My richdreamz portfolio - visit my portfolio to learn together!

[richdreamz]

Dear seniors and my fellow forum members,

Thank you for welcoming me into your esteemed forum. I would like to be part of this growing forum by learning about markets and also enrich the discussions with my knowledge, whatever little that I have.

Let’s get straight into my portfolio:

STOCK %ge
Rephom 35%
Pagind 32%
Grufin 23%
PIIND 10%

I like my portfolio to be concentrated because:

1. I have to understand the sectors that I’m invested in. The factors like what stage of growth the sector is in, what tailwinds the sector has, the future of the sector if this can be predicted to a fair degree etc.
2. I cannot understand more than 5 different stocks at a time plus a few other stocks (2 to 3) that will be in radar for investment making it 7 to 8 stocks for review.
3. I’m looking for 25-30% returns per year and I believe any further diversification will lead to dilution in returns.
4. I have the stomach to digest the market swings. I do not usually lose sleep over falling stocks as after all it’s about money. I lose sleep over well being of my family and myself!
5. My portfolio has major influence of valuepickr and theequitydesk forums. I value the research done by fellow members and I deeply respect them for the passion they bring in to stock evaluation process.

The rationale behind my stock picks:
All my above portfolio stocks have been discussed at length, so I will keep the rationale crisp and clear.

**

Repco Home and GRUH Finance

**:

Basic sector story: My inspiration comes from observing other markets, especially the US markets. The story of Fannie Mae and Freddie Mac is being relived here in India with a lag of about 20 years. Houses or rather homes for low income groups is a very important area for political progress. The votes for the politicians come from the root levels. The progress of a political party depends on the progress of the weaker sections to a larger extent. For a sector to develop, it not only requires administrative and entrepreneur will but also political will. I do not mean political will is necessary but it will fasten the progress.

Growth potential: It is a well known data that the housing need is under penetrated for the low income group economy. If India’s overall GDP grows at 8% I strongly believe the economy at low income group grows at much faster rate. So, invariably the companies depending on this sector will grow that much faster. It is easier for people earning 10000 per month to graduate to 15000 per month when compared to the one earning 100000 per month graduate to 150000 per month.

Who does not love to borrow money for his benefit? Which company (bank/NBFC) does not love to lend money for its benefit of growth? Lending money to credit hungry developing markets is very easy while getting the money back is difficult. Whichever company can also get back the money will be the ultimate winner. So, here comes into the picture the RoEs, NPAs, Book Value (ca n we trust the book value?), NIMs. Only after this comes into picture the Revenue growth and Profit growth. The revenue and profit growth are certainly very important to me but not at the cost of RoE and NPAs.

Now that the opportunity size is huge, the sector having tailwind, government is benign towards the sector it all comes to the companies which have better metrics and management pedigree that will win my heart. REPCO and GRUH made it to my shortlist and so they are in my portfolio with my full conviction.

Risks: Any government regulations in capping the NIMs just to be super benign to the lower income people, risks in terms of NPAs, prolonged slow down in economy are the major risks that I envisage. I do not foresee any of the above for now and strongly believe the economy is on the uptick. We just need a dose of patience.

I will continue to monitor the the above metrics and will sell out only at bubble valuations. It is anybody’s guess when will it come. But hopefully, I will have my eyes open during that time.

I do not bother too much about the valuations as that is for the markets to decide, I only bother about how the business is doing and would likely do in future? I only bother about BUBBLE valuations. As Lynch says on similar lines, when my driver or maid talks about stocks, I will sell out my portfolio. Seriously, this is my indicator.

The above rational stays the same for both REPCO and GRUH. I’m aware that GRUH trades at cloud 9 valuations but it pays regular dividend to the tune of 30% at least, so you actually need to increase the book value by 30% when compared to the ones that do not pay dividend at all and then compare the RoE. In my opinion, RoE is the most important metric for any company.

**

PAGE INDUSTRIES

**:

Basic sector story: Very simple. Buffet’s Gillette philosophy influenced me here. People have to wear inner wears and also buy leisure wear. An industry like food has many variables as each person has different taste. So, scaling up and maintaining the standards as per people tastes is difficult. Standardisation of taste is difficult. But for underwear, it’s simple, a comfortable cotton cloth at a reasonable price is all that is needed. Here for PAGE, the input is a commodity (cotton) while the output is an UNDER WEAR? No, it is WRONG. For PAGE, the input is a commodity while the output is a BRAND. PAGE worked very hard to reach this level. Any company that has a commodity as input and makes a brand out of it will have super moat, high financial metrics like RoE and RoCE. Once this stage is reached, it is fairly a simple business but not easy.

