Did you go through the recent damning article on ITC management and how it destroyed value for stakeholders? Would love to have your views on that!
@Inimitable_Investor I did. Part of the reason i sold is the opportunity cost right now and the uncertainty with my business in this covid environment. There is far too much negativity with ITC at the moment. As long as cigarettes are the main revenue source I canāt see the price going anywhere. Cigarette sales will keep falling and this will cause the price to be in limbo for a while. Add the SUUTI sale, LIC sale, BAT, hatred of hotels and I canāt see it going up anytime soon. I see this as a good thing personally though. I have full faith in ITCs Fmcg line and itās only a matter of time until it becomes an Fmcg company. Iām hoping it takes 10 years of negativity until this happens ie Fmcg others margins and profits being high enough for a re rating. I donāt want to invest in a lumpsumā¦ so il be SIPing over the next 5 years(hopefully 10) until I get my target number of shares(which is a lot). ITC isnāt Enronā¦ they have enough free cash to pay dividends and keep the price up even with cigarettes dying. Itās a long term game with them for me. I do not want to put a lumpsum in since thereās a huge opportunity cost involved ATM but I Will be buying around 1000 to 5000 shares every year for 5 to 10 years if the price is reasonable in SIP form and il ignore all the noise. Iām hoping I can buy it below 200 for the next few years so let the negativity continue I say 
ā¦ we ve discussed ITC above and a lot in the forum and Iām getting tired it tbh ā¦ there are 2 armies fighting this ITC battleā¦ the ones who hate ITC as an investment and the ones who love it. I belong to the third armyā¦ I think they will struggle for a couple more years and is probably the worst short to medium term investment in the marketā¦ but I canāt see a better opportunity for financial freedom long term than ITC and when I do have my allotment of shares I wonāt sell them for decades. Il never understand how people trust leveraged institutions long term(banks) but are wary of cash rich institutions(ITC) . At the end of the dayā¦ They will survive the down cycles over the next few decades with the huge amounts of cash they generate and hence why I know my money will always be safeā¦ that theyāll pay me a salary equivalent to a high paying job in 10 years via dividendsā¦ and my money will grow at a crazy rate long term once itās a full blown Fmcg company. Anyway Iāve posted a lot about all of this in the ITC thread too and my mind hasnāt changed since.
8 Likes
Couple of notes on whatās been a big day for my portfolio:
Today Laurus Labs has become a 2X! The satisfaction of a concentrated portfolio means I get to enjoy a huge profit due to the huge allocation I put towards laurus and I have no regrets about not putting more in. Infact even if a couple of my companies in my concentrated portfolio fail laurus has already made up for it in my portfolio. Not tempted to book any profits yet. Will let it run until 600(expecting nearly double EPS from here this year so thatās very much possible ) and hope to catch a 4X and maybe attempt to book some profits then if it looks like slowing down
Alembic has finally broken itās resistance of 985 to 990 too and the huge bet by increasing allocation over the past month seems justified. Knowledge of your own companies supports and resistances is huge when working with a concentrated portfolio. The initial few weeks are a bit scary but once that small MOS forms all fears go away.
As a bonus Racl is now in a good position to test itās all time high. Will definitely be adding post quarterly results. My strategy with small caps like this is to add on the way up as the story improves and not risk a lumpsum too early.
Deepak, Granules, sbi cards have respected their supports brilliantly the past month. They have been consolidating well and are a good Q2 result away from leaving this consolidation zone.
I guess Kaveri Seeds shows the bad side of a concentrated portfolio. The losses look huge even with a 10 percent drop. And then all the issues with audits etc start reaching fervour panic situations in your own head when it breaks a support. Itās not broken itās 200 DMA until now and il only sell if it does break it. If it doesnāt break itās 200 DMA Iām hoping it crosses my buying price post Q2. If it does then il be holding it for the foreseeable.
Overall, Iāve realised a concentrated portfolio feels risky only at the point of purchase when itās all about conviction and understanding everything you can about the company to build it more than anything else. Once you understand the technicals and supports and resistances of each of your companies in your concentrated portfolio holding becomes easyā¦ especially when you have a nice MOS and a few supports between your buying price and cmp(the waiting for this to happen is the toughest part). I canāt imagine going through this for more than 12 companies and investing in a new company has a huge mental barrier of entry now so I donāt knee-jerk companies in. Overall quite satisfied for now with my decision to go with a concentrated portfolio(I just need to watch kaveri closely for a few more weeks)
6 Likes
Great, Congrats on your good going! Seems now almost all your equity portfolio is in 3-4 stocks? Also, what percentage of your overall portfolio is equity and how much percentage is say MF, Debt, Cash, Real estate etc? That would make the risk profile clearer I thinkā¦
I think last month or so, you were in two minds over ITC as when I read your posts you were about to sell it once before as well but somehow stopped and now finally sold. Biggest problem with ITC is that it does not have a promoter and its top management wealth not linked much with ESOPs. I was wondering that BAT with such big stake does not give the management a tough time when they invest in say hotels or make nothing out of their IT company (compared to other IT players in India) or have no clear profitability lined targets for FMCG and other businesses etcā¦Is BAT happy with dividends alone and not bothered about share price? Will dividend be sustainable if Cigarettes gradually die down and FMCG profitability fail to launch?..Thanks
2 Likes
@Investor_No_1 I currently have about 10 percent in cash post selling ITC and I will be reinvesting that in equity whenever I see a good opportunity. Zero in MF/Debt. Iāve tried real estate(apart from my own home) and ended up selling at Almost no profit after 5 years, that too with maintenance costs etc leading me to a loss. India isnāt very real estate friendly unless you get really lucky or have good knowledge of real estate which I donāt really have. So Almost everything Ive saved is in equity apart from the max limit allowed for PPF every year for tax purposes. Of course I do have an idfc first savings account where I keep money aside for monthly expenses and I set aside my business expenses for each month and store them there every month tooā¦ the interest they offer for this is just insane. I find more comfort in businesses than anything else so what some may consider risky I just find purely logical and more in my control than other instruments. I handle my wifeās investments too and literally all of them are equity based but more of a coffee can format with a mix of safer large caps, invits and REITs so I guess that reduces risk just a little bit. In my eyes the stock market is the best place for investments of any kind in India and there are so many good options available that I donāt see the need to look elsewhere. Basically, I used to invest in MFs a long time ago and found them very unsatisfactoryā¦ I prefer investing in companies through their stock over NCDs and I have no interest in the lack of interest from FDs and Iām horrible at real estate. Iām good at understanding businesses and i absolutely love the joys of investing so I cant see any reason to move away from equity and all my savings will always be pushed into equity. Iāve always had an appetite for risk though so I donāt recommend others follow this since I understand it may not be everyoneās cup of tea.
Regards ITC I honestly donāt care what they do for 5 to 10 years. Theyāll be a horrid investment for anyone with a 5 to 10 year time line and I removed my lumpsum so I can SIP into it to avoid opportunity cost of other investments. Fully expecting cigarette sales to fall and the worst case scenarios playing out. But they are still sitting on 27000 cr cash and even if profits are stagnant for a few years the war chest will rescue the share price via dividends and acquisitions and will ensure they wonāt go bankrupt. And then FMCG others margins will kick in and theyāll be an FMCG other giant a decade from now. With companies like ITC horizons should be 20 to 30+ yearsā¦ they wonāt go bankrupt, if bought in bulk can pay dividends equivalent to salaries long term, and can be kept as a wealth generator for future generations. Thatās very rare with other companies. I firmly believe This decade of trouble for ITC is nothing but an opportunity for us to SIP at a low price and hence gather huge amounts of its stock in order to let compounding take its course in the decade after.
