Ravi's portfolio

Q&A: Questions & Answers Portfolio Q&A
1

Hi all forum members

I have been following VP for almost a year now, and this forum has been helpful in improving my investment process.

Below is my portfolio along with the rationale for selecting my picks.

  1. Alembic Pharma
    Buy price - 954, Current price - 935, 4.5%
    Solid compounder with a portfolio of complex generics in the US and an exposure to India market.

  2. Astec Life
    Buy price - 1092, Current price - 1058, 4.7%
    Agro-chemical company specialising in fungicides. Has the potential to build on its CSM base and become a midcap over the decade

  3. Bajaj Finance
    Buy price - 2750, Current price - 5476, 7.7%
    Exposure to consumer retail including durables, auto and mortgage lending. Excellent promoter quality.

  4. Dynemic products
    Buy price - 368, Current price - 365, 4%
    Manufacturer of dyes, especially food colours, so finds application in steady FMCG and Pharma businesses. CWIP block of 3x the current block is a trigger for a huge boost in fundamentals, especially as competitor Vidhi is also putting capex (meaning tailwinds are across sector). Dynemic is ahead of Vidhi by at least 1.5 odd years in terms of realising revenue from capex.

  5. GNA Axles
    Buy price - 231, Current price - 367, 4.5%
    Auto ancillary catering to tractors and commercial vehicles. Value play with market tailwinds as commercial vehicles on the export side are picking up. Reasonable exposure to domestic+export markets makes it less prone to cyclical shocks

  6. HDFC Bank
    Buy price - 1047, Current price - 1584, 8.5%
    Proven compounder in the banking space. Best risk management in the sector.

  7. HDFC Life
    Buy price - 553, Current price - 719, 8%
    Market leader in private sector life insurance space; potential to gradually eat away LIC’s share

  8. Intellect Design Arena
    Buy price - 240, Current price - 447, 6.5%
    Polaris spin off, one of the leading firms in transaction banking software space. Margin expansion play.

  9. Lal Pathlab
    Buy price - 1831, Current price - 2391, 4.5%
    Leading player in diagnostic sector. Potential to become a large cap over a decade.

  10. Laurus Labs
    Buy price - 266, Current price - 359, 5.7%
    Phenomenal growth story from being an ARV API player to a broad based FDF+API player. Excellent execution by the promoter so far.

  11. Natco Pharma
    Buy price - 723, Current price - 888, 4.9%
    Unique proposition of focussing on really complex molecules in the US market. Clean corporate governance.

  12. PI Industries
    Buy price - 1809, Current price - 2228, 6.2%
    Steady longer term compounder to become a large cap over the decade.

  13. Pix transmissions
    Buy price - 270, Current price - 375, 4%
    Growth in cement, steel and industrial sector should help Pix in the medium term. Further, company has been expanding into export market into non-cyclical segments such as washing machines.

  14. RACL Geartech
    Buy price - 119, Current price - 234, 5.5%
    Auto ancillary company making high quality gears for tractors and 2W (premium range). Customer relationships are sticky due to quality.

  15. Syngene
    Buy price - 439, Current price - 574, 5.7%
    Contract research and manufacturing is expected to grow over the decades and Syngene is in a prime position to win in this market. Promoter group (Biocon) is honest.

  16. TCS
    Buy price - 2236, Current price - 3213, 5%
    Large cap IT compounder to offer steady returns with dividends.

  17. Titan
    Buy price - 991, Current price - 1563, 5.4%
    Excellent consumer franchise which can compound returns over the long run.

  18. Transpek
    Buy price - 1599, Current price - 1570, 4.5%
    Small cap chemical company which has secured contract with Dupont, the largest chemical company in the world. Potential to develop further large customer relationships.

Overall portfolio has exposure to large caps (41%), midcaps (25%), small caps (20%) and microcaps (13%).

Objective is to generate Nifty + 3-5% returns p.a. over the next 5 years. Please let me know your thoughts.

4 Likes
2

Noticed No exposure to FMCG? Any specific reason?

3

A well diversified portfolio. All the best.

Even I noticed No exposure to FMCG, Paints and Prominent IT companies?

4

Hi @Aniesh7 and @axiskumar

Considering extremely high PE of most FMCG/Paints sectors I have stayed away from them.

I have exposure to TCS and Intellect Design in IT space.

1 Like
5

Yes fmcg qnd Paint stocks r highly valued

Sry I missed tcs on list

6

Very good portfolio, well balanced. All the best.

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7

Updated PF below.

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Exited Transpek considering DuPont’s business doesn’t seem to be recovering anytime soon. Entered Praj Industries given the tailwinds in ethanol blending + counter-cyclical cushion from other sources like CBG and HiPurity segments.

