My richdreamz portfolio - visit my portfolio to learn together!

Surender · November 20, 2022, 10:01am

Per my imagination, it’s to create a centralized repository like ‘Database On Indian Economy’ (DBIE) by RBI or EPFO portal. A centralized portal helps the regulator to improve oversight, do analytics for further strengthening the regulations, take up and settle disputes, and enable anytime-anywhere access to policies.

I do not think that PB’s headstart of 12+ to become the portal of choice for end users will be under threat from this initiative.

Thanks for sharing your views on PB and Delhivery. As of now, the lack of a major promoter and daily smoke by media about the end of the lock-in period for Pre-IPO investors are keeping the price volatile. In my view, their price is yet to form a base.

FYI: The Bima-Sugam topic was touched upon in the latest conf call of PB in case you are yet to read that.

richdreamz · November 23, 2022, 1:09pm

@rekovisa

I’m replying to your @ here as my posts in other threads go for moderation.

I have written my thoughts & dilemmas & wavering entries & exists here so there’s not much I can add. Let me provide some qualitative points if you find it helpful -

I have vested interest only in Nykaa, PB, Delhivery.

Zomato - Post Blinkit acquisition, I’m not interested in the story.

Paytm - This is jack of all & master of none. Was never interested. The current correction though seems irrational. Also, VSS cross holdings in Paytm payments bank instead of Paytm & many other corporate inconveniences, competition kept me away.

Consider these while buying:

Pain tolerance level
Draw down tolerance
Patience
Holding period
Ego level
Biases
Portfolio allocation
Exit criteria
Return expectations
Your age
Differentiate b/w Noise vs. Voice
Opportunity cost

Remember, EV/Sales comparison is not straightforward. For example, the steady state margins of PB will be much higher than Nykaa. So, cross industry EV/Sales is not recommended.

Instead, compare Delhivery vs. UPS vs. Fedex and decide what premium you want to accord for growth, opportunity size & other metrics.

You made good points in your post. Keep digging & learning. Don’t fall for media headlines - most authors hardly have any investing experience, twitter posts for acquiring likes.

After steep corrections, the stocks actually go for a deep slumber. So, opportunity cost is involved. If you think there will be quick recovery, have a coherent reason why?

Take care!

rekovisa · November 23, 2022, 2:10pm

@richdreamz

Thanks for the reply!

Regarding Zomato, I am not sure about management quality. Investment disclosures regarding Blinkit acquisition were not very transparent. However, it’s an oligopoly with all other players except Swiggy out of the market. It’s very difficult to make a food delivery business in India as likes of UberEats, OlaChef, Foodpanda etc have failed miserably in the last few years.

It’s very difficult task to invest in falling stocks, in general. These stocks may not do very well for a considerable amount of time. High growth tech stocks may remain out of favour for longer if interest rates remain high.

That said, i am more of a trader than an investor. I don’t have patience to hold a underwater position for long. But given the valuation and forced selling, i find all these opportunities attractive for a short term as well.

Long term, as always, would depend on if management is able to execute well and deliver on the promises of growth and profitability.

Regards

Surender · December 8, 2022, 1:33pm

Hi- @richdreamz

Musings on Delhivery:

Being a B2B business, the capability to remain the cheapest service provider remains the key sales growth driver after matching speed, accuracy, and real-time tracking. Delhivery’s main and long-standing competitor (Blue Dart) did an average npm of 6% in the last 12 Yrs, details in the below-shown snapshot. I infer that Delhivery will aim to operate below this number due to below reasons:

Aspiration to grow faster than the Industry/Market leader/GDP. This seems to be the reason why management keeps stating that incremental cost efficiencies will be passed to clients.
Sales must be doubled for the current size of the balance sheet so that ‘Asset Turns’ double and become closer to the Industry’s average value.
60% of revenue comes from the express parcel service that caters to highly cost-sensitive eCom businesses.

With the above context, ROE would be in the mid-teens (assumptions - Yello Colored Data- shown in the below snapshot).

Did you come across any reasons that indicate better net margins?
What makes Delhivery the cheapest service provider as claimed by management in various calls? Why is the market leader unable to match its cost structure?
Acquisitions have been a major source of growth in the last few years. I am skeptical about the health of growth that is based on M&A on a continuous basis. This delays the timeline to achieve bottom-line profitability. What’s your opinion?
note: TAM for Other business lines - Supply Chain Services, Truckload Services, and Cross-Border Services is huge. I anticipate an inorganic route to grow in these service lines as Delhivery is a new/marginal player in all of them.

