ValuePickr Forum

Manikya Saiteja: Investment journey & Philosophy

I have been in the market for 5 years now, started my journey in late 2015 when I’m 18 Y.O. Over the years my investment philosophy has matured and evolved.
Today I am sitting on 300% ROI, with many ups and downs over the years.
I would like to summarize my journey here and along with the evolved thesis, would love feedback by my fellow VP members.

Starting in Nov 2015,
Wanted to become a long term investor in likes of warren buffet so, later realized that my definition of long term is less than 2 months, I have traded over 200 stocks in the first 1 year of my journey- Never made any returns.

few major stocks which i held for 2-3 months.

Stock Price Exit Price Allocation Thesis
Tata Motors 240 242 20% My Father used a Indica car and is a known brand. purely on that basis bought few shares
Hindalco 80 85 20% Realised that it is a Aditya birla group company and stock is avaiable at 52 week low so, bought it as a value buy
Vedanta 80 75 20% Vedanta used to advertise a lot in Business Standard and felt it is a good brand and also, stock looked cheap and is at 52 week low
TIIL 175 190 40% I used to follow https://dolly-bestpicks.blogspot.com/ blog and it suggested that TIIL has 4 different segments and individually they are worth more

During Nov 2015,https://dolly-bestpicks.blogspot.com/ has suggested buying Technocraft Industries and I blindly bought it. It has been a game-changer later.
For the First time, I got acquainted with the concept of Buyback . Have read buyback offer document to figure out the tendering process and realized that there is “Retail reservation” of 15% of buyback size for people holding stock worth below 2lak Rs.

Over the course of the first 1.5 years after trading almost all the equity scripts, Met a tipster in a WhatsApp group. That man used to share screenshots of his successful trades. I made some money initially with those tips.
Being a gullible one got lured into his fixed income trap, I have funded my trading account with a million[Taken as a loan from my father] and gave it to him for generating regular returns.
I lost 50% of my capital in 1 month.

By 2017,
The small piece of knowledge related to buyback reservation has come to rescue. At the same time, Since the growth in IT fell, shareholders pushed these companies for buybacks- This has become my money-minting period. I have recouped all my losses due to those buybacks. In aggregate made 70% absolute returns in 1 year in all those buybacks- Acceptance used to pretty high those days[Dumb rule, take #shareholder with sharecapital less than 2lak in latest BSE filing/A.R and multiply the same with 70k[Avg ticket size] used to be total retail holding value.

Stock Buyprice Sell price
TIIL 170 270
Smartlink 80 110
TCS 2300 2700
Infosys 870 1150
Wipro 180 230
HCL 800 1000

(Later will the mainstream media coverage this opportunity is now lost)

Buyback trades are typically 3-4 month-long ones, this has helped me in building patience and medium-term investing.

After all this, retrospectively in 2018, I realized that instead of beating my head around trading and buybacks. If I left my initial portfolio as it is, would have made multi-baggers in all those stocks.

Stock Price 2016 Exit 2018 Price
Tata Motors 240 242 400’s
Hindalco 80 85 180’s
Vedanta 80 75 180’s
TIIL 175 190 500’s

Seriously started to look at the long term at this point. Bought a couple of long term stocks in broking, NBFC sector in the same group companies.
[By this time,I am working with a leading NBFC in their analytics team & got to know the roots on Finance business…Scorecards, evolving securitizations market, stress tests etc] so, felt I should go with NBFC stocks- In that journey identified two long bets.

Company Price Allocation Thesis
IIFL Finance 170 20% 3rd largest gold financing company, Construction book an overhang, largest physical branch franchise[exc Muthoot & Manappuram], hardly at 1.5 book and took the bet
5paisa 160 80% A 350 cr Mcap company with backing from 15kcr conglomerate(IIFL), with proven wealth creation track record, Completely digital culture but with hardly 30-40cr loss and fastest growing broker till date. Felt i could take risk and bought a good chunk

While taking these bets, I took 1:1 debt on my equity capital and doubled down on my investments.

5paisa became by 2.5x and IIFL Fin became .5x. sold partly to clear my debt.

My Philosophy at this point is:

  • Management should be competent and aggressive.

  • There should be backing by big PEs or credible promoters.

  • Should be a mid/small cap with minimum losses or in bad times.

  • Intrinsically solid business models with strong operating ratios.

Oct-2020,
Betting on my understanding of finance businesses, Again leveraged 50%[Long term debt] on my equity capital-base and took positions in below.

Stock Avg Price CMP Allocation Thesis Exit Strategy
5paisa 170 320 32% Digital focused business model with emerging business like P2P lending etc, solid execution, below 1000cr company & Promoter advantage NA
IIFL Finance 180 85 5% Securitization fee-based business model, with 20+% ROE and cool dividend track record. NA
IDFC First Bank 26 34 40% New to lending segment, cool loan spreads, ethical management, startup stage and available at 1X book and 17kcr Mcap When the retail lending engine slows down to below 20% growth along with credit costs staying at 1.5%+ & ROA below 1% for 3+ years & low liability book growth
Bandhan Bank 270 340 5% High ROA business model & always will trade at higher P/B, High reinvestment rate into 20+Roe model, Sold distribution and collection franchise entering Mortgage aggressively. When loan growth falls below 20% for couple of quarters & ROAs below 2% & low liability book growth
Kotak Bank 1250 1750 6% Super cool mature cash generating subsidiaries, chugging out huge profits and Kotak being 100% owner will have good re-investment of capital for longer period of time + Focus on Risk adjusted returns PAT growth below 15% for 1-2 years, ROA in lending below 1.5% for 2 years.
Piramal Enterprises 1350 1400 12% Access to reliance franchise in terms of distribution & collections of retail loans- huge potential. at 28kcr pharma business gives cushion on downside & demerger in not far away. Having see the way Bajaj becoming 2.5 lakcr company betting on franchise & Digital at code. Mr.Piramal will definitely try to build his business on those lines. I see this as a mini hedge fund becoming super big and chugging out dividends By 2023, if Retail lending division is not leveraging Reliance franchise and after testing product positioning. will decide.

My Thesis at this point:

  • Money is made when profits multiply and not just the band value. So, buy stocks where you think profits will be 10X in 10 years. [Main reason not to buy reliance despite having love for massive scale+execution]
  • Should have good re-investment opportunity else, should share max profits through dividends/buybacks.
  • Should be backed by solid promoter/management with a reputation.
  • Core business should be positioned in a niche segment with its own competence.
  • Proven execution track record.
  • Should have adapted to major changes in their business lifecycle at least once
  • Should invest and adopt technology with solid internal processes.
  • Massive opportunity [Compare the macro number with that of china and USA].

Points that I feel are missing in my investment thesis:

  1. Diversification across sectors and bet sizing
  2. Too aggressive on one bet.
    That said, this is a voluntary decision at this point till I move into the big capital league while i can.

Would love to hear feedback and opinions :slight_smile:

11 Likes

This is one of the most well rounded first posts on a “portfolio” thread.You have articulated your journey and thought process very well.

All your portfolio is in financials only which makes sense since your core strength is financials. However,I don’t think it would hurt to diversify away from financials.There are a lot of companies across sectors that would qualify from your checklist.I would say you can be a bit lenient with the 10x in 10 years pat metric.You will see a lot of companies that don’t do 10x PAT in 10 years but still give excellent returns over 3-4 year phases.These are the “transient multibaggers”.You can have some exposure to these too.Even otherwise,many times it’s not apparent that profits will compound at such high rates initially but things become clearer as the years go by.The entry valuation is of utmost importance in all cases.Since you come from an NBFC background I think you will have a very good handle on ‘risk’ and the strength of the balance sheets of these companies.You can go through various threads here to see how people thought of the evolving stories of PI Industries,Mayur Uniquoters,Ajanta Pharma,Astral,etc.It’s very insightful to see how people reacted when these now proven companies were still in their unknown phase.

Good luck on your journey ahead and congrats on a good start.

3 Likes

I find some of these consistent companies way too expensive at these valuations,still trying to identify companies to diversify out of financials.

Great resources, thanks for sharing :slight_smile:

Update on portfolio:

Stock Allocation Status Update
IDFC First Bank 43% Same Bank is able to build good liability franchise, Growth is back and stock is poised to be rerated from 1x book to 2-3x book.
Piramal Enterprises 23% Increased 1. Maharastra stampduty reduction resulted in historical high house bookings, with old inventory running down and new inventory not being replaced at same rate - i believe book quality will be better. 2. PEL won the DHFL bid and got 88kcr balancesheet[long with 10kcr cash] for 37kcr , this win has the potential to increase the networth of PEL from 31kcr to 60kcr and can act as cushion for PEL retail lending losses.
5paisa 22% Same -
IIFL Finance 5% Same -
Bandhan Bank 5% Same started growing at 5% over last quarter, a 25+% compounder
AU Small Finance Bank 1% Same Only tech savvy small bank out there,good promotor,FII+PE backing. Small bank tag will limit the ticket size and have higher orientation towards retail with 2+% ROA, their ability to garner liability from 10k cr to 40kcr in 3 years is simply outstanding. High growth+ multibagger potential.
Embassy 1% Same Tracking position for understanding real estate better.
Kotak 0% Exit Had to replace this with PEL due to the stock beta lower than my apetite

Evaluating a couple of IPO stocks and looking to take tracking positions.

Company Opportunities Risks
IRFC Railway finance company with 1. 0 risk[0 NPA, 0 Regulatory capital requirement ] consistent growth business. govt will give .5% spread on borrowing cost. 2. Must have for government to burry their debt into IRFC to show fiscal resilience 3.12% compounder over next couple of decades 4. Potential high book value dilutions 5. Opportunity to lend to Indian railway supply chain[Stations,rollingstock,frieghtcorriors, Hotels on Govt land etc] at 2% spreads once privatisation picks up. 6. 50lakcr govenment capex plans for railays is enough growth to multiply book. 1. Low book value dilutions 2. NPA in private lending book[ 5-10years down the line once privatisation picks up] 3. In long run base rates go down from current 7% , this will reduce the ROE on the business thereby organic growth ability. 4. Should wait long for dividends to start 5. This is more like a debt instrument with higher returns rather than a equity instrument.
Indigo Paints Great business dynamics,Management is upfront about brand building and growth. on a lower base looks like a 25%+ compounder for next decade, getting the business at less than 1.5bill$. Market share expansion from 2% to 5% will generate enough wealth Super expensive- slow growth may result in significant loss capital on short run
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I see u are seeing REIT as alternative investment for retirement considering that interest rates gradually move towards 0 globally and REIT give good div yield with chances of capital appreciation also…

REITs have performed well in US over long term…back in India…REITs are either having builders as sponsors or some PE, which are known to exit. Can we trust corp governance here over long term considering that Real estate as a business is not that great and specially never great if leveraged…more the leverage more the chances of faltering…moreover commercial RE is less stable in India as compared to residential but all these REITs are in commercial for purpose of higher yield…
Point is what is better if we need yield…a better business at similar yield or REITs … thoughts welcome

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