Praveen's Portfolio

praveen_potnuru · August 14, 2023, 8:21am

Hello
I’m Praveen, Mechanical Engineer working in an MNC in automobile field. I’ve been investing since 2017/18 with small amounts out of my stipend from M. Tech. I’ve made enough mistakes as beginner including averaging down on stocks like Yes Bank and DHFL which consisted of major portion of my portfolio (no diversification). I slowly started learning about markets via Zerodha Varsity, SOIC, Moneypurse, Scientific Investing (Suru bhai) and Sahil_vi among others.
I’ve decided to start this thread on my portfolio, wherein I could discuss about the allocation, thesis, exit framework etc. I believe this would help me and others learn better from each other at the same time putting things in writing will give more insights into my PF and strategy
Below is my PF as of today 14th Aug 2023 and I’d share my entry thesis and exit plan atleast for my major holdings
Praveen PF.xlsx (10.9 KB)

Instrument	Avg. cost	% invested	LTP	% Curr Val	Net chg. %
FINOPB	227.03	7.0%	350.8	7.4%	54.52
REDTAPE-BE	101.43	2.1%	487	7.0%	380.12
UJJIVAN	263.26	5.1%	521.5	7.0%	98.1
TANLA	1010.93	8.7%	1109.9	6.5%	9.79
KRSNAA	415.5	7.9%	492.95	6.4%	18.64
PITTIENG	271.03	4.9%	505.8	6.3%	86.62
EQUITASBNK	56.41	6.0%	85.95	6.2%	52.37
XPROINDIA	614.53	6.3%	852	6.0%	38.64
KERNEX	249.03	4.8%	414.5	5.5%	66.45
ANGELONE	1308.05	5.4%	1769.75	5.0%	35.3
LAURUSLABS	299.84	5.2%	384.05	4.6%	28.09
MTARTECH	1556.09	4.5%	2218.1	4.4%	42.54
NIITMTS-BE	227.71	3.8%	368	4.2%	61.61
SJS	487.59	3.2%	642.5	2.9%	31.77
DODLA	472.46	2.7%	735.95	2.8%	55.77
FEDERALBNK	124.83	3.8%	132.7	2.7%	6.31
MANAPPURAM	111.08	2.6%	147.9	2.4%	33.15
VENUSPIPES	1155	2.3%	1383.8	1.9%	19.81
IIFL	439.99	1.9%	561.05	1.6%	27.51
SUNTECK	281.4	1.8%	363.55	1.6%	29.19
ULTRAMAR	335.95	1.7%	396.95	1.4%	18.16
MOLDTEK	336.61	2.0%	311	1.3%	-7.61
GLS	518.65	1.3%	650	1.1%	25.33
COSMOFIRST	616.6	1.5%	632	1.1%	2.5
MPHASIS	2188.55	1.4%	2349.9	1.0%	7.37
AJANTPHARM	1444.25	1.2%	1715	1.0%	18.75
AARTIDRUGS	480.23	0.9%	557.85	0.7%	16.16
WIPRO	404	0.1%	412.35	0.1%	2.07

Few Improvements needed for PF:

Reduce the no. of stocks to 15-20
Get rid of tail stocks (too many to track), mostly bought when money is in hand, without a planned entry and exit strategy)

TANLA: Buying thesis was that CPaas businesses are projected to grow at a CAGR north of 20% across the world. Bought it in 2021 at price of ~850 and then it went to 2000+. Bought more while it’s falling, which is proved to be a mistake. Sold some in buyback and bought little quantity at around 700-800 range. The allocation is on the higher side (which I think is a mistake). But upcoming ILD price increase would prove to be good for company in next quarter and Q3 would be bigger being festive season. Plan to trim my allocation if the P/E goes to around 35 or higher or Euphoric market

Krsnaa: Being one of the cheapest and fast growing Diagnostic co. with good growth prospects. Leader when it comes to PPP model. Recent contract wins give some growth visibility, with chance for operating leverage. Plan to exit when the valuations catch up with peers

FinoPB: A payments bank which relies on Fee income. CASA and CMS (Cash management services) businesses are the growth drivers, and that’s where the co is executing well. CASA is annuity in nature and subscription revenue is going to be bigger part with each passing quarter and is more profitable. They can SFB license with 99% probability and they don’t plan to change the business model significantly, but enhancce the existing one. For ex. CASA limit increases to 2 lakh from current 1 lakh. Overall the management has done well among the surviving PBs and delivering on guidance, which instill confidence. May use any Euphoria during listing of Airtel payments bank listing to trim the allocation. Otherwise a longterm play for me

XPRO Inda: Proxy to EMS cos, as the company manufactures BIAX films, which finds applications in Capacitors (EV, BMS, Electronics, etc.). Only player in India with 35% market share with rest being imported. Good visibility for ongoing capex (to triple the capacity), as they are only player in India with good growth for the products. The future revenue is margin accretive in nature. Planning to Hold the co, for upcoming 2.5 - 3.5 years atleast till the capacity gets fully utilized. Management is exploring further capacity expansion

Equitas: An SFB with growth rate of SFB, but asset quality and Loan Book of a Mainstream bank. Good management with excellent track record. Plan partially exit when the P/B reached 2.5-3.5 range

Angel One: A stock broker, that’s grabbing market share fast. (25% in FnO). Execution has been on spot. Upcoming AMC license is a trigger for valuation rerating (optionality). Current valuation is cheap 13x Fy24 earning, for co growing at 15-20 % CAGR, and optionalities. Divident yield of 2.5-3% gives added comfort. May exit when the valuation reached 22-25x or loss in market share lead by recent SEBI restriction on adding new sub-brokers

Laurus Labs: Pharma co. with good management that has faltered at guidance, which coincided with Severe headwinds in the industry and a big base effect (Paxlovid revenue). Co, expected to do well in next 18-24 months with new opportunities in Animal pharma CDMO and Agri CDMO, combined with expected improvement in ARV API and formulations and other API/Formulation. Will exit once the Valuations reaches above histroric means (Peak P/B or P/S acheived in 2021 is too optimistic to reach). May increase the allocation

