Malhar's Investing Thoughts

Malhar_Manek · October 12, 2021, 12:06pm

Hello everyone. My portfolio consists of two parts-
a) a long-term portfolio of quality growth companies for 10-15 years (core)
b) a short-/medium-term portfolio of companies with strong price-volume action along with fundamental catalysts for 6-12 months (satellite)

This thread is about the latter. In this part of my portfolio, the strategy is-
Technical charts on weekly and monthly candlesticks
Fundamental triggers like sector tailwinds, upcoming capacities, product launches, change in management etc.
(Slightly higher weightage given to technicals over fundamentals e.g. 60:40)
Cut all losses at 10% without exception (may re-enter if there is revival after hitting SL)
Trail the stop loss
Follow CANSLIM approach
Do scuttlebutt
Heavily influenced by Mark Minervini and William O’Neil
Cut losers and average up the winners

Stocks with thesis:

Ambika Cotton (CMP is ~ Rs 2024):
Price Volume Action on weekly chart-

and monthly chart-

Sector tailwinds (China+1)
Export oriented (out of ~ Rs 390 Cr turnover so far in FY22, ~ Rs 290 Cr was from exports i.e. ~ 74%) Debt free
Target of Rs 800 Cr revenue for FY22
Upto 28 Sept 2021, company had sales of Rs 390.25 Cr and Q1 FY22 sales was Rs 184.07 Cr hence Q2 turnover will be >= 206.18 Cr (390.25-184.07)
30K spindles capacity coming up (source for all numbers here is AGM)
Rise in cotton and cotton yarn prices

AGM Links-
Video Recording: 33rd Annual General Meeting of Ambika Cotton Mills Limited held on 29 Sep 2021 - YouTube
Transcript: Proceedings of the 33rd AGM of Ambika Cotton Mills – Ambika Cotton Mills Limited

Canara Bank (CMP is ~ Rs 187):
Price Volume Action on weekly chart-

and monthly chart-

PSU banks have tailwinds: a) number of PSU banks has reduced from 27 in 2008 to 12 now b) all PSU banks have cumulatively made a pre-provision operating profit of ∼ Rs 9.8 Lakh Cr in last 6 years, and a cumulative provision of ∼ Rs 11.5 Lakh Cr in last 6 years, leading to a net loss of ∼ Rs 1.2 Lakh Cr (this shows the level of clean-up in PSU bank loan books)

Lenders will benefit in economic revival
Provision coverage ratio of 79.68% as on 31 Mar 21 (source), and further improved to 81.18% as on 30 Jun 21 (source)
Raising of capital in Dec 2020 (source)

Major collateral is real estate, and real estate recovery may lead to provision write backs
Has major deposit gathering ability (people talk about CanFin Homes brand but what about the parent- Canara Bank?)

PSP Projects (CMP is ~ Rs 501):

Capex cycle recovery
Management has guided for revenue of 1600 to 1800 Cr for FY22 (source), whereas current market cap is 1846 Cr
Post completion of Surat Diamond Bourse, company will qualify for larger projects

Strong order book as per AGM commentary

Dishman Carbogen Amcis (CMP is ~ Rs 2024):

Vitamin D opportunity

VST Tillers (CMP is ~ Rs 3400):

New product launches (27 HP tractor, 17 HP single cylinder tractor etc.)
1000 Cr revenue target for FY22
3000 Cr revenue target for FY25
Exports opportunity

Indian Hotels (CMP is ~ Rs 214):

Covid situation revival can act as tailwind

IIFL Securities (CMP is ~ Rs 112):

Beneficiary of retail investor participation

Allocation in these stocks is more-or-less equi-weight

Intended holding period is anywhere between 6 and 24 months (not fixed). Will post on this thread only when there is a portfolio update (e.g. exit/addition etc.) or to answer any questions. I have no rigid return expectation from the satellite portfolio; idea is to at least marginally outperform the core portfolio to justify the higher churn and related costs. Thank you. Looking forward to feedback/suggestions. Views invited.

Disclaimer: Any analysis posted should not be construed as investment advice. Any posted analysis is not a buy/sell/hold recommendation. I am not a SEBI registered investment advisor. Please consult your financial advisor before acting on any posted analysis. The author shall not be liable for any losses incurred by readers while acting on any posted analysis. The author has holdings (and hence a vested interest) in all companies posted and the analysis may be biased. This post is for educational purposes only.

