Ranvir's Portfolio

Q&A: Questions & Answers Portfolio Q&A
141

Hi…@homemaker

Oh yes…ur observation is right…i m in general…pro fmcg.

Reason - Reletively easy to understand, high ROE, ROCE, low debt levels, Good corporate governance ( in most cases ), min capex requirements, ample Free Cash Flows, descent dividend yeilds, descent pricing power, min regulations and govt interference and low/nil sensitivity to technology. ( what else do you need…he he )

I think Britannia and Pidilite are great companies. ( fire and forget types…unless something goes horribly wrong )

GCPL was a good buy about 10-15 days back. At present, valuations are on the higher side. But the company is great…no doubt. Also go through their new product launches ( on their website )…they are great…to say the least.

Incidentally…today I bought Zydus Wellness…and also started a thread on it…yesterday. Maybe you can read it.

I am closely tracking VIP industries…if it falls, I ll buy it.

Jyothy Labs has some valuation comfort. ( by FMCG standards…that is )

What was your buy price valuation and expected acquisition price valuation of GSK consumer???

Disc: invested in GCPL, Britannia, Jyothy Labs, Zydus Wellness

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142

I didnot exactly understand your question. I bought Gsk @7300. Three main reasons to buy

  1. MNC so we can assume good governance
  2. Recent quarter performance is very good.
  3. PE of 37, while rest Fmcg are near 50

I am not sure of impact of sale out of horlicks brand. It can be a 4bn cash gain but then will lose an iconic brand. So not sure of long term. You may share your views.

Nonetheless, thanks for your suggestions. Will look at GCPL & VIP

143

Hi…@homemaker

I think u need to be a little cautious wrt GSK. Suppose they receive $4 billion for Horlicks and Boost, they would get say 28000 cr or so…but that is equal to its current market cap. So, its fully priced in.

Minus Horlicks and Boost ( boost is also up for sale. Right ??? ) …nothing much would be left is gsk consumer’s India business.

But…the q2 results look encouraging. So that may change the equation.

But the basic question still remains. Not much would be left post the Horlicks and Boost sale…that too is reasonably priced in.

But these are only opinions. I haven’t gone in depth…But may be you can think in this direction.

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144

Just sharing a few auto sector related news articles…

Disc- invested in Maruti Suzuki, Hero Moto, Bajaj Auto and TVS Srichakra

145

By the looks of it…looks like its gonna go great guns.

Maruti has also priced it more than perfectly ( in my opinion )…a clean 25% below Marazzo and 70-80 percent below Innova ( although it wont be correct to compare it with Innova…but , just for reference sake ) …for all comparable models

Looks like Maruti Suzuki has a big winner on its hands.

Not surprisingly, it has got 10,000 bookings in 7 days.

Disc: Invested in Maruti Suzuki

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146

Just posting model wise two wheeler sales in India for the month ending Oct 18.

http://www.autopunditz.com/category/news/bikes/

It contains some really precious sets of data…for any auto/ two wheeler analyst.

147

Had some money. So I bought …Jyothy Labs and Eicher Motors today.

Eicher after a steep correction, and more importantly after the launch of Continental GT and Interceptor…looks good to me.

Dealers are reporting an overwhelming response wrt advance bookings. So…that nudged me into buying Eicher…I must say. Personally also, both these bikes bikes look super good to me .

Their price point is disruptive for a 650 CC bike. Plus the test drive reviews done by various auto analysts are extremely positive.

So…took the plunge.

Jyothy Labs…

Due crude price correction. ( its derivatives being major RMs for Detergents )
AND
Relatively not so expensive valuation wrt the FMCG pack.

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148

I really like how your first portfolio when you started this thread and current one has evolved. Current one is a very solid consumer facing portfolio. Most of it resonates with my thinking. I really like that now you hold the three most solid financial companies. Any specific reason for complete exit from NBFC other than valuations? In Autos, you mention these are trading bets for 1-3 years…can you pls elaborate on that that why you think these should be traded till next 1-3 years and Maruti is an exception. Thanks

149

Hi…@investor_no_1

Trying to compile a point wise reply -

Exit from Bajaj Finance was primarily due to valuation and the fact that I had made descent money there. ( So…the emotional bias. I was holding it since 2013 ). There was no other reason. It is a great business with top quality management. ( in my opinion )

Auto’s is a tricky one. Lets discuss 4 wheeler - Passenger Vehicles first.
India’s avg monthly PV sales - 3 lakh cars ( aprox )…in which Maruti has 47-51 pc market share ( fluctuating )

China’s avg PV sales- 20 lakh cars. ( more than 6 times India sales ). This is truly whopping.

