My portfolio updates and investment journey

joinjp2003 · June 2, 2024, 1:10am

Thanks @aditya14920251 .
@Krishna19 in additiion to what Aditya mentioned please do check the break-up of depreciation. Many a times amortisation is also clubbed with it.

Within depreciation for red flags please check whether company is disposing off assets fast. If life of asset is ~10 year and company disposes those assets in substantially less time than its a red flag.

Please check the break-up of assets to understand what is being written-off and/or disposed off. Many companies may write off computers, equipments etc faster and may buy them too much to write them off again (basically a red flag).

One of the company i recently invested has ~200 crores of sofware/database capitalised (out of total assets of ~600-700 crores) and they amortise ~25-30 crores annually. I am not able to understand that if that is something I need to worry. So my allocation in this stock is negligible as of now. Also management is not doing any concalls so that to understand it better.

joinjp2003 · June 2, 2024, 1:37am

Portfolio Update:

My asset allocation to equity shall go up. I shall strive to bring equity to up to 60% in coming months. Unfortunately I am not able to bet big on equity side given the run up of last few years (last one years big bet was only Nuvama). I trimmed bond portfolio wherever liquidity was available.

The older bets where I was big I was booking profits. For example: Nuvama in last update was 17% of portfolio, now its at 13%. Complete exit on Pricol led to some cash accretion as well. I allocated some of the Pricol and Nuvama money to Sandhar, and R&D bucket created in the last 2-3 months.

I do not feel I am in full control of my portfolio as I sprayed around money on R&D buckets and some shallow work (Sudarshan). I hope to streamline the portfolio over this quarter.

	May-24	Apr-24	Feb-24	Jan-24	Aug-23	Nov-23
Total stocks	21	11	16	21	23	22
Top 5 allocation	62%	69%	55%	46%	42%	48%
Top 10 allocation	87%	97%	87%	74%	71%	78%
Average holding period	1	1.2	1.1	2	2	1

Some key actions and highlights:

Re-entered Tips Industries: I had sold Tips few months back around 310 rs. Stock made painful high of 500+. I re-entered at just below 420rs.

Rationale: Company entered into agreement with Warner at 10x of contract value vs. what they did 3.5 years ago. This is extremely powerful signal where this industry is going. In addition, mangement continues to guide 30% growth in revenues and earnings Even Saregama results and guidance was very strong, so I ramped up Saregama also a bit. Valuations is the area we need to take a call (reflects in my position size).

Star Health: Entered Star Health with an aim to ramp-up position as company delivers. Health Insurance is fastest growing segment in insurance vertical. Volume growth is driven by higher penetration, while value grows due to medical inflation cost. Combined result in 18 to 20% premium growth. Star is largest standalone health insurance (SAHI) company with market share of 50%+ in retail health among SAHIs.

UnitedHealthcare Group Inc. in US has created over 3000x wealth in last many years. https://www.google.com/finance/quote/UNH:NYSE?window=MAX

Several other SAHIs like Care, ABHL (Aditya Birla) have grown at over 30% for past several years. Hence, industry has characteristics of high growth.
Star’s expense of management (EOM) ratio is ~31%, enough of headroom vs. regulatory guideline of 35%. While many competitors are breaching 35%. Advantage Star?

Other triggers: 1. sharp price hike taken in last year will improve combined ratio. 2. Implementation of IFRS from FY26/27 will result in RoE bump up of ~3%.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation . Also note that I recently joined a investment advisory firm. My portfolio is not a recommendation for anyone. Some of these stocks might be in clients portfolio as well so please be aware of vested interest.

Krishna19 · June 2, 2024, 7:29am

Jaiprakash sir, how to calculate any asset life?
2- sir agr koi company asset ki value balancesheet may uski life ke pahle he dikha kr clear krti hai to ya red flag ku hai.
Mujhe lgta hai agar company agr company jaldi show kragi tabhi to profit show kragi balancesheet may.
Pls is guide Kro ku?
Sir Mai RAB ko study kr rha hu.

joinjp2003 · June 2, 2024, 1:45pm

@Krishna19 thanks for writing in.
I apologise, I might not be able to answer you perfectly as my accounting and forensic accounting is not that strong.

However, on my best effort basis i will try to respond to your queries.

Asset life: generally company provides this information in annual report. My experience is fixed plant & machinery are in 7 to 10 year life and computers and other equipments are ~3 years.
If a company writes-off assets agressively its good or can be a red flag. If company is genuine (no red flag) even then there is generally no incentive due to tax deductions limitations. If company is not genuine then agressive write-offs/disposals might be sign of “daya kuch toh…”. You can look at Rolta India’s balance sheet from Fy2011 to FY2016. They wrote off almost all they bought. just a snapshot below from 2016 annual report.

they had outstanding gross block of computers at 2572 crore, sold 2843 crores. final result net block of 28 crores in 2016 vs. 1624 crores in 2015. Selling is still ok but were they sold at profits? no - 2016 profits were down. similar trend can be seen in other equipments.
So thats why we should be aware of agressive write-offs/disposals as well as depreciations.

