Nigam Coffee Can Portfolio : Request Views

Q&A: Questions & Answers Portfolio Q&A
1

Hello,

This is my first post on the forum, having learnt a lot from the various posts.

I work in the Corporate Banking domain for one of the main Private Banks, so going through balance sheets on a daily basis is part of my work. However, I do not see myself as an expert in terms of investing basis a deep balance sheet understanding.

Coffee Can type of investing suits me as per my limited balance sheet understanding, and as my equity investing is planned for at least till the time of my retirement. I invest major investing amount into the portfolio on a regular monthly basis, to try and attain a rupee cost averaging instead of trying to time too much. Some portion I keep on the side for a timing opportunity.

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My first aim was to just beat the Index. Working in the Corporate Banking domain I feel I have a better understanding of banking, so I started with evaluating investing in Kotak Bank ETF, but I did not want any money in PSU stocks. So I started with a portfolio of Private Banks and am comfortable with it being skewed towards the domain. Also, my understanding(which might be totally incorrect) is that with increased marketing of MFs and Index investing, the SIPs into the major Nifty stocks will continue(and will change only with a big change in Nifty composition).

HDFC, ICICI, Axis and Kotak - These together help me diversify within Banking. I ideally want a much higher allocation to Kotak, and am working towards that.

Reliance - Forms a large chunk due to its weightage in Nifty currently, and majorly due to their plans in the retail domain. There are a lot of firms I have met in the domain, and their feedback about Reliance’s agresiveness is the same. Based on all that I have read and understood, I have the feeling that Mukesh Ambani wants to be the biggest entity in India and wants to get to the Alibaba/Amazon level in India.

Nestle - Was a pick due to a Peter Lynch line of thought. I was reading his book and asked my wife to tell me a firm she felt would do really well in India. Being a Coffee lover, and having seen the kind of product range Nestle has internationally whenever we have travelled to other countries, she told me Nestle can expand to a huge product range in India. I analysed the financials, and decided to invest, which has turned out really well in terms of returns till now.

TCS - I wanted to have some exposure to the IT domain, and between Infosys and TCS, decided on TCS due to the Tata group and the various articles on the web I studied about the firm.

Bajaj Finance - Again from the financial domain, but seeing the kind of retail debt I saw everyone around me taking(plus the increased focus of the banks towards that domain as well now), I wanted an exposure in the domain. From all of my analysis and the options available, Bajaj Finance seemed the best bet for the long term.

Asian Paints - I do not have an in depth understanding of the domain, but based on the historical track record(plus the financials showed enough strengh), decided on the firm.

Marico - Wanting an additional exposure in FMCG, with the other firms have very high valuations, I decided on Marico since I was getting good value plus again the historical track record and the increase towards the health segment helped me decide in favour.(Other candidates were Britannia and HUL).

Titan - I handle the Jewellery segment in my region for my bank, and while I personally never thought that in the long term our generation will buy a lot of gold, I was proved wrong looking at the kind of business the unorganized sector does(many small players are my clients).I saw that a lot of business Titan can still eat into(and is regularly eating into). They have already proved adept at moving from watches to Jewellery, and seeing Taneria being launched I was confident of their long term prospects. Being from the Tata group also helped.

Tata Global - This was a very small bet as I really wanted to get into the Starbucks story, plus I wanted to own a small cap stock as well before the days it became big. While it will take a long time for Starbucks to be big, which I feel it will seeing their presence in other countries, and our culture shifting to a daily coffee habit after some years. Already the multiple Starbucks around me are always full despite the prices(I buy a stock of Tata Global every time I go to Starbucks for a meeting and don’t buy an expensive coffee, just for fun). The FMCG strategy of the Tata Group might do well too, but I do not have the confidence yet to invest a larger amount(the stock has run up a lot too). Trent was a candidate which I decided to pass up in Tata Global’s favour.

HDFC Life - The Life insurance business will do well as per my understanding. Banks sell a lot of Insurance as cross sell, as some people might have noticed, and HDFC Bank’s branch network and aggressiveness will help HDFC Life do a lot of business in the future. HDFC AMC was also a stock I wanted to own, but I was not sure about the long term prospects of the AMC domain in general.