Ujjivan: Was available at criminal undervaluation when I added, with the merger arbitrage giving added advantage/comfort. Industry is going good. Too high provisioning done will help keep the Credit cost low, which would keep the ROA, ROE higher in near future. Slowly started exiting

Pitti: Purchased at around 270 (which was 12-13 PE). Is a benificiary of Capex cycle (Railways, Hydro power, Industrial) and so a proxy for Infra. Gradual Capex at company, which is coming online would help take advantage of the demand. Approx 30-33 crs of incentives coming from Maharashtra govt gives some stability of cashflows. Current valuations are not cheap, but relatively cheaper when compared to other cos benifiting from Infra theme

Kernex: One of the 3 players working on TCAS. The industry outlook is good with lot of tracks/trains to be installed with TCAS. Co is loss making currently, but I expect the future to be good. Had Margin of Safety at my purchase price. No exit thesis at the moment and need to plan as the future unfolds for the co and industry (in terms of both order book, execution and profitability)

Views Invited

praveen_potnuru · August 15, 2023, 12:56pm

RedTape: Bought as it was going to be demerged from Mirza Int, and the valuation was reasonable. Redtape is growing well with corporate governance in improving trend. Growth is topclass among the peers and recent focus on apparel ensures that the growth doesn’t slowdown. Plan to exit using technicals (on break down from 20/30 WMA) or if and when the industry reaches historical high valuations

MTAR Tech: Only hyper growth co in the PF, with high valuations. The management targets to achievve 3000cr revenue by FY28, which I believe is possible as the management always delivered on revenue growth. Diversification of revenues from Bloom Energy takes out one of the risks.Things to look out for include Working Capital days, Cashflows and execution of future international plants (for Fluence energy). May need fundraise via QIP or rights issue, which won’t be a problem as long as it’s done at higher valuations. No exit framework at the moment and plan to add more on dips or bear market if any in next 1-2 years

NIIT MTS: One of the largest companies operating in CLG business. Short to medium term outlook is bleak, but 3-5 term outlook is good, with management giving more than 25% profit growth target. Personally don’t expecting a div yield of 2-3% or a probable Buyback. However all the cash may be used for Inorganic growth

praveen_potnuru · August 17, 2023, 10:25am

I’m planning to make some changes to the portfolio. Some thoughts

Fluoro chem space is attractive now thanks to short term headwinds. Nibbling into Kama holdings and Gujarat Fluorochem
Even agro chem is going through headwinds. Started building position in Sharda Cropchem. Valuations are reasonable. Recovery of business may take upto 3 years or may happen in next 9 months itself (Agrochem demand in target markers and strengthening of Euro vs USD). Downside is limited as per my assessment

Exits : Exited Federal bank to build above positions. Bought little qty of Manappuram finance as well.

No exit in near term : From my PF Angel One seems to be at very good valuation combined with good prospects. May add in near-term

Other than this, GAEL and Arti Pharma labs seems attractive at the moment.
Just a thought on how the following would play out from now onwards:
*1) Buying Angel and holding for next 1 year (valuation comfort) *
2) Buying manappuram (based on momentum and valuation comfort)

praveen_potnuru · August 20, 2023, 6:17pm

**Few Interesting Opportunites **

Gravita India : the positives include sunrise industry, First mover advantage in recycling, profit growth guidance of 30% cagr for next 4-5 years, PEG of 1
Cigniti tech: targets 1bn USD Revenue by 2028, translating to growth of above 30% Cagr. Last 10 yr growth has been 27% CAGR, PE reasonable at 12x

Disc: No holding as of now

uday_kiran2 · August 21, 2023, 3:01pm

Hi Praveen,
Your portfolio looks great, but on the agrochemical side, I feel that BestAgroLife might be a better option than generic ones like Sharda and UPL. Despite the current headwinds in the Agrochemical industry, BestAgroLife performed well in quarter 1, thanks to their proficiency in developing and patenting unique product blends.

Furthermore, the management has provided guidance of a 30% compound annual growth rate (CAGR) for the next year. The only downside appears to be the high inventory and receivables, which are common issues among agrochemical companies but are more pronounced in the case of BestAgroLife. However, the management has indicated that these issues will be addressed by the second half of this financial year. Also, BestAgroLife has not yet initiated any exports. Currently, all of their revenue is generated domestically. However, the management has stated that they anticipate an increase in exports starting from the second half of the current financial year.

I would appreciate hearing your perspective on BestAgroLife.

praveen_potnuru · August 21, 2023, 4:47pm

Hello Uday. Thanks for your comments. First of all I wanted to buy something in Agro chemical space as it’s going through headwinds. I’ve looked at Best agro life as well, and am aware of the growth targets from the management. I’m my opinion it’s investible and I may buy soon. I’m still building position in Agro chemical and chemical space.

My thesis for sharda Cropchem is that I’m buying close to cycle low ( would buy more if it falls). It has long listing history and my research was easy as some PMS (Stalwarts PMS) have already done research on this and had positions in this Co earlier. For me this gives comfort regd the quality of the Co, as compared to the present valuation. With this being said, even Best Agro has investments from Ashish Kacholia ji.

So, as per me investment in Best agro needed higher due deligence and research which I couldn’t do yet.

Summary : Best agro is one of the best options right now, but gave priority to Sharda Cropchem becoz of its longer listing history

The cos I may buy soon include BEST AGRO and IPL.

Thanks for taking time to read through the post and quizzing on my investment thesis. Appreciate it

Diac: Holding Sharda Cropchem in small quantity. No recommendation

praveen_potnuru · September 1, 2023, 1:56pm

It’s been only few days since my last PF update. But there’s been significant churn in the PF, mostly from selling the holdings in the tail with lower weightage and shifting money to attractive stocks

Instrument	Avg. cost	LTP	Inv %	Curr %	Net chg. In %
PITTIENG	299.2	654.7	6.0	8.7	118.8
KRSNAA	419.3	643.6	8.3	8.5	53.5
ANGELONE	1474.5	1915.3	9.0	7.8	29.9
FINOPB	227.0	355.6	7.1	7.4	56.6
REDTAPE	101.4	460.2	2.1	6.5	353.7
XPROINDIA	614.5	927.1	6.3	6.4	50.9
KERNEX-BE	249.0	431.2	4.8	5.5	73.2
MTARTECH	1556.1	2724.0	4.5	5.2	75.1
CONFIPET	87.7	94.5	6.6	4.7	7.8
NIITMTS	227.7	386.6	3.8	4.3	69.8
EQUITASBNK	56.4	88.8	3.7	3.9	57.4
SJS	524.6	700.1	4.2	3.8	33.5
MANAPPURAM	125.0	151.8	4.7	3.8	21.5
DODLA	522.4	740.0	3.6	3.4	41.7
CIGNITITEC	786.8	803.8	4.9	3.3	2.2
UJJIVAN	280.1	478.7	2.4	2.8	70.9
SANGHVIMOV	626.8	744.3	3.2	2.5	18.7
MOLDTECH	332.0	378.3	2.9	2.2	13.9
VENUSPIPES	1183.6	1536.0	2.5	2.2	29.8
KAMAHOLD	12569.4	14945.3	2.7	2.2	18.9
ULTRAMAR	336.0	443.0	1.8	1.5	31.9
SHARDACROP	419.8	449.7	1.8	1.3	7.1
DEEPAKFERT	600.1	603.8	1.6	1.1	0.6
SBCL	560.8	576.5	1.5	1.0	2.8
WIPRO	404.0	416.0	0.1	0.1	3.0

Major changes and Thesis
1: Added Angel One: Valuation comfort with 16x FY24 P/E. FnO growth for the Aug month is 26% (MoM) for NSE. expect Angel One to perform same. Plan to exit when the P/E crosses 20x. Stock broke out of 52 week high recently.
2: Bough little qty of MTAR: Still doesn’t reflect in above data as I bought just today. Company targets to make 3000cr revenue by 2028. Fluence energy business could scale similar to Bloom business. Revenue growth would be 340 % CAGR for FY23-28 as per me and expect the valuation to sustain. Can make 30% CAGR if thesis plays out. Stock broke out of ATH recently.
3: Bought Confidence Petro: Management growth guidance of 40% for FY24. Stock at ATH. Valuations are reasonable if the co. can scale revenues and improve upon margins. Scale up of LPG fueling stations in Banglore and other similar opportunities that the management is working on forms part of my thesis
4: SJS and Manappuram: Added some quantity as the momentum is good with valuation comfort
5: Bought SBCL: Old GTT order got triggered. I feel that it’s a good opportunity after recent fall. But my allocation is too small for me to care. I prefer to scale it up or sell completely rather than holding a co. with very small allocation.
6: added very small qty of Venus pipes: Just slow and steady uptrend is the reason for me to add this. Future outlook for the co. is good with recent capex coming online (If memory serves correct, the capex can 2-5-3x the revenue at full utilization). But valuation is expensive. May sell if the trend reverses (and shift to cos with better risk reward)
7: Cigniti Tech: Management aims 1bn USD revenue by FY28 via organic and inorganic growth. Cash on books of ~230 cr will fund any Acquistion and adds valuation comfort as it’s 10% of the Co’s market cap. May scale up the allocation in future (either by averaging up or down)
8: Sold IIFL Finance, GLS, CosmoFIrst, MPHASIS, AARTI Drugs, AJANTAPHARM: As I feel that the allocation is small and used the money to add/buy other cos
9: Sold Laurus labs and Federal bank: I found better opportunities elsewhere (all the stocks added and bought freshly)
10: Bought ShardaCropchem: Want to play the possible turnaround in Agrochem business with this co. may add in future.
11: IGPL: It doesn’t show in my PF, as I bought just today. This is a proxy to Pigment space. I see that the historical performance of the co mimics Pigment cos like Ultramarine pigments and Sudarshan Chem.
12: Sold Tanla: Sold Tanla which was previously my biggest investment at purchase price as the stock is seeing severe downtrend (from 1300 to below 1000in last few months) shifted to other cos
12: Bought Deepakfert: It’s play in anticipated uptick in commodity chemical price in China and so globally. The stock is in stage 1 as per me, so the downside is limited.
13: Others: Sold some qty of Ujjivan and bought Pitti, SJS in addition to other stocks. I plan to exit Ujjivan and Equitas gradually and shift to cos with better valuation.

Funding for all the new buys was from selling existing holdings and by adding some fresh funds.

Few thoughts:

From this recent churn in PF I’ve cut some holding in the tail of PF but added some cos, but the tail is thicker with only 5 cos with weightage below 2%
Really went ahead and added Angel one and Manappuram as per my previous post.

Would’ve loved to add more of Kama Holding before. Will look for opportunities to add Fluorochem and Kama Holding (Probably by selling Ujjivan and/or Equitas)

Things I’d like to improve:

Reduce the no. of stock by ranking them based on both Fundamentals and Technicals.
Build the mindset to average up on existing holdings.

Please feel free to quiz me or share opinion on my post or PF. Hope to improve and at the same time add value to the community.

