Dear Gaurav, thanks for taking the time to review and comment on the portfolio.
I will try to be brief about the thought process behind the stocks.
Avanti, RS, Ajanta, Mayur, Shilpa, PFS, Kesar and MPS have been discussed thread bare.
Regarding the negative stocks which you mentioned:
1). Delta - I have been reducing allocation to this stock because I am not too comfortable with the mgmt. However, it needs to be said that they have completely exited the real estate business and are only into gaming and hospitality. Last quarter, the gaming segment contributed more than 75% of total revenues. Its a high barrier to entry business that is growing extremely rapidly. From a year ago when they had 700 gaming positions, on opening of daman casino they will have in excess of 3200.
2.P&G - the company has been growing at 25%+ rates since the last 3 quarters. Penetration levels of sanitary napkins is abysmally low (lower than 15% in rural areas against about 65-70% in china) - there is a thread on this company for more info.
3.TV today - i dont believe that digitization is a hype. Lot of people have burnt their fingers in media in the past and have become extra cautious about the sector. However, their last years results are proof enough that things are changing on the ground. Rising realizations and falling costs at the same time can result in some really phenomenal growth in profitability without much growth in topline.
4). MCX - the earlier owners of MCX dont own and manage it anymore. It is totally professionally run with Kotak securities having a large stake, things are likely to be better. I dont think there is a stronger type of moat than a network effect. This stock has been discussed in one of the threads regarding quality of businesses. Despite all the scandal surrounding the promoters and the imposition of CTT, MCX continues to have market share higher than what it was before the scandals. If its competitors and any potential new entrants couldnt take away share from MCX during such a controversial time, its unlikely that they ever will anytime in the near future. Think about the impact cost for a large commodity trader for not trading on MCX. Its like a large fund trying to buy a meaningful position in an undiscovered low liquidity small cap. By the time they finish buying, they have moved prices to beyond the range of fundamentals. No large player would mind paying a little more commission for the option of having a little more liquidity.
5). Tree House - getting a little expensive but its a business which is likely going to continuously improve on ROCE’s in the future. Their model is unique in India whereby they concentrate more on owned pre-schools as opposed to franchises as in the case of competition. This reduces the per unit cost of operating a pre-school significantly and also means more consistent quality. Most importantly, the utilization of their pre-schools are continuously rising leading to better asset sweating. In preschools where they are running full capacity they have started day-care centers to further sweat the assets. Further, with the K-12 capex behind them, this is only going to contribute more towards the bottomline going into the future. I think its a good story to hold for the next 2-3 years.