Growth potential: I have read some where that during the initial stages of an economy upturn, the inner wears will do well first! During a prolonged economy slow down all that a company with a brand has to do is accept there realities and works towards strengthening its brand during the slowdown so that it will be in an enviable position when the economy turns up. THIS IS EXACTLY WHAT PAGE HAS DONE. I was very happy when page was limiting its EBIDTA margins at 21% and spending the rest on productive advertising. Page has a long way to go before its heady growth comes down. Of course there will be outlier quarters where growth will slow down but you just need to keep this in mind to observe the trend. If the company is continuing what it is doing, there is no need to worry on the business front. Please do not confuse between business growth and stock growth. Stock growth sometimes will lunge ahead of business growth because of SUSTAINABILITY and PREDICTABILITY of business. You just have to wait for few quarters for the stock to catch up. This is what I do. Switching on and off will veer you away form the mission. The new categories of business and women’s category will play an important role in Page’s success story from here on. The high RoE, RoCE, dividend payout are the quantitative metrics to be kept an eye on along with of course sales growth and profit growth.

Risks: Again prolonged economy slowdown which I think may not happen, promoters do something funny with the business which I think is a very remote outside chance. Any removal of TUFS scheme by government may be a small hiccup but should be manageable.

**

PI INDUSTRIES

**:

I have taken a position very recently based on the below factors so my knowledge is not very high on the sector. I have been reading about this for the past 2 months on and off. Once I have the conviction, will increase the allocation to 20% - this is my present thinking which is liable to change anytime.

• India’s consumption of pesticides is very less when compared to developed nations and it will only go up from here.
• With increasing middle class, demand for high quality food will go up along with the quantity required to achieve self sufficiency in terms of food security.
• Pesticides/Herbicides/Fungicides are need to
• Reduce man power required during sowing etc (input phase of agriculture) which in turn reduce costs of agriculture
• Increase output as well as productivity as well as quality of the output
• A bet on Salil Singhal’s vision. High integrity and wants to make it a billion dollar revenue company which I believe can be attained over the next 2-3 years.
• Growth in CSM business: Icing on the cake. I will have to further understand this business though have a starting knowledge.

**

SUGGESTIONS PLEASE

**:

**I’m looking for 25% to 30% annual returns in my above portfolio for the next 3 years, that is until 2018. I cannot predict businesses for more than 3 years ahead with high degree of certainty.

• Am I on the right track in my portfolio selection, thesis, return expectations?

• Any tweaks required?

• Seniors and fellow members, kindly help!

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DISCLAIMER

***:
The above are entirely my personal views which are of course biased as I own all the above stocks in my personal portfolio. I’m not a SEBI certified research analyst. I may sell, switch, buy on my discretion even on the next day of putting my views based on my requirements and views. Kindly do your own due diligence while buying/selling stocks or consult any professionally qualified person for advice, certainly not me!

[bandlab1]

@catchsudipto lets focus on the subject and offer meaningful thoughts

@richdreamz I am not a senior but would like to write my thoughts. The way you have articulated your thought process is commendable. It doesn’t matter (not so much) the names of the stocks in your PF, but the reasons and conviction you have demonstrated will help you a lot. These are quality businesses and lot of discussions have happened on these, I held all of them at some point of time, I am still holding Repco, PI Ind.

In my view this PF can give good risk adjusted returns

[richdreamz]

@bandlab1 Thank you very much for your thoughts. I appreciate your apt comments. By the way, I mean seniors as well as my fellow members to offer suggestions.

If you are comfortable, can you please let me know why you have exited Page and Gruh? I’m open to critics on the stocks that I hold.

[bandlab1]

@richdreamz

I started my journey around 3 years back with stable compounding stories like page, gruh, hawkins etc. After enjoying some luck , I got little bit more conviction and started looking at quality small caps which were not so popular like kaveri, Ajanta, repco, pi ind… in the process I sold page, gruh. Its all about lure for higher returns

[Rokrdude]

Hi,

I wont talk about business quality because they all of them are great businesses.Just wanted to put my 2 cents on valuation /your entry front. I am pretty sure most of them if held long enough wont cause permanent loss of capital. But if you have entered recently where all 4 of them are quoting at their all time high valuations you may be in danger of facing time wise correction and opportunity cost.In that case I would suggest to dilute your portfolio a little (not much) but with businesses who might not be as good as the above 4 but which have valuation comfort and could grant the necessary alpha to your portfolio in case of time wise correction of rest of your portfolio. Attaching a chart showcasing not all great businesses are great stocks (this in noway should be taken in reference to above 4 stocks but for general learning purpose)

Source http://www.outlookbusiness.com/perspective/the-world-of-pc-sorcar-1670

[richdreamz]

Thanks Rokrdude for your reply.

