How does this strategy panned out for you? I myself do Hedging against Portfolio (Buying/Selling Nifty Options), but I believe based on my experience that Your Portfolio should be constructed in such a way that it replicates the performance of Nifty to the least. If it it do better, well and good but it should not lag. Secondly, the VIX. When market goes down fast, options which are far moves up very fast, which decreases the profit gap which we want to maintain. Thirdly, the fear control - It is quite possible that Sold options would lead to more loss than Bought Options.
I recall that you had written about Sterling and Wilson Solar on the Borosil Renewableās thread a few months back.
Iām sure you would have heard that Reliance recently took over as the promotor of Sterling and Wilson Solar (now Sterling and Wilson Renewable Energy Ltd). Now these guys have been industry leaders for a while, but had been marred by the inter-company deposit issues from rising commodity prices. I remember reading that one or more of their suppliers went bust last year and that disrupted their supply chain. Their order book has been robust but delivery has been patchy over past couple of years. The ICDs also resulted in them facing bank guarantee challenges. With Reliance taking over, the promotor overhand and bank guarantee issues should be behind them. Margin pressures may persist.
This week Reliance also announced their intentions of investing lakhs of crores in solar energy in Gujarat over the next decade. In parallel, SWSL also recently announced their intention of entering EPC for energy storage and waste to energy. There is now an ambitious, cash rich promotor replacing a debt ridden inefficient promotor, and so it is a bit of a special situation play as well. The business model is super asset light and asset turns can be very high. Trades at 1.5 times sales, which seems cheap.
Hi Sahil ā¦Happy Makar Sankrantiā¦ I now refer RHPs of recently listed companies to know more about Industryā¦Heading of āIndustry Overviewā has the following annotation :-
Unless otherwise indicated, the information in this section is derived from the report titled āIndependent Market Report - Digital Maps and Location Intelligence Technology & Services Market B2B(2C)ā dated October 27, 2021, prepared and released by Frost & Sullivan, commissioned and paid for by our Company in connection with the Offer. Frost & Sullivan has prepared the Frost & Sullivan Report in an independent and objective manner, and it has taken all reasonable care to ensure its accuracy and completeness. Forecasts, estimates, predictions, and other forward-looking statements contained in the Frost & Sullivan Report are inherently uncertain because of changes in factors underlying their assumptions, or events or combinations of events that cannot be reasonably foreseen. Frost & Sullivan is not related to our Company, Promoters or Directors. Accordingly, investors must rely on their independent examination of, and should not place undue reliance on, or base their investment decision solely on this information. The recipient should not construe any of the contents in his report as advice relating to business, financial, legal, taxation or investment matters and are advised to consult their own business, financial, legal, taxation, and other advisors concerning the transaction."
The agency who prepares the list been paid/commissioned before the offer to make the reportā¦So how much reliance should we give to these reports??
Also, the market projections they provided doesnāt seem very fair to me. My only investment thesis is their high growth prospects due to their APIs / SDKs segment and revival of Auto Segment. Also, I dināt find anything fishy other than this industry report. Will have to keep an open view on business as more information comes to light in Con-Calls / future results.
Sorry for not being more active on the forum. I did not have too much to share. I will respond to individual posts in a separate post. Wanted to update on my current set of beliefs/learnings.
Valuations matter. Period. Each BAAP investor is learning these lessons afresh. When a company at PE of 10 falls 20% i want to buy more of it because i find it at a discount to intrinsic value. BAAP investors who are essentially chasing momentum (nothing wrong with it!) are unable to do so because to claim that a B2B co with 100 p/e is at fair intrinsic value needs much stronger assumptions & predictions. Youd have to forecast double digit growth for 2 decades. The 8 pe guy only needs 20% growth for 3 years to justify their buy. My biggest mistake is probably not selling Vaibhav global at 60 p/e. I made the cardinal mistake of extrapolating their growth too aggressively. Saving grace is that decision to sell was quick after Q3 results & so exited with a 25% loss only rather than a 40% loss it would have been today if i were holding it. It would have forced me to become a ālong term buy & hold investorā lol.
Macros matter. Another myth is that macros are inconsequential or not worth studying. I think my key learning is that 95% of time must be spent on understanding businesses, but it is ok to spend 5% time understanding macro picture because the micro operates in the environment created by macro. āFair Valuationā is itself an evolving picture with things like interest rates playing a major role in the evolution of that fair value of a company. If you can borrow risk free at 1%, then fair value is very different than if you can borrow risk free at 2%. Investing had become too simple. Investors were justifying 30 p/e for a chemical biz which to my mind is still a bit overvalued if our IRR expectations are high. A lot of these excesses are being corrected.