Disc: There are lot of transaction in the PF recently. I may have added/reduced/bought/sold other stocks that I didn’t mention here. No recommendation to buy or sell

Thanks for your patience in going through this long post.

praveen_potnuru · September 15, 2023, 1:02pm

Roughly two weeks have passes since my last update. Have made following changes to my PF

Sold: Fino Payments Bank, Ujjivan Financial Services, SJS enterprises

Bought: MCX, PDSL

This is how my PF looks at the moment

Instrument	Avg. cost	LTP	Current %	Net chg.
KRSNAA	419	652.7	8.1%	55.66
PITTIENG	299	616	7.6%	105.88
ANGELONE	1474	1893.55	7.2%	28.42
REDTAPE	149	446.85	6.9%	199.06
XPROINDIA	635	993.55	6.8%	56.39
KERNEX-BE	274	466.7	6.3%	70.3
MTARTECH	1785	2602.45	5.8%	45.79
CIGNITITEC	802	810.15	4.8%	1
KAMAHOLD	14305	15601.65	4.6%	9.07
NIITMTS	228	434	4.5%	90.6
MANAPPURAM	131	141.7	4.4%	7.85
CONFIPET	88	89.9	4.2%	2.49
PDSL	372	448.65	3.7%	20.48
EQUITASBNK	64	85.65	3.5%	33.24
DODLA	536	698.9	3.3%	30.38
MOLDTEK	353	340.45	2.8%	-3.42
MCX	1819	1780.05	2.7%	-2.15
IGPL	507	533.6	2.6%	5.32
SANGHVIMOV	627	706.4	2.3%	12.7
VENUSPIPES	1184	1538.5	2.0%	29.98
ULTRAMAR	364	407.75	1.9%	12.05
SHBCLQ	572	547	1.9%	-4.3
SHARDACROP	420	440.25	1.2%	4.88
DEEPAKFERT	600	637.3	1.0%	6.2
WIPRO	404	441.1	0.1%	9.18

In addition to above changes, I’ve some qty in existing PF including but not limited to PDSL, Kernex, REDTAPE, XPRO INDIA, Moldtek Tech, Shivalik Bimetal Control, Manappuram, Kamaholding, Ultramarine Pigments

Sold FIno, Ujjivan and SJS as I see better opportunities in the PF and newly added stocks
Bouhgt PDSL: PDSL is one of it’s kind business model. It’s kind of a platform that connects Garment Brands and Retailers to Manufacturers. The collects some percentage of the mecrchandise value as commision which acts as Revenue of the co (Gross margin in the financial statements). The Co. is winning new businesses and scaling up the existing ones. Read post on VP here
Co targets to 18-20k cr sales by FY27 and 5-5.5% Net profit margin. Co, is clocking ROCE of ~40% which will only improve going forward with developed market economy comes out of inflationary pressures. So, expect the co. to maintain same or higher ROCE. Market could be 20-35k cr by FY27 (may be FY28-29, if delay in executions) and offers very good return

MCX: Currently earnings are depressed as the co. is paying abnormally high software charges to 63Moons. With own software expected to deployed soon, the profits of the co may earn ~350cr net profit in FY25. I assign a 35x PE multiple to the co, as it’s growing at more than 25% in FY23-FY25 and a platform business that generates good cash. Expect ~20% cagr returns by FY25 end

Few more things I plan to do:
As I don’t have any Large cap in the PF and Valuations in the small and mid cap are in frothy territory, Plan to allocate some of the PF to HDFC bank, as it’ll give 17-20% kind of returns (even without valuation rerating to historical means) and provides stability to the PF if small/mid caps correct. However I need to sell some of the existing cos in the PF to do this

Other co.s that I’m considering that would limit the downside are Gujarat Fluorochem, Kama Holding

I’m considering HDFC bank as it’s a co that has shown consistent growth and the chances of valuation derating are limited. I’m open to members of VP suggeting other cos that would add cushion to the PF in turbulence
Thanks for reading this post
Views and Opinions welcome

praveen_potnuru · September 16, 2023, 12:04pm

The reason for me to write about my PF is to note what all changes I’m making in my PF and how my thesis plays out. It would be good for me to go through this topic every few months.
In addition to this, I believe this would improve by objective thinking. For example, after summaizing my PF with current weightage of each co in my PF, I got following insights

The allocation to PDS ltd is very low, whereas in my mind this is one of the highest conviction bet. So, I’ll improve allocation to 6-8% depending on the opportunity the market provides
I believe Kama holding and Fluorochem has relatively lower downside compared to other cos in my PF. So, I need to shift some allocation to Kama holding and fresh buy in Fluorochem. I must try to make these cos around 10% of my PF ateast
I believe even CIgniti Tech also has smaller downside risk, as the co trades at lower double digits PE and has cash = approx 10% of marketcap. I may increase allocation by 1% to around 6%

praveen_potnuru · September 16, 2023, 1:07pm

As I think of limiting the downside I believe a portofolio of following cos that I’m tracking would offer limited downside as per my estimates
PF for limited downside risk: HDFC Bank, Sharda Cropchem, Ultramarine pigments, Deepak Fertilizer, PDS ltd, SRF/Kama Holding, Gujarat Fluorochem, Goldiam International, Cigniti, SIS

In addition to this I expect reasonable upside also in these cos if market performs well

praveen_potnuru · September 17, 2023, 5:36am

Around 6 months ago I’ve shared with fellow members of VP regd the existing opportunities at that time (better opportunities than Rupa) link here . Because of my efforts and luck I turned out to be right on all the cos I’ve mentioned. I’d try and do the same for cos in my PF, i.e. Weighing available opportunities. It’s a process

praveen_potnuru · October 4, 2023, 6:02pm

I’ve made a few changes to the PF from my last update:
Current PF stands as below

Company	CMP	Weight
KRSNAA	685	8.3%
XPROINDIA	1060	7.1%
ANGELONE	1863	7.0%
REDTAPE	449	6.8%
KAMAHOLD	15000	6.4%
PDSL	451	6.1%
KERNEX	444	6.0%
MTARTECH	2600	5.7%
CIGNITITEC	819	4.8%
ULTRAMAR 506685	404	4.7%
MANAPPURAM	142	4.3%
Goodluck	644	4.3%
NIITMTS	414	4.2%
NSE:MCX	1930	4.2%
CONFIPET	85	3.9%
PITTIENG	595	3.6%
DODLA	700	3.2%
MOLDTECH	340	2.7%
IGPL	525	2.5%
SBCL	517	1.7%
DEEPAKFERT	641	1.3%
SHARDACROP	428	1.1%
WIPRO	405	0.1%