Jay_shankarpure · October 12, 2021, 12:55pm

Great work Malhar , Very in depth analysis

Assea · October 12, 2021, 1:04pm

Seems a good approach Malhar, since you mentioned about CANSLIM ,do you plan to devise a point system and keep weightage for both fundamentals and technicals to arrive at specific points for each of your buy .
Isn’t a mathematical model even be more advantageous.

GARP_niveshak · October 13, 2021, 6:59am

Hey Malhar! Good work. Any rationale for 10% stop loss? Maybe adjust that number for high beta stocks?

kkpatel1924 · October 17, 2021, 8:15am

Great approach Malharji. I mimic similar approach with LT (10-30 years) and ST/MT (3 weeks to 24 months). Just my opinion on your method, by sharing a bit more detail about my method to show that you are right on the money doing what you do.

My ST/MT picks are based on various forums recommending ideas that are based on FA, AGM, Bulk Buying, Sector Analysis, CANSLIM, and Screeners. I then add the TA factor based on DTL, UTL, CMF, RSI and SnR. On the top of all of this, I add the SIP factor during buying and selling. If stock keeps performing, and has merit to enter the LT, then it will be moved into the LT 10 year holding category.

Like your approach very much since it has the main macro similarity. The only downside of all of the above is that it is time consuming, but, I happen to have the time since this is all night time activity for me (when Indian markets are open).

Stopping here to pass the moderator approvals. Please post any questions, and be happy to answer.

KKP

kkpatel1924 · October 17, 2021, 11:54pm

Yes, I have been asked that before, and I am sure that you have struggled with it, as much as I have also.

I do have two accounts, but it is hard to have something like Tata Elxsi suddenly go from being a Trading stock to entering the LT Portfolio. Then you are stuck for buying the stock in the wrong account.

It is more of a mental note that I keep it, but right now 75% of my LT positions are sitting in Account 1, and I do very little trimming to it. And, trading positions are sitting in Account 2.

I will figure out how to migrate from one account to another at ICICI demat and it should be easy although have not even made 1 phone call in doing so.

KKP

GARP_niveshak · October 20, 2021, 10:48am

I figured that much but let me share my 2 cents here. Maybe it ll help.maybe not.
I myself had a fixed stop loss for technical bets but When I transferred the same system for techno funda bets I noticed it working against me because of longer time frames. Over the next one month Something like an IBREL or delta corp falling 10% is par for course but Pidilite falling 10% will worry me. Blending technicals with fundamentals is after all blending objectivity with subjectivity. So why not be subjective with your stop loss. It can be a function of your stocks average daily range. Just try it some time. If it doesn’t work then no harm done. It’s only money

GARP_niveshak · October 24, 2021, 4:28am

I was lucky enough to read this book before learning about Buffetts opinion on technical analysis. Would have never taken technical analysis seriously like most value investors lol
For any stock you get daily high and daily lows on NSE website(downloadable). That way you get the range for each day and then you can take the average for a given period
Quicker way would be to use charting functions such as ATR and ATR band🙂

Malhar_Manek · August 7, 2022, 6:36am

I will try and write on this thread more frequently. One area that I have been exploring in the past few weeks is global investment opportunities. I have found that outside India there are high quality structural compounders, often with higher growth rates but available at lower valuations. Let me briefly describe a few that I have been reading recently:

1 Aselsan-Largest defense company in Turkey, among top 50 in the world. This is also an interesting case of how reading a book (The Power of Geography by Tim Marshall) helped me connect the dots with a company. Also, they spend >20% of sales on R&D! The RoE for CY 2021 was 27.6% and the average RoE for the last 3 calendar years for 25.6%. The long-term debt to equity is almost zero. PAT growth is >25-30%.

Sales are majorly to Turkish army…

…but even for domestic sales, they take payment in foreign currencies (while incurring costs in lira)

Here’s the punchline- trailing PE is 7x!

https://www.aselsan.com.tr/032022_4232.pdf

2 Dino Polska- A high growth frugal grocery retailer (supermarket chain) in Poland. Stores are majorly in rural towns, outskirts etc. Almost all stores are owned, not leased. Nil store closedowns since 2007. They have the lowest prices.

Store count growth…

…+ sales per store growth

http://grupadino.pl/wp-content/uploads/2017/05/2017-05-Dino-company-presentation.pdf

3 Sechaba Brewery

Disc- no holdings in any of the above as of now. Will update if and when required.

akash_das · August 7, 2022, 7:33am

Pakistan is among Aselsan’s leading overseas customers.

Turkey is itself undergoing an economic crisis.

Economic crisis in Turkey and Pakistan can reduce purchases in future.
Personally, weapons supplier to Pakistan even is a big red flag for me.

Apurva_Dubey · August 23, 2022, 8:29am

Thanks for sharing. How would you invest in Turkey or Poland if you wanted to? Are there platforms/apps that enable it?

Malhar_Manek · October 9, 2022, 3:45am

Brief post on what I’m studying currently- many of the new age companies that IPOed about a year back have now corrected by >50%. I am studying Nazara, Nykaa and Policybazaar in particular to understand the businesses and figure out whether current valuations make sense or not

Disc- no holdings in any of them as of now

sahil_vi · October 9, 2022, 4:52am

Govt is not in any mood to let a platform biz make fat margins

Beema Nigam for policy bazaar
ondc for swiggy Zomato Amazon Flipkart
UPI for Paytm
breaking monopoly of iex

We cant apply model to directly because the policy framework is very different

It is the rational decision given our demographic. We need to let that value accrue to our businesses and our users. And not let the bicholiya get fatter.

Always good to study businesses but imo this is not a tenable investment right now. Too many moving parts. I’d let his space evolve for next 1-2 years to see clear government policy direction which may or may not allow for profit platforms to exist (in a way they provide some digital infrastructure so making them free or cheap has multiplier effects on our economy)

Utsav_Anand · February 24, 2023, 7:53am

Hi Malhar

Whar r ur views on aarvi encon, Its expanding its operations in UAE, Oman etc

Malhar_Manek · April 24, 2023, 12:00pm

I have not been regular in posting here . I hope to post more frequently going forward. Sharing some small cap ideas that seem interesting. Would be happy to collaborate on any of them, in case anyone is interested. (Names with hashtags are those where I have tracking positions.)

Integra Engineering #

Sales and margins have been quite consistent over the quarters.

One of the independent directors, Mr Mahendra Sanghvi, is the promoter of Shaily Engineering Plastics.

Talbros Engineering #

Bhagwati Autocast #

They make cast iron and spheroidal graphite iron (ductile iron) castings, mainly for tractors. Interestingly, even though the tractor hub is Punjab/Haryana, Bhagwati’s plant is in Ahmedabad. I am yet to figure out how they navigate freight costs and are able to be competitive.

Clients include Escorts, Swaraj Engines etc

What I found very interesting was that the managing director, Mrs Reena Bhagwati, is a director on the boards of Symphony and Anup Engineering. She has also held leading positions at bodies like the Institute of Indian Foundrymen and CII Gujarat.

The chairman and joint managing director, Dr Pravin Bhagwati, was recently awarded the title of ‘Ironman of Indian Foundry Industry’.

They have incurred capital expenditure of INR 16 Crores to set up a 4.5 MW solar plant for captive consumption. (Expected cost savings?)

I also maintain a ‘priority research list’ of companies that I want to study. At present, some names on that list include Coastal Corporation, Cenlub Industries, BEW Engineering. In case anyone wants to collaborate on these, I would be happy to do so.

Malhar_Manek · June 22, 2023, 1:22pm

The quest to getting better is all about improvement; the route to improvement is through feedback. Long-term investors like myself often struggle with feedback. It is not until at least 5 years that some meaningful results show up. In the meantime, tracking business performance is the only way to gauge decision quality. How can one close the feedback loops quicker? How can one reflect on decision quality without waiting for 5 to 10 years?

The solution: history. Make history your friend, and you will accelerate your learning curve multi-fold.

Since the past 10 months or so, I have been reading historical annual reports of large wealth-creators. The clarity it has added to my thought process is immense.

Here’s what I mean: I might pick up the 2010 annual report of a Page Industries or Astral or Vinati Organics, etc; occasionally, I might also read reports of Nike from the 1980s, or TSMC from the 1990s, or Monster Beverages in the early 2000s (no holdings in any as on date). I then continue reading and highlighting several years’ worth of reports, and make avid notes with AR snippets on a Word document*. (So far, I am at >20 companies with the Word doc at 63 pages!)