Being prepared matters. Having a spreadsheet with my best ideas updated with expected growth rates in bear & bull scenario help. I can plug in current price to calculate expected XIRR for future thus enabling me to objectively decide which companies to buy, which ones to sell. How to decide what to own & own much of it to own.
Hard work matters: confluence of all current factors leads me to think that we are not in a scenario where everything will go up together. This is a business analystās market. Putting our heads down, studying businesses constantly learning is the only way to generate alpha. Investing is more about hard work than intelligence IMO. Its a laziness arbitrage. The lazy pay the hard working. My new years resolution as far as investing is concerned is to do 1 concall every day and i am continuing to do that.
Knowing your matters: I will invest in what i understand & nothing more. The latest fad in town is ethanol plays. I have tried to understand it but seems like a commodity capex which imo is very hard to track. Even if government controls price, each & every capacity being created might not be utilized immediately. I need to do more work. I would rather maximize returns per unit work put in specially since i am a working individual & have limited time. DOnt need to attend every party in town. Only the ones I find worth attending.
HUman tendency to extrapolate unreasonably: Neuland at 3 good quarters forced investors to extrapolate their results resulting in 2800 rupee price & overvaluation. neuland with 1 bad & 2 okay results (Q3 results are quite commendable to one who tracks API space closely) is also forcing investors to extrapolate poor results resulting in depressed valuations. I have started adding a little bit but no major buy until better results. This was always a lumpy biz & will remain a lumpy biz. Despite all the noise, sales CAGR for 3 years is 21%.Profit CAGR for last 3 years is 80% & even for 5 years is 20%. CAGR for last 10 years is 30%. It is NOT that neuland does not execute. it is that investors are too damn optimistic. 20% profit growth & little it rerating with scale & better product mix & margin will make me an emperor. Key is NOT to overpay based on extrapolating last 3 Q results. Then loss aversion kicks in & we sell. Key is to stick to thesis. Vaibhav global thesis was consistent growth. That is why the sell. Neuland thesis was never consistent execution. So many acquisitions of overpromising & under delivering. Those claiming underdelivery are evaluating biz Quarter on quarter. Management has always said that āover a 5 year period our sales CAGR will be 15%-20%)ā. On that they have been executing well until now. At the point of maximum pessimism when we should be buying we end up either selling or calling it an āunder executerā. That, when we are facing a global pandemic led supply chain disruption which has caused severe stress to new R&D for pharma companies, shipping container shortages & what not. If an investor tries to look at the company from afar rather than letting their emotions get the better of them, they will most likely see execution being just fine, but lumpy. This is not a QoQ or even YoY growth biz. Even divis lab degrew their sales & margins QoQ ex of covid APIs as per a public brokerage report. At these valuations it is a screaming buy according to me. Only reason to not load up for me is to let some of that lumpiness play in my favor first (thoda sa toh upside in business dikhe).
Despite the recent fall, 2 year XIRR looks neat even today. If i can achieve even half of last 2 year XIRR in next 2 year i would be an emperor.
Some portfolio updates:
IDFC presents at least 30% more value than IDFCF with probability of value unlocking being very high so i have switched from bank to IDFC.
Bought IIFL. Will post thesis on IIFL thread eventually. Long story short, very resilient business model with double digit ROE even during covid once a century crisis. single digit pe. 25% growth. differentiated offering in gold loans. Digital adoption is really strong.
Sold rajshree. At these valuations, other cos presented better risk reward specially given rajshreeās once in 6 month concall making it harder to track.
Bought Intellect design. Differentiated unique BFSI product platform in a sticky industry with improving revenue quality (SAAS+ subscription revenues).
Evaluated & rejected krsnaa added anti thesis on krsnaa thread. Still going to keep an open mind in case facts change.
Evaluating Gufic Biosciences. Very interesting co. Very differentiated/niche offering. My wife asked me to study this one saying ābotox use is on the riseā. if anyone has any data around cosmetic botox use in India (historic CAGR, future drivers projections etc) please do share.
Added mirza. Posted thesis on VP. Huge huge value unlocking iff they can walk the MQ changing talk. Really disproportionate risk reward IMO. Still important to limit position size. Results are fantastic.
Disc: invested in some of these cos & biased. This is not a buy or sell reco. I am not a sebi registered analyst or investment advisor. Do your own due diligence do not borrow conviction from me or from anyone else.
I agree with your view. But I cannot understand who is a BAAP investor or which are BAAP stocks.
