Malkd's Core Portfolio

[Malkd]

Il just use a few examples to explain how my style of investing works so that I don’t look like a madman catching a falling knife. Buying Laurus and Ingrevia and Vaibhav were easy(though I bet big and early in these to avoid fear of crashes later on like in this pre result run up for Laurus) . There was no period of pain there. They were the perfect combo of healthy undervalued growth.
However,
Last year deepak Nitrite posted a horrible result in Q1Fy21. Clocked just 98 crores profits and the price crashed to mid 500s. That’s when they were still being valued as a basic Chem business and the market was ignoring specialty Chem and the potential of phenol(and future upside of dasda). I added a huge chunk in that range and never since and subsequently has been a near 4x

Back in February oracle finserv looked like it was a dying business with competition killing them. Their price was smashed to under 3000 and The dividend yield was 6.7 percent. At the same time there was a lot of tailwinds in IT Bfsi. This quarter oracle has broken its all time high revenue and profits and has already been a 60 percent return including dividends in just 5 months. Similar concept with Rites at 235 when the general market was ignoring its growth prospects and yield at 6.5 percent.

Back in February WFH was the buzz word and offices looked like a relic of the past. Reits like embassy were trading at 305 Rs with crazy high post tax yields which and in all that fear I loaded up . Fast forward 5 months and Embassy has already recovered both business and stock price far earlier than expected.

Basically, situations change with good companies and blue skies appear at some point. Its the fear at business bottoms which needs to be overcome. I’m currently betting on itc, alembic and( now ida after the crash) to reverse at some point in the future because they are good businesses at the end of the day though I’m doing it via sip since I’m expecting really really long pain periods. Maybe some of these bets I make will crash and burn one day but this is the style of investing I enjoy and I feel I’m good at so I don’t want to change it.
The only place I’d be wary of doing this is in a levered business like financials (or in a cyclical business since I haven’t yet gotten comfortable with short term cyclicals yet) and hence why I’m waiting for blue skies there first before buying. With long term growth stories I find this method works best for me. There is something about it that feels as intoxicating as a drug too for me… Ie buying when the person who is selling it to you is in fear at a cheap price and when the chips are down (vs buying when everyone has all the info and it’s just blue skies) and then slowly seeing improvements quarter on quarter and seeing the story play out and matching your conviction lol(similar feeling as buying a small microcap like ugro and seeing it scale QoQ and YoY which is an equally fantastic feeling) Investing is supposed to be fun too and I find this method to be the most fun for me especially since I actually feel my money is safer when buying an alembic/ITC when the world seems to be ending vs when they are valued high and growing as per expectations.

[P_R_E_M]

Really liked the style of your investing and the kind of research & your preparation of mind before taking high risks. Don’t see a single instance where you have regretted buying a stock in difficult times.

Would like to know your view on Amara Raja Batteries Ltd valued @695. Will you go for it despite of legal case Andhra Pradesh HC extends suspension orders of APPCB by 4 weeks on company’s plants

[Malkd]

@P_R_E_M the more I study it the more I realise its not for me. What it does have going for it is its cheap. However, the industry itself doesn’t scream long term growth story and i don’t think I want to add it to a concentrated PF tbh. The return on capital has been sloping downwards and I just don’t find the battery space something I want to get too involved in. I don’t think il be comfortable adding to it if it gets cheaper and I just don’t like the auto space in general and the only ancillary company I ever really liked was Racl geartech… I got in in the 90s, But I made the mistake of exiting too early and now I have to live with it instead of trying to find an alternative lol. Right now my priority is upping my slightly low(vs rest of PF) stake in Vaibhav Global. I was a bit wary of adding at current valuations but they’ve continued to prove that even now they worth adding to with their result yesterday. Amaraja is just not in the same league of the likes of vgl, ida, Laurus, Deepak, ingrevia etc imo so I’d rather just add in those for now and wait for another similar or better opportunity to my current investments to pop up before adding a new company to my PF. Cheers

[arunjacob]

Congrats @Malkd on your conviction in intellect (to add 50% more in one go)… i only managed to add ~9% more to my existing holdings in the crash. i bought at 750, 712& 702… i was expecting it to settle at around 700 for few days… but it ran up today very quickly… Any ways intellect forms 12% of my pf & is one of my high conviction bets.