Request your thoughts. TIA.

richdreamz · December 8, 2022, 5:20pm

Hi @Surender

Apologies for the delayed reply.

Given how poor the sentiment, probably justified, it takes a lot of leap of faith and assumptions to invest in these companies. So, please carefully look at the assumptions I made & comparisons to the companies I made to arrive at my valuation. Also, since I’m entirely mostly invested in high growth high valuations companies, I have the inherited tendency to conclude what might be expensive valuation as OK.

FY26 is the latest by we have to venture in case we have to make any sensible arguments. So, my estimates are:

Revenue: 15,000 crore.
Gross Margins: 55% plus.
Net Profit Margins: 8%.

Looking at Q2, 2023 numbers, the company is for all practical purposes break even. I think by Q4 the company will decisively turn positive. From there the operating leverage must kick in in a big way. For Q2, for the incremental revenue over Q1, the company made 50% gross margins. So, 55% in future is doable. UPS operates at 70%, FedEx at 65%.
The growth for FY23 full year would be 20% including the Shopee numbers in FY22. So, the moderate growth of 20% is on top of humongous growth in FY22. From there 25% growth is doable, I think.
Scale, efficiency, operating leverage, growth, technology led operations, debt free balance sheet (3000 crore cash in b/s which will not be burned as the company turns black).
Re-iterating, scale, scale, scale is the mantra for Delhivery. This is where I believe Delhivery will better Bluedart. Industry positioning is good & the managements are really aggressive, they learn fast, adapt & move on. The volumes, utilisation, operating leverage must help them at revenues cross 2 billion USD.
The investments in technology & the network they built grounds up is possible to make them cheapest service provider compared to its competition.

The logistics is commodity in a sense that the customer does not care as one as the logistics company can delivery on time & without defect. This is where I believe Delhivery’s network efficiency & technology built in-house will help over competition.

When you are the lowest cost operator, the best way to get operating leverage is to grow aggressively & ensure that expenses, corporate overheads grow lower than revenue - which I think is very much possible. As per them, they are the lowest across mid, last, first mile. Not sure how to verify this, but the revenue growth must testify this, no? Otherwise, growing aggressively is not possible.
I think the dead space utilisation is possible maximum in e-commerce business where Delhivery is the leader & so I think over time these guys should better Bluedart margins. Sahil alluded that they are trying to cross utilise assets across e-commerce, PTL, D2C, C2C - not sure how feasible is this? Slim chances but if they can do it, then it’s a snowball. For this to happen, they need market shares across segments. Competition will not allow this to an extent.
New company emerging from logistics industry & leapfrogging is next to impossible. With the funding environment now, by the time funding comes back, Delhivery should become considerable entity in logistics. For all practical purposes, the logistics industry will be dominated by the current ones minus some will die.
Even otherwise, new company in any other sector like Insurance, Banking, e-commerce making a dent in the currently established ones is not possible.
I think SpotOn was the biggest acquisition they made & it is a good one actually. It is profitable & is growing at 20% in PTL. I still think Delhivery found SpotOn integration challenging, probably they were over confident, under estimated. The management in Q2 call says, all is done & dusted & will grow from now on Q over Q.

The big elephant - valuations:

With 1200 crore profit in 2026E, giving it 30 times makes it 36,000 crore market cap. ESOP costs would be minimal in 2026 Which is where it used to trade before this brutal correction from 550 to 310. Even good results, the reaction is muted & with the guidance they provided, severe punishment was forthcoming.

Why 30 times? Dmart trades at 55, Pidilite at 52, Page at 42 times 26E. Average is 50 times & I gave 40% discount to these stalwarts. Not sensible comparison, I’m aware. But I think the industry positioning of Delhivery in logistics is similar to the above companies in their respective industries.

Some consumer companies that are huffing & puffing to grow at 12-15% are trading at ridiculous valuations. I’m tempted by high revenue growth & getting profitable in future because of a sound business model.

I have one specific-to-me-bias here, soon after I sold, it fell 40%, so a company where I had strong long term conviction but exited due to short term blip is available at 40% discount - was tempting for me to get back in. Not much to lose here, probably 10-15% was my thought. Valuations are also aligning as per my personal & subjective taste.

Disclaimer: I hold, bought recently & may sell anytime, particularly below 300. I have been terribly wrong so far. My exiting due to stop loss being hit was my saviour in all these tech-companies and then re-entering 15% below selling price.

richdreamz · December 31, 2022, 6:12pm

-16%

That was how I performed in CY2022. Below average performance. All my story writing did not amount to anything, this year.

