Arent you giving a short shrift for a pedigreed company basis one quarterly resul ?
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Not really. As Iāve posted before here : SBI Cards & Payment Services Limited
Iāve felt valuations are getting sky high and for them to justify it they had to perform. Iāve made a lot of profit on it already and today Iāve taken out my initial investment and Iām letting my profit run. Il reassess post covid.
My thesis was that they would be immune to covid this quarter onwardsā¦ The sharp, sharp rise in GNPAs made me realise I got my thesis wrong and that times are going to be uncertain regards moratorium for them too. I accepted my mistake and acted on itā¦ something I wasnāt sure I would ever be able to do since I tend to fall in love with my companies so this was a big step for me.
Il reassess and maybe come back in with more in a few quarters but Iām going to stay away for now. I still have a lot of shares since it was a very concentrated bet(so Iām still very much investedā¦ itās just that I now have 5 percent of my portfolio in it compared to 15)
The share price may rise but now I donāt have much confidence in the next few quarters so Iād rather sit on the sidelines and wait.
For them to justify their valuations they need to have got a PAT of double or even triple of what theyāve got along with similar GNPAs as last quarter. Iād kept a target for it since itās so highly valuated and it fell really short. Honestly feels like daylight robbery that Iāve made a profit off of what I feel was a flawed thesis and assumptions in the short term(long term I am not too worried yet). However, if customers pay them back theyāll actually make more money on interest in the next few quarters. Provisions are higher than they initially thought and ate into PAT so itās very obvious theyāll perform well in normal times. Right now itās too much asset quality concerns for me though for the next few quarters.
Overall the performance isnāt worthy of a now 70+ PE financial based company. The market may prove me wrongā¦ But I canāt justify holding huge quantities when Iām not sure what to expect from the next few quarters anymore but il definitely hold on to my remaining shares for the foreseeable since long term I still believe in the credit card story. In normal times I would just hold all my shares and trust the company long term. In covid times things are different and if thereās uncertainty and huge danger of leveraging, npas attached to a sky high valuation then making tough decisions like selling have to be made imo
Note: this isnāt a buy or sell reco to anyone. Everyoneās portfolio is different. In a diversified non concentrated portfolio this could just be a moment to take on the chin and move on.
After the shock provided by sbi cards, alembic results are the polar opposite. Absolutely fantastic: Alembic Pharma (Oral Solids ==> Injectables, Onco, Derma, Opthalmic)
Will not be adding anymore since i Have been increasing my holdings in it the past few months and i have a satisfactory amount.
In these uncertain times pharma stocks really do look the best bet alongside chem and agri.
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Iāve gotten a couple of PMās regarding sbi cards. Considering Iāve been one of the posters talking about it as a fintech bet in the sbi card thread I feel I need to explain my rationale here since I may have convinced some posters to invest inadvertently. Firstly, I am not comfortable with high valuations. I bought sbi cards at an average of approx 530 rs back in April. The reason I bought it is because my thesis was since credit cards are for small ticket items Iād predicted lower GNPAs. Post Q1 I felt validated. When a company is valued at nearly 70 PE everything has to go well and fantastic results and growth are almost expected especially when itās a finance based company during covid times. This result shocked me and was way below my target and hence my exit strategy kicked in straight away. The GNPAs were much higher than I thought and all hopes of stellar growth and performance during covid disappeared for me. Long term itās still a fantastic bet but in a covid market things are different. I sold 66 percent today at 870 rsā¦ Which is nice profit for a concentrated buy at 530 rs. The way I see it is the market is going to realise that huge growth isnāt going to be possible and that NPAs will continue to be an issue until moratorium clears. This puts in the same pack as the banks/nbfcs who have been stagnant for a long time now but with valuations of 70+ PE! I can see a higher chance of de rating than a re rating for a few quarters so Iām expecting to buy it back in a few months when things clear up at below my selling price of 870 post covid when I can then give management a long rope in normal times. In this crazy current market I have exit strategies for everything so this isnāt a quarter result knee-jerk: If warning letters and stalled growth become an issue with pharma I wonāt have an issues selling pharma too. If the sebi audit issues come back for kaveri il sell it too. These arenāt normal times and just buying and holding without exit strategies when the market is overvalued and not linked to an ailing economy isnāt as black and white as it is in normal times for me atleast. Pharma, chem, agri looks like a once in a decade kind of opportunity to invest in over the next year so the opportunity cost for me is too high especially when normal business activity for me has gone to a standstill so I donāt have fresh cash to issue every month. So please make decisions based on your individual situation. Thereās nothing wrong long term but I prefer using the cash on other companies instead of sitting with it in sbi cards for a few quarters due to opportunity cost . I am not a sebi advisor. I hope this clears it 
