ValuePickr Forum

Malkd's Core Portfolio

Hey all. So my portfolio is a bit weird. I love long term stories and all of my companies chosen have brilliant stories going for them

FMCG:
ITC avg 175(17.5 percent): I honestly do believe it will be the biggest FMCG company in India in a decade. Just need to keep a track on FMCG other margins and growth every quarter. Until it gets re rated I have a 5.8 percent dividend yield to enjoy so I have no issues with patience here

Financial services/Tech/consumption:
Sbi cards avg 530(17.5 percent): This is the perfect mix of Finance and Tech and consumption for me…tech because it’s playing on the long term story of Indians accepting online payments as the norm along with increase in consumer spending on Small ticket items(which protects me from Heavy loans and default for auto and homes from other Finance companies). Got it at a huge margin of safety so I’m comfortable even with a moratorium overhand ahead

Pharmaceuticals(API):
Laurus Labs avg 780(17.5 percent):
I have been buying pharma and chemical companies since June. Wanted to go all in on API since even when demand slows down API companies can increase the companies they supply too hence protecting them a little from demand slowdown. Laurus ticks all the right boxes for me. Also, as a bonus when the likes of Hitesh sir and Donald sir get interested in a company following it becomes a joy since you can see red flags and growth triggers miles in advance

Pharmaceuticals (Generics)
Alembic Pharma AVG 917 (11 percent)
Always considered this as a blue chip pharma company with good management. Had given up on buying it post the run up in price just before and after the Q1 result especially when a QIP was done at 932 rs with the likes of Tata, bajaj etc. Was a pleasant surprise seeing it at under the QIP price and bought straight away at a relatively low PE of under 20. I’m currently very heavy in pharma with almost 1/3rd of my portfolio in it but I honestly feel this is just the start of a multi year bull run.

Pharmaceuticals (Manufacturing):
Granules avg 240 (4 percent)
Slow and steady performer. Good margins of above 20 percent… vertical integration leading to a moat of low cost high volume production this is a pharma manufacturing company that will slowly but steadily become a large cap by virtue of expertly run management and via sustained growth using internal accruals. Good guidance by management every quarter. Seems like a safe bet. Only problem is everything post 2023 seems murky but I trust the management enough to give guidance for that too closer to the date

Chemicals:
Deepak Nitrite avg 520(17.5 percent):
Specialty chemical companies are over priced imo. Deepak Nitrite is a company that will have specialty chemicals contributing a lot more to its overall revenue soon and is not priced even close to a speciality chemcjals company. They have classy managemen, are investor friendly and have been growing consistently and have huge potential in phenolics and specialty chemicals which imo will lead to a re rating soon.

Agriculture:
Kaveri Seeds AVG 605(14 percent)
Always was a fantastic company but got beaten down by cotton prices, an audit scandal and a court room saga a few years ago. Went through a couple years of pain but the management managed to get the company back on track by reducing their dependence on cotton and spreading the dependence across all their field crops. Rice could be the main growth driver now. Has always been Q1 heavy due to the sowing periods of field crops but they’ve managed to create profit in all their remaining quarters too as of last year via vegetables. Management looks like they walk the talk (backed by Mohnesh Prabhai) and they’ve guided 10 to 15 percent revenue and 20 to 25 percent PAT for 7 years(2 already completed). Managed to do this even with cotton and maize prices beaten down in Q1 FY 21. They have a huge corpus of cash which they’ll be using partly for buybacks and dividends. Severely underpriced and very easy to track.

Auto:
Racl geartech avg price 96 (1 percent)
Not a fan of the auto industry or cyclicals. Also, I usually do not delve into companies under 1000 crores MCAP. However, there’s RACL just blew my mind. With its industry leading operating margins , amazing clientele both abroad and locally, good father and son management team with skin in the game, exposure to two wheelers and tractors ie less hit covid products and constantly improving financials I couldn’t ignore it at its price (revenues are twice the MCAP!). However I have a very limited exposure to this ie just 1 percent due to the headwinds for auto, my dislike for cyclicals in general and my lack of experience with sub 1000 cr MCAP companies.

Overall I think of these companies as my businesses more than my stocks. also, i’m currently tracking the following with small amounts and I don’t consider them part of my portfolio yet:
Idfc first bank, Cupid, Rain, VIP , Sirca Paints, Kpr Mills, India mart, Rites, Polycab, Tci express. Not fully convinced in any of these as of now. Will be waiting until next year post covid and until I gather the required funds and then one of these will be added to my core portfolio changing the overall allocation. I’m also interested in adding a IT/tech company soon and il probably wait for an IPO for the same since there’ll be an explosion of them soon and the ones currently in the market look overpriced.
So overall the allocation of my portfolio will normalise across sectors in a few years with the aim of getting an even spread across sectors in time.

