Hi Sahil,
Had been following your thread. Congrats on your gains.
If I may, whatās your exit strategy with NCC? Since it is a PEC (politically exposed company) i am not sure if I can hold it for a long time. The company went through hard time when political atmosphere was changed in Andhra. Now itās rumoured that all has been resolved. Evidently the company is getting lots of new orders. Also the budget was friendlier to the sector.
Disclosure: I am holding this stock from low levels. No addition in recent times.
Hey @sahil_vi . Been a while. Had a question regards apollo tricoat and dint want to post in the thread.
Considering
Ebitda/ton isnāt sustainable at 7000+/ton and should settle near 4000 over the next few quarters AND considering volume growth looks capped at 20 percent for the next 2 years(unless management surprises with capex) whatās your strategy with apollo tricoat?
Iām dying to invest but can see a lot of pain for some time here with results not being upto the high expectations set by Q2 and Q3 in the next year. Itās a wonderful company with great promoters and with disruptive products with huge runways ahead but considering the above I cant see the last 2 quarters being a new base which puts them at sky high valuations currently.
Thinking of SIPing over the next few quarters and then letting my investment run but even though the price has fallen quite a bit considering ebitda/ton can fall by nearly 40 percent and volume growth can only cover 20 percent maybe waiting until valautions cool off is the best bet? Or have I misunderstood the whole scenario?
Edit: Thanks for the amazing reply @sahil_vi . Did not want to clutter your thread so posting it here. My thesis was wrong and Iām glad it was. Unfortunately I missed a buying opportunity at 845 recently due to my misunderstanding. Anyway will continue studying and will attend the latest concall since I clearly misunderstood the takeaways in the apl thread. Cheers. And thanks again
Peak revenue would be around >12kcr in 2-3 years time. Peak EV is around 1.2x revenues. This would leave us with a peak valuation of around >12k cr. mcap right now is around 6k cr. So it can double from here. I am not in any hurry to sell. The infra cycle has started to turn. The system is getting a huge liquidity boost. Itās going to be quite some time before I sell, personally speaking. Infra sector is only getting started. I personally do not sell on overvaluation. It all depends on business prospects and to what extent infra sector can continue to grow for next X years.
Would suggest consuming latest concall. Not only is 7000/ton sustainable, but management is aiming to take it to 10,000/ton over next 2/3 years with moree value added forward integration eg: chaukhat to complete door solutions.
IMO brownfield 50,000 ton/annum Capacity expansion can easily happen. They already did that once between Q2 and Q3 unannounced. Wouldnāt be surprised if it happens again in next 2/3 years.
There is still room for EBITDA/ton expansion and the overall market size opportunity is huge. A large part of their sales comes from replacement of existing chaukhats and hence demand is counter-cyclical to a large extent which helps. Real estate revival helps as well.
Valuations have to be evaluated in the context of opportunity size. They are a virtual monopoly in a sector with 1% market share. It does not get any better than this. They can replicate Q3 results in next year IMO. Annualized earnings basis, they are at a P/E of 18. That is hardly sky high given the market creating innovative products, brand building, cash flow generation and working capital changes that they have pioneered.
I think so.
Disc: Invested. Please do your own due diligence. IMO this is one of the most secular growth stories. Growth might be limited in next year, but profitability should improve and a business with 60% ROCE available at 34x TTM P/E (including a few quarters with covid impact) and 18x NTM P/E is a good deal, IMO.
Valuations. I do not want to be the guy who buys Cisco at the peak of 2000 bubble and make 0% profits in next 10 years.
Also biologics compliance is a different beast all together. See the interview harsh and I did: Pharma compliance issues - #14 by harsh.beria93
Much higher probability of downside surprise.
Market rewards rate of change. Neuland was available at 2x sales for a very long period of time (when i accumulated).
Donāt you think the mangalore api plant would be a ticking time bomb for syngene given that the plant is going thru with the validations and customers stickiness would be moderate enough?
The management has explicitly said not to expect any hockey stick growth. Anyone that is still expecting this is essentially doing some hope based investing.
It is available at 10x sales. The primary question is, when everyone knows that the mangalore API plant is going to come online, isnāt it something which would already be priced in? Between a 10x sales and a 10x earnings business, which one would one pick (given both are good businesses). The choice was a no-brainer. Besides, Neuland has a lot of unseen value, as one can find in my posts on Neuland thread, Sajal sirās tweets, my tweets, or Punit sirās tweets.
My hurdle rate is ~25% CAGR over long durations. I simply do not think Syngene can deliver that from CMP (or it could anytime since augustā20).
Iāve been searching for the Apollo Tricoat concall. Is there a dedicated concall for the company, or is it spoken about as a part of APL Apolloās conferences? Have only seen the investor presentation that they publish along with their earnings.
Discovered your post on pharma compliance today; such an amazing read.
I just love reading your posts. They are simply amazing.
Going off topic here, I just wanted to know are there any good threads here or other good reads which can help me with understanding valuations and how to actually start. It will be of great help.
this was a sort of long reply. I have made a quick and dirty video out of it. Uploaded it to YouTube so that people have option to watch at 1.5x I hope that is ok with you:
What I look for is definitely momentum and acceleration in the business fundamentals. Price is a different story. Bulk of my buying in idfc first bank happened at 18 rupees (3x from there), bulk in RACL happened at 80 rupees (3x from there), bulk of buying in neuland happened at 1000 (2x from there), in ncc happened at 20 rupees (3x from there). The important part is to understand the business fundamentals and momentum in fundamentals to understand metamorphosis that might be happening in the business. While people were complaining about idfc first bank being worst performer on bank nifty, I was loading up, based on my reading of annual reports and investor presentations.
So I think the lesson is to not get anchored to the price or price momentum. Important thing is to understand company, and average up and down (understanding company is an important prereq. One cannot blindly average up or down).
Nice to knowā¦hope u r tracking the other important parameters like free cash flow and the ROE and ROCE of the companyā¦during the bull markets, even no so great stocks go up and then once the cycle turns it goes down and some of these companies with not so great fundamentals might erode wealth in such timesā¦I am sure you have done your background analysis before taking the plunge
Yes certainly tracking unit economics. Yes, we have to see the cycle : many cycles: india economic cycle, industry cycle, product cycles , raw material cycles. This is why I donāt like holding more than 16/17 companies there is too much to track.
Hi Sahil, wanted to ask if you have looked food contract mfg players like adf foods and Hindustan foods. does this business have some kind of moat(apart from scale) according to you? Itās an unrelated ques but wanted to know the forum members thought
Hindustan foods is one of Indiaās most diversified contract manufacturers of fast moving consumer goods (FMCG). it has diversified across various FMCG categories with manufacturing competencies in food & beverages, home care, personal care, fabric care, leather products and pest control.
In the third quarter of 2021-21 (Q3FY21), Hindustan Foodsā standalone PAT grew by 97 per cent year on year (YoY) at Rs 12.60 crore from Rs 6.40 crore in Q3FY20. Revenues jumped 85 per cent to Rs 384 crore in Q3FY21.
demand for contract manufacturing in FMCG industry has been growing rapidly,
On negative side margins are wafer thin and stock is richly valued
Adf food nothing much exciting
Promoter holding has decreased
The company has delivered a poor sales growth. Promoter holding is low
Not much cash flow.
On positive EPS soared from ā¹16.36 to ā¹24.19, in just one year. EBIT margins were flat over the last year, but revenue grew by a solid 31%
I hope that is ok with you:
