Can you explain your rationale, time frame, and vision for this company? Till when you think to hold it and where do you see it probably in 3-5 years if you have that long holding thought…thanks
Short Answer: For me, there was nothing to lose
Long Answer: I’ll divide the answer into 3 parts:
1. What I seek in a microcap (MCap ~1000 OR PAT< 50)?
- In microcaps, I look for companies that may not have the best numbers but the direction is right. At times there are other things I look at, but broadly these are broadly the 4 parameters that shape my mind:
a) Business (what does it do and how big can it grow)
b) Management Integrity (how much can I trust the management)
c) Management skill/experience
d) Valuation
e) Everything else
Parameters (a) and (b) are non-negotiable.
Parameter (c) is negotiable because at times there are young entrepreneurs & you can’t really expect to always have a good experience. Sometimes, people learn as the journey goes on. When I was in my early career, I used to work at a very early startup where we would do all kinds of technology projects to survive. It took a few years, to finally start scaling up in something.
Parameter (d) - If I really like the business and as long valuation is not crazy, I’ll pay a bit more.
Parameter (e) - These are very company specific - so I’ll skip generalizing this one. For eg: I recently came across BCC Fuba via VP itself and I didn’t invest in it because of violations on multiple params including (e)
If a company makes it past my checklist, my ideal allocation is between 1% to 2%.
Yet, I have invested beyond that in Max India. I have done this in the past as well and each of the cases had its own reasons.
2. So why did I invest beyond 2.5%?
Due to my average buying price being low, I do not see significant chances of capital erosion (can’t comment on short to medium term). There can be capital stagnancy/illiquidity but that’s a risk I am okay with.
You are right about the significant price rise in the last few months. My initial buying was somewhere between March - Aprill before the market’s surged up. I added some at a later stage and some more after the post-results correction.
Further, after the recent concall, I feel more confident about the probability of not losing much here. But who knows the future !
3. Rationale / Outlook / Holding Period / Other Things
Let me answer all these ones by one.
Rationale: I think this is covered. I’ll write detailed notes on Max India once I get time. I’ll tag you. VP guys have already a good job though.
Outlook: I usually do not try to put targets. I don’t even expect management to give correct guidance (especially on a microcap).
But I can tell you that for < 500 Cr I have bought a business which:
- Is in a sector that is necessary AND should grow with time (multiple triggers)
- Promoter is trying to scale this business AND has a proven track record
- Has a very small base
Having said that, there are some challenges that the promoters will have to find a way through. Care homes / Mental health solutions etc have their own problems and risks. I do not expect numbers to start showing up in the short to mid-term. I would not be surprised if the topline growth is slow/stagnant in the initial years. As long as the direction is right and I continue liking the management, I plan to hold this stock for some time. Let’s give some time to the management and see how they perform.
How long can I hold?
Very difficult to say. For example: If I find something, which offers a much better risk-to-reward ratio, I might just exit/reduce (OR) if in the future, I see some risks or I’m unhappy with the way things have been growing, I might take action.
But, I’ll show tell you something else that should help understand my expectations. Every business that I buy, I categorize if “I can hold this for a decade”.
“CAN Hold” doesn’t mean I WILL hold. Rather, it’s more of a parameter that I use to foresee if the business/sector could continue growing till 2030. Whether I will actually hold or not, depends upon various factors such as management attractiveness, valuation, sector performance, unexpected events, personal biases/interests/needs etc.
I hope I have answered your questions. If there’s anything that is not, do let me know.
I think you are already a seasoned investor but I do not know who might just read my post and end up taking a decision, so I’ll just give the disclaimer.
Disclaimer: These are my opinions and NOT a BUY/SELL recommendation. My views may change anytime and I may take decisions anytime without informing anyone.