Open to criticism and reviews in the comments… cheers

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Note. Each one of those contribute approximately 22.5 percent at the time of allocation. With laurus and sbi cards running up so high the allocation obviously changed. 1 company per sector and such high allocations look risky but I see it as safer . Spend a lot of time tracking and understanding them and i find it less risky following 4 companies every quarter since I now know them very well and I know exactly what to look for and when to panic and when not to. The aim is to add a few more companies from different sectors(will add when I am convinced regards a company and when that sector has tailwinds so I get a nice margin of safety in each when entering) with the aim of ending up with a nicely distributed portfolio. When I pick a company to do so I will mention it here as an update. Infact , I Will be posting updates on each of these companies every quarter along with my thoughts in this thread rather than clutter their respective forums. I hope that is allowed and not frowned upon. Cheers.

I share KPIT, Granules, Laurus & Deepak Nitrate with you. In Pharma others, i have Aarti Drugs instead of IOCLP & Suven. Following this thread keenly.

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Cheers neeru. Kpit for me will be a long term check before I invest fully. It intrigues me in the Engineering tech space though. I’m going to be watching their Margins intently. Revenues are already through the roof so just need to make sure that they are sustainable and the margins increase. When that happens itll by pick in the “IT” sector.

For KPIT, i am closely following the company and their hiring patterns. Lot of hiring is happening in US, China & Germany (LinkedIn Job Postings). Also the outlook by Management seems very positive. I will try to attend AGM this time. They are securing long term deals with leading customers since most of the tech they work is disrupting an entire industry. Industry forecast is very positive. https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/mapping-the-automotive-software-and-electronics-landscape-through-2030#

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Thanks for that. Expecting big things. Took a small position around 60. Will be adding more when I get funds /my conviction increases. IT has tailwinds so it will probably be my next major buy. When the covid situation improves and post moratorium il be saving cash for idfc first bank too. Those probably my next full conviction buys

I share ITC (around same proportion as you), SBI Card (3% of my portfolio) and Lauras (3%). Sold Deepak Nitrite a year back at some 20% profit (beginner’s luck. Was a trader that time. Didn’t understand a damn thing). I am glad to find this forum, where we discuss logic, with more emphasis on quality.

I have a gut feeling that ITC will become a giant in FMCG in 5 to 10 years. It’s a long race horse :slightly_smiling_face: We need to keep a close eye on profit margins and the measures they bring to improve efficiency.

I am yet to respond on the KPIT thread (with full time job, I find time only over the weekends to go through ARs, ConCalls etc) :frowning: So I fully concur with your view on having a super concentrated portfolio.

If I may ask, did the thought of adding a insurance company (SBI Life, HDFC Life) or an IT company (TCS, Infosys) ever cross your mind? Covid19 has disrupted human life, and going forward people will be proactive in insurances and health hygiene. I feel IT will be a good play in coming time.

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Hey green Goblin. I’ve wanted IT for a while. Was interested in L&T infotech but that’s gone out of my reach. Was also eyeing sonata and cyient around 200 but due to their client base being affected by covid and small concentration of clients I held off and regret it a bit now. Itc and sbi cards are the only large caps I like due to huge growth possibilities(the future is super exciting) and I will be only looking at small/mid caps apart from them. They are kind of like my debt funds to offset the other risks I take. So infosys and tcs etc I’ve not considered. I’m hoping KPIT answers all my prayers. I prefer engineering tech over IT anyway. However, yes… IT looks good and I wish j acted earlier. With my stake in sbi cards and my planned stake in idfc first bank il be all set with finance tbh so I’ve not looked at life insurance. Maybe the LIC ipo will lead me to study the sector properly. Right now the only sectors I fully understand and have researched properly are Banking/nbfc, credit cards, pharma, chemicals, fmcg… once I do detailed dives in other sectors il be more comfortable adding them. Usually the process I follow is understand sector, study companies, pick out a few standout ones, study management and then start looking at a company in detail. This makes me actually investing fully in a company a slow and long process so there are a lot of sectors that I haven’t even reached yet.
Note. One of the reasons I picked ITC over zydus and Tata consumer(I honestly think those two may end up being better picks) is to reduce my risk in small cap. Itc is my fixed deposit. Sure guaranteed dividend returns at above FD rates and no worries since it’s large cap and safe with a huge growth runway.

