My attic and Investing Journey

So while on the flight to Dubai, i had around 4 hours of free time. During these 4 hours i tried to pencil down my thoughts about what i’ve learned about investing so far. This was a good experience as it made my thinking clearer about what i am trying to target via my own investing philosophy. Here are the notes:

-Invest in a business that can survive across market cycles and that can differentiate itself amongst the competitiors.

-Survival would ensure that the N in the compound interest formula gets elongated.

-Differentiation would ensure that the business can make high returns on incremental capital/Roic in the long run.

-The law of capitalism is competition and a free market economy. Thus, most of the businesses cannot make more than their cost of capital in the long run.

-One has to look for businesses which can make more than their cost of capital in the long run. This is known as Economic Value Added.

-Such businesses can only be found, where an entry barrier exists or the amount of competition is low.

-For eg- Amines industry, Graco (pumps), Vinati Organics, Casa Franchises, Low cost operators, Know how players like Aarti, or for players with scale advantages like Bajaj Finance and Dmart.

-My main job as a portfolio allocator is to buy re-investment moat candidates and not the legacy one’s.

-3 bucket framework, priority wise:

Reinvestment moats-
Bajaj Finance,Kotak Bank, Alkyl Amines, P i Industries, Aarti, Apl Apollo etc.

Legacy moats (slowing growth)-
AIA Engineering, Orient Ref, Balkrishna tyres, Solar Industries, CCL,Cera etc.

Cheap Shit (cyclicals, Roce would improve gradually candidates,temporary problems)
Gael, Sanghvi, Ipca Labs,Avanti feeds etc.

-Substantial part of the folio has to be in companies which posses a strong re-investment moat. This will ensure above average returns.

-If 60-70% of the folio is in expanding moat co’s, the remaining part has to be in cyclicals,temporary problems and legacy moats biz.

My own defination of reinvestment moat candidates, Legacy moat and cyclicals:

Reinvestment- these are co’s whose core business is protected by a moat, which ensures high ROCE. Moreover, they can re-invest their earnings at a high ROCE. That is Return on incremental capital employed would be north of 20%. This is what Vinati did in last 10 years.
This is basically compounding on steroids.

No need to find new co’s every 6 months, can easily invest more money in these.
Higher returns than market.

-Priced too perfection.
-Margin of error in terms of valuation is low. Although real margin of safety lies in the quality of the business.

Legacy moats- These are business whose roce is protected by a moat. However, these businesses cannot grow their earnigns more than the nominal gdp growth. They lack the runway to deploy additional capital at high rates of return.

Pros- will beat bonds in the long run and no tension about survival.

Cons- if earnigns growth slows down even further, then high chance of derating.

Cheapshit- these include cyclicals, Cigar Butts, Industrial recovery plays, reversion to mean and only someitmes a high quality co going through a temporary problem.

Buy cyclicals when:

-Capacity shutdown
-Abnormal increase in input prices
-Promoter increasing stake
-Insutrial recovery underway
-Might time it with technicals.

-Mutlibagger returns
-Potential for a 30%+ Cagr in short run.
-Can usually be purchased cheap

-You’ll be like Arjuna of Mahabharta if caught in a wrong cycle.
-Need deep understanding of industry
-Often too many variables
-Might be too volatile

Where would the highest returns be made?

-A high ROIC co, earning more than 20% on incremental capital, one purchases it at reasonable valuations.

-When a high ROIC Co trades at cheap valuation due to temporary problems in the business- IPCA Labs, P I ind, Balkrishna tyres.

-When a company from legacy moat biz moves to reinvestment again- Eg Vinati organics when it acheived success in ATBS in 2006. Till then its IBB division growth had moderated.
Alkyl amines after establishing its Dahej plany, grew faster due to tailwinds. (Charts tell the story)

-When companies which earn below their cost of capital for a temporary period make returns more than their COC (Economic value added)- eg HEG, National Peroxide, Sanghvi Movers etc.