Abbot - Wanting an exposure in the Pharma domain, but not having an in depth understanding, my first criteria was a debt free firm(an advantage with Nestle as well), as I have seen first hand in my job what debt does to a firm( I am confident Mukesh Ambani can handle it). Pfizer was another candidate but I liked the financials of Abbot plus the product range expansion plans looked good. This has given good returns till now as well.

I am looking for a chance to increase allocation to the non financial stocks whenever the timing is right.

In addition, I have SIPs in:

  1. Axis Long term Equity(Direct Growth) ELSS for wife(expense : 0.92%)
  2. Mirae Asset Tax Saver(Direct Growth) ELSS for myself - I liked the lower expense ratio of 0.3% and figured Mirae would want to improve the AUM of their ELSS so will focus on performance. Mirae has a good record and Neelesh Surana’s performance in his other funds is good.

The other funds I have are Multicaps/Focussed funds from 3 different fund houses because I don’t have the knowledge for Mid Caps/Small Caps, so I was okay with giving that authority to a fund house. Low expense ratio was a big criteria.

  1. Kotak Multicap Fund - Direct Growth(Expense : 0.87%)
  2. Axis Focussed Fund - Direct Growth(Expense : 0.65%)
  3. Mirae Asset Focussed Fund - Direct Growth(Expense : 0.23%)

Hope the long post made sense. Will edit and correct this for mistakes.

Happy for any feedback on this.

Thanks,
Himanshu

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2

I find your selection of scripts and MFs to be very robust.If you could add your average buying price, it would be more meaningful.
Out of all the above scripts, I feel Reliance will HV a huge disruption in it’s petroleum business as well as retail. You may visit D Mart and Reliance and D Mart stores and then decide.I personally would bet for D Mart on declines
Tata global to my understanding would have to be watched for meaningful growth and profits as putting up coffee kiosks is a capital intensive business and customers becoming cost sensitive ad yourself mentioned.
Rest of it seems excellent

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Thanks for your reply.

Tata Global I am already very careful about, also because Starbucks is a miniscule part of the business right now. How fast it will grow in the next decade, it will have to be seen, but Starbucks is faster in india than it was in China, and with the recent CCD news, they will be even more dominant as per me.

W.r.t Reliance, I have not seen a lot of D Mart stores in NCR hence my understanding is limited. Also, Brick and Mortar mid level retail is extremely competitive as per me which is why I did not finally go with Trent or Page Industries.

Reliance is working towards Ajio being a big player and also is partnering very aggresively with international brands and current list of partner brands are Marks & Spencer, Tiffany, Mothercare, Armani Exchange, Emporio Armani, Georgio Armani, Burberry, Pottery Barn, Brooks brothers, Canali, DC, Cherokee, Deisel, Dune, Gas, Hugo boss, G Star, Hunkermoller, G Star, Hamleys, Jimmy Choo, Muji, Michael korrs, Steve Madden, Superdry, Scotch and Soda just to name a few. While most of these names might be unknowns here currently, they are established brands internationally. And India might not have the purchasing power for all these brands now, but I believe this will happen in the future. The lower to mid end of the retail business will be extremely tough(we have brands like Uniqlo entering the market, and anyone who has seen them internationally or knows about them will be wary), but the high end of the business requires a lot of brand power which is where Reliance seems to be focussing. At many Malls in metro cities, most of the brands I have mentioned above have stores already plus they will expand to other cities as the country grows over the next decade. Plus they are planning an aggressive online retail strategy as well. I don’t know the Petroleum domain in detail, but I am okay with the direction which Reliance seems to be focussing on.

Please correct me if my understanding is wrong somewhere.

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4

Nice picks .Going forward private sector bank and NBFCs are going to create lot of wealth for investors and u have almost 50% weightage in robust banks and nbfc .

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5

Very sound portfolio! My Compliments!

You have kept away from small caps. Is this something that you propose to continue ??