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Thanks @Malkd, for the detailed response! It speaks clarity.

Can you please point me to some resources where you study sectors? I usually Google some keywords and skim through links. But this also means to have to go through sites which don’t add much values with respect to the time it consumes.
Researching sector is something I need to add to my process.

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It’s a mix of career choice, interests and YouTube tbh. Banking/nbfc and Fmcg I am most comfortable with. Auto too(and because I am comfortable with it I know the headwinds and don’t want anything to do with auto… kpit is kind of like my auto play that is immune from the current headwinds in auto and hence why I like it). All those are a mix of my studying years in college, current career and general interests. Pharma and chemical is this forum. Everything I’ve learnt is from here in those fields. Plus YouTube lol. I feel like those cover most sectors I want to invest in tbh. It’s a weird mindset… my main business is in the education field and my wife’s business is in the construction field. So il never invest in education or infra since I already have a lot of stake in those already. I think of these companies as my businesses and I always wanted a business in finance, auto, fmcg and pharma/chemicals but it would be impossible to start a company for each of those in my lifetime on my own. The stock market jsut gives me a chance to own those businesses but without starting from scratch and with small amount of investment and just a little work after the initial research which is far easier than setting up and running an actual company(quarter results, news and concalls). The moment I began thinking of the stock markets in this manner i began seeing success. Such a simple concept… but once it sinks in everything changes and becomes clear
Note: I also studied the support and resistances ie technjcals of all the stocks I follow. Gives me good ideas of when to enter and at which levels I need to panic incase everythjng goes wrong. Daily market watching( I usually do one in the morning and one in the afternoon… . not because I have to but because there’s still a thrill to it) can be tense without knowing these and since I learnt how to do that I’ve been able to stomach bad days a lot easier and even add on dips etc(my point being your intraday skills will always come in useful :slight_smile: @greengoblin )

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That’s a very concentrated portfolio! Personally I could have put that much allocation only to a company like ITC may be. Also, you seem an experienced investor and this looks like your latest portfolio coming out of this crash. Would be good to know your previous experience as an investor and past portfolio and picks and how they fared over long term. That would make us understand your perspective and mindset better.

Among your recent pick, I feel ITC will really test patience but can fly when things go right. Something like how a Tata Consumer is doing after a decade. It was able to do that only via restructuring and same would hold true for ITC. ITC needs restructuring/demergers etc, not sure when and if it gets it.

SBI cards - I am in general vary of Financial business, specially lending, to go for such high allocation (although have significant allocation to Life Insurance business). Agree the risk of corporate defaults is negligible/absent in case of SBI cards but the risk of competitor taking the market exists. I see cut throat competition in cards business going ahead. Also, how would digital payments like wallets etc. help cards business, as you mention somewhere? Cards are here to stay and grow - which one you never know. For eg. in US a Discover card is one of the leader and I guess was growing fast and it did not belong to any of the leading banks infact no bank at all.
Would be good to know your thoughts on this story from the perspective of growing disruptions in digital payments and competition and finally regulations (like stand alone credit card companies in future etc.)

Laurus - It is amazing how soon you built the conviction in a new company discussed on forum and allocated a huge quantity. It shows your risk taking ability and mindset and also that you are an agile investor. Hope it works for you.