Sorry for all the edits. This was a looong post
4 Likes
Itās getting very difficult to hold onto my cash position. Today Tata consumer and Bharat rasayan have corrected to fantastic prices. Chambal fertilizers looks fantastic too but looks prime for some sort of correction after its run up so Iām waiting patiently for that. ITC of course is as cheap as ever but il wait for it for some time. My cash will be deployed soon in one of theseā¦ the problem is picking which one since I donāt want to half heartedly divide my cash between them. Tata consumer could well be on track to make a mockery of its price tag by the end of the year. Should be around 35 to 40 PE by then due to increase in EPs and the current valuation of 80 looks high due to last years negative resultsā¦ . this year will be better. Bharat rasayan is now at around 23 PE valuation and in a sector with the best possible tailwinds even though AGM showed they arenāt expecting too much this year. Long term picking this up at a lower level could be fruitful . Chambal has been summed up beautifully by Hitesh sir. Nothing more to add. Going to be a tough decision between the 3. Will wait for one of the 3 to reach their 200 dema(Tata around 434, Bharat around 8250 and Chambal around 145 to 150) ā¦ whichever one reaches first comes into my portfolio. Hopefully atleast one does
Edit: CAMs reached an enticing level of 1295 too but I got greedy and waited for a bigger fall. Unfortunately I donāt think Iāl see it at that level again unless thereās some big market correction. Got a keen eye on Ganesh benzoplast too but itās refusing to fall. Tracking all 5 waiting for an entry point
6 Likes
Update:
- After a bit more analysis I have removed Bharat rasayan from my watchlist. Itās way too expensive for my taste even if it falls to 200 dema levels. Re read management commentary from the agm and the growth possibilities at these rich valuations doesnāt seem very enticing for a company @3000 mcap
- Iāve decided to remove Tata Consumer tooā¦ there is nothing wrong with it. However, when it comes to Fmcg thereās only one company for meā¦ ITC. I just canāt put money in another Fmcg company at high valuations when ITC exists at criminally low valuations haha.
- CAMS business model promised secularity the moment I started reading about it pre IPO. However, considering the valuations even at IPO price there looks to be just one growth driver ie earnings and Iād rather buy a set and forget blue chip if thatās the case especially since they may have some headwinds during Corona.
- That leaves me with Ganesh Benzoplast and Chambal. Il be waiting for both of them to leave their overbought zones and once they settle down will be taking a small stake in Ganesh (since itās under 1000 mcap) and a slightly larger stake in Chambal. Ganesh Benzoplast looks prime for a re rating with most of the issues of the past few years including pledged shares and non contribution of chemicals slowly being left behind but it may need some patience(Iāve learned this the hard way with kaveriā¦ turnaround stories donāt turnaround overnight) . Chambals debt looks like itās going to be an issue of the past once their subsidies for urea come through and they are looking very healthy overall considering the tailwinds in their sector. Also, random factā¦ chambal had more profits and revenue than coromandel in FY 20 and is available at 3x less Mcap. There really doesnāt seem to be much wrong with Chambal either so maybe expecting it to be the next coromandel isnāt a crazy ask.
- Finally, Iāve been addicted to pharma companies of late and Shilpa is trading at reasonable valuations currently so that may be my other big buy with my spare cash even though that puts me in really , really overweight territory with pharma.
- Also , Iād Read an article by Dr. Vijay Malik a few weeks ago where he analysed all 2700 companies in the index and he noticed a phenomenon of companies with low valuations getting PE re ratings once they moved from sub 10000 mcap to above or near 10000 due to greater sense of security and mutual funds etc coming in. And Iāve actually Noticed this happening with the likes of Deepak/Laurus/Granules etc and Iām going to continue trying to make use of this. I Can see chimbal and shilpa being candidates for the same over the next few years if they perform as expected.
