Phreak's Thoughts, Ideas and Opinions

[gautham1]

Thanks a ton @phreakv6 for all that you do. Its of great help. I agree that fundamental (primary rationale) focussed with a little bit of technicals is a very good approach. But the main problem is, how does one come to a conclusion that the valuation is fair? Generally they say cheap is cheap for a reason and vice versa. I am not a fan of the usual PEG, discounted cash flow, reverse dcf( though its somewhat useful), replacement cost theory etc . The forward earnings/revenue estimate in broker reports ( I ignore the price target) is useful to some extent. Even on that basis, majority of good stocks will look overvalued. No matter what, they always justify it saying X times FY 29 earrings etc. Of course we can do some analysis based on margin trend, orders (in b2b) etc. But in a lot of cases, PE ( I actually give more importance to operating cashflow. For a moment, lets use PE) looks ridiculously high historically too. Case in point some of the mnc electrical equipment names. In some cases, optically they may look reasonably valued. But they always commanded that valuation or much lower in the past. The other problem is that, as we know, market is always forward looking and most the the time it extrapolates the current earnings. So people tend to ignore ( which may not be bad) valuation even after knowing its overvalued but participate till price action is good.
Earnings yield, fcf yield etc are decent. But again of not much practical use. In some cases, we may find the valuation is cheap. But market may not agree for a long time. So wanted to hear from you the mental model for valuation. Would appreciate if you could throw some light on this. Also any book recommendation? ( Not the usual value investing related books)

Sorry about polluting your high quality thread. Feel free to delete/discard.

[Akhileshmj]

@phreakv6 Sir,

If possible, could you please share your current views on Ceinsys and Axiscades?

For someone who is currently holding these companies, how should they look at them going forward? Also, do you feel the original investment thesis and business fundamentals remain intact compared to what you had outlined during your investment journey?

I would really appreciate any thoughts you can share.

Also, thank you for all your detailed write-ups over the years. They have helped many of us gain not only knowledge about businesses and investing but also a better understanding of how to think about investments. I have learned a lot from your thought process and the way you approach opportunities.

Thank you once again

[Rakesh_ms]

Hi @phreakv6 sir,

It’s always pleasure to read your posts in value pickr. Last week while replying to an earlier comment you wrote about what’s happening in ai/ dc space. After reading this only, I got to know about how these macros on DC & llm’s affecting worldwide & companies like tdps/ mtar. It was a very insightful information for me. ( I have tdps in my portfolio )
I request you to write more about macros or any interesting things that you come across while reading. There is a vast information available in internet but to pick right insights is very tough job that a few person like you can do. that’s why I’m requesting you.

Please write more about macros, human psychology in valuepickr, twitter or it is better to read all of your thoughts in a single place like blog/substack. I’m sure there will be lot of people like me who are always eager to read your thoughts.

[phreakv6]

Thank you all for the kind words

@Rudra_Tomar - I dont know much about holding companies. They always come across as hope trades and yet I am currently holding one (Aeroflex Enterprises) and hoping it plays out. In general I think these are better left alone as there is no science behind when discount can narrow. Usually when the underlying has run up a lot while the holdco hasn’t, then even if the discount doesn’t narrow, as long as discount is maintained, you will still get to make similar return in holdco - this is what generally works. Usually people who miss the primary rally participate in the holdco rally. This is just my observation and Aeroflex Enterprises will tell if that happens or not. (I hold a small trading position there and my primary holding is still Aeroflex Industries. - about 4:1 proportion). So in general holdcos only come into everyone’s attention when underlying has had a big rerating and otherwise stay ignored for prolonged periods.