These were my thoughts, feedback would be appreciated.


I have only been able to successfully understand and implement less than half of your thoughts here. Look forward to decoding the rest on my investment journey.

Is there any correlation /significance of Dubai ,as u mentioned in first line ?:grinning:

1 Like

No correlation :sweat_smile:I was in the flight when I wrote down my thoughts. Sent this message to someone on WhatsApp, pasted it from there. Hope you focus more on the message :wink:


I have a question, why balkrishna industry is in legacy moat and not in reinvestment moat ?
They have lots of room for growth.

1 Like

Would you mind updating this note and your learning with 2+ years of investing journey si ce you wrote this. ? That will be of immense help.

1 Like

Brief updates after second bull/bear market cycle of my journey:-

Key Learnings

  1. Sizing, sizing and sizing is what saves an investor and helps him/her make good returns. In Small and mid caps, stock rises and falls are much more dramatic than the earnings. Here I have 4 case studies in which I was invested and still am invested in some of them.

First one, lets start with Sequent. Sequent at cost used to be 6% allocation and things were going well with the earnings compounding at a good rate and margin expansion playing out. Sh#t happens in investing, I was unable to sell this at 100 times PE multiple, when I was sitting on a 1 bagger+ in less than 5 months. In Hindsight, everyone’s a genius but this what makes you wiser at the end of the day. Where I went wrong:-

A) Didn’t realize that FX issues in Turkey are eroding the networth of the company as FX hit was being taken on the Balance Sheet.

B) Overestimated the earnings power of the business. This was the second key mistake.

What saved the PF was position sizing and changing the mind quickly as facts changed. Was out a 3-5% loss completely. This was a good learning experience.

Second, I was invested in both IEX and Neogen. Both were combined a 8% position at cost. In IEX again, there was a climax move which took the valuation beyond 100 PE and in Neogen similar thing happened. Sold these two after the experience with Sequent.

In SMID caps, one cannot buy and hold forever. As earnings are discounted much faster in the stock price. As an active investor, one can sell and move to cheaper companies.

Always control risk with allocation

  1. Selling matters much more than the buying decisions. The way bull markets move, companies get re-rated extremely quickly. If earnings don’t back fill the price. Then we see inevitable drawdowns.

Here I have 3 case studies from personal experience:-

  1. Navin Fluorine, Navin has been one of the better postions for me. As co is doing a 1500+ crore capex and is present in trifluoro and tetrafluoro chemistry in which it only competes with cos in Western Hemisphere and not in India. Inspite of being rerated to 70 PE. I continue to hold the stock as triggers for earnings are extremely strong in this one. High PE+High Visibility.

Second, Hikal was a similar story. However, risks like EC issues and Pharma margin compression played out. I changed my mind here, in-spite of co initially doing well. Nothing against the company, but EC risk is real in chemicals. Post selling, the stock is further down by 50% from that point. You only get to know the real risks once you are invested in the story. Learned a lot of things which I didn’t know earlier about the industry and the company. One sell decision can save you a lot of pain.

Finally, Deepak Nitrite, one of the best performing chemical company in last few years. Currently, its a live case study on how stocks follow earnings and market discounts that. Earnings trigger of capex are 4-6 quarters out, the co is undergoing consolidation. Given the capacity utilisation of Phenol plant, I wouldn’t be surprised if we see more large capex announcements. However, in the interim its highly likely that we see time and price correction for sometime.

  1. Factor risk

No point in falling in love with one sector or factor. Imagine being just a BFSI Analyst in last 4 years or being just a pharma Analyst in last 1 year. Factor risk is real. Diversification is a strategy of aggression, you don’t know where the next windfall will come from.

Current factors I am exposed to:- Industrials, capital goods, Auto ancs, music streaming, chemicals, corporate learning,healthcare proxy, hospitals and financials. 1 factor exposure or too much overdepedence can lead to large irrecoverable drawdowns.