This way, I get a dynamic picture of how a particular company evolved over time: how they added product verticals, expanded capacities, entered new geographies etc. Crucially, one often finds generalisable insights that transcend a particular company or industry. It is also revealing to try and ponder without hindsight bias (not an easy task!), ‘would I have invested if I had the facts available at the time?’

Now, admittedly, this is no substitute for having actually been invested over those years. Reading about the various roadblocks along the way is one thing; experiencing them is quite another. With that caveat, it is remarkable how much one can glean by reading ‘vintage’ annual reports…

*In case anyone wants, my document is at bit.ly/historicalARs. For a sneak peek, below is just one among many remarkable insights: this is from the 2011 annual report of a company whose share price has since grown by over 100x (any guesses?). Please note that this is not investment advice.

prav.br · July 5, 2023, 5:14am

Any updates on Talbros engineering? They have some amazing numbers.
Curious to know if you did more analysis.

JARUTIR · July 5, 2023, 5:22am

Hi @Malhar_Manek

Talbros Engg is also featuring in my shortlist of top fundamentally-sound micro/small cap auto ancillary list here.

Happy to exchange more notes on it on a thread dedicated to the sector/company.

prav.br · July 5, 2023, 5:27am

Oh nice, thanks for sharing. Unfortunately there is no topic created for this company. I found one for the industry though. Could you please share your thoughts here?

Malhar_Manek · July 14, 2023, 8:13am

Each of these has moved a lot. As always, regrets of underallocation ; would love to hear how others deal with this

Have decided to exit Integra. Current valuations don’t make much sense to me. Might buy again later but I think there will be healthy time correction here.

Some more names that seem interesting:

Loyal Equipments
Loyal Equipments (‘Loyal’) makes process equipments like heat exchangers for petrochemicals, chemicals, fertilisers and other sectors.

In 2020, Loyal announced an order from Linde for INR 20 Cr per year for 5 years.

More recently, in October 2022, Loyal announced an order for INR 15.1 Cr from GAIL to be executed in 11 months.

Loyal is a member of Heat Transfer Research Inc (HTRI).

One of Loyal’s competitors, Anup Engineering, mentioned strong tailwinds due to the ongoing capex cycle in their recent conference call. Interestingly, even though Anup’s revenues, profits and market capitalisation are each roughly 10x that of Loyal, Loyal has a higher asset turnover ratio and lower debtor days.

Loyal has cited domestic competition as a key threat in its annual report. Likewise, the above referenced concall of Anup Engineering mentions the increases in capacity by domestic companies. One can find a list of key competitors in tender documents, here and here: Therm Transfer Equipment, Aero Engineers etc.

One can track their exports here.

Loyal has a subsidiary based in Texas, USA, for booking orders (all manufacturing is done in India). Through this subsidiary, Loyal is a registered vendor with NASA.

Loyal has engaged in a consultancy project with IIT Gandhinagar.

Loyal’s posts on LinkedIn have attracted comments from senior managers at reputed firms like GMM Pfaudler, Atlas Copco and Linde India. Managing director Mr Alkesh Patel posted about potential opportunities in defence and aerospace for Loyal.

HG Industries
Acquired by Greenlam, did capex of 125 Cr which commenced commercial production last month, with peak revenue potential of 400 Cr. Market cap is less than 100 Cr.

image898×200 67 KB
Lakshmi Electrical Control Systems
LMW group, captive sales to LMW is around 80% of LECS revenue.

LECS revenue historically is around 7% of LMW revenue; LMW concall says their textile machinery division alone will have revenue of 5900 Cr in FY24 backed by current order book. LECS FY24 revenue should be 400 Cr+ conservative

LECS is debt free, >20-25% RoCE consistently, also ramping up sales in smart energy meters and EV charging.

LECS has stake in LMW worth 100 Cr+ at CMP which can itself rise in value. Assuming zero holdco discount, LECS net EV is 170 Cr. Single digit PE FY24 and less than 0.5x sales even conservatively.

In case anyone wants to collaborate on these, I would be happy to do so.

Disc- holdings/tracking positions in all