How ever, I’m sticking to my process -

Quality stocks with strong business fundamentals will lose time but junk stocks will lose time & money.
Have consistent process & stick with it during multiple cycles. If it’s high growth strategy or super value or momentum or cigar butt or XYZ - stick to it over a bull-bear cycle. Within the strategy, be flexible. But, for you to be flexible with multiple strategies at the same time, you need to have at least 10 years of market experience. PERIOD.
There are a whole lot of stocks in between quality & junk, but I do not have the required expertise, temperament & patience to invest in them.
I have further concentrated into my high conviction stocks by trimming technical picks that I entered. I have done my home work & willing to wait for it to show results. My intuition & experience tells me that I should show patience at this juncture.
If this year works well, I’m near to having a stable hold & monitor portfolio in the medium term.

I’m putting down my past 10 years performance, net of taxes, brokerages etc. Allow for some leeway as I was not calculating my performance prior to 2020. But last 3 calendar years is fairly correct.

Observations:

If you take out the best few years, I’m not a good investor at all.
Luck & ignorance plays a role.
Temperament trumps IQ. Sitting > running in investing.
My portfolio beta is high, meaning during bull markets it races & during bear markets is slumps. This is because of the nature of the stocks I invest/ trade in. This is what I’m looking to correct in future.
Most of the time I trade and/ or invest in the same set of stocks. So, basically, I rotate within a confined set of stocks that I’m comfortable with. I’m not looking to change this behaviour.
Actually, I’m really good at trading but I’m not interested in pursuing this as of now. Probably, sometime in future, I may re-visit this for a change or zing in life (as if the current volatility is not enough!).

Have a HAPPY NEW YEAR 2023 & Don’t lose money listening to market experts, they don’t have your best interests at heart & accountability.

Looking at my performance, I would have even invested in a good mutual fund for the last 10 years & had a blast travelling but I would not have had the market experience that I have now which may come in handy if I make it big & give back to society one day. Or I would have missed learning a new money making skill of technical analysis.

Probably I will update @ Q1CY2023.

Mudit.Kushalvardhan · January 1, 2023, 2:22pm

What is your CAGR for 10 years?

richdreamz · January 2, 2023, 4:50am

Hi Mudit - It comes to around 22% nett. How ever, let me knock off 2% and say my CAGR for last 10 years is 20%.

For the past 3 years I use an app called “My stocks portfolio - MSP” by Peeksoft developer available in iOS. Every entry & exit, I input there religiously & it shows my XIRR. That’s a good app for me. (am not related to the developer in anyway).

Surender · January 4, 2023, 7:15am

Hi @richdreamz,
How do you defy feeling of regret invoked by prevailing price that wiped out most of the gains on the major(unsold) position?

Page’s conference calls imply sales CAGR of 20%+ for the next 3~5 years. Considering the prevailing PE and anticipated growth rate, chances of PE rerating seem unlikely. How did you judge that current PE will endure so that your capital gains could mimic most of the earnings growth?

TIA.

richdreamz · January 4, 2023, 8:59am

Hi Surender

Simple answer - contentment.

Long winded answer -

A few years back, I would’ve regret. Regret when something I bought went down a percent by close of the day. Such silly things.

Now, no more really. The volatility makes you thick skinned. In the market there’s no scope for regret else it will kill you. No scope for sensitive feelings. Market is the most practical thing.

Oh, had I not sold this, I would have made x more & inverse. No more such feelings.

At the end, the sum of all changes should result in positive change at the whole PF level in the medium term - that’s all matters.

Also, after a certain stage in life or portfolio level - am not competing with anyone. I do well, good, else, learn from others/ market & move on. Unless, someone has ambitions of billion dollar PF or become a large PMS house, there’s no point.

Coming to Page question, it’s a 18-20% grower & am fine paying 40-45 times forward PE. It’s RoE > 50%, Pays 50% EPS as dividends like clockwork, maintains superb financial discipline. It warrants premium as long these attributes stay. So, I think buy at PE 45 & make 16% CAGR.

In US, Walmart grows at snails pace, I think now the bond yield must be greater than its growth but yet in this high valuation carnage it held pretty well at 25 times PE. I’m assuming such companies will consolidate long & then pick up.

What I learned personally is, am unable to make more by switching in & out rather than stay put in a stable compounder & come back in 4 years time. My inability probably. If someone is good at this, why not? I have a mental block of putting money in low quality, bad promoter, look for quick re-rating & exit type of scenarios.

Sorry, long post, hope this helps.

Surender · January 6, 2023, 4:26am

Thanks for the detailed response.

How the above framework changes when applied to DMart?
Much obliged. TIA.

richdreamz · January 6, 2023, 5:39am

Hi @Surender

Let me address the larger question here applicable to me personally.