  1. Its the Future that counts:-

Countless conversations I have had with veteran investors on a lot of different companies. Just because they were biased, in most cases they didn’t have a favourable view of the co. An example that comes to mind is that of Saregama. When I spoke to a veteran investor, he just categorically wrote this story off. This has been my biggest learning this cycle, no matter who the investor is. Its the facts and independent thinking that matters at the end of the day My biggest gains were made in Saregama in the last cycle. Similar trend is playing out in one of the finanical co’s that I own. Maybe we will keep this one for the next cycle. Its the future that counts, and just like you and I are human beings. All investors are dealing with a probabilistic sport. Respect probabilities and data, opinions and stature comes later.

  1. This is the final one of the most important one. In last cycle, as mentioned in the initial post. I bought some of the stocks and they didn’t move for a number of months. Over a period of time it has dawned on me that your returns always come in phases of bull/bear markets. You make money in sprints and its extremely important to be prepared for those sprints and to sharpen your axe by knowing about as many businesses as possible. When Markets move on the upside, very less time is given to do the business selection. One just ends up chasing momentum. Do the homework well in sideways or corrective phases of the market. Understand near term triggers, medium term triggers and long term triggers for a company before you invest in it. Eg:- One of the largest holdings is Equitas Hold co in the PF today. Near term triggers are in place:- Q1FY23 high chances of co hitting 2%+ ROA, Medium triggers of becoming a casa franchise with low cost of funds in place and long term triggers of competing with the likes of Chola and Aptus in that turf are also in place. Valuation is anyways at 0.97 times forward for a bank that might do more than midteen ROE soon. This is just another live case study, which is the best way to learn about markets in my opinion at the end of the day.

  2. Last key learning is to network as much as possible with like minded people and entrepreneurs. You don’t know the nuggets of wisdom you can get just by speaking to an investor or an entrepreneur who has spent multiple years in the industry.

All the best to whosoever is reading this :slight_smile: Markets are cyclical and will test you from time to time. As investors we can only gauge the flow of the river and position ourselves accordingly.

Disclaimer: I am not sebi registered. Nothing is a buy or sell. These are just my reflections. I am invested in few of the stocks mentioned above.


Hello ishmohit,
Out of the names the 2 that stick out are sequent and hikal. There was so much online content, webinars, YouTube videos the works,p only the kitchen sink was left - they were almost too good to fail especially Sequent. Many fell foul to the consensus thinking. Nobody reveals their allocation therefore I respect you for this frankness. What if all these twitter stars have 1 percent of their pf in the stock and we think they have 20-30 percent of their net worth invested. Valuations matter and independent thinking matters, or else your doomed in the stock market.


It does- also Apl Apollo, Neogen, DNL, Gujarat Fluorochem, Navin, Fine organics, HCG, Narayana and Numerous others were also covered. Maybe it’s loss aversion that motivates this post. Why not admit one was wrong and move on in life?

I have, yet plenty of others can’t remain objective enough. Sizing matters at the end as mentioned.


Nice to connect with you offline and clear out things. In this day and age always better to have a conversation. Thanks for reaching out.
Now let me tell u about one of the few misses - Kiri industries - got stuck with this commodity chemical stock at 450 levels for a few years. The big play was the huge settlement they were receiving in due course from the Singapore minority oppression case - some 500 mil usd. That alone took the intrinsic value to 4 digits and a good CapEx plan if executed could well take it beyond. Now even with the supreme court in favour of Kiri the stock did not move. In fact declined with the market. Sold out in frustration - no great loss but huge opportunity loss for the capital.
Moral of the story - if it’s a commodity biz with no growth, and the management is not transparent about the future. Will try to avoid these stories in the future, unless it’s a special situation materializing in the short term. But never on a commodity biz like h acid /vinyl sulphone. We have 5000 plus listed stocks to ponder about !