Why I’m staying put despite high valuations is, while these businesses are highly valued the movement in these stocks tend to be very sharp and so it is very difficult to switch back to these stocks near the end of time correction. I have entered these businesses about 3-4 years back except for PI which is a recent entry.

However, you have suggested that I dilute a little to generate that ‘alpha’. Very apt. I will think on those lines but not at the cost of portfolio stability.

[richdreamz]

There is a deafening silence in this forum from yesterday.

• I believe we should utilise the current opportunity to sell out weeds and buy more conviction stocks.
• Such markets are an opportunity to let out past baggage, if any, and log into fundamentally strong stocks.
• We should remain calm and switch out TVs etc. They just want to write words like “blood bath”, “first time in last 7 years etc…”. This is just noise.
• Evaluate if the crisis changes the business prospects of the companies you invested in. Re-evaluate.
• Sit tight. Patience is very much needed.
• Dont leverage now. It is a sword at these times.
• An year down the line, we will laugh this out.
• Don’t average down the fundamentally weak stocks, if you are in F&O, square up rather than provide more margin money. That’s what even the trading legends like Livermore did.

DISCLAIMER

The above are entirely my personal views which are of course of not an investment expert. I’m not a SEBI certified research analyst. Do NOT act on my views without evaluating yourself. I may sell, switch, buy on my discretion even on the next day of putting my views based on my requirements and views. Kindly do your own due diligence while buying/selling stocks or consult any professionally qualified person for advice, certainly not me!

[madhug]

Agree. For those who are stuck with weaker businesses this is an excellent opportunity to switch. Time to put your portfolio under knife and do that surgery, it is going to be painful in the short term but will do a lot of good in the long term.

[hitesh2710]

Its a pitch perfect portfolio to take you through next few years.

Just enjoy the ride.

[gautham1]

this list has been doing rounds. i do agree that, one should not blindly buy at any valuation. but if you look at this list, you will notice a)some are commoditized b) some are not well managed businesses b) some are at ridiculously high valuation of 100 plus. but despite all these, it did better than FD (post tax). and this is excluding dividends.
btw very impressive concentrated portfolio richddreamz. i liked the writeup

[richdreamz]

Dear forum members,

As indicated above, I’m studying PI Industries and I would be writing here the key points during this process. Again, my disclaimer applies and I’m not suggesting any buy!

PI Industries:

What are the business operations of the company?

AGROCHEMICALS

:

1. Agri inputs segments and specifically Crop protection area and specifically fungicides, Insecticides, Herbicides, Plant health. Involved in exports as well as domestic business. Exports growth rate projection is higher in future.

PI either imports the technical or product formulations OR manufacture them in its own 2 manufacturing facilities. This depends on the agreement with the innovator (typically an MNC).

Key differentiator: PI offers a unique business perspective in the Indian agrochemical space. It operates on the platform of exclusive tie-ups with patent originators and has stood out for its policy on respect for IPR (intellectual property rights). With a niche portfolio of targeted products aimed at the domestic market, PI today is renowned for nurturing its products into strong brand propositions.

Growth: Within agrochemicals, fungicides and herbicides are expected to show healthy growth on the back of increased acreage under horticulture, rising horticulture produce prices and emergence of organised retail (largely used in fruits and vegetables)

Company’s outlook for this FY 2015-2016 in this segment:
Given the moderation in the environment overall, the outlook for your Company’s domestic agri-inputs business in FY16 looks cautiously optimistic and performance would reflect continued growth momentum although at a controlled pace. The key factors that would drive sustained growth include pattern and distribution of the upcoming annual monsoon rainfall together with upsides from products launched in the past few years. This growth would be further propelled with the introduction of 1-2 new products each year, which would have distinctive competitive advantage over the target molecules.

CUSTOM SYNTHESIS, MANUFACTURING AND MARKETING:

2. Custom Synthesis Exports: Manufacture and supply under long term contracts of patented and innovator molecules. PI does NOT involve in inventing the molecules. Once MNC invents a molecule, it outsources the production first in a small scale and then in a large scale to PI due to the capabilities and lower costs involved with PI (a la IT outsourcing). Majority of the clients are from Japan, Europe. Japan could be because it was a Japanese company that first gave its order way back and since then the company would have concentrated in that geography. Predominantly export oriented. So, need to look out for Forex issues if needed.