- Another company I am really fond of is Nesco but il be waiting for Nesco along with idfc/spandana/VIP etc post covid even though the situation seems like itās improving and theyāll probably overpriced by then since I want to stick to agri/chem/pharma for as long as I possibly can in this overvalued market. Something just doesnāt feel right with the markets at present.
I know im spamming my own thread now haha. Just wanted to write my thoughts down since Iām building conviction in buying new companies and I find it difficult to actually pull the trigger since I know the mental torture of the first few weeks of ownership is a huge deterrent. This thread has become a journal for my thoughts and helps me build and add conviction via discussions with everyone here
12 Likes
If you have gone through GNFC?
Hi,
I have been following this thread for a long time and it has given me some really good insights about how to go about investing in a business.
Can you please provide the link to the article by Dr. Vijay Malik you are talking about? I am a regular reader of his articles but could not find this particular article.
Thanks in Advance.
@naquib_alam
Here you go:
One of the best articles Iāve ever had the pleasure of reading on the Indian stock market
@Nakuljain04
I did have a look at gnfc. It seems too short term a trading idea for me. The only play there is anti dumping duty On tdi. Their overall performance last few years has not been great and the management doesnāt seem very exciting. Thereāll be some short term tailwinds due to ADD and there could be profits made here but I wouldnāt know when to time my exit if I took a position. TDI prices have fluctuated before in the other direction and destroyed their profits in previous years. I donāt see a long term play here for me since I would not know if the development is already priced in and if it isnāt then when to get out of it when it is. Overall I like a combination of environmental and internal factorsā¦ Deepak for eg has a similar benefit with regards to ADD and price fluctuations that I capitalised on but they have the bonus of brilliant management and history to give me comfort too. Maybe Iāve misunderstood gnfc but its just not for me especially since Iām not experienced enough technically for short to medium term trades
4 Likes
Shilpa provided the perfect buying opportunity today due to the warning from usfda. Reached 200 dema levels ā¦ before I pulled the trigger I sat back and realised that maybe this warning was just a sign of things to come and reminded me of 2017 all over again. This made me realise how exposed I am to pharma already and how this could be a harbinger for things to come. So rather than buy Shilpa I ended up ignoring it and have decided to average down my currently owned companies that are available at cheap prices atm. I used a bit of it to buy a few shares of Deepak at 737 today and double downed on Kaveri by buying at 520 ie 200 dema levels(risky with the audit issues but itās tested this level successfully for months and everything apart from the audit I love about the company) and il probably need the spare cash to average down my other companies incase some adverse news similar to Shilpa for pharma/Q2 results arenāt upto expectations. Ganesh benzo and chimbal look fantastic but adding more companies right now doesnāt seem like the right move. The spare cash makes everything feel less risky. Cheersā¦ just thought Iād pop in with the update. Back to my day job I go.
6 Likes
Sir what are your thoughts on Sequent Scientific?