[Malkd]

Cheers @arunjacob . Good luck to the both of us… Though I wish you more luck since my position is still only 7.5 percent of my PF vs your 12. As I get more comfortable with my understanding of IT il build it even further next few years. The good thing about a complex, lumpy product based IT company that is on the way to predictable saas and license based revenue(but not yet there) is there will always be quarters of underperformance for the next few years atleast since revenues and profits will not go up in a straight line and I’m sure this will give us as investors plenty of more opportunities to add even more to our positions next few years

[Patrioticindian]

How do you interpret the results of Laurus and Deepak? Whether Deepak can sustain these profits before it increases it’s segment more towards speciality chem? I feel their downstream plans are still years away.What is interesting is both are diversifying and derisking their products so as to improved their consistency in their profits, and management play very important role in that.Yesterday there was a big spike in my pf after a week of underperformance. My networth in Laurus &Deepak is 56 and 27%.Recently only started studying IT companies IDA looks interesting . Started small token position in ingrevia @600. Sometimes I wonder why to chase too many stocks only two stocks are more than enough to be financially free. ie. Laurus and Deepak 50/50%. your thoughts?

[abhijeetc]

Hope you have done due diligence on intellect… Back in the day polaris was a losing proposition… Promoter was convicted for insider trading and banned from the market by sebi

[Malkd]

@Patrioticindian … I could see nothing wrong with both Laurus and deepaks results. Chins perfectly summed up the interview by Dr chava which explained why they were slightly lower than expected and the story continues undisturbed. Deepak continues its beautiful juggling act. Phenol continues to be a huge driver and should continue to do so in the short term. Basic Chem now looks like it’s formed a nice base and Performance products is slowly recovering and based on the previous profits in the ppa up cycle I’m sure it will help cover the slack if Phenol starts underperfoming. Spec Chem is growing slowly but steadily. Probably a few years left until they add a significant amount to the top and bottomline to give more predictability to the results. I am very comfortable with my stake since it seems protected from Phenol and dasda fluctuations… Though buying now at 2000+ would be a bit risky if the cycle turns.

Regards owning 2 companies… My PF in Laurus and Deepak and is currently about 75 percent though I wouldn’t want this long term since any adverse news regards corporate governance or factory fires or continuous usfda issues or government policy would lead to a lot of irreversible pain.

Basically, Similar to a company my PFs core business is Laurus and Deepak which will run untouched and il be allocating capital elsewhere(similar to m&a and new product lines lol) over the next few years to reduce concentration risk and jump on new growth opportunities to diversify my PFs “business” as long as they are in my core competence(hence why no cyclicals).

@abhijeetc … In The latest Concall by ida arun jain addresses the most recent insider trading allegations regards his daughter(not polaris) . Its worth a listen. You are right to be wary though… And it’s Probably one of the reasons the market doesn’t yet rate Intellect Design in the same way it rates other product based Bfsi companies like temenos. Its upto each individual investor to look at the same and take a call as to if they are comfortable with it. Cheers.

[arunjacob]

i have checked about this … But the opportunity with intellect is so good . its quoting a very low P/e or P/s (any metric for that matter) multiple compared to its global peers. Also the fintech market itself is growing at a decent pace.We are seeing it at low multiples because indian market has not yet appreciated a product companys earnings potential (earnings will be sticky (AMC & SaaS)).

Also regarding insider trading management indicated that last insider trading happened unconsciously as his family office didnt consider the information relevant for market movement (may or may not be true) . IMHO its amongst the lowest serious governance issue. They are not outright cheating investors by allocating themselves shares at low valuations (seen cases where promoters buy shares at low valuations (call options) & based on market value in future they will either exercise it or not) or siphoning money from company

[Malkd]