This segment has shown 23.5% growth in FY 15. Market size of custom synthesis is 85 bn USD. India accounts for 5% of this size growing at 12% per annum.

My calculation: Current market size in India is 4.25 bn which is 25500 crore INR (1 USD = 60 INR assumption despite the current devaluation). PIs market share comes to 1200/25500 which is 4.7%. 1200 crores is the TTM sales of this segment (60% of total TTM sales of 2000 crore). So, there is a lot of growth in future keeping in view the market size and the 12% per annum growth. Given the PIs credibility in the market, it can easily grow at 2.5 times the market growth which is 30%. Why 2.5 times? I read in an interview of a leading bank CEO that he can grow at twice the market growth even at this size. So, from the lower sales perspective, I would allocate PI higher multiple in terms of growth.

Company’s outlook for this FY 2015-2016 in this segment:
You Company enjoys a robust orders pipeline to be delivered over next 4-5 years- the visibility of growth therefore remains assured barring unforeseen circumstances. Yet given the larger base of preceding year, your Company’s performance in the forthcoming year would look moderated. It would mainly be driven by ramp up in sales volumes of existing molecules and plans to commercialize 2-3 new molecules each year. Commissioning of two new plants at Jambusar SEZ is aimed at further augmenting this growth.

Key points from PI Industries FY 2014-2015 Annual report:

Management Discussion and Analysis:

• India ranks top five globally in the production of key crops Yet, India does not feature even in the top 30 in terms of productivity.

• over 30% of our crops are lost to pests, diseases and weeds

• Cotton, Paddy forms about 68% of usage of pesticides: Very high indeed. If cotton sowing reduces, there is also a likely impact on pesticide usage as well.

• Improved cost to benefit ratios alongwith higher farm produce prices, pests developing resistance to older products and increase in market penetration will be the driving factors for the Indian crop protection industry.

• About 30% of the crops are lost due to various factors like pests, weeds, diseases.

• India’s crop protection sector has grown at a CAGR of 10% over the past decade. The current market size is close to $4.7bn, up from $2.0bn in FY05. India is currently the second-largest manufacturer of pesticides in Asia, after Japan. This market is estimated to grow at a CAGR of 12% over the next 8 to 10 years largely driven by exports.

• My calculation: Current market share of PI in crop protection = 800 crore / 28000 crore which is about 3%. 800 crore is the revenue (40% of 2000 crore sales TTM) and 28000 is 4.7 bn approximately. Used 1$ = 60 Rupee keeping aside the current devaluation.

• My conclusion: With such low market share, the company can easily grow at 2.5 times the industry rates (12*2.5 = 30%). How ever, let is stick to 2 times market rate growth which is 24% as this segment is dependant on monsoon and every year the MET comes out with El Nino prediction and some year they might be true just like the economists macro forecasting. While the current sales growth is about 18% in crop protection segment. Interesting why is it so and will this go up from here? Experts please pitch in?

• The per capita consumption of crop protection products in India is amongst the lowest in the world. The per hectare usage of agrochemicals is only 0.6 kg in India, while for UK it is 7 kg and for China and Japan it is 13 kg and 17 kg, respectively.

• Pesticides and seeds account for only ~10% of the cost of cultivation, while their usage boosts yields by 20-60%.

METRICS

Actually, once you have the conviction in the story and the business has predictability the metrics forecasting is a simple excel exercise. So, please no NOT give much importance to my below number and do not base your future steps based on the below.

Base assumptions:

1. Assumed NPM to show slight improvement of 100 basis points from FY17 only.
2. NP is derived based on NPM margin and sales growth.
3. If same PE is accorded we could see a doubler in 3 years approximately. With predictability, sustained improvement in margins due to CSM mix improvement and improvement in cashflows due to no major expansion for the next 3 years (Capex mostly done for the 2 new upcoming plants), we could look at a PE re-rating as well.
4. A slightly more growth rate is required to reach management vision of $1bn sales by FY 2020 as per business today interview in December 2014. No reasons not to believe Salil if the execution remains as is.
5. FY 16 estimates for revenue growth taken as per management’s guidance of 18% for agri input and 20% for CSM (assumption).
6. I think there might be positive surprises to the above numbers as we progress.

[richdreamz]

Absolutely nice time to shuffle your portfolio as I was indicating.

I have moved a wee bit from Page to PI Industries just to even out a bit on the allocations and as I build my conviction on PI.

I do not generally hold cash and stay invested 100%. So at these times, the best I could do is sit silent if my portfolio allocation is as per my expectations or tinker it to suit my required target.

As per the observation it looks like though the market levels have stabilised, price damage is happening is few stocks.