it has many positive triggers at the moment and Carlyle buying it out has accelerated these developments, it is also a possible 10000+ cr mcap candidate and the stock has started getting a lot of coverage and attention
1 Like
Hey d.investor. there were 2 times I wanted to own sequent. Once was when they began posting profits back in 2018(ignored it since pharma overall was a bit bearish) and as a technical bet when it was testing itās 52 week high around 90 to 100 or so a few months ago(though I invested my cash in laurus instead). Those seemed like the ideal time to buy. Right now its so highly valued that everything seems priced in. They are improving YoY but Iād say its just enough to ensure earnings growth. At these valuations thereās a higher de rating downside than a re rating upside for Me though. Iād be sweating before every result if I bought at the current price. That being said Iāve not done thorough research since Iāve been happy with laurus, granules and alembic(and solara/suven earlier) so maybe itās a gem and I donāt know it well enough to understand it
Edit:
@d.investor il elaborate a bit more. Sequent may have huge potentialā¦ but When buying a small /mid cap company I like aiming bigā¦ ie 2 to 3x over 3 years(though in reality this doesnāt happen all the time itās nice to aim big ) else id just buy large caps. And it should be simple and easy to calculate these returns. For egā¦ why I like alembic pharma is it is currently trading under 20 PE. Historically in the last bull run in 2016 it traded at 45 PE. They are a good company with blue chip management and can easily replicate that run over the next few years. Letās assume they grow PAT at 20 percent per year for a year or two and then get a re rating upto 45 . Theres a huge chance of them becoming 3x due this in just 2 years. With sequent at its current valuationsā¦ if it grows at 20 percent per year the stock price will grow at 20 percent per year. There isnāt much re rating since even established MNCs are valued around 50 or so PE. If thereās a few bad quarters it can easily fall down to 20 or so PE which is half the stock price. I cannot see alembic falling to 10 PE unless something goes drastically wrong. PE isnāt the only way to look at valuation obviouslyā¦ and noone should look at just PE. itās just an easy way for me to express the above thought regards lower downsides and higher upsides
4 Likes
Thank you for your reply sir
i have a substantial part of my portfolio invested in Sequent, bought some at 105 and some more at 135 ( average buy price is around 125), a lot of reports have started coming up recently related to the company and the near term looks priced in but i am looking to keep it for another 1-2 years and follow the developments closely.
They are backwards integrated and have both Api and formulation and their margins have been improving. The recent consolidation of stakes in two JVs, upcoming product portfolio along with marketing of Zoetisās portfolio in India and with the backing of Carlyle are the key things that make me optimistic.
Do you have any view on Andhra sugars given their diversification into soda, aspirin and other chemicals. With a pe of just 4 and dividend yield at 6%, is there something that I am missing?
Also kindly share your views on Tata Chemicals, they have an upcoming energy, nutra-chemicals and other such high margin products although it is a long shot. The main thing to notice in Tata chemicals is the value of itās stake in Tata Sons which they have valued at just 56 cr in their annual report whereas itās actual value is around 19800cr according to a recent report by Jeffries, this makes it very very cheap given that itās already trading at 0.55x p/b.
@d.investor ā¦ you got sequent at a good level. Prospects do looks goodā¦ but Iāve not studied it too deeply but your comment is convincing me to do so. Il definitely have a look nowā¦ thanks. One company I have studied deeply is Andhra sugars. Everything about it screamed valued buyā¦ luckily I posted about it in the Andhra sugars forums here on VP and the other members showed a few red flags. Iāve decided to remove it from my watchlist ever since. Iād recommend you to go through the Andhra sugars thread too. I noticed Tata chemicals when I was looking at chambal recently(money control arranges them second and third under peer comparison). I had a quick look under financials since it was valued so low and saw there was an error in the financials/a one off ie money control shows profits higher than sales in march 2020 which is what is causing the PE to look so low currently. I dint really follow up post that and havenāt studied it since I was researching chambal at the time. Il have a look when Iām free.
2 Likes
Managed to pounce onto Chambal fertilizers at 159 today. Well chuffed. Was waiting for these levels and now managed to deploy my balance cash.
Paid less than 5x itās previous years earnings making it the cheapest company Iāve ever owned. Worst case scenarioā¦ it stays stagnant for a long time without much downside if it can just maintain last years earnings/not revert to FY 19 earnings. Best case scenario is a re rating for Chambal and the entire fertilizer sector. If they can maintain their earnings for one more year(and management sound confident) and their debt goes down due to the subsidies owed to them then they could be in for a re rating. Hoping for a re rating of both the company and the sector as a whole for this to work tbh. Invested just 4 percent of my portfolio since while I donāt see much risk of a downside it may take a lot of moving parts for the high upside I seek to come to fruition.
3 Likes
I have been interested in chambal too but the significant pledge percentage has been a red mark for me. Wonāt be jumping in till I see some of it gone. What was your view on it.