Key changes:

Shifted some part of allocation from Pitti Engineering to Goodluck India, as I feel that the latter is well positioned valuation wise (standing on the fence btwn Pitti and Goodluck)
Exited Sanghvi Movers and Venus pipes as I expect these (atleast Venus pipes ) to fall sharply in down market due to relative illiquidity
Exited Equitas SFB (No more banks in my PF)
Increased allocation to MCX. Thesis here
Added some qty in other PF stocks

Outlook on PF stocks:
PDS Ltd, Krsnaa, XPRO, MTAR tech are my top picks for medium term
With that being said I feel the downside is limited Chemican and IT stocks like Ultramarine Pigments, Kama Holding, Deepak Fert, Sharda Cropchem, Cigniti and FMCG co Dodla Dairy

Disc: Views are biased and with limited understanding. No recommendation by any means

praveen_potnuru · October 12, 2023, 5:16pm

On further thinking, selling Fino Payments bank was not a good idea. I’d like to correct this mistake by building postion again and considering it’s ~12% below my selling price (more than a month ago) gives psychological comfort.

I believe the co can make 200-220 cr profit in FY26 and so trades at around 12.5x P/E. I believe the co could trade at 25x P/E as I estimate the profit to be growing at 20+ CAGR even in Fy26 and after. More over I see limited downside in the stock from here and if it falls I’ll be a buyer at lower levels. Chart below

One more co. that I recently started watching is Paras Defense. The management targets to grow 35-40% in FY24 and I expect the co to clock 20+ cagr in revenues atleast till FY26. The chart is quite interesting also, which makes me mention here (see how the price is consolidating for last few days and the volume is significantly lower in the fall)

Even though I feel the Chart is good, I’m not planning to buy as I feel that the valuation is bit expensive. But I may buy it with tight stoploss for a quick gain (or loss)

disc: No reco by any means

praveen_potnuru · October 13, 2023, 4:34pm

Earning and Concall for Q2 FY24 for my PF and Watchlist Cos.

Earning Season kicks off with Angel One for me. Few take aways from the earnings and concall
Angel One

My thesis was that the co would have 1240 cr profit in Fy25. After Q2 the TTM profit is 1020 cr and if we annualize the Q2 then the profit would be 1200 cr already. So, I expect the co to surpass my estiamte of 1240 cr in FY25
AMC licence may come in Q4 FY24 or Q1 FY25 by latest
Looking at Wealth management as well and targeting customers with 50lakh - 1 cr PF. More details in next Quarter
Lending business should start in this Fy (Off balance sheet)
Sensex FnO didn’t contribute much in this Q. Needs to see the full impact in next Q
Probably the weekly expiry on everyday is gonna see full impact in next Q, so expect the quarterly Revenue and Profit runrate to sustain
One interest thing point to ponder upon: The LTV of a customer would be high compared to CAC (Customer Acquisition Cost) as most of the customers are coming in at 25-26 Years of age

Dodla Dairy:

Price hikes happened in Karnataka. lead to loss of some volumes
Inventory increased as it’s flush season and the co plans to sell some milk powder in future
15 land in MH: already collecting milk from MH (around Solapur). planning to increase the volume here. expect 2 year for commercializaion i.e. by Q2-Q3 FY26
in Q3 margins may improve a few bips from here or at least stay same (double visit) and Q4 at 9% +
Cattle feed plant (6x): commissioned in sept end.
Kenya plant and Orgafeed plant: Ebidta level would be +ve from starting.
Will continue the double digit revenue growth
Cattlefeed: will take time to get to optimum usage, as the capex is 5x the existing capacity to take it to 6x. May achieve 40% utliization in 2 years. Conservative. It could be much higher
MH: currently just procurement. but looking at selling products in MH with Dodla Brand in 2-3 years. Looking at 5 lakh lpd capacity
Growth for next 5 years to be same as historical. Keep or improve the ROCE. Currently ROCE is lower as there is some cash on Balance Sheet

Personally I expect the co. to make 155-160 cr profit in this FY24. So, I plan to sell if the co reached market cap of ~4800 cr, which implied just 15-20% from CMP.

I shall keep updating this post as and when I review my PF and Watchlist Cos. And I shall share only few bullet points for sake of simplicity as I don’t prefer going too deep analysis or analysis paralysis

Sharda Cropchem:

Volumes up ~20%, realization down ~40% and foregin excahnges has 5% +ve imapct on revenue. Reveneu for Q fell ~20%
Some customers negotiated to lower price after delivering the product and some even returned the product. The company complied to the demand/request to keep the relationship with customer and legal action is not worth it
Many players including chinese had to sell products at loss to get rid of inventory (although unwillingly as there’s no other option)
Recovery may be seen only in FY25
There may be loss of market share/ going out of business for smaller cos leading to consoidation among the big players
Co doesn’t manufacture any product, so they can sell what product to sell.
Many of the new molecules the co is entering, just came off patent and there is limited competition with patent holder having 75% market share

What am I doing: the price action indicated that the bad result is already factored in. My position size is small (~1%) and the co is valued at 1x Price to sales. Volume growth is encouraging and the co can make good profit once the realization improves.