1 Like

A brief update on more learnings as PF is evolving and so am I as an investor:-

  1. I have consciously worked on an exit strategy. It has been immensely helpful in the journey. Documenting business cycles like MDF, Amines etc, has helped+ Mixing valuations & technicals.

  2. Portfolio right now has significant diversification with multiple sectors such as cables and wires, beverages, chemicals, music, holding companies, Small finance banks(both Equitas+ujjivan), NBFC’S+Mfin, Shunts, Latex, Auto Anc’s, Renewables (Power sector) etc.

  3. Position sizing is perhaps one of the most important concepts in investing. My largest allocation is 35% in a stock, and that has stock has nearly gone up by 60% this year. This has impacted the PF significantly. At the same time I completely exited the Pharma factor in the PF due to business cycle break down. Still tracking a few names in domestic space. Selling early to slightly late is okay with me as Long as I sell right.

  4. Currently, I am experimenting with a deep cyclical Iron ore and Pellets company. I am trying to go to different sectors and explore the businesses offering Best risk & reward. Here I am studying GPIL. Another such investment that was made is Usha Martin, I have exited that as ex of other income the stock looks expensive. (Don’t own GPIL- under research)

  5. All in all, evolution as an investor continues. This time the real learning has been to treat most things as cyclical and knowing when to exit.


Thanks for sharing your views, Ishmohit. Quick question on your largest position. Are you still comfortable holding your largest position which seems to have grown 1/3rd of your portfolio? Sure it’s all about conviction but how far would you go before you see %age allocation as a risk?

1 Like

Tailwinds have just started playing out, and I will let it be for the time being. Rebalance only when:-

A) Valuations turn unfavourable.

B) Business cycle breaks down due to n number of macro factors involved.

C) A genuine Anti thesis plays out.


Since the wire and cable stock had a dream run this year on bourses,what is the exit strategy you have in mind. Any sharp drop in copper prices will bring the stock down,you may check the stock price form January 2022 to June 2022.

1 Like

Positive Microfinance Cycle which might be accelearating

In last 13 years, we have seen 3 Negative cycles of Micro-finance and 3 positive ones.

Purpose of the post is to see where do we stand in the current cycle?

  1. Starting with the numbers of one of the most conservative lenders that is in the listed space:- Kotak Mahindra Bank

Kotak acquired BSS in 2017.

This year Kotak has grown advances by 103% YOY in Mirco-finance.


We are happy to announce that our retail microfinance business crossed the 1 million customer mark during this quarter. Collection efficiencies in this segment are holding up very well, and which shows the ability of the customers to honor their repayments. We see good credit demand in the rural economy, and our MFI business is well poised to leverage this for the coming quarter. We have expanded our presence into 3 new states, Gujarat, Rajasthan, and UP apart from where we are, which is Karnataka, Bihar, TN, MP and Maharashtra. There is a large unserved market that requires access to formal credit, and we will focus to continue our growth with the same risk-adjusted returns that we see.

Pat of BSS has gone from 83 crores to 293 crores. Asset quality has been pristine.

  1. Coming to one of the lenders which reported losses during covid time and is now reporting negative credit cost with improving asset quality and trajectory:- Ujjivan Small Finance Bank

SMA BUCKET 0,1 & 2 Have normalised and fallen below pre covid levels.

Lets look at the NPA’s:-

NNPA is barely at 0.04%.

The ultimate hallmark of pristine asset quality for the time being can be seen in the credit costs Ujjivan has been reporting (Possibly due to write backs)

  1. Survodaya which has reported high GNPA’s in the past has also started seeing both GNPA’s and NNPA’s fall.

At the same time gross advances have grown at 20%+ YOY.

  1. Lenders with past governance issues like Spandhana Spoorty have also started reporting reduction in NPA’s.

Moreover they have started growing their AUM aggressively.