In terms of investment style, I am allocating to compounders (mid-large caps) and then potential high-growth stocks (small caps). Currently have 18 stocks - gives me the benefit of diversification with reasonable concentration since I intend to have at least 4% allocation to each individual stock.

2 Likes
9

Sharing my updated pf since it went through some overhaul recently.

Exited - TCS, Titan, Alembic Pharma (all three are excellent quality companies, and it pains to sell them)
Entered - Mastek

Proceeds from sale of TCS primarily went to Mastek. Proceeds from Titan and Alembic were used to concentrate my existing bets.

Exited TCS because found a better priced opportunity in the form of Mastek. TCS is a solid compounder machine, expected to clock 10-15% CAGR, with healthy dividends. I find Mastek to be relatively undervalued, especially with the growth triggered by Evosys acquisition (should open up opportunities in US). They also have a fair chunk of cash on books, and could present optionalities for tuck-in acquisitions. UK market has been growing well for them, so offers a decent base as well.

Titan is an excellent franchise, but current valuation limits future appreciation to <15% CAGR. While the theory says not to sell companies just based on valuations, I think in case of well discovered large caps, it becomes difficult to make returns beyond earnings growth at such high valuations.

Alembic Pharma has been discussed enough on this forum. There is pressure in oral solids, sartans opportunity has tapered off. So next leg of growth needs to come from injectables and domestic brands. I find Laurus and Natco better placed to deal with these circumstances. Laurus, with their diversified non-ARV API plus CSM/Bio optionalities, as well as Natco with their FTF/Para IV strategy are ahead in the curve. I expect Alembic to consolidate till they start firing the injectables business, and will re-evaluate them.

I got a bit lucky with Neuland Labs in the recent carnage - my entry price was 2150-2200, but I managed to sell off a major chunk of it around 1900-2000 mark purely for tax loss harvesting. It was just dumb luck. My view on the company’s fundamentals hasn’t changed, so I entered back yesterday.

I would ideally like to have a minimum allocation of 4%, with 15-20 scrips to offer the benefit of reasonable diversification along with concentration. Praj has the least allocation currently, because I can’t mentally build a reverse DCF model for them. For all the other companies, I can visualise what might happen in 3-5 years, but Praj is a dark horse. Their India ethanol story is mostly priced in from a revenue point of view. But margin accretion could show some surprises. Similarly, their CBG business and BioPrism could throw up some surprises, but I don’t have conviction to put more into it yet.

Lastly, I would like to thank some of the forum members who have been spearheading the next wave of growth in VP - @sahil_vi , @Tar @Chins @Malkd @gurjota

Scrip Cost LTP % Returns Allocation
RACL 148 527 257% 8.9%
Laurus Labs 336 715 113% 8.7%
Intellect Design 322 672 109% 7.6%
Pix Transmission 336 794 136% 7.4%
HDFC Bank 1,168 1,495 28% 7.2%
HDFC Life 592 671 13% 7.0%
Bajaj Fin 2,961 6,229 110% 6.2%
Syngene 504 625 24% 6.0%
Pi Ind 1,921 3,112 62% 5.9%
GNA Axles 240 703 193% 5.7%
Dr Lal 1,842 3,791 106% 4.7%
Dyn Pro 387 577 49% 4.6%
Neuland Labs 1,489 1,684 13% 4.5%
Mastek 2,395 2,446 2% 4.3%
Astec Life 1,086 1,326 22% 4.2%
Natco 764 1,032 35% 4.1%
Praj 321 347 8% 2.9%
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10

PF update after 3 months below.

Scrip Cost Value % returns % PF
RACL 156 550 253% 8.6%
Intellect Design 330 672 104% 7.1%
HDFC Life 597 705 18% 7.0%
Bajaj Finance 2,961 7,485 153% 6.7%
HDFC Bank 1,171 1,539 31% 6.7%
Pix Transmission 348 748 115% 6.5%
Syngene 518 605 17% 6.3%
Laurus Labs 371 482 30% 6.2%
Pi Industries 2,067 2,867 39% 5.6%
GNA Axles 240 750 213% 5.5%
Mastek 2,467 2,725 10% 5.2%
Astec Life 1,106 1,367 24% 4.4%
Neuland Labs 1,490 1,690 13% 4.2%
Dr Lal Pathlabs 1,842 3,604 96% 4.0%
Dynemic Products 389 548 41% 4.0%
Natco Pharma 794 815 3% 3.7%
Praj Industries 323 349 8% 2.8%
Steel Strips Wheels 884 907 3% 2.7%
Jash Engg. 476 450 -5% 2.7%

Last 3 months have been interesting, particularly the months of October and November which saw most of the alpha getting eroded. Majority of this is due to the pharma-heavy portfolio, which is seeing headwinds in the near term. Some lessons for my reference:

  1. Do not average up at any price: I added to Laurus Labs at 600+ levels, which in hindsight was not the right move. Always pay adherence to the Margin of Safety, no matter how much potential the stock holds. There will be sufficient time to accumulate during short term corrections, even if long term story is intact.

