope I could answer your question.
What’s the size of your MK exim position in your portfolio? Curious to know after reading your pointers
@parthgoyal : I agree with the concerns you raise about the company. There is a paucity of data too since its a very small company. While their operations in unrelated industries (FMCG and Textiles) does not bother me as much since at this scale, most local promoters try to test waters and diversify, the related party transactions are a red flag. The stock is 0.5% of my portfolio and did not warrant enough deep dive into the company yet. @prav.br Hope this answers your question too
Got my NISM certification today to be a Qualified Research Analyst. Pumped to embark on this journey!
Tracking and studying 2 Microcap companies. They are illiquid and hence, come with a lot of risk. The names are:
- Fluidomat Ltd.
- International Conveyors Ltd.
Both look very interesting at the moment. Need to do some due diligence before acting on it. Will update here if and when I do buy.
Currently have 5-6% in cash. Using the dip in MAS Financials Ltd to increase allocation in portfolio. CMP is 750.
Notice the insider buying aggressively in both these micro caps recently.
Strength can be noticed in Tips Industries as well as Saregama Ltd. Volume action too is very interesting.
Disc: Own Saregama as disclosed in this forum earlier.
Buying HDFC Bank and increasing allocation. A massive mismatch between earnings growth and stock price performance in the past 3-4 years. The merger overhang is dealt with too.
Many Interesting companies in the range of 200-600cr Mcap. Currently studying them.