So my strategy is a mix of value investing coupled with contrarian investing. Here is my portfolio and why I have them in my portfolio.
ITC - 22 percent - Biggest position in my portfolio. Covers my consumer goods bet and generates a decent free cash flow of around 6 percent. Believe the stock will be due for a rerating anytime soon. I believe that the FMCG unit will enter in growth space in the next couple of years and will generate a substantial amount of cash flow towards the business.
IndiaMart Intermesh - 18 percent - A B2B subscription based IT/classifieds platform with a negative working capital model. Currently holds a 70 percent market share in the B2B space. The management has shown great cost control in the recent quarter and expect half of the cost benefits to sustain. Covid I believe is going to encourage more SME’s to also be in the online space. Around 950 crores of cash in the books (around 14 percent) which can be either used for acquisitions incase of a disruption. Still decently valued at around 26-27 PE (excluding cash in the books).
Godrej Agrovet - 14 percent - A proxy to agricultural, animal husbandry and other similiar businesses. Crop protection, animal feeds and palm oil are the main businesses for the standalone entity. This company is the best company to ride the agriculture industry since it is reasonably valued and is backed by very fair promoters. They have around a 62 percent share in Astec Lifesciences and a JV with Tyson Foods for frozen foods business in which it has a 30 percent market share in the non-vegetarian market. Also has a dairy business in South India. Still currently available at around its listing price despite value of its subsidiary going up by multiple times and top and bottom line both increasing consistently since listing.
SBI Cards - 12 percent - Number 2 cards player having an almost 18 percent market share in the credit cards segment. I like the credit cards space and see massive potential ahead. Also I believe SBI just on pure account of having a higher number of branches have a bigger opportunity to cross sell and gain share more efficiently than the other players. A relatively safer bet than other lending companies as determined by lower moratorium rates.
Jagran Prakashan - 12 percent - Purely a contrarian bet. Traditional newsprint is going nowhere anytime soon. Good management and I believe in maximum 24 months it will be able to get back to pre-covid level numbers. It still trades at around 4-5 PE based on pre-covid numbers and a 10 percent yield. Having raised 250 crores at a reasonable rate will get them get back to normalcy quicker. Circulation is already at 80 percent though AD revenues is only at 30 percent. Believe it is massively undevalued.
Bajaj Holding - 11 percent - I am comfortable playing the holding company game. I am confident in the underlying businesses Bajaj Finserv and Bajaj Auto. It gives me some exposure to cyclicals , retail lending and insurance. Believe the gap between market value and current value is only going to converge in the long run.
Transpek Limited - 11 percent - Specialty chemicals play. I like the company and the promoters seem fair. The key risks for the company is very high dependency on a single client for revenue (Dupont). Since not a lot of information is available on the company except during AGM’s will need to understand how the covid situation has impacted the business. Key triggers would be getting approvals sorted for bigger capacity and getting additional client to mitigate client concentration risk.
Any comments, critiques or opinions on the portfolio?
Totally agree with you regards ITC and SBI cards. The only two large caps which excite me regards their growth potential over 10 years. SBI cards is very underrated on here… mainly due to its valuations but the way they just keep getting results means it justifies them. I have a concentrated portfolio too and those two account for 40 percent of my portfolio. Everyone should have a chemical play and an agro play too so even though I don’t track the two you have I do track astec and Godrej is the promoter so I’m assuming agrovet will be an even safer bet. Overall your portfolio looks well balanced. I am of the opinion that it’s good to have a concentrated portfolio since you need to think of them as your own businesses rather than stocks … so researching and picking the best options in your opinion in each sector (ie businesses that you want to start but can’t in your lifetime) is the way to go for me too. I just don’t like anything to do with paper… traditional newspaper seems to be in a Kodak like phase and covid may have just fast tracked it’s demise imo. I wouldn’t want to start a newspaper business right now so I wouldn’t want to own one either. Maybe think of pharma here instead… laurus is just an unbelievable bet right now imo (and granules, iolcp, solara etc… loads to choose from). But I’m assuming you have your conviction and that’s all that matters. I missed India mart at around 2000 and I can’t afford it now(still think it’s worth it but I’ve already allocated most of my cash)… agree with you on that too.
I strongly believe ITC is a value buy. But I keep telling myself why didn’t I buy it at 150,160,170. Any suggestion on how to overcome this price anchoring bias. Have the same problem with Jagran.
That could also mean there is less chance of new competition for established players. I think news apps and sites are not a complete substitute for physical newspaper, atleast for older generation. Also, Jagran has started charging for epaper recently.