  1. Finally, the removal of Yield caps on Microfinance NBFC’s will help them to price the risk better and open up a vast majority of the sector which was untouchable. This is one of the reasons why Micro NBFC’s sound very confident of maintaining their NIM’s in FY24. Eg;- Nirmal Jain in IIFL’s concall pointing to increase in PF yield for Mfin loans.

Disc: Playing the cycle, and invested in some of the lenders. No reco to buy or sell.


Another micro financier reports good numbers

CreditAccess Grameen reports Q4 earnings.

:black_medium_square:Net profit up 86.4% at Rs 296.6 cr Vs Rs 159 cr (YoY)

:black_medium_square:NII up 29.7% at Rs 719.8 cr Vs Rs 554.7 cr (YoY)


Hi Ishmohit, thanks for your wonderful work. What’s your view on Suryodaya Small finance bank. Trading less than book value currently where as other Sfbs are at 2.3 Price to Book

Only problem I see on the horizon is a bad monsoon with El Nino being predicted. MFIs will struggle if rural economy hurts.

I always have a saying that I follow in cyclicals:-

Know your exits better than your entries


What are the different types of Capex a company does and how to judge the outcomes probabilistically?

  1. Capital Expenditure is the type of expenditure any business or organisation does to add more fixed assets or plants and machinery. A simple example is, one factory owner deciding to put another factory with more machines. This we can classify as growth capex.

  2. There is another type of Capex as well, where companies have replace existing machinery or where companies replace the worn out equipment. This is known as Maintenance Capex. 3. When it comes to Growth Capex- there are 3 types which we must understand with multiple examples. A) First type of Growth Capex is known as Green Field Capex. Where you set up a project from scratch. Now, since you are doing the capex for the First time on a piece of land. A lot of money will also get spent on basic utilities. Thus, your asset turns will always be low in a Greenfield investment. For eg:- Rainbow Children Hospital announced a Greenfield Capex at Gurgaon. Now given its a Greenfield capex in a hospital business it will take atleast 5-7 years to break even. Another example of Greenfield Investment is what SRF did in 2010 after Acquiring 293 acres of land at Dahej. They initially announced a 1000 crore Capex. Any capex done from scratch:- known as Greenfield capex. It is much more time consuming.

B) Second type of Capex is known as a Brownfield Capex. Where once your basic utilities and facility is in place. You can simply expand on the same site. A wonderful example of this is Mold-Tek Packaging. Which mentioned in its recent concall, that Asset turns (how much sale can be generated from Rs1 of assets) are 1.5x in Greenfield investments and 2-2.5x in Brownfield. Unit level economics end up improving. SRF which bought a 293 acre land, over the years kept on doing capex at the same piece of land. Over time, the invested capital turnover from that land parcel has gone from 0.7x to 1.1x. Thereby, helping to improve Profitability of the chemical business. (Major role is by margins, read about Local economies of Scale). It is less time consuming.

C) De-bottlenecking This is a type of Capex where minor changes like changes in machine configuration, pin pointing the bottlenecks or Changing the workflow configuration (Think having a seperate warehouse). Can massively improve the Asset turns and Profitability of the business. For eg:- A company manufacturing Phenol in India is increasing its achievable capacity by 50% just by doing a capex of 100 crores. Original capex amount that was spent to set up the plant was 1400 crores. You will often find such terms in a manufacturing business. Another company into Amines business, just by small de-bottlenecking of 30 crores was able to generate incremental revenues of 450 crores!(15x). Whereas, original asset turns were 1.5x.

D) Non Revenue Generating Capex:- I will further divide such capex into two parts:-

(i) Maintenance Capex:- This is the type of Capex that is done to replace the old machinery and to maintain the Fixed Assets. This is done to ensure that the business keeps functioning and old assets are replaced. One rule of thumb is to substitute Deprecation amount as the regular maintenance capex that is done every year. Earlier BKT Industries announced 350 crore as replacement or maintenance Capex at its old plant at Waluj (recently shelved) Broad rule of thumb= Depreciation will be equal to Maintenance Capex. Sometimes managements in concalls or interviews give the exact Maintenance Capex numbers.