Also would be interesting to note when you started investing in stocks like ICICI & Axis Bank

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@Himanshu_Nigam

Yours is as good a coffee can portfolio as it can get. Strong banks and financials is a proxy to play the India growth story over the very long term. The only issue can be very high, nearly 70% allocation to the sector.

Having a high allocation to such a strong sector can be okay but this hinders allocation to some other sectors where there can be strong tailwinds. I would love to see higher allocation to consumer names in the portfolio .

With the kind of maturity I see in your crisp logic detailed for your picks, I feel you might invest all your funds on your own rather than relying on MFs. And you might as well have a look at good companies in small and midcap space as I feel that is where the most money is going to be made in atleast next couple of years or even longer.

Loved reading your post and all the best.

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@maheshkumar : Thank you.

@manishdhariwal : I am not yet confident about having enough knowledge to evaluate the financials of small caps because there is not a lot of other publicly available information like articles/news etc. I handle some corporate clients which are listed entities, and my experience has been that even being someone who meets their promoters/CFOs on a regular basis, a short term investment might be okay but a long term investment is tough for me to evaluate.

I started investment in the last 1 year in individual stocks. As I had mentioned earlier, I started with investments in the 4 Banks at the same time, and kept adding gradually. ICICI has given the most profit out of the 4, and Axis the least. From what I am seeing in the domain, ICICI is quite agressive currently(and quietly, without their CEO being in the news a lot), while Axis is hiring from other Pvt. banks very well.

@hitesh2710 : Thanks a lot for your reply. I am looking to increase allocation to the other sectors going forwards, and looking for an opportunity to do so. I started with investing in Banks and financials, and hence the high allocation.The increase in value post the tax break announcement have made me pause for a bit. I have increased allocation to Titan since the last quarterly result because of the drop in price. Will try and see if I gain the confidence to invest in smaller stocks.

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8

Second that!

Though Small caps is a mine field

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Your timing was very good as there was a long period of time when ICICI and Axis under-performed. Have you firmed any ideas on exit strategy

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No exit strategy as of now. Like I had mentioned earlier, I’m focussing on holding my equity investments till retirement and hoping I will be able to do that.

In case something major happens which shakes up the Nifty composition itself and leads to reduced flows in the major stocks, I might hold investing further amounts. But I think it will be tougher now than in the past because of:

  1. Increased understanding of Index funds(SBI Nifty ETF has a huge AUM of 65000 Cr just due to the passive inflows, and an expense ratio of 0.07%).

Even EPFO has been investing in ETFs since August 2015. Initially, it was 5% of its investible deposits. Later, the proportion was increased to 10% in 2016-17 and 15% in 2017-18 and onwards. 22% of those funds are going just into HDFC Bank and Reliance on a regular basis.

  1. An analysis of all major MFs on the basis of AUM size shows again that the majority of funds are flowing into the Nifty stocks in more or less a similar proportion. With AMCs wanting to increase their business, 60% of India’s population under 35yrs of age, and increased marketing of Mutual Funds, this should continue/increase.

This is also a trend I saw when Nestle entered Nifty.There was a good amount of price increase post that. I think/hope something similar happens with HDFC Life which is why I am looking to increase allocation there.

So once this trend starts changing, or new stocks come up to a greater proportion, I will evaluate not investing more amounts into the existing stocks. This could be a completely incorrect way of evaluating things, but this has been shown to happen in the US stock market as well with Index funds.

But there is no exit strategy I have thought of since my main focus is to see how long I can hold on to this. Plus I don’t have an understanding of how to formulate an exit strategy at this stage. One of the reasons my stock investments have started 1 year back is that the funds were required for long term major expenses, and whatever major expenses I foresee in the future, I keep/will keep that amount saved/invested into debt funds separately.

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11

It is a good idea to hold good companies for as long as you can. You can even give those companies longer rope in the face of some years of slow growth as these have the propensity to bounce back, but be mindful to Yes Bank or DHFL type scenario.