Avg Indian car costs 4.5 lakh. ( say a Wagon R - Top model or so ). An avg Chinese car is Corolla Altis ( say 18 lakh or so ). This implies…conservatively, an avg Chinese car is at least 3 times the value of Indian car.

If, India is to become a middle Income country in next say 15 years ( present per capita income @ 1700 dollars or so ), the per capita income would rise to something around 4500-4700 dollars…which is China’s per capita today.

That means that India has the potential ( potential …mind you ) to sell 20 lakh cars per month ( > 6 times today’s sales ). And if an avg car becomes thrice as expensive as today, then the PV industry sales can grow by 6*3= 18 times in 15 years. All this is doable.

Even if we take a conservative estimate, and divide this 18 times by 2 = 9 times, we would be sitting on descent gains.

So, that’s the logic.

I will try and post about 2 wheeler’s sometime tomorrow. ( have some urgent work today ). Hope this is useful.

Regards,
Ranvir Dehal

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150

Excellent analysis, can you pls let me know your thoughts on 2 wheelers as well? I had stayed away from Auto sector on seing details of companies like Ford, GM etc. Excellent brand owning companies can become bankrupt in this sector was scary that what if I chose the wrong company and held it long enough for it to go into troubles one day. Should Auto in India be traded or held for long term (10-15 years and more)? Between 2 Wheeler and cars which one do you think in India is a better Long term buy and hold segment?
I like the vision of Munjals. Bajaj also speaks his mind well and many times accepts past mistakes but somehow I feel Munjals can be more stable player. Their break up with Honda is something I think if the impact of that is yet to show or they can get better products in time. Also, Bajaj finace was carved out of bajaj auto if i am not wrong. Hero also has an embedded financial business which they have started to focus on now strongly. Let me know your views. Thanks

151

Hi…@Investor_No_1

I ll just shares my thoughts on two Wheelers in India ( although my knowledge may be limited )…

Lets start with some global data points…

No of two Wheelers on road / Total population data for some developing countries is as follows -

Malaysia - 0.4 ( ie 4 out of 10 ppl own a two wheeler )
Indonesia - 0.2 ( ie 1 out of 05 ppl own a two wheeler )
Vietnam - 0.5 ( ie every second person owns a two wheeler )

I am deliberately not including China, as many provinces in China have a quota system for sale of two wheelers.

So, one may argue, that India has the potential to reach at least Indonesia’s ( their per capita income levels are roughly twice that of India ) level of two wheeler penetration.

If we were to look at above stated data points and factor in things like disruption in transportation solutions like shared mobility, the go-green initiatives etc, it can be safely assumed that we may end up with at least 1 two wheeler / 7 ppl in next 10 yrs.

That makes it aprox 21 cr two wheelers on road at any point in time.
Considering avg two wheeler life of 7 yrs ( research shows …this figure is aprox correct ), it means annual sales of 3 cr two wheelers from here on in any given 7 year period…and replacement sales thereafter.

So, we may plateau at this 3 cr/ year sales mark kind of figure ( please take it with a pinch of salt ).

Now, India is already doing 2.2-2.3 cr two wheeler sales/ year.

Therefore headroom for growth ( 7-8 % volume ) may be limited to 5-6 yrs.

Thereafter, we may have to be content with flat to sluggish volume growth. Price growth can obviously keep happening. That too may finally be capped by affordable cars etc.

However, this huge domestic sale figure of 3cr / year ( and hugely profitable too… no obvious signs of margin pressures or price wars in India ) should give a lot of muscle to Indian companies to become global exports powerhouse.

Bajaj Auto is already an export powerhouse ( by Indian Standards, as of now )

Both Bajaj Auto and Hero Moto are sitting on huge cash piles. ( Bajaj @ 16000 odd cr and Hero @6000 odd cr ) This should give them a lot of muscle for overseas expansion, acquisitions ( remember- Bajaj - KTM ), buyouts, tech acquisitions etc.

Vibrant domestic market and truck loads of cash is also a huge competitive advantage vis a vis global players.

However, growth in domestic market is not expected to be run away kinds.

Ditto for Eicher…hugely profitable and a burning desire to be a global powerhouse. For Eicher, even the prospects of price growth are better due far better brand perception.

Bottomline : one needs to be a little more careful wrt valuations in two wheelers vs something like Maruti Suzuki where growth may be more obvious.

Disc: invested in Eicher Motors , Bajaj Auto and Hero Motocorp.