@arunjacob the thing about insider trading is it could work both ways too ie selling before bad news. So it can be detrimental to investors too… They could also buy before good news and then sell when the news comes out and make a quick profit which he hasn’t done to my knowledge. Infact Mr jain hasn’t ever even sold a share legally… So forget illegally. Also, the amounts with polaris were in lakhs which is peanuts for someone like him. Maybe he was trying to game the system and see how much he could push it… Worst case scenario is he tried doing that and got caught both times… So I doubt he would even try doing it again. Best case scenario he really just had bad timing regards his buying. Imagine you were the owner of a company with 1000s of employees, revenues in 100s of crores and 100s of clients with news coming in and out literally everyday regards all of those factors and many more and any one of those news could be a positive to the company. How do you know what news you can act on and what you can’t if you want to buy your companies shares. It would be like walking in a minefield trying to avoid all news. At the end of the day, I think investors being at the whims of people with more knowledge than us is part and parcel of the Indian stock market and is something we just need to accept and hence why we need to insist on an even bigger margin of safety to account for it with any listed company in India. I agree with you though… I’m not too bothered by Insider trading due to the grey area it covers(I think it was the book “business adventures” that had some nice stories from the USA in the 60s when this was rampant. Made me realise how grey the situation can be) . It’s the money that is siphoned out /unexplained bonuses/ rpts /no skin in the game etc that worry me and that isn’t the case here.

[arunjacob]

I think , India also should have a system like US , where insiders should give a notice of 1 month before selling (I’m not sure , if its mandatory in US , but companies i worked , have a policy for senior management to give notice 1 month prior to selling). But you cant have a policy for buying though

[Patrioticindian]

Do you have any idea about today’s IDA fall? I started to build position after doing some homework (presently 2% of my pf) around 720, thought 700 could be bottom. Is this fall normal exit by some fii’s or any red flag?Where do you their products 5yrs down the line ?As well as their topline. I hope you are enjoying the ride on Laurus and Deepak as they are on fire due to their growth prospectus for the next 5yrs.

[Malkd]

@Patrioticindian
No idea about the fall. I just continued adding near 660. Will be adding until 200 dma ie around 550 if it reaches there. With ida I can see a very long runway of growth… So adding in the short term and taking hits like today isn’t a worry for me. Its not a home run bet like Laurus and Deepak… but it’s right up there with vaibhav global for me regards an infinite runway of growth. Next 5 years I’d bet on a 15 to 20 percent growth in topline per year(though not in a straihht line). Once they reach a big enough scale and attract the bigger clients is when the fun will start. Right now their ebit margins aren’t in the ballpark of a temenos or even an oracle. As they gain scale and bigger clients(they are currently targeting much smaller players) without sacrificing on pricing + their saas and license based revenue reaches an inflection point the re rating will be through the roof. Im Expecting pain until they reach that point though and will add at these valuations until then… . And just keep a track every quarter to ensure they remain on this path and let it run when they reach that scale. Tbh the 85 percent contribution to Laurus, Deepak and Ingrevia for my PF is letting me have a lot of patience in the likes of ida and Vaibhav global due to their relatively smaller contributions to my PF. I don’t mind taking a hit for the next few quarters/years and keep my eye on the long term with these 2 companies due to the crazy out performance by those main 3 companies in my PF which should continue in the medium term too. Ida and Vaibhav are the only 2 “tech” based companies I understand tbh due to their roots in Bfsi and consumer goods respectively and hence why I don’t mind paying a premium here since I find the moving parts in other IT/tech too much for me to track. Hence, it Makes it easy for me to track them and understand their businesses and add them even at current relatively high valuations vs my other companies.

[Malkd]

The recent(and ongoing) carnage in pockets within small and mid caps made me take small notice of the market again since I love looking around for buying opportunities when there’s blood on the streets. There are a few mental models that can be applied which can make one enjoy these moments instead of fearing them.

Firstly, only invest the money you do not need. A few months ago I removed money from most of microcaps and small caps and finance based companies and so called speculative bets since I’d anticipated the need for that money incase lockdowns continued and my business continued being hurt… So now I have cash on the side to support my business atleast until next FY and I can use some of it in moments like these when stocks decline to their 200 dma levels. These drawdowns then become opportunities rather than something to fear