ā¦ cheers
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I admire your ability to take decisive action, something I havenāt yet been able to develop. Any tips would be welcome. Thanks
Hi Malkdā¦Have been an ardent reader of this thread. Any takes on IT sector. How do you account for KPIT results recently . Asking this , since you were preferring Pharma, Chem and Agro Chem and did not mention IT as a sectoral fancy
Hey @sarthakkumar19_ . Write everything down before hand. Ie reasons to book profit and reasons to exit completely and keep them ready. So that when something does happen you are ready. I pretend stocks are my own companiesā¦ with the benefit of an easy exit if things go wrong. I wouldnāt want to be in charge of sbi cards right now and direct them through the next few quarters so Iād rather sit on the sidelines. It was in my notes as a partial exit if GNPAs rose and growth looked shakey at such high valuations so I did exactly as Iād written the moment I saw the results. It may seem cold but Iām sure sbi cards wonāt care haha. This is a different marketā¦ in normal times I give a lot of leeway and take opportunities of dips to add. These arenāt normal times though. Usually Iād just buy and hold for years and rarely even profit book a little once I own a company. Have to be a bit ruthless at present so ive adjusted
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Hey @Sajju ā¦ I am a huge fan of kpit. Management basically came out and said that H1 FY 21 wouldnāt be outstanding and based on the results itās exactly as they said. market has given a buying opportunity now since H2 looks a lot brighter. I am tempted and I love the mix of EV and Tech with KPIT. If I buy any IT company itās KPIT. A lot of patience will be needed though but I can see a good growth runway for the foreseeable. Promoter bought recently around 100 so the downside looks limited too.
The issue I have with IT companies in general is the US elections. Trump can make policies around H1B visa etc to squeeze their business(he can try with big pharma too but that is a lot trickier). If Biden wins I may consider.
Also IT companies are dependant on other companies in every sector at the end of the day too. So Iām not fully convinced they are set for bumper growthā¦
also, even though I consider myself somewhat tech savvy there are some parts of their business especially IOT , big data etc that I donāt understand well enough to foresee competition etc so Iām not too comfortable betting big. Ideally Iād like a tech bet but tech changes every year and I fear il be stuck in a bubble not knowing when to get out.
Also, the ones I like are too expensive. If I got a chance again to buy L&T infotech at 1500 Iād do it in a heartbeat for eg. Maybe if happiest minds was about half price Iād consider tooā¦
also as a rule I like both earnings and PE expansion and while Iād like betting on a few small companies in ITā¦ IT seems to be a case of the big getting bigger though and I honestly feel like Iāve missed the boat on the big guys and am not too excited about buying them now.
Purely my preference though. Iām sure they are still fantastic and safe bets.
That being said The main problem is, my mind wanders to how confident the granules and alembic management sounded and the guidance they gave for the next few years and I cannot get myself to put money anywhere but in pharma at present the moment I have cash free lol
Edit: once just dial calms down a bit that may be the one I go for tech. Can see their B2B venture doing well and itās at dirt cheap valuations
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Donāt want to spam the alembic pharma thread so il post my long term thoughts here based on management commentary purely in stock price which is all that matters
FY 21: Management has guided for PAT of 1200 crores which is an eps of 60
FY 22: Management has guided for PAT of 1000 crores. However 450 crores will be kept aside for capex
FY 23: PAT will be around 1500 crores from current operations(1000 crores + 450 crores + conservative growth of 5 percent which will now be added to baseline since capex will be completed in previous year)ā¦ Assume that the 450 crores gives returns of investment around 90 crores ie approx 20 percent. So expected PAT for FY 23 in the worst case scenario ie just 5 percent growth would be 1600 crores ie EPS of 80.
Current EPS is 50. So with EPS expansion the stock price can go up by 60 percent in 2.5 years. The added contribution from capex and increased sustained earnings could lead to a re rating since alembic traded at 45 PE in the last pharma bull run. Current PE is 20. Letās be conservative and assume PE of 30 only in FY 23. So being very conservative I can see the price being 984x1.6x1.5 = approx 2400. Thatās a great return in 2 years. Personally Iām expecting growth to be even higher and the re rating to be higher too so targetting a 4X from current prices in 2.5 /3.5 years(100 EPS in FY 24 and 2.5x re rating). All thatās needed is patience.