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152

Just sharing a few portfolio updates -

Sold Emami ltd ( @ Rs 430 or so )…complete stake ( got a little disillusioned by its under performance…specially the under performance of Boroplus as a brand and intense competition from Nivea in Men’s grooming…which has put a lot of pressure on the - Fair and Handsome brand )

Converted to Eicher Motors at Rs 23000 ( aprox )

153

Hi Ranvir,

After holding Maruti for some time-had to sell out given their growth trajectory and expectations. Car sales of late are muted with oil/currency as major headwinds. Given the size of maruti and its market share- Do you think it has a long runway? I get a feeling they are struggling and lot to lose. At best could be a 15% grower from here. Your views please

154

@Peabody

Hi…

I think post number 149 above can throw some light on your queries.

I think Maruti has the potential to do better than 15% CAGR for next 7-10 yrs.

Based on the post above and factoring in some market share loss due increased competition going forward , at least …17-18% CAGR is what I think they should be doing.

Disc: invested.

155

Boroplus and fair and handsome are some of its brands. Do u see anything structurally negative in emami fundamentals? How do u rate its management quality in terms of ethics, corporate gov and capability. Also any idea on their last acquisition performance?
It is small part of my porfolio but i was using this underpercormance to add it. They have created market leader brands in past…could this be a mid term underperformance before management gets their act together…not sure so adding slowly…

156

@Investor_No_1

Hi…

I ll just share a few of my thoughts wrt Emami Ltd…

I held it for about 5 odd yrs before I sold it last week. I did not come across any corporate mis-governance in the company.

It has finally turned around Kesh King ( after initial hiccups ). It had done the same with Zandu earlier. ( Pancharishta and Zandu balm are fairly big revenue contributors )

Fair and Handsome…when launched initially was a breakthrough innovation and did very well. These days, it is facing a lot of heat from Nivea and Garnier. I personally feel that Fair and Handsome’s brand positioning leaves a lot to be desired. ( although the same is not getting reflected in numbers as of now )

Navratna cooling oil, talc and & 7 in 1 oil…are doing well.

Boroplus…is a pain point. Emami had a huge head start in the category. Somehow, they were late to enter the body lotion market. Today they face an uphill task against the likes of Vaseline, Nivea and Himalaya. Boroplus - tube format may lose its relevance few years down the line. ( thats an estimate…plz take it with a bucket of salt ).

However, if Emami can somehow make Boroplus Body lotion sell ( which they are trying…the Kangna Ranaut add ), they ll be back in the game…in a big way. I ll closely monitor their q3 results. ( biggest qtr for Boroplus )

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157

Disc: sold my holdings in Zydus Wellness after a 15 pc run up in last 15 days. Converted them to Eicher Motors, HDFC, HDFC bank and IndusInd Bank in almost equal proportions.

Planning to trim my holdings in V Guard Industries and convert to Ashok Leyland tomorrow.

158

Disc: sold half of my V Guard holdings and converted to Eicher Motors and TVS Srichakra at CMP.

159

@ranvir

You seem to be bullish on eicher of late, inspite of slowing sales and rising competition from mahindra. Any specific expansion opportunities that you would like to highlight. Thanks.

Also your views on GCPL, are you holding as of now.

Your quick exit from zydus was bit surprising, given you had confidence on complan growth. Good part you made good gains in a short time. Is it bit of valuation concern that you are shifting from Fmcg to automobiles?

Await insights. Thanks

160

@homemaker…

Hi…

Eicher Motors : Their present mkt share in motorcycles mkt in India is 5-6%. I think it can go to 10-12 % in next 10 yrs. So, thats one doubling in sales. If the mkt can grow by 2-3% CAGR, a 10-12% mkt share of expanded mkt should ensure double digit volume growth for the next decade. So, thats the base case.

On the export front…there is practically no competition in the middle wt cruiser/ leisure category…across the globe!!! ( can you believe this )

Global leaders…Harley is present in mostly 800cc and above category and KTM is not into cruiser / leisure segments.
I am backing Sidarth Lal to create and expand this category…globally.

On competition from Mahindra…two things- One…there is more than adequate room in middle weight category in India to grow. ( this is the fastest growing category for the last 5-7 yrs and is expected to be so for foreseeable future. Two…launch of good products is generally no guarantee for success. Deep distribution, service network, availability of spares, brand perception, cost of maint etc play a bigger role.

Remember the ugly looking first Gen Swift Dzire . ( no offence meant )

GCPL: It is my largest holding. I am a big fan of the company…their innovation ( Eg…Godrej Aer Bathroom Fresheners, Godrej Protekt Hand wash, HIT gel format, CINTHOL head to toe Wash, Good Night Magic Cards and Chips ), aggression ( frequent acquisitions in Africa and South America ), governance ( Godrej Group Pedigree ).
Marico…is another company…I have very high regards for.

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