@Gautam1 - Valuation - I would suggest reading Ashwath Damodaran’s little book on valuation (or read my notes here - Multi-Disciplinary Reading - Book Reviews - #402 by phreakv6) to understand the mechanics of it. Picking the right valuation tool to use is the first skill - knowing the nature of business (is it cyclical and if so how deep? is it a growing cash flow, and if so what is the tailwind and moat? is it a stable business without growth?) and knowing whether relative valuation is a better tool to use (market switches to relative valuation in periods of bull runs) and how much is the underlying deviating from the relative etc. Its important not to make big blunders like valuing businesses on P/E which should be valued by P/B (most common error that keeps recurring). I dont consciously apply but learnings from this book has stayed with me and intuition helps me arrive at rough estimates. As a retail investor, I dont have to sweat it. If I make a mistake, I can cut my losses and learn from it and move on. Might be different in an institutional setting (these are anyway becoming worse than retail with some projecting cashflows till 2048 and what not). In general markets since 2020 have worked based on relative valuations and cheapness is determined solely based on that and not absolutes. So finding something undervalued on an absolute basis ends up making a lot of returns.

@Akhileshmj - Ceinsys promised a lot of things and those things have not played out. Primarily the acquisition for which the pref/warrants were issued. The timeline for it has slipped nearly by a year now based on earliest estimates. Also the working capital situation remains tight. Unless these two (or at least one of them) is resolved, it will remain around current levels. I dont own it anymore and I was too late to sell it but still made ~4x or so if I remember right. Axiscades management has left me confused on intention and motivation. Their saying and doing somehow doesn’t stay in sync. I dont understand why they are selling Aerospace business for eg. when SRN was so bullish on this calling it a core business in initial calls after taking over. They were supposed to get capital through partners who would invest in the defence business but that doesn’t seem to have made progress either. All the while promoter keeps selling all of which sends confusing signals. I exited last Sept because I found Sai more interesting. It still might play out and SRN might pull it off (Should never underestimate such guys, though they tend to scare the skeptics off easy)

@Rakesh_ms - As of now I think the biggest macro theme is still power transmission with EVs and DCs increasing power consumption and stress on the grid (and of course renewables) and data centers themselves but my gut says some of the capacity destined for US will move to other countries, incl India (maybe 10-20% at least of the 100 GW announced which itself will be huge for smaller countries like us). Anthropic/OpenAI aren’t the only game in town, so open weights models will dictate partially how these DCs get built and funded. The middle-east security issues with data centers will drive some of those investments away to destinations like India. I don’t think market is completely realigned to this yet. Aeroflex remains a good way to play this. Another good bet worth paying attention to is Vivid Electromech - Satish’s thread (Vivid Electromech Ltd - Data center PDUs and Metro Trains Electrical panels with ABB ArTuK Partnership) covers the business in good detail.

As per AR (Satish’s most recent post in the thread), they can make 1.5 Cr from LV panels and 1.25 Cr from PDUs (new product) so overall opportunity is 2.75 Cr/mw (Aero for eg. is 45 skids at 3 lakh each per MW = 1.35 Cr/mw). Unlike Aero though Vivid doesn’t have a moat like an excl. tieup with Vertiv but they are working with 6/10 of the top DC companies in India and have licenses from ABB/Siemens/Schneider etc. The PDU design is their own based on a standard spec (ABB’s RPP spec) so margins should be healthy as well. They are undergoing a big expansion because capacity util is 90-95% and the expansion will 3x the capacity this qtr. Order book is healthy ~210 Cr as of Jun (order book runs off faster due to fast turnaround times measured in weeks). Working capital appears stretched because the business is H2 heavy and growth has been strong. AR came out 2 days back and is very detailed for a company this small. It is very illiquid though and I only have a small position here bought ~1200 levels which is cheap at ~20-22x 1 yr fwd as the company has guided for 40% growth with similar margins (DC contribution has bumped margins up last 2 yrs and with PDU contributing higher, I think there might be a small margin expansion as well). Of late many other businesses too are announcing data center order wins but its worth working out what will the DC contribution be in a year or two and how much it will move the topline/margins of the company but at a macro level DC capex is going to be the biggest growth lever for the world in near/medium term.

[Rahul_Chechare]

Sir,

Good Morning.

1st of all thanks a lot for sharing the framework how to approach stock analysis.

Also your threads on the individual companies feels like difficult subject explained by a great professor.

I am working professional with interest in stock markets.I am doing it from last 6 years and comfortably beaten my Mutual funds and benchmarks over period of 6 years. This gives me confidence to continue it.

As a working professional, I have time scarcity, so, maximum no. stocks I can actively track is 25~30.So, I am believer of stock portfolio of ~15 stocks.

So, you have said in this thread that once conviction is built you always try to maximize the position size upto 15%.

Also, in this thread you have said that you have small positions in stocks like Vivid, Aeroflex Enterpris.

so, my question is if highest allocation is 15%, what is the small position size generally.

Because i am struggling decide small size position, as highest allocation for me is capped at 10%.

Thanks again for inspiring.

[cdas3317]

@phreakv6 Indeed very insightful. You have mentioned name of some books. I have a question. As a novice, how do I find name of books/sources to understand a theme/sector? I mean there is no dearth of info, but most of them are noise and add no productivity or value in building my conviction or easy understanding of the basics. How do you find books or sources to invest your time and labour on?

[phreakv6]

@cdas3317 - Some of the books I found on twitter as it keeps showing me lot of what other people are reading since I keep sharing about books. Most were discovered that way. These days I also ask claude to suggest and at this point it knows how I go about things, so it makes good suggestions. I think you should try the claude option as its far easier and high quality. Twitter is good for serendipitous discoveries.

@Rahul_Chechare - What you are asking is a general question on concentration. The gist of it is that holding 3 stocks or 10 stocks can both be concentrated. The rough guideline most people will agree on is 5-6 stocks adding up to 75% of pf. Pre 2023, I have generally held around 10 stocks with top 5 adding up to 60-70%. Post 2024 and onward, my concentration levels have been more tighter - the reason is simple. Concentration is a function of market environment. When I feel that broader market is getting weaker, being concentrated on names that give you valuation/growth comfort protects the downside. So during this period I held 75% in 5 stocks in '24 and even early '25 but something got into me towards end of year where I got increasingly bearish and yet was 100% invested. So towards Sept-Dec '25, believe it or not, I had only Sai life, Hindustan Zinc and Silver/Gold. This was perhaps the most concentrated I have ever been. I changed things around February but still I was bearish on broader market if not for the AI/DC themes - so towards end of Feb, I held only 3 stocks - Sai, Mtar and Aeroflex with TD added in March or so. Sai around this time was as high as 57% for me because I ended up buying the Feb dip post earnings on top of an already huge position. So a concentrated individual position for me can be 15-50% but on cost basis most likely not more than 15-20%.

Post June, I am getting the sense that market is turning broader. This is what is driving my taking lot of small positions (typically ~5%) in Yash, Aimtron, Asian Energy, Qpower, Vivid, Aeroflex Enterprises etc. All of these today add up to 40-45% or so (I would love to have had higher position in Vivid, Yash, Aimtron but being SMEs, they are very illiquid, so I was unable to scale up at the prices I wanted). I have reduced Sai and Mtar down a lot since June and recently TD too to make these bets which I found interesting. All these have extremely strong growth backing them and some even at very cheap valuations - Asian Energy Services and Aeroflex Enterprises esp. Aero Enter for eg. I had initially missed the 220 Cr sale from Ingersoll Rand so this company net of cash has a big holdco discount which I hope can bridge. AESL has 50-100% PAT growth possibility in FY27 despite being so cheap. Overtime I have noticed my positions tend to consolidate as things change.

The way I see it is like playing poker or in general any board game. You must watch the board and make your moves. To this extend, I literally do treat it as a long board game with my portfolio/watlist being always in view taking 50% of a 27" screen (tiled windows split left/right) and the watchlist taking almost 75% of the 50% along with other useful information which to me is designed like a board game. You are always aware of what the goal is, how the board is positioned, what moves are available and can actively consider what is your best possible move, even if you dont make a move for weeks or months. The idea is to be insensitive to volatility (more inconsequential variations you observe, more immune you become to it) and to not be an ostrich in the sand when better moves present themselves. For a retail investor with little time who still wants to invest direct and has capability to do so, ~10-15 stocks is the most you can closely track (tracking is not looking at price and social media chatter) with an hour a day and several hours on weekends and so you should stick to being around this number or give your money to a capable fund manager (These days there are several good ones doing a great job).

Spend last weekend researching Venus Remedies. I think its a good business worth looking at and despite the runup in the last year, is still cheap compared to peers. Venus is into complex injectable formulations (hard to get qualified in regulated markets) - for critical care and oncology and other speciality therapies. Bulk of the revenues come from Carbapenems (you might remember it if you followed by Wockhardt thesis) and of late Oncology portfolio. India is only 23% of revenues while Europe makes 17% of revenues. Rest comes from LatAm (19%), Middle-East (14%) and Africa (13%) and Asia (12%). They are present in regulated and semi-regulated markets and have 1100+ granted market authorizations. What caught my attention was this in the Annual report as I was reading it.

The company has had a very messed up past (similar to Wockhardt) mired in debt which it defaulted on back in 2015 or so. Things have changed a lot in the last few years though. They sold Elores to Cipla in 2020 and used the cash to reduce the debt and have run operations more tightly to turnaround the business. It shows in the financials

From being debt ridden to now having ~250 Cr net cash and zero debt.

The growth in the last 4 years with increasing Oncology mix has been stellar with PAT moving 28 Cr → 45 Cr → 103 Cr. Q1, FY27 shows growth is set to continue with new market authorizations, new molecules they have got approval for and expanding reach. For first time in over a decade, they even had a dividend payout.

When I first heard of the story, the initial thing that came to mind was that Orchid was struggling in this same sector (anti-infectives), then how is Venus doing so well. The difference is Orchid is a Ceph API company while Venus is Carbapenem (While both are beta-lactams, they have diff KSMs and Venus sells its own branded formulations while Orchid is primarily an API player). Orchid today has 811 Cr revenue on which it makes 41 Cr EBITDA while Venus today makes same exact 811 Cr revenues coincidentally but makes 166 Cr EBITDA which is 4x profitable but still trades at 2000 Cr vs 10000 Cr for Orchid Pharma.

Venus is the classic Wocky sort of bet in more ways than one. They also have a NCE portfolio with VRP-034 in phase-1

This drug VRP-034 is sort of a wonder drug though it isn’t novel because while working on Wocky WCK-5222 I noticed that it can be used when Polymixin-B fails and it fails primarily because more of it can’t be given due to its renal toxicity. What Venus drug does is modifies the delivery technology (RGT or renal guard technology) so its far less toxic on the liver. It has FDA QIDP status as well and could be fast-tracked to approval like WCK-5222 was. They also have another drug with QIDP status called VRP-048 but its still in preclinical stage and not worth discussing more about. Just worth knowing that Venus has a relatively good R&D team as well.

As per the AR, they are recently doing some work on CRISPR and other cutting edge stuff as well. It shows the company has the chops, even if nothing is in the near-term revenues (at least 2-3 yrs out).

Another things worth highlighting is the stellar cash flows. They are converting over 100% of their profits into cash flows which is how they are now 250 Cr net cash.

Its over 100% because a lot of WC has been freed up too and you can see how cash conversion is now just 2 months from being 8 months pre 2020.

I haven’t done justice to it though this has already gone on long. I suggest reading the recent annual report which came couple of weeks back.

It is not the kind of business I generally get excited with - I am only excited because of the valuation differential vs peers like Orchid (similar on antibiotics portfolio), Sakar (similar on Oncology portfolio in EU GMP regulated markets), Beta drugs (Oncology tender business in India) or Sai parenteral etc. all of which are trading at 3-4x premium or more (in case of Orchid). Market still sees this business the way it was pre-2020 but a lot of changed since and when perception shifts, the multiple can re-rate. Growth can continue if they invest the cash in acquiring channels so they get to keep more of the margins (like how Caplin does)

Risks:

1. Not sure of growth sustainability - Is perhaps all low-hanging fruit plucked? Q1 shows growth continuing. Also we aren’t paying exhorbitant multiple for growth here so it covers for downside.
2. Company doesn’t do concalls and doesn’t even send ppts. Doing just this can give investors confidence to invest. Waiting a full year to find out what went wrong is absurd and no one is going to do that
3. Some of FY26 profitability is from PLI (~15 Cr) and forex. Even adjusting for this, assuming other companies don’t have these, it is still at least 2-3x cheaper than peers
4. It has had a sharp runup in the last year and is currently in ASM-4th stage. Technically also looks bearish. Worth keeping that in mind.

Disc: I have small position in Venus Remedies bought this week around current levels

[jainpatti]

There was no self promotion of any kind. Highlighted only the red flags. It is ok to be removed if it violated community guidelines. But still I will request to comment on those red flags. Information is available freely every where.

[Satishwe]

@jainpatti You are only posting AI based red flags and asking members to respond to it. If you are genuinely interested you need to put some real effort in asking questions.

[phreakv6]

@jainpatti - I wasn’t sure what you were talking about but saw the post in mail notification that seems to have got deleted. Please refrain from posting one liners or links to AI analysis or copy/paste of AI analysis. If you understand and have specific questions, you can paraphrase and post in your own words because that would imply that you have read and understood what AI has generated.

I did go through it though - its mostly unimportant/historical. the FCCB default is well known. The write-off is part paid off debt and part time-barred liability limitation. I went through what the company did with this money it borrowed and it doesn’t look like it was a case of fraud. It was a genuine case of misfortune. You can read the capitalmind piece here from 2014. The german subsidiary bit, I don’t know what the issue is - the german subsidiary had 26.84 Cr revenue and PAT of 3.48 Cr. I had actually done this exercise while researching the stock but havent posted all the details here to keep thesis short and concise but pasting it here from my notes.

Year - Turnover (Profit/loss)
FY23 - 135 Cr (2 Cr loss making)
FY24 - 113 Cr (2 Cr loss making)
FY25 - 38.70 Cr (7 Cr loss making)
FY26 - 26.83 Cr (3.48 Cr profit)

The company has restructured its European business and you can read about it in past annual reports. This alone has contributed ~10 Cr to profitability when compared to past years. What they have done is stopped using Germany as distribution/warehousing for access to Europe and now supply directly from India. The German subsidiary handles market authorizations and tender evaluations and such with minimal distribution and warehousing. Related party transactions, GST disputes, regulatory and compliance gaps, family-dominated board etc. are par for the course for a company this size (Remember all 4 from the family are running the business on a day to day basis - and the kids are highly qualified for what they are doing as well)

I would be more worried if the business itself was a fraud and products did not exist and the company was cooking its books. There is nothing of that sort happening here from my cursory checks. For eg. I checked the marketing authorizations in Germany and found meropenem, other antibiotics as well as onco drugs.

In general, if you don’t know how to weight the red flags and deal them by count or give equal weight, its impossible to make money in the markets.

All earnings for portfolio companies are out and this has been a stellar quarter for the portfolio as can be seen here

Overall market as well has done really well so far as we near close of the earnings season.

Yash, Aimtron and Vivid being SMEs aren’t reporting this quarter but the rest are done. My thoughts on results and strange price-action around results (sorted by order in which results came in)

Venus Remedies - Good growth in Q1 post the stellar Q4. Market participants though must have compared Q1 with Q4 which is seasonally strong quarter and sold off which gave opportunity to buy for me as recently discussed in prev post. To get an idea of how absurd this phenomenon has become, check the noise on twitter post Q4 vs post Q1. Post Q4, 1800-2000 was a good price to pay but post Q1, no takers even below 1500 though the company grew revenue 30% and profits 140% YoY. Its a strange market that doesn’t understand simple things like seasonality.

Aeroflex - Super strong results on expected lines. The capacity expansion and guidance is still on track so it is bound for good growth. Margins should expand a bit because a back of the envelope math shows skids should be closer to 30% margins and when they become 25% of revenue this year, margins are bound to improve. Hasn’t reacted much to results maybe because it was already in the price. In the call Asad mentioned that even in core business there is lot of demand in export market. This is a new development and could imply even core non-skid business could now see strong tailwind from data centers.

Mtar - Imagine giving 80% revenue guidance and beating it :-) Order book is strong as well at 5000 Cr+ (was ~2500 Cr post Q4, for context) and margins should be ~24% for full year. I dont doubt that they will be able to meet the guidance which means its trading roughly ~100x 1 yr fwd. Not specifically cheap, but its not everyday you see growth visibility like this. This was also unreasonably beaten down pre results because of people following Bloom’s performance (there was a short-seller who called entire company fraud on the line of Theranos - absurdity is now a world-wide phenomenon) and also Leopold blowing up. This one regained a lot of ground post results though it was exactly what the guidance was. Another case of market catching the flu for no reason and recovering from it.

Sai Life - Results were on expected lines. H1 is expected to be relatively sedate (meaning 20% PAT growth) but H2 should be good. What was surprising was the management tone in this call. For the first time the tone was so noticeably different and bullish unlike their usual cautious tone. As usual post results it was sold off (most likely because QoQ there was a degrowth vs Q4 which is a historically strong quarter) and tested lows of 1320 levels and is today ~1450 in under a week.

Quality Power - Very strong numbers in a seasonally weak quarter. Next quarter will also be weak like this with ~20-25% pat growth. Order book hasn’t grown as they are cautious not to take long-dated orders when commodity prices are volatile. Sangli capex is on track and will take another 6 months post commissioning for all audits and customer approvals. Overall no surprises. What was surprising was this one had positive price action despite being QoQ :-) HVDC orders will start execution from H2 and BESS PCS also is doing quite well and most likely they will bring this product to India as well next year.

TD Power - On expected lines (my expectation was for a ~2600 Cr for FY27 though management had earlier guided for 2400 Cr because visibility was so strong) here too. What is annoying is absolute lack of operating leverage in this business. Order book is at 2200 Cr. I have no doubt guidance will be met here too. It is trading ~64x 1 yr fwd. Price action was again hilarious here couple of weeks back where it tests 930 when Innio got sold off because of US AI trade blundering temporarily with Leopold going bust. Today it is 60% up from that price in 2 weeks. The reason I am discussing price action so much here is because this is some of the easiest money one can make because there’s a section of the market trading purely based on vibes.

Aeroflex Enterprises - On expected lines. The MRO sale to Ingersoll Rand for 220 Cr has hit the PnL in this quarter. Other than thsi Neu results are flat and Aeroflex Inds has had good growth as we know. It isn’t clear what Asad plans to do with this capital and that might decide future course here. It remains cheap.

Asian Energy Services - Yet another stellar result. Standalone revenue has grown 30% in a seasonally weak quarter and PAT by 56%. At consol level of course it is way higher because of Kuiper numbers being present in this quarter. Oilmax merger hearing is on Aug 28th and merger should complete by Sep/Oct. Other than this Oilmax is also been declared preferred bidder for an offshore block and a critical mineral mine (Vanadium and Graphite). Order book is at 1754 Cr with 60% contrib from O&G and 40% from mineral services. They should easily achieve their FY27 guidance - my guess is even without Oilmax here we should see 90-100 Cr PAT for FY27. Its yet to react to results since it came post market hours today. If the pattern holds, it could again start with lottery ticket holders selling at whatever price in the morning and then stock making new highs post Oilmax merger in Sept/Oct.

Disc: I hold all these stocks so I am bound to be bullish. I am a novice writing to keep all my thoughts in one place. This is not investment advice and I am bound to have made several mistakes (For eg. I mentioned Orchid mcap was 10k Cr in prev post comparing with Venus when its actually 6k Cr - looks like screener numbers were off here when I picked it up)

[Amnesiac]

Hello Bharani,

Not a stock specific question. Would you mind sharing your journey of financial independence?(It’s a coincidence I am asking this on Aug 15th!) With whatever details you are comfortable sharing. Also it would be nice to know the asset constituents of your portfolio on a percentage basis, do direct equities still form the majority?. You must be generating some passive income, is it via bonds, rentals etc. Please ignore if it’s too personal.

It would help aspiring investors to understand the journey and options for sustaining after achieving the goal.

Thanks!