Fino Payments Bank:

CASA revenue up 38% and lead by renewal income up by 99% YOY
Karnataka, Tamilandau customers are up by 120% Yoy (focus on south)
Deposits up 53% Yoy
CMS revenue up 38%. Throughput up 40% Yoy. NBFC and MFI share down to 65 vs 92% in Q2 FY22 (diversification of partners)
PAT growth to be 2-2.5x of revenue growth (ambition and already delivering)
Digital revenues which is 5% of revenue (payment services and UPI) is giving 48-50% margins.
SFB: file to regulator in one month (by Nov or Dec 2023)
UPI Strategy: UPI thoughput is 1.25% of the whole UPI throughput in the country. UPI active customer tend to has higher balance, so more CASA business. Looking at B2B business from UPI (UPI services to B2B partners with some charge )
CAPEX of 50cr in H1 FY24: On account of technology and digital. Building the UPI stack and increasing the capacity. UPI switch is now in house. Depreciation will come to PnL afte 18-20 months once the product is ready. The capex will go on for next 4-5 quarters
The CASA, CMS and digital B2B business have 40-55% margins. As the share from these businesses improves, the margins improve. Operating leverage is one of the USP of Fino PB

KTA (I care about):
20% margins growth and NPM growth leading to profit growth of 2.25x revenue growth i.e. 50% Profit growth.
If they achieve these targets and grow PBT at 40-45%, the co is fairly valued at 30x P/E of TTM earnings (need to remember that the tax rate is currently zero which may go to 25-26% in few years, don’t know exactly when). I’ve been a buyer for past few days and will continue to build position here.

PDS Ltd:

Global economy is in turbulent waters, inflation and geo political uncertainity. But US has seen signs of revival in consumer spending
UK: Inflation struggles. But the situation is easing
EU: Wase growth is catching up with inflation and may revive the consumption
To see recovery in H2 of FY24
Retailers are letting of some part of value chain and employing to cos like PDS for Brand management and sourcing.
13% growth in GMV. Volumes are down. Growth came from Sourching as a service and the contracts are longer term in nature.
Targetting to get brand rights from either via global license or develop the brands in house
Top line is impacted by tepid demand. Gross margin at 20.4% (394 bps yoy), as a reason of high margin services. EBIDTA margin of 4.5% (80bps yoy). Operating with high interest costs.
Average maintainable PBT margin for top 10 verticals should be 5% (mostly Design lead sourcing). Sourcing as a service business was started just 18 months ago and still not in top 10
Target for Ted baker to add 70cr PBT for FY25 ( But tax rate is high in UK). Investment is just 160 cr.
PAT margin drivers to reach 5%: The lines sourcing service (8-10% contribution to revenue), Brand maangement (8-10% of revenue), manufacturing (5-6% revenue) in next 5 years. Progressing in the PAT margin direction lead by Sourcaing as service and Brand management (which are of high margin in nature).
SAAS. We have orders worth 7000 cr worth of annual GMV and 350 cr topline
Aiming at low single digit growth in FY24 over FY23. But the Gross margins should improve as share of SAAS and Brand management increases
QIP of 600cr: Institutionalisation of the shareholding. Lot of growth opporunities in Complete sourcing solutions, handing exclusinve geography, Brand management, need for near shoring (manufacturing in India, Egypt). Seeing inquiries from Indian retailers as well
Tax rate to be close to 15% from FY25 onwards

Major KTAs for me would be the target of 1000cr PAT by FY27 (set in FY22). Look forward to easing of inflation in US, Europe and UK and margin expansion will new verticals addition (sourcing as a service and Brand management)

Disc: No recommendation to buy or sell. I may have missed or wrongly mentioned some changes.

Goodluck India Ltd:

Revenue up 20% , Ebidta up 44% and PAT up 55% for H1 FY24 over H1 FY23. Compant whethered inflation, etc.
QOQ: Revenue up 14%, PAT up 20%.
Interest cost went up with increased level of activity and employee expenses also went up because of increments
96cr fund raise: For growth.
Started the delivery for Ahmedabad-mumbai bullet train project.
Railways and Renewables to drive growth.
Transitioned towards solar energy. Aim to grow business by brand building activity. Increase share of value added products. Increase value addition in current commodity products (GI pipes, etc.)
Continue to invest in equipmen to enhance productivity, shuffle product mix.
Low margin business is transitioining towards high margin business (GI business into Solar structures). EBIDTA to reach 9.5% in 2-3 years (conservative ?) as a result of value added product share increases. Taking new opportunities with higher margins
longterm debt aims to be at zero. Revenue for FY24 3500, FY25 4000, FY26 4500+ cr (seems conservative to me)
Solar business will scare up from 50 cr to 500cr in next 3 years. In defense, currectly doing prototypes and will make more products in next 2 years.
New plant to be commisioned in Q1 FY25. Current Cpaacity 412000 in whole 5 businesses. Forging to go from 30k tons to 50k tons in next 2 years (after commsioning of aerospace and defense).
Gatishakti plan (Infrastructure projects). Going for quite difficult to do products like Bullet trains, Vande Bharat etc.
Co has survived for 3 decades while others went out of business. Last 3years has 20% growth and aspire to continue the same going forward. Business evnironment has been good
Debottle necking is an ongoing process. Capex 66cr in Auto tubes. 14cr in bottlenecking. Some of the raised fund (pref shares warrants) goes towards debt reduction
Forgins margins are lower vs peers like RK, MM etc. Volumes are less and the incremental businesses in this segment would be better.
Significatn contribution from defense and aerospace to be happen in next 4 years
Infra, Solar, Auto tubes, Forging to drive the company growth in future
Export revenues 1000 cr in last 2 years. will achieve the same is FY24, despite the slowdown in global demand
Defense and aerospace: Till now only made prototypes. Indian govt make in India helped us getting many enquiries and orders. This will give 300-400 cr revenue in next 4 years
My KTAs:
Conservatively management is guiding for 4500 cr in FY26. I believe they can do 20% revenue growth
Business environment in India is good with Make In India push and upcoming sectors like Solar, Defense and aerospace to do well.
Margin improvement to 9.5% in 2-3 years will drive profitabilty (coming from higher contribution in defense and aerospace, Auto tubes)

Deepak Fert:

Took a hit of ~100 cr in this quarter on Feritilizer inventory (with distributors). ~87 cr impact from new ammonia plant (during stabilization and start phase) which should normalze. Plant is now stabilized and reached the design capacity. Ammonia prices also climbed upto global longterm average prices. TAN business was impacted by Russian dumping of Fertilizer grade ammonium nitrite
IPA, special grade Nitiric acid should create create some stability going forward. The strategy of commodity > Speciality journey, over next few quarters should play out
Ammonium plant should derisk the downstream from global risks (geo political, raw material price fluctuation)
Manufactured TAN business has 516cr revenue in Q2. Margins are impacted by dumping
Gross debt at 4000 cr with Debt/Equity of 0.76x
Ammonia prices in the range 550 USD. Spread are 75-100 USD. Ammonia plant is runnning at 100% capacity utilization
TAN volume is increasing, but the margins are impacted with Russian dumping. TAN prices are supposed to move inline with Ammonia prices, but this time there seems to be a lag
Export ban for Ammonium Nitrite got lifted. TAN business is undergrowing license transfer from current co to co after restructuring. Once this is done, they’ll start TAN export
Fert subsidy impacted last 2 quarters. But no impact from next quarter onwards.
Excluding one offs, the EBIDTA would have been around 470 cr.
New spec chem for Solar and Semi conductor: Solar spec chem (solar grade IPA) the production started in Oct. As per managment, there’s no
competition in India
TAN capacity to be 5,37,000 tons by Mar-2024. Export volume is limited at 20,000 ton
3 Years View: Moving from commodity to services business in predominantly 2 businesses i.e. Mining chemicals ( Try to improve the total cost of ownership of the customer. Drillling, Blasting, excavation, transport, crushing are the 5 stages. People and capability are working on developing all these 5 factors. This has just started 18 months. Targeting every single mine (entire mining industry and infra business) in India and investing heavily in this business)
Solar Ind vs Deepak Fert: Solar supplies the explosives. But Deepak Fert is putting in terms of products, people, service, technology, solutions and in addition to this Deeapk Fert agrees to achieve some KPIs and expect them to share a part of the benefits with Deepak Fert.
Restructuring rationale: Each business needs specific strategy.

KTA: Next quarter onwards the EBIDTA may move towards 400-450 cr. In 2-3 years seperate listing (if happens) will add value to the shareholders. I look forward to how the Mining solutions business performs.

Disc: This is my learning and tracking purpose and I tend to leave out points that I don’t understand well or find not very useful. No recommendation. May have position in most of the stocks discussed

praveen_potnuru · October 28, 2023, 8:00am

Portfolio Update:
From my last udpate 24 days ago, I’ve made small changes to my PF and this is how my PF looks currently

Company	Weight
PDSL	8.43%
REDTAPE	7.18%
KRSNAA	7.08%
XPROINDIA	6.50%
KERNEX	6.40%
NIITMTS	5.82%
ANGELONE	5.62%
Vishnu	5.61%
KAMAHOLD	5.32%
MTARTECH	4.92%
CIGNITITEC	4.70%
NSE:MCX	4.04%
FINOPB	3.91%
Goodluck	3.66%
CONFIPET	3.64%
MANAPPURAM	3.42%
DODLA	2.67%
MOLDTECH	2.59%
ULTRAMAR 506685	2.47%
IGPL	1.91%
DEEPAKFERT	1.71%
SBCL	1.45%
SHARDACROP	0.89%
WIPRO	0.06%

Sell: Pitti engineering as the stock seems little expensive and relatively expensive when compared to goodluck india (I consider both of them to be equals and prefer whicheve is cheaper)
Buy:

Bought Fino Payments bank and scaled up the position to satisfactory levels. Mentioned the thesis here in earlier post

Bought Vishnu Chemicals as the it’s one of the very few chemical companies that are able to maintain margins, when most of the industry is seeing margin pressure. The valuation is attractive at mid teen P/E. Moreover the management targets to double revenues by FY26 (from FY23). I expect this profit growth combined with valuation rerating to offer good return in medium term

Minor changes: Other than this there are minor changes including partial exits in Angel One and Goodluck India and bought additional qty in PDSL, NIIT MTS, Kama Holding, Xpro India, Moldtek Technology.

Additional thoughts:

Valuation wise Chem/Speciality chem seems attractive. The recovery for the industry is awaited. SRF Q2Fy24 earning press release highlighted the visibility of recovery and need to check the commentary from peers in the industry
Agrochem is also attractive and many cos reporting loss at PAT level. Need to see when the industry recovers. May not be in Fy24 and probably in FY25
Sensex/smallcap index ratio is close to historical lows. Possible reasons include the small/mid cap rally in recent years and negligible returns for sensex over last 2 years (because under performance is big weights like HDFCBANK, Reliance, ICICIBANK etc)
SRF is entering Capacitor film business and may be a competition to XPRO India. Need to listen to the concall to confirm their capability (what kind of thickness they can produce ) and the target markets/customers
Angel one delivered solid numbers (probably becoz of market rally in past few months and other structural reasons). So, I changed my FY25 PAT estiamte from 1300 to 1500 and confident that the co will achieve. Moreover recent comments from the concall saying broking would be 50% of the business (?) is next 3 years. So, with this revenue mix change the co may be rerated to 25x P/E from current median P/E of 18 PE (PE band being 12-25x in last 2-3 years)

sreeram_market · October 30, 2023, 10:38am

Thanks for your thoughts on your portfolio.