Other than that. good portfolio and so good luck. :slight_smile:

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12

Thank you. And yes will definitely not keep holding even if there are alarm bells. I do try and keep track of everything on a very regular basis so as not to miss any chances of adding more, which I am hoping should help avoid losses as well.

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A Small update on the portfio. A lot has happened since Jan. I updated here once but I think the post got deleted. Basis the feedback I received I made the following changes in my portfolio in Feb:

  1. Removed Axis at a 1-2% profit to reduce weightage on financials
  2. Removed Marico at 1-2% profit
  3. Removed TCS at 3-4% profit and shifted the Funds to Nasdaq100. Started a SIP in Nasdaq
  4. Stopped SIP in the the multicap/focussed funds and shifted it to India/US index funds. Did this as kind of a hedge if I made mistakes with my entry timing(in hindsight this helped me most during the March crash as the SIPs continued and I invested only a portion of my funds in increasing allocation).

Added the following:

  1. Added ITC in place of Marico - I felt the valuation was too good to miss(I might be wrong), and I really like all the FMCG products of ITC(similar reasoning to holding Nestle). Cigarette will continue to be a sticky business no matter how much people say Covid will reduce smoking. I can be wrong but since most of my portfolio has high PE firms, wanted to have a low PE firm too(even though there might be no real logic to this :slight_smile:
  2. Added HDFC AMC in place of Axis - It is a great business with great cashflows, and no leverage. I had added this in place of Axis in Feb, and hence my buying price is a little high compared to current price.
  3. Added Relaxo - In addition to G&J mentioned earlier, I have had the chance to study footwear firms in depth and directly as part of my job in Corporate Banking, and due to Covid, as per me all sectors which have a big unorganized presence will get consolidated with the organized players gaining share. Footwear segment has 50% unorganized players and demand from Tier2 and Tier3 segments is rising far faster than Tier 1 segment. In addition, new and international brands like are coming up only in the tier 1 segment. This was my reason for choosing Relaxo over Bata. It has not risen a lot since March 23rd, and that helped me build a position.
  4. Added Pidilite - I had wanted to add this initially itself, but felt it was too expensive. The March crash gave me a chance and it has no major competitors in the segment it operates in. It has also not risen a lot since 23rd March, which has helped me build up a position.

The current portfolio looks like this:

image

The run up in Reliance has increased its allocation a lot. My logic for adding Reliance was different and the run up in the price has been due to completely different reasons, and hence I was able to understand that some amount of luck does play a part. I think the maximum change in percentage terms is in Abbot, which I added on a lot during March, and since there was not a quick uptick in the price since March, I was able to add on to it. The stock I wanted to add on the most was HDFC Life, but it moved up so fast there was no chance for me to add on a considerable amount.

I understand that this is still bank heavy and I am still working on increasing the allocation to other sectors. However, it has been tough to plan out and decide when to buy in the current market, and while I have added to my portfolio I am holding a considerable amount of cash as well. I also want to reduce the number of stocks to sub 15, but have not yet been able to make the decision to just sell off one of the banking stocks, since there are 3 banks in the portfolio currently.

Any views are welcome.

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15

Excellent coffee can portfolio. But the wtage in financials can still be reduced and pharma and chemicals can be increased.

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16

Thanks for your reply. I agree. But I don’t understand Pharma and Chemicals properly as a business model. I have tried reading up on and understanding Divis for months now, and ideally would have replaced ICICI with Divis some time back. But I am sure that if I understand the business model in depth, and in times when things are not going well, I might end up being jittery and sell it off(Abbot has a simpler to understand model). I had also evaluated Dmart but I ideally don’t want to hold a company in such a competetive field where Reliance has a major interest as well, and Amazon is present too.

Compared to other firms which sell simple products, Pharma and Chemicals are not easy to understand for me. I am still trying to increase my knowledge and reading the business models and balance sheets regularly, and “if” I am able understand things properly and the time and pricing is right, Divis in place of ICICI is what I think I might end up doing.

The CFO issue with Divis is what has held me back as well. Having dealt with CFOs of firms directly on a daily basis, it is a very important position and I feel is not something one should just forget because the times are good for domestic Pharma stocks.