I’m inherently a risk taker with super concentrated positions & market is a wrong place for such persons. It consumes people and may even lead to the brink financially - particularly I’m a full time market guy with no job. So, there should be a process in place & stick to it come what may. I did not follow to my own rules & traded in & out of “hold only” stocks. But, from last year, I have been very strict with the process.

With the above in mind, I need to have some stocks whose management is 100% integrity people (talent comes later). So, my go to stocks are

DMart
Page
Kotak
Eicher
Nestle
Infosys

My approach is, 10 plus years of money to live my family life will be in all or few of the above stocks only at any point of time. Money will be rotated inside these stocks only.

Now specific to DMart, my belief is DMart business strength, runway for growth, growth rate, competitive positioning is better than Page & from my experience 25% premium can be given to DMart over Page valuations. This premium in the market ranged from 25-100% depending on the stage of bull market. When growth stocks are on full rage, DMart was at almost 100% premium (October, 2021). Now, it’s 35% around. So, if page falls 10%, Dmart falls 13%, vice versa - assuming all the business characteristics remain same. If there is a water fall market correction, no low can be low - all bets are off. The current valuation of DMart is at 2018 lows (FED rates hikes top of that cycle). Now, if the rate cycle goes bonkers in India/ USA then high valuation stocks may be hit further but my opinion is Dmart will consolidate around 3500 as earnings will improve 20% at least with passing time.

DMart has 300 stores & over next 15-20 years, it can be 2000 stores & even the management themselves for the first time said in analyst call that 1500 stores is something they can do! Now, that’s a fine confirmation. LONGEVITY of growth plays UTMOST important than RATE of growth.

So basically, my strong conviction is if we prolong the timeframe, the mistakes of valuations will be forgiven for 1% of the stocks only, rest 99% are not worth this approach (unless some one bought Dmart at 5900 & Page at 54000 & repeat this mistake in every cycle). At least that much knowledge should be there not to buy a stock at 150 PE (that’s FOMO, speculation).

richdreamz · January 14, 2023, 7:21am

I have to write this, I will be laconic to have an impact.

My personal observations of the market:

Both tennis balls & eggs have fallen to a similar extent, time to replace eggs. I know there will be holding bias, which I too have, but be as impartial & unemotional as possible.
Small & micro caps are always CASE by CASE investing & RISK:REWARD analysis & CONSTANT monitoring. There should be a lot of EXPERIENCE & VISION for concentrated investing in small & micro caps.
There is a lot of froth/ pessimism in some sections, possibly, due to excessive social media marketing/ dissing.

Example: Eicher motors (not holding as of now, just as an example). With long term growth of 12% conservatively, a super brand, 25% plus margins, 6000 crore cash on books, continuous dividends, international presence & execution, 25% RoE, top class corporate governance, OEM (cyclical though), superb management & what not is available at 23 times forward PE while a commodity processor/ ultra low margin sectors prone to very high competition etc. with short term 25% growth are trading at 35 times PE.

Valuations always come back to long term growth not short term blip. Please keep this in mind. I gave back profits many times by ignoring this.

Be patient with long term holdings & brutal with all others.

Disclosure: I’m not an RIA & this is not a financial advice at all. Stocks quoted (Eicher) are not recommendations but written to drive a point/ my current thoughts. This thread of mine is a log of my maturity level as I age & my readings of Mr. Market.

A_shah · January 20, 2023, 9:35am

Whats your view on Tata Consumer ?

richdreamz · January 20, 2023, 10:44am

Hi @A_shah

Tata Consumer is a stable & medium growth company with not much surprises either side.

Its revenue streams can be broadly be divided into 3 -

Stable, medium growth: Salt, Tea etc. It’s like Marico’s coconut hair oil - blue bottle. Every one consumes salt, so, no scope for high growth. And, to top it off, you can’t consume more salt too! So, volume growth is difficult as well!

Starbucks venture: I once evaluated investing purely for this venture. But, QSR/ Coffee chains in India is not as much ‘vogue’ / necessity like the west. The prices too are high. Even for me it pinched as I could not find much value.

People in India have umpteen number of options & each state has its own. Pain puri, vada pav, idly, dosa, bisibelle bath, peanut chats, lassi, tea, pizza, vada, gari, Uthappam, dhokla, Tepla, kachori, etc!

Changing eating habits & value conscious minds is not easy at all. So, this venture may remain “offbeat” & “niche”.

Even Rakesh Jhunjhunwala said in an interview that whenever he checks in Taj, he eats the free Buffett for breakfast instead of order in room and pay - an extreme example, but still is valid to drive the culture point here.