Do you feel that XPRO India is expensive at current valuations of 50PE around

praveen_potnuru · October 30, 2023, 1:13pm

The capacity of a capacitor film will go 3x in next 4 years (may be 5 years). And the new line are of more value addition so the revenue may be more than 3x from here and the profits to be 4x current profits as per my rough estimate. So, I think it offers good 30%+ returns over next 4-5 years
My thesis is 200cr profit in FY 28 with P/E of 35, which would give me 34% cagr. Even Fy28 P/E of 25 gives 24% cagr returns

Disc: Invested and added in last 30 days

praveen_potnuru · November 17, 2023, 6:48pm

Concall notes and Result summary:
Vishnu Chemicals Ltd

In the process of Chromium mines and processing plant. The acquistion of Chromium benefacation plant is to secure the consistent supplies and not for cost saving.
Starting up of Barium sulphate plant costed ~5crs. Demand outlook is strong. Currently in the approvals process with Big players. Supplies to start from Jan 2024
Done QIP for working capital and debt reduction
QOQ: Chromium volume is there, but chrome ore price went up, so GM reduction. Realization of chrome product also dipped
Expect the utilization to move from 70% in Q2 FY24 to 90% by Q4 FY24
Chrome ore prices went up 25% in last 3 quarters
Barium chemicals: Received approvals from big paint manfrs. Utilizaiton to go from 40% in Q2 to 60% in Q4.
Depreciation and Finance cost impacted the bottomline
Domestic demand is stable but Exports are seeing headwinds (still doing good in volumes as co is leader in domestic market).
Barium Carbonate: Mainly related to Infra/construction industry. Dumping from China is impacting the demand (since china real estate market is facing headwinds). The main application is in tiles, water purification, bricks etc. Domestic demand is good
Largest Chromium plant in Eu being shutdown. They used to supply very speciality grade product. Co, is developing that product and in the R&D and Approval process. Expecting to supply from Q4 Fy24/ Q1 FY25
H2 should be (much) better than H1.
International markets contribute ~50% revenue. But international market has demand headwinds. But the co is planning to manage by focusing on barium suplhate, barium carbonate and other derivative
Next CY, Next FY: Commisioning and ramp up of utilization in subsidaries. Reducing cost of power through solar, Backward integration of Soda ash plant ramp up in utilization. These factors will improve the profitability in next year. Macro factors if become better, would lead to even better growth
Scope for margin expansion: Above mentioined points. Flexible product mix is the main factor that the management wants to realize. Chrome ore acquistion would help.
Domestic : Export ratio is ~54: 46

Note: Missed lot of details in the summary. Advise to read concall transcript or listen to concall recording

praveen_potnuru · December 14, 2023, 1:49pm

It’s been more 1 and half months since I’ve shared my PF update. Let me share the updated PF here

Company	Weightage
KRSNAA	7.5%
PDSL	7.3%
XPROINDIA	7.2%
MAYURUNIQ	7.1%
KERNEX	6.9%
FINOPB	6.0%
MTARTECH	5.8%
CIGNITITEC	5.7%
CONFIPET	5.1%
MOLDTECH	5.1%
REDTAPE	4.9%
KAMAHOLD	4.3%
Shreepushk	4.0%
Vishnu	3.9%
NSE:MCX	3.8%
SAIL	2.8%
ANGELONE	2.7%
DEEPAKFERT	2.4%
ULTRAMAR 506685	2.1%
DCMSRIND	1.8%
LAURUSLABS	1.6%
SBCL	1.4%
AMBIKCO	0.5%
WIPRO	0.1%

Most of the portofolio is intact. There are some new entries and also exits. Weightage reduction and increase

New Buys: Mayur Uniquoters with SIgnificatn weightage, Shree Pushkar Chem, SAIL, DCM Sriram, Laurus Labs, Ambika Cotton

Complete Exits: Goodluck India, DODLA, IGPL,

Rationale:

Mayur Uniquoters: This co didn’t give any returns after 2014. Now I expect things to turn around with Export to Auto OEM to ramp up. They have orders in place for this high margin business. WIth this I expect the PAT to compound at >20% CAGR for next 3 years and ROCE to improve leading to slight rerating. Dividend yield/buyback yield of 1-2% is extra
Shree Pushkar Chemicals: Co is sitting on big capacity and can make upto 1400 cr revenue with this capacity against current revenu of 700 cr. If the cycle turns around the profit could be ~140 cr. Current market cap is ~700 cr. So, expect the stock to double in next 3 years (If I can patiently hold it)
SAIL: Expect the steel cycle to pickup and the co. to rerate to 0.9x P/S from current 0.4x currently. 2x returns in 3 years time (In <2 years is possibliility)
DCM Sriram: Co is going through demerger. Expect 2x from current price as the Chemical and Industrial Fabric business rerates
Laurus Labs: Wrote a post here . I expect the Sales and margins to improve as the base is favorable and I respect that Dr. Chava has built 20000cr market cap business in 18 years

May add SAIL, DCM sriram to with Priority. GTT order set for Ambika Cotton (but no funds ) (Ambika Cotton is a Cyclical play ). Laurus is not too attractive valuation wise but Pharma sector is in uptrend, so may or may not add

Sold Goodluck and Dodla as I thought valuations are not attractive anymore. I See Goodluck India to be a business that can make 600 cr profit by Fy2030 and market cap of 15k cr (currently 2.5k). Although my estimates are optimistic, I don’t think my estimates are too aggressive
Sold IGPL as I don’t have patience to hold this stock at the bottom of cycle. Although the reasonable thing to do is to hold for the cycle to turn and make 2x-3x money in 3 years, I don’t have the discipline to do this. I get swayed away by other available opportunities and sure Need to work on this.

If anyone is interested I can explain the thesis of any of my investments in a few lines. Feel free to quiz me

Thanks for reading the post
Praveen

Disc: No reco to buy or sell. I myself am a learner

sreeram_market · December 15, 2023, 3:42pm

Thanks for sharing your portfolio.
I would like to know on what basis the position sizing for each stock happened.

Are you giving high weightage to the scrips which are high chances of possibility?

I also observed that you don’t have any exposure to IT or ER&D companies. You mostly exposed to auto ancillaries and chemical companies. Any reason behind that?