Secondly, invest in a lumpsum only when the chips are fully in your favor valuation wise. Else invest slowly but surely when valuations aren’t as low as you’d like. This happened nearly accidentally for me. I had a lumpsum when investing in Laurus and Deepak last year. I bet the house on them then since the overall market and their valuations weren’t heated. Once my lumpsum was fully invested I had to rely on monthly earnings /small amounts of cash at irregular intervals to invest into new companies. I cannot sit on excess cash… Apart from my emergency Fund I like staying invested 100 percent of the time and aim to save nearly 90 percent of my income. So this money has been slowly but surely invested into the likes of Vaibhav and Intellect at admittedly High valuations and the likes of a unfavoured turnaround in ITC(however, when ingrevia was available for cheap ie near 250, I sold a lot of positions elsewhere to invest a lumpsum in there in one go). The logic is that it will take me a couple of years to build my positions here… So ideally I want these companies to crash in stock price but stay healthy with their long term vision. For eg Vaibhav has been undergoing time correction for a while and Intellect has been undertaking a sharp correction of late. The way I see it is over the next 3 years I want to build my positions at a range of 700 to 800 for Vaibhav and 600 to 750 for intellect and Rs. 180 to 220 for ITC… . So the longer they stay there the better for me since il only be satisfied with what I have in them at X amount invested… And it will take me a long time to reach there. So paper losses and profits until then for these companies doesn’t make sense for me.

So I cheer rises from Laurus, Deepak and Ingrevia(and am heavily insulated from falls due to buying early) and cheer falls and stagnation from Intellect, Vaibhav and ITC. And honestly it’s a fantastic position to be in regards handling the volatility of the stock market.
One of the best ways I like putting it is as I’ve mentioned before:

I am the owner of a company that is my portfolio. The core business and core competence is pharma and Chem in which I am fully invested and expecting growth to be taken care of by them for the next few years. In anticipation of them maturing at some point and also to diversify to decrease risk I am increasing my core competence(via study and knowledge) into the likes of IT/Tech and Fmcg and slowly but surely building capacities(investing via sip) so that new growth drivers are created 3 to 5 years from now when my core products slow down. And I am currently drawing up plans to add a further growth driver in finance ie idfc first and ugro but I do not want to take on debt ie risk to expand(I don’t see any balance sheet risks in VG, ida and ITC and I personally see an infinite growth runway with low business model risk in all of them) … So hence why I’m waiting for the dust to clear(VI, Msme npas, morat, affect on bv) before investing in those. Over the next 5 years my company(portfolio) will be diversified across sectors that will be within my core competence and il add new growth drivers post that period either within the same sectors and companies or in new ones after proper studying and rinse and repeat

So basically, its a very simple mental model that puts you in the shoes of a business owner but it can be very, very powerful. The next 5 years then becomes a simple exercise of enjoying the drops in the companies I am building positions in AND enjoying the rises and not fearing the drops in the companies I’ve already built positions in.

Note: Surprisingly my PF has been insulated from the drop in the composite index since Laurus, Deepak and Ingrevia have remained stable and even outperformed and Vaibhav and ITC have been stable but stuck while my exposure to intellect is still relatively low. Just by pure luck I sold Rpsg near 750 at a 50 percent rise in just a few months(the rise was too sharp and the more I understood the first source business along with the market madness baked into its price + the long time period needed for the Fmcg business + the annoyingly small position here vs the rest of my PF. But it is a company il be looking at again in a few years) so I could free up cash to deploy into Vaibhav global at current price range which is a position I was dying to increase post latest result and also in ida which I again added today sub 600.

End of random post. Cheers

[Malkd]

Both idfc and Idfc first are now at a price range where I can begin nibbling at them and begin creating a position in my wife’s long term portfolio. Idfc at 200 dma and Idfc first at 43 to 44 where there seems to be some sort of support too. I have no issue adding all the way down to the low 30s which is what I suspect will be the base if things do get worse. I’ve tried playing out every possibility regards Vodafone and at worst it may be a year of 2 of provisions. Their legacy book could throw up more surprises and cause this timeline to get even further extended. But I think if one were to consider a 5 to 10 year period these first 2 to 3 years would be an ideal time to build a position from here and then watch the book get clean and ppop and operating leverage play out over that time period since I don’t doubt the direction and quality long term and believe in VVs plan. Of course there could be a vicious cycle of them being forced to raise cash at low multiples + legacy book npas but I don’t see bankruptcy for idfc first on the cards and there’s a lot of negativity priced in right now. That being said the situation is very tricky and I’m fully expecting Vodafone to go under and another few Toll booth type surprises. Hence, Il be splitting the tranches into 10 and adding one tranche(split evenly between idfc and Idfc first since arbitrage provides some comfort too) every quarter post all new information, thankfully via Concalls from now on too, so expecting this to take 2.5 years to build a position here in what will probably be a long period of pain. I need some place to put her money and most dividend plays aren’t as attractive as they were yield wise a few months back. Playing with fire? Maybe… However, since it will be spread out over 10 quarters hopefully I can get out if things go horribly wrong with less than half the money invested. Il be doing similar but with ugro capital in my more risky portfolio… Though I’m still waiting on one more quarter for this.
Note: my state is nearly fully opened now so with business visibility improved I’m moving towards value buys in finance since holding through pain should be fine now.