1 Like
It was a bit worrying I must admit. They have been pledging and releasing frequently and the amount keeps changing . The pledging has even coincided with them buying shares from the open market. Theyāve also done huge amounts of capex at Gadepan. On trendlyne zuari global has been one of the main culprits for this but Iāve not studied them too deeply to figure out why. I can try to assume the reasons behind the pledging and correlate it with the above but Iād rather wait for some clarity from management. Either way I find buying it less risky at this price than waiting for things to resolve and then buying it. I think of it this wayā¦ They will soon get the benefit of a non covid hit sector, subsidies from government leading to lower debt and Gadepan 3 will ensure that FY20 will be the new base. If the above happens theyāll do better overall financially and issues like pledge will automatically get taken off(look at laurus for eg). All issues at the bottom of the debt cycle go near the top of the credit cycleā¦ and we are at the bottom right now for fertilizer companies and Chambal especially by the looks of it. Either way if things get worse and quarters worsen instead of improve il be exiting far before something as drastic as a pledge related freefall takes place. The current sub 5 valuation looks like itās pricing all the risks and hence will surprise in the upward direction as the risks go away so I can see a lot of triggers ahead(A good Q2, debt reduction due to subsidies whenever the government gives it to them, pledge releases, contribution from Gadepan etc). Anyway this is where the aversion to risk comes inā¦ I find companies with known issues at low valuations(single digit) less risky than companies with no issues priced to perfection at high valuations(30+ PE). Itās been in range for 2+ years thoughā¦ so for any upside it may take a while. The all time high is so close I can almost taste it though. Hopefully next few quarters are enough to break it and start it on a new journey.
2 Likes
Granules results are out and they look good. 952fa2eb-0b2e-4f5b-a314-0b01614c57d5.pdf (7.5 MB)
There was an interview where Mr. Krishna prasad mentioned that Q1 would be beaten by the other quarters this year and now the proof is in the pudding and Iām expecting an EPS of around 22 to 24 this year(current just under 15). Canāt find anything wrong at first glance though I need to delve deeper. Price fell to 385 post results and I took the opportunity to finally increase my stake in granules which has been criminally low compared to my other pharma companies when itās performed as well or better than them. Now constitutes a nice 8.5 percent of my portfolio after adding today and my AVG price is now around rs. 290/-. Growth in price via EPS increase alone could be about 60 percent this year(15 to 24) from the CMP (if maintaining current PE of 26. Could possibly be a higher pe if they pull off the results)ā¦ Fantastic opportunity at present with not much downside.
Edit: I have to admit when I bought granules I assumed I was buying a safe 20 percent per year compounder without much downside due to their fantastic manufacturing capabilities for bulk production and vertical integration. After going through the result, commentary, concall Iām now convinced that this is much more than that. Everything Iāve read sounds bullish and Iām now anticipating both EPS growth and a re rating over the next few quarters/years. The stake sale rumors wonāt go away and Iām not to worried about them considering Granules will be undervalued as it is post this fiscal year if management guidance is correct so canāt see a buyout happening at a much lower rate than cmp even in the worst case scenario(best case scenario is the sale happens a few quarters from now at higher valuations and takes care of succession issues). If thereās any more dips il be adding even more next few days.
6 Likes
Sbi cards results out. Shockingly bad. Nowhere near what I expected to justify current PE. Expected a good quarter based on online sales and commentary. Booked profit and sold 66 percent of my shares to use it in pharma/agro/chem/cash. Will decide regards the rest tmrw after commentary. Financials really look in trouble. Assumed sbi cards would be a bit immune but this looks like a hole that will take a while to get out of and market wont like current sky high valuations. Expecting momentum to be lost in the short term and Iād rather increase investment in chambal and granules with the cash freed up. I have my 33 percent of shares for the long term and il let those run.
1755cdea-eb5d-4d0e-859c-e84b6fe8a0a6.pdf (3.4 MB)