Note: this may be a simplistic approach but itās the easiest way for me to break down complex thoughts into a simple price target. Fda warning letters, pharma going into a down cycle again and new capex cutting eps in FY 23 and 24(but improving it longer term) are the risks. Had honestly been buying pharma as a 1.5 year bet. I may be holding for a much longer time by the looks of it.
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I must admit Iām pretty disappointed by Alembic guidance. Coming just after super bullish guidance from Granules, Iām thinking of selling Alembic and adding to Granules. For the multiple rerating, there needs to be a high growth visibility. If you look at FY21-23 the growth is only 1200-1500 crores = 25%. What is the growth visibility after that? Will market really want to buy if there is no high growth?
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Iāve categorised my pharma bets into short, medium and long term
- Short term: Laurus
Caught it early and has explosive growth visibility for this year . Will need to re assess again next year since I bought it due to the new sustainable base and re rating it got. Not sure what happens 2 years from now with it especially for it to maintain high valuations - Medium term: Granules
Double EPS FY 21 vs FY 20 and 30 percent growth thereafter. For the next 2 to 3 years things look good. But post that will need to reasses what happens after - Long term: Alembic
If you watch the latest interview with Mr. shaunak Amin youāll see that they are in the midst of a huge capex cycle that they have been in for 3 years now. To allay investor fears he mentioned 60 EPs this year and 50 eps next year. Can see a higher chance of them beating that then going under it based on their confidence. As posted above by FY 23/24 I see all of their capex firing. Getting returns of minimum 60 and 50 Eps for 2 years of intense capex is fantastic since the fruits of this will benefit later and we still get returns while waiting. Canāt see any downside risk for the next few quarters since I trust their management totally and can see a period of explosive growth after and I want to get in early. Market may look ahead and re rate before this happens so Iād rather get in now near what is hopefully the bottom. I like when companies do capex in good times(for the pharma landscape). Means in down turns later theyāll be firing on all cylinders
Iāve gone big with all 3 of them and will be adding more of granules on monday with the cash Iāve freed up. No other sector has the luxury of giving 2 years guidance so Iām even more convinced by pharma now just based on visibility and confidence by management
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What kind of growth are you expecting post FY22 when their capex starts showing results?
When it comes to such large timelines I donāt think expecting anything is wiseā¦ and itās just about trusting management based on previous performance and pedigree and trusting them to allocate capital wisely based on previous actions. I donāt think even they know whatās going to happen in FY 23. What I do know is they have a clean record with approvals and are continuously getting Andas approved. They are conducting capex next 2 years in what could be an upcycleā¦ I always consider this a good thing since it gives them an edge during the downcycle which will eventually occur and hence why I like them for the long term. They continuously spend more than their peers on R&D. API is targeted for growth. Domestic will continue to improve. Rhizen will increase contribution. Timeline is so huge that who knows how much competition will come in for sartans, generics etc but they have proven to handle growth here fantastically and I can see no reason for the growth here to drop drastically. They have a good history of capital allocation and roc so expecting their new capex to contribute too. Management is blue chip and are very clean which is of premier importance too. In such large timelines who knows what will happen but based on past history I trust them to outperform and theyāve got all the pieces in place by the looks of it. If someone were to put a gun to my head and forced me to pick a number I would say Iām hoping for EPS to double in 3.5 years just based on previous growth and roc (which is good by any metric especially for a company at 20 PEā¦ just that we have been spoilt of late coming out of April). Management sounds very confident and I wouldnāt put it past them to outperform next two years too. Their guidance looks like just a baseline. They could easily overperform and post 2 years theyāll be very well set with their capex firing so as investors we will benefit long term
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great thread @Malkd have been thinking about putting my money in almebic pharma ,what is you thought about management have they walked the talk in the past? because if they are able to achieve what they say the EPS of 60 and 50 in FY 21 and FY22 and some serious or even moderate growth in FY23 because of capex your theory about the pricing becoming 2500 doesnāt seem impossible specially considering growth and current tailwinds in the sector.
My only concern is how good and honest the management is can you throw some light on it?
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@raku ā¦ I must admit Iām pretty new to pharma. Never really understood it well enough to invest up until recently. I binged through annual reports and concalls of years worth of companies in May and June and then began investing. Alembic pharma was one of the first. Went through their annual reports, interviews, commentary, concalls etc of the past 5 to 6 years. I have the benefit of hindsight now but every thing they said theyād do they did. All the capex they made gave expected returns. They even foreshadowed the end of the pharma bull run back in 2016 for investors while other companies were still bullish. At the end of the day honest, smart management beats most other metrics for me. I binge read the entire valuepickr thread and correlated events too lol. Spoke to a couple of posters after too who have been investing since 2012. I havenāt found anything I donāt like about them. I consider it to be part of my core portfolio for the next 5+ years. I feel a certain calm even on days the stock price crashes. Once I get that feeling I know Iām in for the long haul with the company I pick lol. I dint get that feeling with sbi cards and due to the audit I feel a bit nervy with kaveri. Else in general the companies I pick for concentrated bets Iām very confident about management and alembic is up there with the best blue chip large caps imo
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I missed info edge(few years ago), India Mart and affle(few months ago) since I felt they were valued too highly and felt there was no way theyād be able to justify them. Now Iām making the same mistake with just dial. Itās rated at just 13 PE currentlyā¦ but itās actually even cheaperā¦ it has a lot of cash, no debt, negative working capital and they ve been increasing profit consistently since 2017 (including other income which has been going uphill consistently too). They are venturing into B2B and that does look like it has huge potential with their database and settled name. However, Iāve always hated their product /service and I found it clunky and unnecessary. Just dial always felt like it was a service that couldnāt compete with Google and their sales and visitors have been declining for the past few quarters. The āother incomeā has rescued them. Iām not sure about their management either. Until jdmart was announced their annual reports were bleak reading. Now , I am honestly confused. It looks a value buy and this could be a turnaround story with jdmart. However,Iāve sat on the fence and during my study Iāve seen it rise more than 60 percent(including a upper circuit today). I canāt think of any othe tech play I can get at such low valuationsā¦ imagine a PE investor walking into just dials office and being sold the business at about single digit valuations (considering they have so much cash free and available). This looks prime for a story that will attract investors and I can already see the continuous headlines of X buys stake in just dial to take on indiamart in B2B. Iāve been waiting patiently for it to leave the overbought Zone and for it to come back to 200 Dema or near levelsā¦ but I feel the longer I wait the higher risk il be stuck on the sidelines. It finally closed above 600 today too (which looked like a big resistance) so I dunno if this run will end any time soon. Not sure about the management, not sure about the product, not sure about the technicals price wiseā¦ but this is definitely an undervalued tech play and I canāt get it out of my head regards the potential over the next few years and the safety net of the cash in hand and low valuations and I am very tempted(the single digit delivery every day , lack of confidence in management , uncertainty of new venture makes me very wary of being trapped at these high RSI levels though). In short, Investing in technology based companies is tough and Iāve still no idea how to valuate them. I fear Iām trying to correct previous misses here but I know I wonāt be able to help myself if theres a correction
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Few months back everyone was questioning growth of Indiamart, now when its share is doing well, no one is questioning growth 
Just dial just announced a new business vertical and seeing massive re-rating. They yet have to do real business. Indeed good for traders/momentum playsā¦for investors - I see many other tech opportunities at reasonable growth and valuationsā¦
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Can you direct me towards your favorite tech bets. Doing my head in
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here is something that you might find useful
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While I do not suggest any stocks but I am sure you work on your own convictions so would talk stock specific just to give a perspective of how I am looking at some tech stocks at present -
- LTTS - This is one of the tech stocks which works in some niche, less cluttered areas. It does work on creating some platforms and products. Though, not hugely successful so far but intent and direction is right. Backed by solid promoters and management and available at decent valuations for the sustainable growth it can offer in areas which has huge runway.
- Tata Elxsi - Same as above with only two things different - significantly higher growth and so higher valuation than LTTS. Both are diversifying in newer niche areas though.
- Oracle Financial - Now, this is the only pure play product MNC IT company in India. Sector specific - Only finance (Insurance products are also there but main revenue driver is Banks). Banks are adopting cloud at very great speed and the stock rose with same speed from March lows. Still reasonably valued (sector specific risks exists which reflect in valuations) and good div yield.
- Mphasis - Ever since Blackstone bought this, it has been evolving very decently. With HP concentration reducing, div yield increasing and digital focus strong, it is undergoing a decent and slow rerating.
- L&T Infotech - I regret having sold this and underestimating the Indian IT story of even the so called bodyshops. I had bought this near IPO price and sold it after it more than doubled quickly. I underestimated that the growth would continue (although after an year of cool off). I had almost written off Indian IT services firms but was hugely impressed by the way they reacted to this pandemic. This is what great businesses are. LTI is now double again from the price I sold but I would be a buyer again at any dips as valuation of this one seem to have run up a little too much too soon, but for very right reasonsā¦
Disc: Not a buy/sell recommendation. Talked stock specific just to give perspective of thought process. Hold LTTS, Tata Elxsi and OFSS in portfolio.
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