Thanks

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Cheers @Investor_No_1
My portfolio pre corona was purely blue chip in the same spaces I currently own. I had HUL, Hdfc bank, Asian Paints, Bajaj finance, Maruti, Sun Pharma which I’ve owned for a while and I did due diligence years ago. When the crash began to occur I realised how highly valued these companies and how comfortable I had gotten in the relative safety of these stocks. I’d stopped checking quarter results diligently and was happy with the slow but steady appreciation over the past few years and I used to actually wait for bad news to add to my portfolio in these companies which in hindsight is the opposite of what one should be doing but most people do this with blue chips atm . When the crash began I changed my priority. I realised that I actually find comfort in lower valuations and smaller companies. I picked up ITC the moment it’s dividend yield began matching an FD deposit(not a small company obviously… this was to protect my capital with a long term growth plan as an alternative to the bank). I picked up SBI cards since I was excited regards the IPO and credit cards in general and it looked like a steal at 500. I’m one of the few posters in the SBI cards forum and posted all about my reasons there(for eg it’s not possible for UPIs to give credit, 20 out of 100 people in Kazakhstan have credit cards while just 3 out of 100 Indians have one etc :slight_smile: ) . This was me not letting go of large caps in a full manner but still choosing businesses and companies I enjoyed following and saw long term growth Runways. Post that I began looking at pharma and chemicals for safety. When I studied chemical companies and their high valuations I came across Deepak Nitrite it absolutely blew my mind that I’d not invested in it earlier. Ive been sitting with 4 pharma companies and cash for months now… bought laurus, iolcp, suven and granules after studying plus help from this forum. Once laurus’s results came out all my studying and research came full circle and it just looked too good to miss. Again… it’s thanks to this forum that i even heard of it. So I deployed all my cash in waiting in it since my conviction went through the roof. It sounds risky… but it’s actually a boring long months long study with a scramble to add to my ownership on results day. Maybe this will all go wrong… but I now feel empowered enough to know that I will see it coming before it does since I’ve left the relative safety and ignorance in owning my blue chips. Funnily enough I feel more comfortable and in control now than I did with all those blue chips in my portfolio earlier. I still have a long list of companies I am slowly gaining confidence in( I had initially planned on an sip every quarter and I’d posted regards this earlier but I think I prefer just waiting and picking the company I like post full conviction instead). The day I do I’m pretty sure il be deploying my available cash in the same manner(idfc first bank is next… already convinced. Just waiting for moratorium fallout). It sounds risky… but honestly it doesn’t feel risky at all once you build conviction. It was a post and even a reply from Hitesh that changed my perspective. I owe him a lot even though he may not realise how his posts can change a persons life. What a legend he is

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Note I have kept exit plans for all these stocks incase things don’t look like they’ll work out.
ITC: temporary things like taxes etc don’t bother me. But if margins don’t look like they are improving at all then it’ll be a red flag for me. However, considering the dividend yield I will have a lot of patience
SBI cards: they need to grow quickly . That’s it. Their valuations are so high that if they stop growing quickly I may cash in and move elsewhere in the future.
Laurus labs: Q2 and Q3 need to be along the lines of Q1. As long as they are in range of Q1 IL be happy since that will prove its a new base line. If they revert to levels from last year then I will have to exit and admit my mistake
Deepak: Specialty chemicals should keep on contributing more and phenolics story should continue ie high demand and more exports from India instead of imports to India. Basic chemicals and performance products should remain stable grow at a slow pace or even flat and I don’t mind.
Again, I am confident but these are what I’m looking at. As long as the story plays out I’m fine. If the story does not play out due to a short term issue(moratorium for SBI cards, Corona for Deepak Nitrite) I’m honestly not too fussed.

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I truly do not agree with your hypothesis of ITC becoming the best fmcg player in India. They have a below average product mix and lack the creativity and innovation of companies like Nestle. They are a really big company which has its pros and cons. It has a lot of resources but seems like a slow giant that takes too long to turn, also the turn is really improbable. Their tobacco revenue does make it safe however.

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Removing any biases and preferences towards their products the stats themselves say this is happening:


Also their margins are improving every year and have inched upwards from -ve to the 3 to 4 percent range. Their ICMLs are running and they are now literally backward integrated so their margins will improve. The thing with a company like ITC is they have so much cash available that they have literally thrown cash at the problem last few years and in doing so imo they have created quite a few household names. This may have caused pain for previous investors but I see new investors benefittjng from all that capex and long incubation period from its brands. Also, They just bought sunrise… with the cash they have in hand they could buy another few settled brands and the Fmcg story could suddenly run though that’s pure speculation for now. Either way, As an ex smoker I know that its main cash cow will not go anywhere especially after seeing the entire vape industry get destroyed and cigarettes surviving Corona, so I know that my dividend yield won’t go anywhere even if the FMCG story doesn’t play out(and I have strong conviction that it will)
Also note: I said biggest… not the best. Pureplay FMCG companies like nestle may always be the best at what they do but itc may well beat them at revenue with just a few more acquisitions. They’ve basically said all capex is done… so they won’t just sit on that excess cash. Even if they just throw it on marketing/advertising they could get the numbers.
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The below should answer your question on ITC.