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17

A small update. I added Divis Labs earlier this week. Haven’t replaced ICICI yet, and am yet to decide what to do.

One of the reasons to add also was reading Hitesh Sir’s thread on stocks making 52w and all time highs, and I do have an exit strategy in place for this one in case things do not go as per plan since the valuation is already high.

But I have seen that waiting for valuations to cool down never helps. I have never added any of the stocks in one go in a large amount and always average it out over time so that the chance of a huge surprise gets negated. Sometimes a very positive surprise(like Divis’ results today) will lead to having to add at a higher value since I have not added a large amount yet.

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18

Another update : I Exited ICICI a few days back. Had a very finance heavy portfolio since the beginning with HDFC, Kotak, ICICI+Bajaj Finance.

Have started a position in Bayer Cropsciences. I had stumbled on this firm and had been studying it for a while. Reasons for adding it:

  • Started evaluating due to Govt. focus on the Agriculture sector.

  • The parent Bayer Group is a German 40 Bn$ MNC, which is a 157 year old group and one of the largest pharmaceutical group in the world. Started in 1863, pre World War 1, and is linked to Bayer Leverkusen football club(irrelevant but interesting detail :slight_smile: )

  • In 2018, they aquired Monsanto, which is a 118 yr old Agribusiness company, and a firm I had heard about since my MBA days. This was a very well known name to me and this deal was what interested me the most. The merger of Bayer and Monsanto in India has only been finalised in the FY20 balance sheet, and I think looking at these groups together it will be a powerhouse.

  • Obviously being a debt free MNC helps.

  • Sales Growth of 16% in FY19, 14% in FY20. in Q1FY21, Sales growth of 30% compared to June2019. EPS Growth of 86% over June last year. ROCE of 25% and 30% in FY19 and FY20 respectively.

  • Cashflow from operations %tage is more than Abbot India as on Mar2020. Cashflow spent on capex only slightly more compared to Abbot India(I compared to Abbot since it is one of the highest holdings I have now+one of the best balance sheets I have seen in my portfolio). Hence, not much capex required by the firm to generate cashflow(unless my calculations are wrong somewhere).

  • Cash and Bank balances on balance sheet is 1000+ Cr on total Equity of 2572 Cr. While this is not as good as Abbot(which has 2197 Cr Cash for 2431 Cr equity), it is still a pretty good number.

I could not find any reason not to hold this company, and while I am still finding out more info about the company, I feel fairly confident.

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19

Recent Update:

  1. Since my last post, I have added on a lot of Bayer Cropscience during the huge fall it has seen recently. This is probably the first time I have added a large quantity when a stock was falling and I’m hoping it turns out well over the long term.

  2. Also added IPCA Labs during a recent fall in prices. A close uncle of mine is an extremely successful long term investor and he was Director in major listed Pharma companies before his retirement some years back(his entire extremely successful career was in Pharma). Was trying to understand Pharma sector from him and he recommended adding IPCA Labs in addition to Divis Labs which I already hold. The financials and all other parameters looked good and I added it during the august end and sep end slight fall in prices.

  3. Added Britannia to my portfolio after it fell almost 10% post results. Due to the huge run up in the stocks recently and some of the companies touching 100+ PE it is becoming harder to decide where to allocate funds and I feel it is better to utilise surplus funds than keep a huge chunk waiting for Nifty to fall below 20 PE(which has a rare chance of happening looking at past records). so I have kept 15-20% as cash waiting for the fall and will try to keep deploying regularly.

  4. Added more to Tata Consumer when the price cooled down a bit, as this was the first chance I got since the fast run up in its price.

  5. Added back TCS which I realised I had made a mistake selling off and after getting some feedback from friends working in IT companies in terms of what they were seeing.

Have not sold off anything even though the number of holdings has increased because now the portfolio is not concentrated towards Banks/NBFCs. I will probably not add allocation to names I am not extremely confident in like HDFC AMC, ITC etc. unless there is a huge opportunity and I’m out of funds to invest. So eventually some non performing stocks might end up having 1% or lesser allocation.