Another example, Tata Chief Natarajan Chandrasekaran comes across as a simple man with simple dressing & approachable demeanour. While a CEO from west is far more flamboyant. This is off the topic, but wanted to put across.

McDonalds market cap is 200 BUSD!!! Massive, Will any of our QSR/ coffee chains be as big? I’m not sure because of the above points.

New categories: It is entering/ entered spices, juices, energy drinks, grocery (Tata Sampann). But here it does not have the right to win. The competition is cut throat. Tatas have to fight it out. So, it remains to be seen.

The doing business in non-regulated fields in INDIA now is no longer like, “Oh, Tatas or Reliances are there, so they will win the category!”. Absolutely NO. The entrepreneurs, D2C people, PE money, ambitions, capability/ passion/ fire of people who remained in India despite western opportunities, internet, education levels, case studies of other countries, play book of Amazon etc - all mean that the level playing field is getting flat.

So, I think overall 12% to 15% growth? I think the RoE is not very high, probably a lot of goodwill on the books, not sure, you have to check it.

All the narratives are coming to roost in the current market & technically, it broke the ascending triangle pattern, indicating further down side if current support levels are broken (double bottom too).

Disclaimer: I’m not invested in the business as of now & I’m not an RIA and so this is not a recommendation or a financial advice. This is a discussion on the business aspects of the company.

A_shah · January 20, 2023, 5:21pm

Thanks so much for the detailed response. This is helpful. Agree with the above.
Also There are some businesses that show some growth for a period but mostly do contract manufacturing and dont have a formidable brand. An example I think Dixon and Varun beverages fall in this bracket. How important is having a brand according to you ? Isnt owning a brand important for longevity ?

richdreamz · January 21, 2023, 6:20am

Having a strong brand helps. Brand doesn’t mean everyone knowing & aspiring. Any product that has the ability to generate higher returns, higher growth, price in elasticity for very long periods of time while competitors are scratching their heads to replicate is a brand.

There are so many brands like Victoria Secrets, Toys r Us, Crocs, mattel, GM, Hertz, Yahoo, Tupperware etc. that are famous but not much shareholder value.

Also, not necessarily that contract manufactures can’t create value. In some sense Infosys is a contract manufacturer! Divis is one too. How ever, having a brand like Google, Pfizer, Nike is much better than Divis but the success rate is low because of innovation required, investments, management, vision etc. Probably contract manufacturers can’t grow to trillion dollars market cap but we can find some which are a billion dollar market cap & exit at 20 busd.

Failure rate of a brand is much higher than a contract manufacturer but when you find success like Apple Inc. then sky is the limit!

The competitive positioning, opportunity size, management, corporate governance, growth, financial discipline matters more than having a brand!

richdreamz · January 23, 2023, 11:54am

My thoughts & actions today:

Be greedy when others are fearful. (- by Warren Buffett)

Easy to say but difficult to implement.

Courage

It takes immense courage in the wake of extreme pessimism to fly against the wind.

Conviction, Experience, Contrarian.

We need to get our hands dirty & study carefully, do the homework so we can build conviction. We should be able to differentiate if a company post fall will act like Kotak of 2008 or Unitech of 2008?

I have doubled my stake in THE N today in 120s. Exited all my trading positions & effectively active trading. My current positions are not for trading but to nurture & grow.

When placing the buy order today - Jan 23rd, 2023:

My hands were literally shaking.
My Apple Watch notified “You heart rate is high even when you are inactive”.

2 other examples were on my mind today, I will write them later.

Disclaimer: I want to see this post after few months/ 1 year & reflect my learnings of today’s actions. Fingers crossed. Nothing I write is construed as investment advice as I’m not RIA.

x3c · January 23, 2023, 5:45pm

I find that the courage to rise to your convictions is rare and most under appreciated quality. Kudos for the leap.

If by “The N company” you mean Nykaa, would love to understand why you didn’t choose to wait or DCA into it? The stock hasn’t built any base yet.

I really hope you’re rewarded for your conviction btw. Rooting for you

richdreamz · January 23, 2023, 6:07pm

Hi @x3c -

I usually do lump sum investment. Do not have the temperament for daily nibbling. I actually did not average down the last time it fell below 165 as I stuck to my rules. Now, I find it ludicrous not to. I have my valuations worked out. When Mr. Market is in a bad mood, let me buy from him, the hot potato. This is the third time in 12 years am doing this high risk averaging down. Let’s see. I usually sell after a slump even at a loss.

Thanks for rooting for me, I like positive energy & people! Here’s some from me too.