ValuePickr Forum

Manas Portfolio

I am surprised by the 20% circuit on Dynemic products post the information shared in AGM.
With such a big plant, it was already known that profits should be 2x soon, and can be upto 3x depending on price increases etc. Why did investors need an AGM to repeat what was already known?

The stock was still trading at very cheap PEG ratio despite the fact that plant is totally ready now.
Markets are not always efficient, they need an AGM to tell simple facts to investors. :slight_smile:
All my stocks are based on the same theme.

@Kumar_manas nice to see your portfolio thread, we are very like minded :smiley:

I believe you will do good ahead based on your in depth research and investing only in few companies where you have strong conviction.

best of luck for future journey!!!

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Thank you for the wishes.

Posting my portfolio on Valuepickr 2 weeks ago has proved very lucky for me.
It has moved from 40x annual expense to 53x annual expense in less than 2 weeks.

Thanks to surge in Dynemic products and Meghmani finechem.
Though not unexpected, as the thesis of my investing in them is playing out.
All 4 of my stocks have same common thesis of big capex and low valuations.

It can’t be filtered on a screener for a simple reason that GPIL has announced the capex and not implemented the capex yet.
Announcements can’t come in screeners I guess.

I think we should have/start a thread to track all companies where capex is planned.

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Poor result declared by Tata steel long, because they don’t own iron ore mine.
60% fall in QoQ profits.

What about high coal prices. I think that also contributed a lot in lower profit…

90% of coal in India is supplied by Coal India at rock bottom prices. We are not China which is dependent on International coal.

Manas bhai, you may want to relook at this assumption.

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@Kumar_manas Since I have been on this thread, I was thinking on what is a good capex vs a bad capex. It’s easy to mistake your core idea and reduce it to a formula i.e. low/decent valuation + mega capex = multibagger. I am sure that is not always the case and I wanted to find some counter examples of a company that got destroyed due to a bad mega capex. Did you come across companies like that ? Would you be able to share some examples. And, reasons why you rejected a mega capex company will help us understand your thought process better.

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I have already shared NMDC as an example of that-

  1. PSUs - details on this post- Commodity and Cyclical Plays - #1400 by Kumar_manas NMDC which built huge steel plant. Inefficient employees and management of PSUs usually mismanage capex and cash, even if they have lots of it. This is typical characteristic of PSUs.

  2. Capex funded by debt that gives low ROE for years/decades- textiles, paper industries are like a treadmill. ROE is very low, and leads to erosion of shareholder value.
    GPIL would have gone in this path and would have been a bankrupt company, if it did not have its own iron ore mine. Many steel cos went bankrupt that did not have iron ore mine of their own.

  3. Capex/acquisition at peak of euphoria- Tata steel acquiring corus, and tata motors investing lot of money in tata nano plant. Tata steel survived all this mis-management because it had low cost iron ore mines. Tata steel survived because the JLR acquisition turned out well at least.

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Hi Manas, Good to see your conviction in GPIL. I am also invested in it and want to understand what are the risk do you see with the company and what will be your exit criteria? I am listing my thesis, risk and exist criteria. But want to know your thoughts since you are tracking it very closely.
Thesis - Low debt(company reducing debt every qtr), good OPM(30%), available at low valuation(1 time price to sale. company available at 4000+MCAP and have profit of 1800cr, Good ROE/ROCE etc
Risk - Cyclical industry like other steel companies, but I see steel cycle continuing for few more years due to Govt push on infra, rise in real estate sector etc. Another risk is company doing big Capex equal to its own MCap and revenue. What if it fails? It is risk and may be exit criteria for me if Capex doesn’t work out well.

I want to know your thoughts on these points and if possible on current valuations too. I am invested for long term as long as any of the risk doesn’t turn out to be real.

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Thank you Manas for shedding light !

Such risks of capex failing are high in pharma, tech and FMCG cos.
For example- most brands of ITC have failed. The money ITC invested in brand building has gone down the drains.
In commodities, capex failing is very tough. They are building a big steel plant.
How will a steel plant fail?
The risk in commodity is - raw material and end material prices.
GPIL has raw material in control.
End material is in short supply because there is huge premium on iron ore mines in India due to change in auction laws.

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What about importing iron ore in India?? Recently there was news that Iron ore import is stated in India due to low iron ore pieces in International market…

International ore has usually been expensive vs Indian ore. There is added logistic cost.

Due to high auction price of iron ore mines, Indian ore is now almost equal to international ore prices.

This is the reason that price in India continues to remain high. Pellet prices are still 12000 per ton as of today, though international ore price is down 65%.
As of now, this looks more like the bottom for prices.

If we import iron ore, the price doesn’t change. In Commodity, only the price matters. And price of pellets today is 12000 per tonne in India as per steel mint, while international ore price is 65% down.

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Hi Manas, why is the price falling so much after split. Is there any news impacting the cost?

Price fell from Rs. 60 to Rs. 20 from Jan 2020 to March 2020 bcz there were more sellers than buyers.
Current EPS is likely to be Rs. 100/share for this year.

So, the price was 1/5th of current EPS in March 2020.

I guess the current reason of price fall is the same. There are more sellers than buyers.

Markets were very inefficient in pricing the stock even in Jan 2020.

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Hi,

Current quarter EPS for GPIL is 21 and with falling pellet prices (and also other product prices), how do to anticipate/project EPS to hit Rs100? Margins declined significantly this quarter (due to pricing and it looks like, it will go down further). Please clarify.

Another interesting thing, quarterly results of Sarda energy seems to be much better than GPIL (better EPS, OPM, EBITDA). Any suggestions.

Same case with Sandur mangnese though it is not proper peer comparison but these stocks haven’t fallen that much compared to GPIL.

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Please check my previous posts on this.
Last quarter had very poor volumes due to monsoons.
New mining capacity not started yet.- will ramp up from current quarter
Hira ferro results not integrated yet.- will from current quarter.
Solar plant will add to EBITDA from next yr.
Interest cost will further drop.

All these add to EBITDA. Higher volumes significantly contribute to EBITDA, and lower values do the opposite.

Sarda buys 50% ore from outside. GPIL used to buy 20%, from this quarter GPIL will be 100% using own ore leading to higher margins.
In April 2020, GPIL was at Rs. 80-90 (pre-split price) and sarda was at Rs. 120-130 range.
Today GPIL is in 1100-1400 range and Sarda is at 800-900 range.
It looks that sarda has fallen less, but it has performed much less than GPIL over the years.
Sarda spent 1700 crores on hydropower plant to get only 170 cr EBITDA. That’s too low incremental ROCE.
Compare this to GPIL spends and incremental capex. Their solar plant incremental return is 20-24% per yr.

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