My disclaimer holds as always. I think there should be a thread level disclosure so members need not mention their disclosure with every post.

[richdreamz]

Feeling a bit sad ( ) to see high quality stocks drift down a few points as the days pass by even though the broader market seems to have stabilised in a range.

Of course, I’m not doing anything stupid. I’m holding with my full conviction believing in “As long as the underlying businesses are growing, the stock prices will have to catch up like a Hutch dog, there is no other way - if not now, later”.

[richdreamz]

As disclosed in PI industries thread, I have increased PI weightage by a little bit and would most likely stop here. No fresh money, just re-allocation. I would put the weightage of PF once the dust settles as the %ge change with the volatility in the markets. I prefer to take the %ge weights at some steady state point.

[richdreamz]

I have initiated position in MPS and I have written about it in the MPS thread - link provided below.

MPS Ltd

I have initiated a position in MPS after having done a bit of research for the past 1 month on the publishing industry and reading through this informative thread thrice over. Firstly, congrats for the members for identifying this turnaround during initial stages itself. There are very high chances of this turnaround further fructifying into growth story coupled with high return ratios of the business. My summary: Nishith Arora has fantastic business acumen, going by his MPS buy out, turnin…

[richdreamz]

Little thought on Page before I hit bed:

Page industries

So, you want to know why Page is so highly (richly) valued? The more I research various other stocks/sectors for investment the more I get to understand Page :-). There are companies which have super ROCE, good FCF, tempting dividend yield, low capex, ethical management, durable moat BUT they lack REVENUE GROWTH. They strive very hard for a 15-20% growth. Some through inorganic route, some through organic. Page has all the above and a superior sales growth (even during the times of low economi…

[richdreamz]

Little interesting to see the consolidation going on in the stocks that I hold, I believe this consolidation is precursor to the next rally, hopefully.

Page Industries: Around 13000. Range 12800-13300.
Repco Home: Consolidated around 640-680-700 and now around 730-740.
Gruh Finance: Consolidated around 220-240, now range 260-270.
PI Industries: Very good consolidation around 630-650.
MPS Ltd: Superb consolidation around 780-800.

I’m sure at least 3 stocks from the above will break OUT from their respective ranges, if not all .

[sushilkc]

Page price behave does not seem encouraging to me… few weeks back it was broadly consolidating between 13500 and 14500… and now between 12800-13500. Do not remember Page shown this type of pattern earlier.

[richdreamz]

Agree, a bit uneasy with respect to this stock movement, HOWEVER,

1. Let us see how the business is doing currently: There is nothing that makes me believe that its business fundamentals have changed. There could be few muted quarter in between, no business can avoid this. But during this time, the distribution channels the company build, the dealer-management relationship, brand building, product stickiness, high RoE will help immensely to turn the tide, IF at all. Growth will be there for the next 3-5 years in all probability. How much of this is already built into the stock price is another debate all together and whether one should invest at what valuations is left to each ones comfort. Also, I BELIEVE, if one should invest or not also depends on PORTFOLIO SIZE. For large portfolios it makes sense to hold on to Page given the hard work the management has done to make Page what it is today.

2. How the business is likely to do: The opportunity for growth is still immense as, as per AGM Page still accounts for 8% of the total available opportunity. I see aggressive online ads from Tommy Hilfiger figuring Nadal. I think MNCs are making a comeback again to be ready for the economic upswing. During the initial stages of aggressive BRAND AWARENESS, the existing brands get more sales than the one doing the marketing (ironically). Going forward, the women wear, kids wear should help sustain growth. I somehow think, if economy grows at 10% in 2 years, Page can grow at 40% even on higher base.

3. Exports and Swinwear: Currently, the company though has license in Sri Lanka, Nepal, UAE (middle east?), the company has not concentrated much as home market is good enough to attain scale, but I think these countries hold the key to Page becoming mega large cap. I moved to a gated community in Hyderabad and I see kids, kids, kids so much interested in swimming and I hope the parents would buy speedo as parents always want the best for kids, inevitably.

As I always disclose, my holding in the stock may attribute to the positive rants that I make. Should one buy or not is personal decision taking into consideration “how he/she thinks that valuations hold or not” NOT on “if current valuation is high” as valuation for businesses for Page will always be high. Whether it will hold or not is what you need to decide. For Page investors, looking at Nestle, Gillette, Bluedart, Eicher may give proper sleep

[reacher]

i see you have 60% exposure to hf . all your 4 major bets are in high quality business.I see no threat of capital erosion rather only risk is of alpha.You have no pharma exposure i see was this a conscious decision.