(ii) Capex done to ensure Business becomes more sustainable:- Check the Falling Fixed Asset Turns of Aarti Industries:- 2018: 1.9x 2019: 1.94x 2020: 1.69x 2021: 1.25x (FY22, 23- Had termination income etc- tough to compare) One of the reasons is that the Company did significant capex on Sustainability as well to make its plants ZLD, and more environmentally friendly.

  1. How to check visibility revenue & competitive positioning while companies are incurring Capex spends?

A) Some companies by their nature of the business will do Capital Expenditure and the business will be done on a Spot Basis. Spot means- there are no confirmed buyers, you just go to the market and sell on the Spot. Generally, products which can be replicated or a bit commodity in nature. Such companies will end up doing Capex without confirmed commitments. Eg:- Deepak Nitrite’s Phenol capex can be one such example. Another one is, Dynemic products ( A food cooler company). Which did massive Capital expenditure, and once capex was commercialised the demand softened+Raw Material prices increased. The company went under losses due to elevated depreciation & Interest cost. Spot Capex- For an investor judging the utilisation can be tricky. You really need to understand the companies market position & demand for the products along with the supply side scenario. If too much supply comes in and demand is soft. Even then the market goes through a downturn. Think about what happened with Transformer companies in 2011-2020. Too much supply and less demand for the products. Understanding Market supply & demand dynamics is really important in such companies. Gives opportunities to smart investors to do cyclical investing, and often many investors go wrong here as well. Recent cycle has been the Polypackaging one, where demand grows at X and Supply is going up by 3-4x in next 1 year. Companies are already in cash losses.

B) Confirmed Contracts Capex:- Think about few companies such as PI or NFL or Deccan etc. These companies are doing capex on the basis of long term confirmed contracts. Here the visibility becomes much higher, even analysts start baking that into their projections as revenue ramp up is usually given by companies in their concalls. Example from the past:- NFL did 400+ crores of capex for a Confirmed long term contract with Honeywell for their patented Ref gas. The moment capex was announced, PE got rerated as visibility for analyst community increases.

C) Capex with high visibility:- One of the Coffee Companies in India has announced expansion of its Facility in Vietnam. This expansion comes on the backdrop of the fact that 50% of the expanded capacity is already booked out by a customer. It gives high degree of confidence to go ahead and do capex.

D) Capex for Stores:- In retail businesses or QSR businesses. Companies like Titan, Westlife or Trent will give broad visions of setting up xxx number of stores. An easier way to understand the potential revenue generation will be:- Multiply revenue per store that has been achieved*New number of stores that are being opened. Once these stores become fully mature, this will give you a rough idea on how much sales the company can generate once the stores are fully mature.

E) Capex done for Backwards integration:- Companies that want to make their Raw Material in house will incur capex for backward Integration. Eg:- BKT Tyres doing capex for Carbon black which is a Key Raw Material. Another example where things went South is:- Usha Martin setting up a steel plant to manufacture steel wires. Due to debt that was taken and inherent volatility in steel prices. The company went bankrupt and had to get its debt restructured+Ended up selling the steel plant. Backwards integration can cut both ways if not thought well by the Promoters.

F) Opex for Branches:- When Banks and NBFC’s open significantly higher amount of branches. This spend is termed as OPEX or Operating expenditure. Once, higher number of branches are opened then in the near term Cost to income (how much rupees you are spending to earn) goes up. As new branches reach maturity, then AUM per branch and productivity per branch keeps improving. Over a period of time the Cost to income ratio falls. Think what is happening with HDFC Bank right now. These are few musing on Capex :slight_smile:

Hopefully you found value in reading this post. Thank you for your time. Disclaimer: Nothing in this post is a buy or sell recommendation. Sole purpose is to share how to think about Capex with retail investors :slight_smile: