Phreak's Thoughts, Ideas and Opinions

[Nikunj_Todi]

Thank you for sharing your thoughts openly here.
As someone who is 100% invested , my views might be biased towards the “positive” outcomes , but still I’ll share them so that the readers can arrive at a middle ground and take decisions without inclining to extremes.
Regarding Tariffs not being rolled back : I am sharing some links that shows many countries are resorting to dialogue over retaliation to resolve this tariff issue. EU president offering to reduce tariffs to zero : https://x.com/CollinRugg/status/1909241114693120168 , Vietnam to reduce tariff barriers but still would have to negotiate non tariff barriers: https://x.com/Jake_Randall_YT/status/1909260110238568903 , India in dialogue with US https://x.com/DrSJaishankar/status/1909245681858195587 , Japan- US trade talks https://x.com/SecScottBessent/status/1909309381289869363 , and if we are to believe the US administration’s number than around 60+ countries have come to the negotiating table https://x.com/SecScottBessent/status/1909363809002901548 . From what I see the tariff’s have forced countries to come to the negotiating table , and the US administration can now force countries to reduce their tariff and non tariff barriers that prevent US manufacturers from competing in the negotiating country’s economy or the administration might ask them to buy goods like oil and automobiles from US to reduce the trade deficit , to make things “fair” for all stakeholders involved in trade.
Regarding Tariffs on China and goods manufactured there: If goods from China were to be tariffed at crazy high levels from this week , How long would the current idle capacities in economies ex-China be able the sustain the demand for these goods before new capacities will need to be put in ? If there is enough supply of idle capacity that can meet the demand , maybe prices won’t skyrocket in the US economy .
Now some questions that arise and I would be really looking forward to everyone’s answers on these

1. many US citizens have started hoarding essentials similar to Covid times , How does demand supply evolve from here ? Will these lead to understocking situation in US and sudden demand for suppliers to the US .
2. What will the effect on shipping rates considering reduced crude prices , increased focus by US UK and other allies to solve issues with the Houthis ? Also in the past whenever there was a reduction in global trade demand have shipping players reduced supply (like OPEC does for oil) to keep rates intact or is it that the supply is difficult to reduce and thus the shipping rates reduce ?
3. What is your view on many countries including India going for Bilateral Trade Agreements ex-USA and diversifying their supplier base for raw materials and consumer base for end products?
4. What will be the effect on global commodities ? Considering on the demand side there is either capital formation which would increase demand for steel or there would be private consumption that would need increase demand for certain chemicals .
5. Do you see many countries increasingly trying to keep China away from their supply chains especially in goods where China dumps capacities and destroys pricing ? Can economies across the globe grow while isolating China or is China too integrated in the supply chain today ?

[Siddharth_Goliya]

@phreakv6

of Genesys and part of Wockhardt was sold in December to buy Axiscades and some in Feb to buy BlueJet. The rest of Wockhardt and almost all of Shaily was sold in March/Apr (to balance profits across FY). Shaily I was preparing for the Orforglipron risk as well, which at 100 P/E I felt was too risky. I still feel very attached to Shaily and Wockhardt and wish for both of them t

Hey! What was your reasoning to exit Genesys? Understood the logic for Shaily. Would love to know you general thoughts on what makes you exit some position. That’s generally a lesser discussed part of the game.

[sougataG]

In this trade war, I have seen a lot of media coverage of the US side of things, but not enough of the China side of things. Partly because information in the US is abundantly accessible and not so in China. Found this interesting substack that provides some info about the goings-on behind the bamboo curtain. This, I believe, will better inform the current discussions.

Chairman Rabbit lays out China's six next countermeasures against U.S. "trade...

[phreakv6]

A large part of the tariffs have been reduced to 10% (for 90 days) while China tariffs have been increased further to 125% and China’s tariffs on US goods has been upped to 84%. Europe already had 10% tariff, so am presuming its no change for them. I am not very certain if this is a big positive. It is definitely, as compared to the situation from last Thursday - but not when compared to 2 weeks back.

Markets are celebrating this welcome shift in stance though. Ignoring the sentiment shift, this is as good as announcing 10% tariff on the whole world and 125% on China as of last Thursday - still a negative event. This might be the narrative 2 weeks from now, but for now it will be left aside (rightfully, we should take whatever wins come our way and be happy that some sanity prevailed). The impact of two of the largest trading nations ending trading relations abruptly will have consequences (good and bad, but it will take time to figure out who benefits)

If the idea was to bring manufacturing back, these sort of flip flops aren’t going to help with that. The implications of tariffs on China will be felt over the coming weeks. If my guess is right, there could be much reduced demand in the US due to rise in prices (China supplies 70% of goods on Amazon US). It could also be inflationary for the US. The Chinese capacities are going to flood the global market - have to see how the world deals with this as well. We need to also see if this trade war escalates into a physical standoff (Taiwan and Panama issues are simmering). But there is always a chance that Xi and Trump resolve the differences overnight and everything goes back to normal.

I am going to be comfortable with a 30-40% cash position to navigate this period of uncertainty, so that am not spending too much time in front of the screen following a madman’s whims and can focus on hobbies like I used to. It also gives me a neutral stance to view things as they are and not as I want to. Since most of the cash has been raised from booking profits on long-term holdings after a phenomenal run, the mind refuses to look again at same ideas which means it gives me options to look with a fresh set of eyes in the coming weeks to see if there are other value bets to utilise this cash because I believe new winners will emerge from this situation.

[VALUE2017]

You statement “Either way I feel I am positioned for comfort since I can’t figure out if am bullish or bearish.”
In my opinion if any body is at 40% cash he will probably have bearish mindset rather then neutral because:

1. Existing stock has been sold assuming that it has risen enough and that it will fall down, which is a bearish mindset.
2. Cash has been retained and not deployed, as we want the market to fall so that we can deploy the same at lower levels.
3. We would like the stock which we are tracking to fall so that we can invest at lower levels.

In all 3 cases our biasedness will be that the market should fall rather than it being neutral or bullish.
One can be bullish only once he has partially sold and deployed the cash in some other asset like real estate from where he will not be able to deploy it back to Equity.

How much cash do you normally hold at any point of time and what has been your maximum cash holding during last 5 years.

Disclosure : Fully invested and trying to convert portfolio in 20-30% cash since last 2-3 months, but not able to make up mind for selling the existing holdings.

[Cshar]

What is your current assessment of markets and about your cash call, maximum of stocks have run up by 10-15% in just three days.

[phreakv6]

I continue to remain ~25% cash and no I am not bearish. I don’t know why we must think someone holding cash must be bearish. To me it’s just another position. I have shifted some of the cash to my existing bets which had favorable valuation (Bluejet, Ceinsys and Axiscades. Have little in Holmarc too but nothing incremental since it’s too illiquid). I have also started nibbling at some financials (not my forte, this will just be a trade) which could benefit from further rate cuts, maybe up to 100 bps in 6 months could be coming in this benign environment of low inflation, low growth we are currently facing. Global headwinds remain and I think the 25% cash provides me enough of a hedge to sleep peacefully without worrying about the madman.

The way I think of investing isn’t very different from the way I play Poker. I have a thread on the parallels which might shed light on my thought process. In poker, after you have had an excellent run, it is important not to get carried away and make suboptimal bets. The high from the wins, combined with a table on tilt, leads to irrational decisions. People in the table who have lost money or haven’t made much (as most of the indices show since June 4th last yr or Jan 1st last yr) take risker and riskier bets which lures you into playing sub-optimally with them. This I would always like to avoid.

I had written end of Dec '23 that I would be happy with 20% returns for next year ('24) because of how abnormal the preceding 18 months returns were. The bets I made then I thought would take fairly longer period of time to play out but were cheap. I was worried of a difficult period in '24 so chose good value stocks with long-term growth. Stocks bought just before and after that period - like Wockhardt, Shaily, Ceinsys, Sharda Motors, Garware and even Genesys paid off handsomely. But the key to all these was the price paid - I had got all of them at juicy valuations. The returns during this period is in excess of 160% at pf level, despite current drawdown of ~10% from the ATH made just 4 weeks back (when BlueJet and Shaily were defying gravity).

So it is only natural that I try to preserve these abnormal returns and look carefully at what to bet on. I continue to be on the lookout for value with growth that could lead to momentum. This is the thing that has worked out very well for me. But it has also come after extensive work of turning at least 300-400 businesses to find the 5-10 that qualify and saying no to a lot of great businesses because they weren’t suitable bets for me. It will take time but there are some promising bets in financials which I think are worth a look. I don’t want to be lured into things I don’t understand too well, so will take the time to understand and build positions.

Just like poker, there are infinite hands. What’s the hurry?

P.S. I am doing what works for me. I realize most don’t bet this way (and might even feel insulted to use the word “bet”), so I would suggest caution in trying to adapt something that may not work for you. I am just writing what I am doing without any filters because that’s how I have improved myself and my process in this forum

[Bechu_Mathew]

@phreakv6 A bit surprised that you have sold down majority of Wockhardt when all is going well for the company and the monetization journey is only going to start. Even though it has run up quite a bit, isn’t it still in nascent stages in terms of turning around the balance sheet and throwing out serious cash? Curious to know your reasoning to get out at this stage.

[phreakv6]

@Bechu_Mathew - Selling is always hard and more often than not, feels wrong. I have a long history of selling too early. You can see Neuland, Laurus in '20 (I sold both around Nov '20), Apar in '23, Shilchar in '23 - all went on to double at least in the year after I sold. Even last year, I had sold Garware around 2800 which went on to double and Sharda which went on to half (one of those rarest of rare instances where in the near term I got it right). Its a peculiar feeling you have to handle when you spend a lot of time picking good stocks and have to axe them, especially when thesis is playing out exactly as you thought it could - there’s simply no reason to turn bearish and yet you sell. Every single one of these sell decisions is a recipe for future regret. However, you don’t have to resort to resulting (our tendency to equate the quality of a decision with quality of its outcome. refer this).

I have thought about these long and hard back in '23 and the way I dealt with it is described in the Dec '23 post - mainly the Time machine bit and the May '23 posts one and two on treating a portfolio like a team - only the best get to play and my bias towards early retirement and retiring on a high explained in the May '23 post. I think if you read these two posts (and the Thinking in Bets book, which did influence me a lot), you can understand my thought process very well. Its a process that has come up over a long period of time and thought.

So coming to Wockhardt - I had made a ~4x here. It was what my initial thesis was, buying it around 4500 Cr market cap that it deserved to trade at 25000 Cr mcap. Even in Dec, my mind was actively trying to move goalposts to 40-50k Cr mcap. I still think Wocky can achieve this as everything has played so far like a dream. I just felt Axiscades was a better bet at 620 - it was a switch decision which made it easy. Post that I sold more in Feb to buy Bluejet. The last tranche I sold to simply raise cash so I could navigate this period of uncertainty (and it has ended up in financials last week). So it has nothing to do with Wockhardt as a business but everything to do with how I construct/destruct my portfolio and reflects more about me as a person than anything. There’s no way to justify these to others - only my unique and peculiar history of voluntary actions and reactions from the environment that base my priors can justify what I do - and that too only to myself.

So going by history, I won’t be surprised by Wocky getting to 50k Cr market cap next year and the people who bought it from me could still make a lot of money. It is not a tragedy and I wish the business well and might even have another look if valuation provides enough of a differential to justify a bet (which happened once with Shilchar in the past). The same applies to all businesses I have held in the past - I remain constructive on them even if its not something I have in the pf, I follow them closely to see if there’s another bet there to be made.

P.S. By writing often, you can prevent delusions of what your thoughts from the past were. I maintain a personal trading journal where I write infrequently (only at extremes of mood) and write a lot here and I notice it has helped cross-reference my self from the past and improve quality of decision-making. I can’t recommend this highly enough

[dark_hunter]

@phreakv6 can we also get your rationale behind genesys, I mean you still have ceinysys, which is already 5 bagger for you, but in genesys it would barely doubled, both of them are in similiar business, yet you choose one over another, can we get a peek in to your decision making on this one??

[Pravin_Kumar]

Bharani Sir, What have you got into in Financials and why? Share your rationale, please.

[phreakv6]

@dark_hunter - I was somehow always jittery about genesys because of the poor cash flow and bad capital allocation decisions. They are by far the most technologically capable, was what I could understand very early on and that was what attracted me and kept me invested. However, the poor CFO which refuses to improve and the constant high depreciation (from wonobo in the past and now possibly from oystermaps as well) means that looking at this from EBITDA perspective is very wrong as there’s a blackhole beneath the EBITDA.

The other thing is how fast everything in the balance sheet depreciates - everything from the mapping data (intangibles), the mapping software they are developing (oystermaps), the cameras for photogrammetry, LiDAR equipment, UAVs etc. all depreciate at ridiculous rate due to technology obsolescence (max 5 yrs). It felt like unless they attain the escape velocity of a product business and generate great cash flows, this will be up and down and remain in same place like a treadmill. Of late there’s a lot of competition from drones as well and bidding is fierce in a lot of the projects they are involved in.

There was one thing I misunderstood as well with the business which is the uniqueness of their SoI partnership and the fact that though they do digital twin data, they get to sweat those assets with pvt players - turns out I was wrong about both these going by inputs from other industry players. So to sum it up, even if PnL reported growth is great, do look for CFO here.

As for Ceinsys - the business has gone from strength to strength from the time I invested in it. My initial play was pure value from AllyGrow acquisition. Then noticed promoters and a FII was putting in a lot of money at higher prices (560 when it was trading at 400). The geospatial sector strength was visible to me much later on. Then the technology services strength became apparent as well (The IoT projects for Jal Jeevan, the River-linking project etc.) - so this company has defied my expectations and understanding, contrary to what was happening in Genesys. The CFO and cash conversion has been stellar here as well and has been continuing to improve every quarter. Even the JJM cash crunch doesn’t seem to have affected them going by inputs from last Q concall. This is the reason why I still hold pretty much all of what I initially bought in Oct '23.

@Pravin_Kumar - I have been buying Ujjivan, Suryoday, CSL and Repco. I dont know much about the sector but it looked like all of them could stand to benefit in a rate cut cycle which will improve their margins and also improve growth. Some of them were trading at a huge discount to book as well (Suryoday and Repco) while CSL and Ujjivan had good metrics. Suryoday could look very different in 2 quarters if CGFMU claims come through - they are sayign NNPA could be 0.1% post that - they did get claims in last year Q1, so if this does happen, there’s no reason it should trade at 0.65x book. All were trading below or median valuations in terms of P/B. So two good and two bad is how I was thinking I have no clue, so these are probably very poor bets. Please don’t ask me why not this or that. I have no idea. This is just what am doing.

[Satya_Yenumula]

Hi Phreak,

Do you still hold Orchid Pharma? It recently corrected a lot, is there any fundamental change in this stock What are your views? Thank you! Satya

[Sushant1]

Hi Phreak,
Hope you are doing well. Not heard from you since long.
What’s your view on Ceinsys, Blue Jet, Axiscades, Neuland and wockhard..
Any other companies/sectors are you are studying?
Please enlighten us with your thoughts.

[phreakv6]

I have been busy doing other things since I am quite happy with my pf - so mostly spending time with family, travel, running and almost full-time exploring music - ear training, playing blues (clapton, bb king style) and learning music theory (It has also increased the depth of my music listening experience!). Reading and reviewing has taken a backseat unfortunately and I hope to get back into the habit.

@satya_yenumula I don’t hold Orchid. I sold few quarters back. I feel it will consolidate for a few quarters or make fresh lows but its probably worth a look in the future when 7-ACA capex nears completion (easily 2 yrs out). The base business margin pressure has to stabilise and some sort of visibility has to be there in enmeta with Allecra going insolvent. Cefiderocol seems to be couple of years away (and doesn’t have a good reputation either, so growth might be limited). So overall I see lot of headwinds from here for another 4-6 quarters.

@sushant1 - I continue to hold Ceinsys, Bluejet and Axiscades and smaller positions in Holmarc and few financials (Ujjivan, AU, CSL, Capital SFB, Suryoday, Repco etc. which honestly don’t excite me one bit so I prefer not to talk about these. They were bought at good valuation but I would switch out of financials if I get some better bets).

