Portfolio Update:
- I’ve increased positions in Neuland and astec.
- I am planning to exit my position in KEI industries next week. Nothing wrong with the company, I just found better use for my capital. Axtel Industries. Apples to Oranges comparison. However, here is everything which goes for Axtel and against KEI:
Axtel has a distinguished business model (In India). No listed competitors. And the barrier to entry is the relationships They’ve built over last 30 years of relationships with all large FMCG giants. The downstream industry is semi-secular. Not cyclical (like KEI). It’s the technical know-how that they’ve established over 30 years of repeatedly serving these FMCG companies. These relationships are difficult to substitute. KEI is a commoditized player. This is also visible in the Net profit margins for Axtel and KEI. Axtel averages > 10% NPM whereas KEi is at ~5% NPM. Opportunity size is also much larger for Axtel. It is a tiny fish in a giant pond. KEI is in a fierce battle for market share with Finolex, Polycab and Havell’s. Last few years, Finolex is the only loser in market share (cc: @jamit05. source (page 2)). Axtel does 100cr sales in an industry where the largest guy does 6,600cr a year (source).
For these reasons, I will slowly switch out my position in KEI for position in Axtel. Why not keep both? I do not want to deploy more capital at this stage. KEI is the weakest stock I own in core PF.