Krishna19 · June 3, 2024, 2:03am

Thank u. Very much sir. It is more informative and clear my concept.
What is mean net block and how it will be effective for company sir?

Shakti_Srivastava · June 3, 2024, 12:03pm

@joinjp2003 Dear Jai, what factors triggered your entry in Sandhar…

joinjp2003 · June 3, 2024, 2:26pm

Hi @Shakti_Srivastava I entered Sandhar back in July 2023. Here is rationale I already mentioned: My portfolio updates and investment journey - #43 by joinjp2003

Latest on Sandhar is that they have about 400 crores of sheet metal capacity uniutilised, ~550 crores of Suzuki order to be executed over next 3.5 years and Romania plant has about 75% (~180 crores) capacity unused.

All this shall lead to revenue of ~4200-4300 crores next year. A 50 bps improvement in margin (management guidance), debt repayment of 100 crores (interest saving of ~7crores) and lower depreciation accretion due to smaller capex shall result in 150-160 crores profit next year. I have below scenario penned:

	FY23	FY24E	FY25F	FY26F	FY27F
Revenue	2,909	3,522	4,226	5,072	6,086
EBITDA	246	337	427	558	700
EBITDA Margin	8.5%	9.6%	10.1%	11.0%	11.5%
PAT% of EBITDA	30%	35%	35%	39%	41%
	74	118	149	218	287
Mcap at 30PE	3,250	3,535	4,482	6,527	8,609
Potential upside	-	4%	38%	101%	165%
CAGR		4%	17%	26%	28%

There are risks of execution, external factors (logistics cost/red sea impact), and low adoption of smart locks in two wheelers.
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation . Also note that I recently joined a investment advisory firm. My portfolio is not a recommendation for anyone. Some of these stocks might be in clients portfolio as well so please be aware of vested interest.

joinjp2003 · June 3, 2024, 2:32pm

@Krishna19 net block is Cost of fixed asset minus accumulated depreciation.
For example if company bought machinery for 100 crores and it depreciated 10% every year then at the end of 3rd year net block of the company shall be 70 crores.
Hope this helps.

Krishna19 · June 4, 2024, 2:10am

Yes sir, what is effect of net block on the company

Krishna19 · June 7, 2024, 2:09am

Sir, what is mean of Equity capital?
what is effect of it on share?
If it is increase or decrease?

joinjp2003 · June 23, 2024, 6:31am

@Krishna19
net block is the assets of the company after depreciation. effect is nothing as depend on the context. high block is good if company can use it efficiently, low may or may not mean anything. In finance everything should be taken in context.
Equity capital is owners capital in the business. Again increase or decrease has no meaning on standalone basis, always context is important. increasing equity means increasing profits or raise of additional shares. decreasing equity in corporate businesses may not be bad as company might be doing buybacks.

As @Surender singh suggested you can read up more from some books or find online content. I may not be the best teacher specially undestanding from me in bits and pieces is not good. Also I may not be the best resource for you.

Krishna19 · June 24, 2024, 2:19am

Ok. Thank u sir. I start reading books.

amit151190 · July 4, 2024, 6:25pm

My calculations are quite similar to yours, however I differ in the PE ratio assigned. I believe company will have having more than 50% ROE as they don’t have to spend much on the renewals and with the profits growing exponentially, market will factor in the profits of 2030 much before (may be before we see the last rate cut from the Fed) and then there will be a consolidation.

joinjp2003 · July 10, 2024, 3:11pm

Hi community members. Our firm Korman Capital has done study on Auto Ancillaries (Auto Ancillaries - A high growth manufacturing and consumer play) and EMS sector (EMS – A baton holder of India’s manufacturing renaissance). Please feel free to refer for your learnings.

Please note that idea of these studies is not to pick stocks but to understand the sector in-depth as much as possible. Study helps us in differentiating one player from other.

Please do refer to disclaimers.

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation . Also note that our investment advisory firm might have recommended some of the stocks. My portfolio update is not a recommendation for anyone. Some of these stocks might be in clients portfolio as well so please be aware of vested interest.

Rajesh_Bajaj · July 14, 2024, 5:50pm

@joinjp2003 Hello sir please share your view on valuation of star health.

joinjp2003 · July 18, 2024, 12:55pm

Hi @Rajesh_Bajaj as management guided that company will grow gwp at 18% and it will reduce combined ratio. With this, along with FY26 implementation of IFRS and other operating efficiencies will result in about 20-25% earnings cagr for next 3 years. Based on this I am ready to pay up to 2PEG (40-50PE range).

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation . Also note that I recently joined a investment advisory firm. My portfolio is not a recommendation for anyone. Some of these stocks might be in clients portfolio as well so please be aware of vested interest.

joinjp2003 · July 18, 2024, 12:59pm

Hi community members, we have covered Spend Management Industry in our recent note. Please feel free to refer it here: Spend management industry - a SaaS and fintech combination?

Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation . Also note that I work for investment advisory firm - Korman Capital. My portfolio and blog note is not a recommendation for anyone. Some of these stocks might be in clients portfolio as well so please be aware of vested interest.