Ceinsys continues to consolidate around 1400-1500 levels. It is continuing to build a good base to break out of, which hopefully will happen after Q1/Q2 results. It remains a mystery to me why a valley guy who ran a 1000 Cr+ PnL (Surej KP of Intelliswift) would join here as CEO unless he sees good prospects in the acquisitions. I am hopeful that the next leg of growth would have stronger private business contribution. As of now though its in a phase where most will throw the towel in boredom (it happened last year around 400-500 levels as well).

BlueJet has delivered the numbers but I am certain most people who bought it initially in optimism found various reasons to sell it. It is surprising we spend so much time on discovering and sharing ideas but very little on working on self to allow for holding onto ideas with great risk:reward - especially becoming a slave to the price and swaying with it. If you can’t muster the courage to brave it ignoring the noise, its not possible to make alpha.

Axiscades has been a wonderful surprise, doubling in 6 months since I bought it (mid-late December). It has all the makings of Wockhardt/Ceinsys/Shaily from last year. There are so many things in the works here with the DAC (Devanahalli Atmanirbhar Cluster) capex. I am also hopeful of good offset business from Marine Rafale. The defence production orders from LCA Tejas Mk1a, Su-30 upgrades, Netra AEW&CS, LLTRs, counter-drones should fire full steam in the next 2 yrs as well. If they manage to palm off the heavy engineering, automotive, energy businesses at good valuations, it could really help in funding DAC capex. The long term guidance here is so outlandish that even if they achieve 50% of guidance, we would still make great returns.

I don’t have any holdings in Neuland though I was tempted. I am concerned with what happened to Austedo. I am concerned with the company’s ability to scale in general. I am also concerned that BMS is struggling with Cobenfy (No uptake of Xanomeline after Jan in exports data). We should also see how they manage to scale BA. Current valuations are way too rich due to rich narratives from the past here so we might be overpaying for BA in which they haven’t showed expertise to scale like BlueJet has. It might be interesting around 6-8k levels. It might not get there, but that’s ok.

Wockhardt I feel is slipping on timelines. It was to have launched 5222 in India by mid this year and file NDA with FDA as well by this time. I see those timelines now being moved by a few months for FDA filing and a whole year for India launch. (thus numbers may not come for 5222 before '27 which is 1-1.5 yrs away) I feel it will get approved but valuation upside could perhaps be capped at around ~40-50k Cr at most and execution risk remains high at current valuations. I really hope they get the drug to market quickly though as it is a genuine lifesaver.

Disc: Invested in BlueJet, Ceinsys, Axiscades so could be very positively biased. Sold Wockhardt between Dec-Mar. No positions in Neuland.

[Nikhil_Soni]

What are your thoughts on the constant governance issues of wockhardt? I suggest you read Bottle of Lies by Katherine Eban. I got the sense that once FDA regulators have a target hit, they reinforce it constantly by a barrage of non-approvals. Wockhardt has constantly been on the receiving end of this and has done some dubious stuff frankly to bypass as well. On the other hand regulators have bypassed certain things owing to the emergency of the situation so would love to get your opinion here?

[Cshar]

On what basis Wockhardt valuations will top out at 40-50K Cr. New drugs have a licencing period of 20 years and its recurring. Even Management indicated 14-15 B USD market for portfolio of drugs.

[abhikjha]

I got intrigued by the recent concall of Neuland wherein the management said this:

Later in the same concall, they said it will be a COPD drug.

Now I know all of this is conjecture at this stage, but I asked ChatGPT to guess the drug, unit economics, impact of its contribution on Neuland revenue. Sharing some parts of the thread as VP doesn’t allow to share the entire thread:

If this is indeed the molecule they mentioned, prospects look bright for Neuland. I know that all of this is a guesswork done by an AI but it’s just joining the dots of what we know.

Further the exports data shows that MoM, there is an uptick in their exports. I think as the management said, tide will be turning for them in FY26 onwards.

Disc: Invested

[Amrit_Sharma]

I am unable to understand why $10M/year is so exciting? or am I missing something here? isit not per year but per month?

[VishwaValulePickr]

Your views on disruption of existing moats from the emerging ones?. For example Asian paints facing tough competition.