So the current portfolio, in no order(will add percentages soon) looks like:

  1. Reliance
  2. Abbot
  3. HDFC Bank
  4. Kotak Bank
  5. Nestle
  6. Bayer Crop
  7. HDFC Life
  8. Asian paints
  9. Divis Labs
  10. Titan
  11. Relaxo
  12. Pidilite
  13. Bajaj Finance
  14. Tata Consumer
  15. TCS
  16. Ipca Labs
  17. Britannia
  18. HDFC AMC
  19. ITC
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20

Further updates :

  • I added Reliance this week at multiple prices as it was falling down. This was the first chance I got after a long long time to add Reliance. If it falls more beyond the levels it went to, I will add more.
  • Also added more to Divis as it touched the September Fall levels.

With the amount of money against each holding, basis my risk appetite I have recently felt that I will have to find more holdings and newer ideas, as I might not be able to: 1) Keep adding money to existing holdings which are not dipping no matter how much I want(like Pidilite and Asian Paints) due to the crazy valuations, 2) add to positions like HDFC AMC and ITC till signs improve, and 3) Can’t keep waiting till perpetuity for the market to fall to 10000, as low interest rates might not let it happen, and low interest rates also make sure I can’t keep huge amounts in FDs. I’ll keep 15-20% in cash at all times, and will keep deploying surplus funds from monthly income coming in.

Hence I added Britannia(after Q2 results fall) and IPCA(which ran up huge just after buying) some time back, and before United Spirits results started a small position in United Spirits this week before the Q2 results:

  • I love Diageo as a company; there is not a huge market competition in the segment due to the brand value.
  • There will always be an overhang of govt. regulations, but this risk is offset by being in a segment where there will always be sales.
  • The MNC parentage is ensuring that the company is on the path to being debt free. Sep2020 Debt is 1/4th of March 2017(did not know that before the results were out though. March 2020 Debt was half of March2017 Debt).
  • I went out after months last week and saw crowds on top of crowds as if there was no Covid(in NCR). Hence wanted to buy this before Q2 results were out since I felt that Sales would increase this quarter, and I wanted some small holding before the results were out(like I did in the case of Divis, Relaxo, Pidilite in Q1, and I’m hoping Ipca & Bayer Crop’s Q2 results are good).

Desperately waiting for an opportunity in Asian Paints and Pidilite to increase allocation, as I think the low Home Loan interest rates(~7%) are going to create a ripple in the coming months.

PS : Request views by more experience people if the line of thought and reasoning seems correct. Thanks.

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21

I have exited HDFC AMC today; Felt that this was a good time/price as any to reduce it from the portfolio for the following reasons(Hopefully I won’t regret this a lot):

  • There is a lot of competition in the AMC segment, and with MF platforms like zerodha and paytm there is nothing stopping people from pausing/stopping SIPs easily when they see underferformance in equity schemes.
  • It is very easy to compare performance in Equity schemes on the net, hence good performers like Axis, Mirae etc. get easily noticed.
  • Increasing awareness of ETF/Index funds and a new set of investors since march want to invest directly, which might continue as a trend.
  • I might be wrong, but HDFC Life is able to leverage on HDFC Bank’s branch network(I was pitched their products when opening a PPF account for my daughter), and platforms like policy bazar, which HDFC AMC is not.
  • With lowering interest rates Debt funds’ AUM might decrease, and Franklin fiasco will lead to retail debt fund investors being more careful.

Current Portfolio looks like this:

Name %
Reliance 10.0%
Kotak Mahindra Bank 9.0%
Abbot India 8.5%
HDFC Bank 8.5%
Divis Labs 8.0%
Nestle 7.5%
Bayer Crop 7.0%
HDFC Life 6.5%
Asian Paints 6.5%
Bajaj Finance 6.0%
Relaxo 5.0%
Pidilite 5.0%
Titan 4.0%
Tata Global Beverages 2.5%
Ipca Labs 2.0%
TCS 1.5%
Britannia 1.0%
ITC 1.0%
United Spirits 0.5%
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