[thakurvi]

Sir what is your view on bandhan bank looking at current price of 290-295.Bandhan bank profit margin is highest.With the economy opening and completion of state election in bengal, imo Bandhan also present good opportunity to invest.Management quality (Chandrasekhar Ghosh sir) is also superd.Only risk is concentrated business especially from West bengal and Assam.

Would be glad to hear about your opinions on this?

[shardhr]

@Malkd : -

Always good to hear ur thinkng abt position build-up once u get the conviction. For this particular case ( nd since our investments vl overlap in IDFC - though purely for different reasons - I’m in it for arbitrage only ) - I would like to know more abt why not go exclusively thru buying IDFC route. I mean u like IDFC Bank as a business, hv long term conviction & time horizon for building up position, thn why will u deliberately pay extra for it. At current valuation of IDFC - u’ll get the bank at almost its Book value. Also, the current mkt-fav AMC business too comes along as almost 50% valuation covers that. The mgmt intent & preparedness is thr to dissolve the Holding co. & they’ll be in all probability going for reverse merger. Ujjvan & Equitas merger will also set the precedent for them.

So, all-in-all, I’d really like to know the intent behind buying both esp. frm someone who has conviction in IDFC arbitrage. Anyone who invested directly & only in IDFC First Bank would hv been spared this question…

Addendum : - Details regarding valuations, arbitrage opportunity and other issues are well covered in both the threads, so I’ll spare those here. Yet, I can share my views regarding arbitrage valuations in more details if u want.

Also, attaching a write-up on IDFC First Bank from Moerus Cap’s Amit Wadhwaney. His fund’s largest allocation currently is IDFC Bank.

MOWIX_May_2020_Semi-Annual.pdf (4.2 MB)

Disclosure :- Invested in IDFC frm lower levels for arbitrage. I’m not that good in writing skills nor evaluating business/mgmt perspectives. Hence, I invest majorly in these mathematical arbitrages for the time being…

[Malkd]

Tbh my conviction in the arbitrage isn’t too strong . I want to own idfc first long term And want to benefit from the arbitrage too so I’m just splitting it evenly to be safe so I benefit from the upside. In that case if something goes wrong with the reverse merger atleast I’d have my idfc first shares and maybe a dividend payout for my troubles. I know the odds that something will go wrong are low… But I’d rather own idfc first directly too since I want to own it long term. I’ve never played the arbitrage game so I’m just dipping my toes lol

@thakurvi
If I’m paying multiples above 2x for a financial institute I would just go with the big guns ie axis/icici/Muthoot etc. With so many headwinds and concentration risk I really don’t see the upside in bandhan bank at nearly 3x book value. Its idfc first and ugro or no financial institution for me tbh. I’m comfortable with finance so I don’t want to go the safe route with a basket of safe companies and would rather concentrate on just those two.

[Shankar]

Hi,

One of the inputs that I am getting is that the US generics is a commodity business that is suffering from oversupply and consolidation of retailers. This is going to give a tough time for players like Alembic , Sun, Lupin etc

What is your view on this one ?

[Malkd]

Yup. Expecting a few bad quarters for the generics players. It’s part of the game though. Make money while the sun shines ie for the brief period when patents end… Then watch margins crash as competition and consolidation occurs until the next patent end cycle begins. I don’t have much exposure to generics(Laurus labs is where I’ve bet my house) since Currently just 1/10th of the position I want is built in alembic for my wife’s portfolio. Il be using this pain period to continue building it over the next few quarters/years(alongside idfc). I find siping during thesr tough times the best route since there isn’t much opportunity cost in this bull market with the low amount at play and it gives rise to the possibility of better returns a few years down the line since a huge position can be built at depressed valuations via quarterly cash flows. I don’t doubt the quality of alembic. As long as they don’t go out of favor with the usfda and they continue building their India branded business I’m happy to hold long term.