  2. Trim allocations when there is froth: GNA Axles shed >30% from its highs of 1100 when there were visible signs of froth. Given it is not a secular compounder, it pays to take out money opportunistically when multiples have reached mean reversion levels.

I don’t think both these are heavy mistakes since the long term thesis of Laurus hasn’t changed, and CV cycle for GNA Axles in India is yet to play out. But ultimately, allocation decisions are based on opportunity cost, and adding to other stocks could have been a better option.

I have added two new stocks - Jash Engineering and Steel Strips Wheels during the last couple of months.

  • Capital goods as a sector is expected to see growth due to the imminent capex cycle. Jash Engineering has seen good growth (incl. inorganic) historically, and have sufficient capacity to drive future growth. They operate in a sunrise waste water treatment sector with a good mix of domestic and exports market.

  • Steel strips has posted excellent results, and with the current acquisition, future growth prospects look excellent when compared to current price levels. Presence of strategic investors like Tata and other South Korean companies is reassuring.

As next steps, will closely monitor the performance of pharma and chemical companies in the next couple of quarters. Auto ancillary stocks could get heated in the coming quarter, so would need to keep track of froth in these stocks as well.

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Scrip Cost Price % Returns % Allocation
Intellect Design 429 627 46% 8.5%
RACL 177 605 243% 8.4%
Pix Transmission 428 826 93% 7.3%
Laurus Labs 386 575 49% 7.1%
Astec Life 1,123 1,828 63% 5.1%
Syngene 536 560 4% 4.7%
ICICI Bank 707 710 0% 4.6%
Bajaj Fin 3,043 5,776 90% 4.5%
Mastek 2,485 2,561 3% 4.5%
Steel Strips Wheels 844 755 -11% 4.2%
Jash Engineering 538 691 28% 3.9%
Dyn Pro 429 512 19% 3.8%
Rajshree Polypack 177 184 3% 3.5%
GNA Axles 269 507 89% 3.5%
Natco 781 701 -10% 3.4%
Sandhar Tech 248 242 -3% 3.2%
Suven Pharma 515 524 2% 2.7%
Praj Ind 323 363 12% 2.5%
Faze 3 315 340 8% 2.5%
PSP Projects 478 489 2% 2.2%
Google 2,326 2,178 -6% 2.2%
Microsoft 282 253 -10% 2.0%
Amazon 2,599 2,157 -17% 2.0%
Apple 159 138 -13% 1.8%
Cash NA NA NA 1.8%

Key changes include:

  1. Exited Dr Lal (at around 3600 - too expensive valuations with inflated earnings during Covid); Neuland Labs (unhappy with promoter’s lack of aggressiveness / transparency around growth)

  2. Addition of big tech companies listed in the US. Needless to say, macro conditions are getting tough, so perhaps the best time to SIP / DCA. I will be adding to these names every month. I consider Amazon, Microsoft, Apple and Google to be very resilient, and are available at reasonable valuations. These are coffee can bets, without the need for significant active supervision.

  3. Added Suven Pharma, PSP Projects, Sandhar Tech, Faze Three and Rajshree Polypack. Suven is probably the best placed Indian CDMO from a technical capabilities perspective, and is priced reasonably. I effectively replaced Neuland with Suven because Neuland doesn’t appear to be more than a 10-15% CAGR company, and Suven is equally capable of achieving those returns (if not more).

  4. PSP Projects is a short term bet due to cheap valuations at decent growth. Yes, cash conversion is an issue for Infra companies, but they appear to be one of the better ones, especially without major debt or capex concerns.

  5. Sandhar Tech is a play on growth and operating leverage. Current margins are significantly depressed due to auto downcycle and expecting a revival in the next 2-3 years.

  6. Faze Three is looking quite good from a textile export play point of view. They are looking to expand their capex which should see a good jump in revenue (2-3x), and their margins are holding up reasonably well in current times. Appears to be a promising small cap, especially considering the promoter is really committed to the business.

  7. I always wanted to add RPPL due to FMCG driven business with much better growth potential. Previously was held off by the lot size. Stock underwent a bit of correction and I added to it.

Some of my current bets have a relatively lower allocation - idea is to remove underperformers over the next 1-2 years and then concentrate on the overperformers.

4 Likes
13

That’s a stellar portfolio! Keep it up. Best of luck.