My portfolio - Srinidhi

Q&A: Questions & Answers Portfolio Q&A
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I am planning to use this thread as a reference for myself and to put my thoughts in place. As many, I am a full time software engineer and part time investor. The amount of time I spend on investing changes from time to time and I think so will be the activity on this topic. At the very least, I am hoping it will serve me. My investment approach is having learned little bit of basics anywhere I can, I now have subscription to good investment advisors as well as I research little bit on my own and I maintain a portfolio. I think this is good enough brief. Attaching my current portfolio for tracking purpose and let’s see how it evolves month over month.

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Can you share the basics of fundamentals for owning these stock
s?

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I mostly follow value investing and no matter if we read same books, the way we value individual stocks would vary. There’s diversification across sectors as you can see. Most of them are based on value investing, few are on growth stories at not so cheap valuation to support growth (Tarsons, stovekraft, sirca, Mahindra logistics) and finally one stock at high valuation which is not justifiable by my understanding but I do believe there’s almost uncapped growth opportunity is Manyavaar (Vedant fashions) and great brand factor. There are detailed reasonings for each individual stock but it’d be too much to address individually, you can look at the corresponding value-picker threads where most of the questions would be discussed at individual stock level. But as a portfolio, I would like to trim it to 20 stocks and most probably I will do it over next few weeks and I follow head heavy allocation where I give winners in my opinion higher weight (MOTILAL,HDFCBANK),

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Do we have a method or how you arrived at valuation of each individual stock?

I mean basically how do you “value” a stock? I know it is tough to follow a single method - If you can provide at least some thought/guidelines if would be helpful.

Thanks

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As I said , firstly you need to classify how you view the stock. I would personally categorise my portfolio into following.

  1. Banks (HDFC, Manappuram, IndusInd, Federal, Bandhan)
  2. Financials (MOTI)
  3. Pharma, chemicals and related industries ( Tarsons, Lincoln, IOLCP, NGL, Aarthi Pharma)
  4. Consumer goods ( Stovekraft, Sirca, Lux Indusries)
  5. Logistics ( GPPL, Mahindra Logistics)
  6. Tech (TechM,HCL)
  7. Rest ( OCCL, Quess, ACC, Vedant )
    Now, I will just take the first category which is bank. In that, HDFC is retail focussed, Manappuram is loan against gold but has it’s own challenges wrt growth and new initiatives they are taking, IndusInd has good loan book again vehicles, Federal has good loan book mix and looking at good high margin products and bandhan being focussed on micro-finance.

Now with such diversification within banking sector itself, the growth of loan book, profits, NPAs etc would be very different and stock prices would also be very different over next 4-5 Years.

Having said this, what you should be able to make is an educated guess wrt any company is how much are they earning as of today, is it predictable or not, how much can they earn on additional capital employed, how much reinvestment is required to sustain such earnings, what does company financials look like, how company is moving forward and where they’re spending the capital, what’s the total addressable market as of today, probably 10 years from now, competition and how long can they survive. Based on all these things, you should be able to make an educated guess in comparison to any of your other alternate investment opportunities and identify if sum of retained earnings for the holding period or the greater higher earning capacity of the stock in the future would make sense and among all the other stocks you own, which one deserves highest capital and more and more. You can buy value investing by Parag Parikh because what I have mentioned is just on the surface and out of top of my mind. It’s an open ended problem.

To summarise, it’s game of comparing one investment opportunity to 1000s other available options to you both within and outside the market, trying to figure out what’s better among the candidates you’ve and finally deciding allocation keeping in my mind risks involved and then periodically revisit your decision and check if everything holds good and whether your conclusions are right and redoing same exercise agin and again. I don’t know if this answers but if you are looking for more crisper and less vague answers, there isn’t one.

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IMO

What vedanta fashion is and what’s the possible future prospect ?

  1. I mostly feel the brand value is a big plus point. They’re already synonymous with wedding and festive wear in India and have great branding/ advertising and there’s market left to capture is huge.
  2. The ability to penetrate throughout the world for Indian wear, at mid-premium and premium segment is not an impossible task.
  3. If they can venture out to other wearable spaces associated with wedding and festive, there’s enough market left.

How does vedanta fashion valuation look like ?

  1. At 25 times book value and close to 60 times pre-tax annual earnings, the valuation is very steep.
  2. The only way to justify this valuation is there’s extremely long runway and huge tailwind. If company could double profit in 3 years (PEBT will be 30) and it still deserves a valuation of much higher than 35-40 times earnings with lots of run way left, there’s good chance of stock appreciation in this time.
  3. There’s no alternative for company but to register great sales and profit growth without compromising margins and have continued future growth plans to justify current valuation.

What’s could be the future proof that vedant fashion is a wrong investment?

  1. Losing brand value/ reputation in any sense.
  2. Becoming irrelevant in the fashion space (Look at Raymonds today vs 1-1.5 decades before)
  3. Not being the market leader in its own space.
  4. Not having plan for sustained company growth and international expansion in after 3 years.
  5. Long time underperformance in market.

With these considerations, I would be increasing my allocation in vedant fashion to 3% and monitor in which direction the stock pans out. This valuation is nowhere near healthy levels for investing good amount of money. It’s avoid / put minimal allocation in portfolio and monitor in the mean time levels. The advantage of having skin in the game for stock you are positive about is you’ll continue to think about it and when time comes to act decisively and load up, will be prepared well.

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