I am a below average investor going by my track record so just wanting to learn how to think about this situation. Thanks
It would have been nice buying ITC at lower levels so your dividend yield would have been higher. However, it’s still high enough and ITC isn’t going to double anytime soon. Remember why you bought it. In about 10 to 15 years (hopefully less) there will be an Fmcg re rating and it will be a juggernaut trading at 50+ PE and triple the current profit and giving you a huge fixed income every year via dividend. Once that happens you’ll forget the price you bought it at. Infact there will be a quarter when Fmcg others contributes a lot more some time in the future and I’m sure il be averaging up then and so would many others. So the initial price you got it at is just a bonus. I average up as my conviction gets higher anyway . Usually the price is still cheap if the results get better since the EPS/PE etc is all relative. There are just a few companies I can think of passing on to my children and future generations(I don’t even have any yet lol). ITC is one of them. I think of it as my responsibility to buy it and make sure the transition happens(higher margins and contribution from Fmcg others every quarter) and post that their responsibility to never sell haha. So the initial price is just a minor irritant in the grand scheme of things
Note: if you don’t believe the rerating will happen and that it will be an Fmcg company trading at a higher PE in the future you shouldn’t bother buying it now since there are plenty of options available and the opportunity cost of holding ITC would then not make sense.
Again. It’s all personal point of views. I would like starting an agro, Fmcg, chemical, pharma, digital paymentand a tech/IT company right now. In a year or so I’d want a private bank/ travel company/another consumption story. A paper company just doesn’t seem like a good business either now or in the future. It could pivot to online but there is so much competition there so who knows. That being said I follow the rule of buying businesses I could own for 10 years even if the stock market shuts down. However, I haven’t done any actual research and if you have and if you have built conviction dont let posters like me stray you and stick to your guns (Note: since you mentioned long term. In the short or medium term it may double but long term it may not be the best option imo)
So there is a reason why i believe that the traditional hindi newsprint despite being a very low growth industry is not a dying or dead industry. First we need to understand that Jagran Prakashan operates majorly in the Hindi belt and newspaper industry does have a brand loyalty with the readers. Even in USA the New York Times is still able to grow at at a 2-3 percent per annum despite being in the industry which is supposed to be an extinct. India I believe follows USA technology trends 8-10 years(around 4-5 years in metros) after a trend emerges in USA. The management I am confident will adapt to whatever changes in the long run. One of the India’s biggest newspaper (maybe even the biggest) I feel is massively undervalued at around 1000 crore. I see the stock being valued at around 1600-1700 crores based on my very realistic estimates getting back to pre-covid sales and profit in 2 years and a realistic growth rate of around 4 percent till 2030 and also taking into consideration it’s other assets primarily Radio Assets.
It depends how you value it. Free cashflow of almost around 6 percent in a market where there are falling interest rates is phenomenal. Cash is king if utilized effectively. 2 examples where cash has been effectively used are in RIL and Apple. RIL pivoted seamlessly and effectively from an O2C to a tech and retail business, Apple utilized cashflows to buyback shares and that has worked out fantastically for the company in hindsight. Even in absence of any triggers I feel ITC is reasonably valued in consumer goods space, a space where most of the companies are valued at valuations which I am not comfortable. Most of the capital has been invested in FMCG business and I believe from 2020-2025 we will see the FMCG business in a growth phase. ITC is in a similiar situation to where Infosys was a few years ago where the market was valuing at around 12 PE and there was some chaos around the management. There are multiple trigger points for ITC
SUUTI stake sale
A possible demerger when the FMCG segment starts being self sufficient
Maybe a buyback, but that is unlikely to happen.
I see a probable doubling of the stock price over the next 4 years (around 19 percent CAGR). For Jagran it is a classic case of everyone just ignoring newsprint as a sector, newsprint as a sector is going to financially recover more quickly than travel and multiplexes, though unlikely to give extra-ordinary returns in the long run I can see it outperforming in the 1-2 year phase.
A quick update on my portfolio after the recent run in -
From my original strategy some of my stocks have run up substantially.
I have deployed heavy additional Capital in ITC, Bajaj Holding and RIL while completely exiting SBI Cards in lieu of non-visibility of covid impact.
I dont expect any churn in my portfolio but I am looking to deploy additional capital in Godrej Agrovet and Transpek Industries once i get a better visibility by Q3 numbers. The rationale for additional capital allocation for ITC remains the same, I still see ITC profits doubling in 4 years (19.5% CAGR). Additional capital in Bajaj Holding is in lieu of a fresh uptick in auto cycle and a good run by Bajaj Finserv, the market cap to investments is at a multiyear low at 35% and I expect significant uptick here. RIL is more of a correlation story to reduce volatility in my portfolio, I expect RIL will be the top beneficiary of a new IT cycle uptrend due to covid. However valuations are rich and I will wait before deploying additional capital.
This is a high conviction strategy - I am going to buy a maximum of only 10 stocks with no capital allocation below 5% in any of them.
An update on the portfolio. Have added HCL Technologies(9 percent) and Sasta Sundar Ventures(9 percent ) and have removed Transpek Industries from my portfolio.
HCL Technologies - HCL Technologies has had industry leading growth over the last decade and continues to grow at a decent pace. The covid impact should definitely provide tailwinds to the IT consulting sector for the next 2-3 years. On a valuations front HCL Tech is almost 50 percent cheaper than Infosys and TCS which I believe is too big of a valuation gap and I believe the gap to be filled in the coming quarters.
Sastasundar Ventures - A microcap company in the E-pharmacy and the E-diagnostics space with decent investors from Japan. On pricing front the company looks reasonable especially considering the cash burn the other bigger companies have had in the space. The entry of newer players should further rerate the stock. Also the company has managed the operations very well, with the company on the verge of hitting breakeven in the upcoming quarters .
Transpek Industries - Exit was primarily due to no visibility of revenue growth and profitability coming back. Aviation industry has been impacted severely and I see opportunities elsewhere.
Among large cap Indian IT firms, I see significant gap down in case of HCL Tech, Tech Mahindra and to some extent in Wipro (Wipro managed some buckle up recently).
Why is such a gap down? FOr tech mahindra, it can be because of more focus on telecom. For Wipro, it used to be much lower comparative growth rates…I am not sure about HCL tech…it could be because of some more product/platform angle here…surprisingly I see many product/platform Indian IT firms command lower valuations than pure play services…thats probably because growth rates of such products/platforms are much less…take example of OFSS trading at rock bottom valuations inspite of being top notch MNC IT product company. IP doesnt hold much value here if there is no decent growth from that IP and it is not a blockbuster IP…
Apart from this , is there any reason as on today why HCL tech is values less.
Reason I ask is because I respect market discovered valuation. I would want to know the reason to understand if this company (or any other) is working towards improving those gaps to make an investment case…Thanks
Long time without an update - Have increased weights in
Reliance Industries Limited
Bajaj Holdings and Investments Limited
and have added a few stocks
SIS Limited - Largest Security player in India and Australia, growing rapidly in India. Well managed, very decently valued and looks well placed to capture growth story. You may read my thesis on SIS forum.
CE Infosystems - Interesting company. Have entered with a small tracking position. Geospatial technology has tremendous potential with the rise of digitization of automobiles added with rise of use in e-commerce. Monitoring and understanding to value the company before committing a higher amount.
Kama Holdings - Holding company discount at all time high of >80%. Similiar bet to Bajaj Holdings. Strong underlying company in SRF.
PI Industries - PI Industries is imo the strong agro-chemical company in India with unmatched capabilities in CSM. High spend on R&D + focus on areas other than agro-chemicals read electronic chemicals, additives and pharma will drive second leg of growth.
Have exited from Jagran Prakashan & Sasta Sundar as my thesis has played out and the company has delivered way above my expectations since my buy price.
Here is how my portfolio looks as on date
ITC - 21.8% -
Bajaj Holding - 12.8%
IndiaMart Intermesh - 10.4%
SIS - 9.23%
RIL - 8.9%
HCL Tech - 6.6%
HDFC - 5.2%
PI Industries - 4.9%
Kama Holdings - 4.1%
Godrej Agrovet - 4%
CE Infosystems - 3.6%
My XIRR / CAGR Returns for 2.05 years comes at 32.13% vis a vis Nifty returns of 20.65%.
In a bull run, it is not surprising to do well, so there is nothing to talk about unless it is possible to do it over one business cycle and my portfolio size is also changing because of low base effect. Let’s see how it does over a 4-5 year period.
My aim is for a 19% CAGR which should double money every 4 years.
My investing style is evolving and i can see myself deviating from some of my principles which I may have mentioned at the start.
Hello Mihir,
I’m interested in finding out your reasons for selling Jagran. Also, I see that Jagran newspaper app is now among top 10 apps in its category on Android. What according to you could be the revenue from this (although it must be relatively small). Any method you could suggest for estimating revenue from the app.
It is classified as digital revenue so around 15 crores a quarter. With 1-2 crores of PAT. You may look at digital business revenues in presentation. The stock almost doubled from my buying price in a year or so and it was a good pick for me. It is still decent but I found better longer terms opportunities to exit.
(Note: since you mentioned long term. In the short or medium term it may double but long term it may not be the best option imo)