New products

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Dividend history

Cashflow

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A company may have sound management with robust financials, clean balance sheet, attractive product portfolio which customers love to buy…mouth watering valuation of stock …then why the HNI’s , the FII’s and most Investors don’t prefer to keep this beautiful stock in the portfolio… nowadays they all look for ESG compliance…
So as an ordinary investor even if I don’t believe in ESG Investing and I buy the stock , I become the victim of decision of majority of investors who don’t want to buy the stock…
So the only way, in my view is if ITC does a restructuring and seperates it’s cigarette business from FMCG Business… Both then becomes two different listed companies… then look at the P/E valuation … It may even exceed TATA Consumer, HUL, Britannia…
Dicl: Not Invested… may be biased and I may be wrong …It is not a buy or sell recommendation…take your investment decision after applying due diligence…

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Regards ESG… look at United breweries for eg… it’s always commanded a high PE even though it deals in a sin product ie alcohol so there are instances of sin companies getting high ratings even with limited FII investment. Also, ITC can skin the ESG cat in many different ways… https://www.thehindubusinessline.com/companies/itc-paperboards-bhadrachalam-unit-conferred-greenco-platinum-rating/article32265914.ece “ITC has been carbon positive (15 years), water positive (18 years) and solid waste recycling positive (13 years).”
I haven’t found any recent corporate governance issues… infact everything they do for their employees including esops is a positive. https://www.itcportal.com/media-centre/press-releases-content.aspx?id=2196&type=C&news=Top-Global-Rankings-for-ITCs-ESG-Performance
Also, you can see them doing everything in their power to talk about how their main priority is moving to FMCG others in their quarter results and in all their commentary: https://youtu.be/PYFSjlcswpw
IMHO it’s only a matter of time before they become ESG investable for FIIs since everything they are doing js slowly adding up. At the end of the day investing is us looking into the future and following stories and ensuring they play out… with itc it’s easy to this since there is no risk ie not much downside and dividend yield. Just look at reliance… they’ve been re rated in a matter of months due to a flurry of investments and I doubt anyone saw this happening so quickly. Can see the same with ITC brcause of all the measures they are following and due to the fact that they can go on a reliance like run of acquisitions with their own huge supply of cash. At the end of the day if ITC does get majority of its revenue from FMCG others, improves it’s margins to match other FMCG players, follows environmental norms to the tee I just cannot see big institutions not investing in them. I understand that the past 5 years owning itc must have been painful due to the capex and dependance on cigarettes and maybe buying itc at 250+ would be a bit of a stretch at this moment(lower yield + long wait and loss due to opportunity cost)… but imo buying it at sub 200 ie at the ground floor is a good investment due to the limited risk and atleast the potential for huge growth and re rating due to the aforementioned changes in the company’s outlook for the next decade as compared to the previous one. I am obviously biased though.

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Before this thread turns into an itc thread I think il post my Q1 result+ Commentary/Concall/Agm thoughts on each of these companies along with a story check. Will make this a regular posting every quarter
Deepak Nitrite: Q1 looked poor on paper. However, Specialty chemicals showed huge growth, phenolics showed huge margins and ipa increase in capacity showed management is always on the lookout for opportunities. The Agm explained that phenolics was down due to issues with demand and with logistics caused by the lockdown. Also management said they will decide capex based on the current scenario and are going to prioritise life sciences and agro instead of infra which is fantastic. Basic Chemicals were flat and performance products obviously fell due to dasda pricing changing from 16 dollars to 4 dollars + no demand but overall story of its specialty chemicals and phenolics divisions are intact and I’m very happy.

Sbi cards: Results were beyond my expectations. In just 45 days post lockdown they reported better numbers than Q1 FY 20 and their moratorium is down from 12000 crores to 1000 crores. It’s on track regards fast growth and considering its capital adequacy ratio increased from 20 to nearly 25 percent I have no worries regards the moratorium either (small ticket items play seems to be working). Story is on track

ITC: cigarettes and hotels took a hit as expected and revenue and PAT decreased due to this…FMCG others outperformed though especially when removing ESB which took a temporary hit due to schools not opening. Margins were a bit disappointing ie they did not increase as compared to last quarter but il forgive them for that due to the lockdown. The acquisition of sunrise foods could add 7 percent to their FMCG others revenue in the future and it works alongside aashirwad so I like the acquisition. Also it shows they are open to inorganic growth under sanjiv puri which is a huge plus point considering their cash reserves. Story is on track.

Laurus labs: Q1 looked sustainable based on management commentary and there were no oneoffs. So if indeed Q1 is the new baseline then Laurus is still underpriced and has a long way to go. My words will never do justice to summaries given by better and more experienced investors in pharma than me in the laurus thread so I won’t even attempt to do the same. Overall, the story is on track.
Now the long wait for Q2. If all goes to plan il have bigger positions in Kpit/Idfc since those are now the next two in my sights.

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As an independent retail investor you should focus on your stock picks and conviction. HNI’s, FII’s should not be the deciding factor.

PPFAS Long term Value Fund update:

  1. Added 3,200,000 shares of ITC, second largest domestic holding in their portfolio, (6.03% weightage)

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Source

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