I have Titan, Bajaj Finance, Divis, Navin, TCS etc. I donāt know if these are BAAP stocks. If these fall 20-30% I am very comfortable to add more. When market fall 20-30% each and everyone of us will learn some lesson irrespective if one is BAAP investor or value investor
I admire you for your deep research ability and sharing your knowledge among Investing community.
I am referring to the mindless valuation that new age tech commanded 20x 30x sales for loss making business with no clear direction for terminal value.
Chem biz where short term trend were extrapolated to be multi decade. We have to be selective in understanding the company.
Even with titan asian paints i would avoid investing but not because the cashflows are risky but because my return expectations are high. I might not want to put 3 hours a day for 10-12% returns.
Interesting to see an IT in your pick, I think after a gapā¦If I am not wrong you had evaluated or invested in mastek earlier? What are your thoughts on OFSS - BFSI products business as compared to Intellect. I understand narrative for Intellect currently is SaaS as mentioned by their leadership in interviews etc. And it very well may be an achievable and correct narrativeā¦but SaaS may have slower growth in BFSI who are very conservative when it comes to security and prefer not to have their data on cloud etc. (this may change slowly)ā¦and could this be the reason why OFSS is not pushing Cloud/SaaS so much yet? Not sure about Temenosā¦
Also, any thoughts on ER&D firms like LTTS, Tata Elxsi and even the new boy - Mindtree (under L&T leadership)? (I know I would be blasted on valuations of Tata Elxsi & others but still want to know your thoughts on valuations as well as their business)ā¦Thanks!
Its indeed both amusing & painful to see the frenzy & subsequent meltdown of most (almost all) new age stocksā¦something I would take as a learning. It seems usually such basket target the huge optimism of crazy bull markets and time their IPOs at such timesā¦Did same happen in IT/Internet back in 1998-2000 with multiple IPOs?
I agree to your point that even after 50% correction, these stocks still command huge market capā¦and no one has a clue of how to value themā¦all is in perception & narrative.
If we take example of one of most promising new age companyā¦NYKAAā¦one of the only very near to profitability, decent & clear business model, ability to compete with best and be a market leader, a good head at top - long stint at Kotak and with vision as well as focus on financials and not just narrativesā¦but still above all is intangibleā¦
the fact that its mcap swelled from 5K cr to >1lac cr post IPO was hard to digest, still I took tracking position and have been buying very very small quantities on dipsā¦why? because I believe in the business but I have no clue how to value it and when it will stop falling or reverse.
Today at around 60k cr mcap, its still very expensive to me when I can see a Trent at around 35K crā¦but what I dont know is how the market will value it (because that would govern the lowest price I would get it for)ā¦
Would be great to know your thoughts on Nykaa and also on how you would value itā¦Thanks.
The very same issue is with Zomato. When the IPOs of these platform business were on the anvil, I tried to take a leaf from the valuation books, particularly of A. DAMODARAN. The revenue growth is the only factor, which can be relied upon. I could not study Nayka, but in case of Zomato from Dec 2020 to Dec 2021, revenue growth stood at 79 %. But is still in the red in the last quarter. Would like to hear more on this aspect.
Seeing the adoption in cloud now and every IT company focussing on it, wouldnāt it be easier for the biggies like TCS and Infy to come and take away Intellectās customers. TCS can focus on BaNCS and Infy on finacle if they see a big enough opportunity in BFSI. Wanted to know your thoughts.
Based on my knowledge, TCS bancs suite does have cloud option already. May be Infy does too. Core BFSI products are massive, and being SaaS doesnāt count as much as we think. What matters is Cloud-ability, and pretty much every vendor sells it these days.
@sahil_vi Sorry for discussing about intellect design here . Just want to understand more about intellect. I can say that Infosys finacle ,TCS bancs, OFSS are not pure fintech . These companies creates a base product for a specific market(say USA) and on top of it provide customer specific solutions and charge additional for customisation , implementation and support . These additional charges form bulk of their revenue but it needs separate team for implementation & support similar to service projects .migration to new versions ,moving to cloud are other revenue source. Sometimes bank outsource these implementation and support to other companies too. temenos provide plug and play modules along with customisation within the bank ,itās a pure fintech. There is no question of cloud or onprem as all of them can work in cloud as well. Designing a core banking product involves lot of time and effort because of the complexity in compliance requirements . After 9/11 US banking went through a complete overhaul. Bank will face severe penalty for a slight mistake too. Any idea how intellect place itself in this
This company imo will grow at least 20-30% for next few years, improving revenue mix (more consumable, less capital goods), more revenue segments (from derma to gynaecology, opthalmology), 40% roic, 40% net margins, tech moats available 10% free cash & 10% net profit yield
The baby is literally Being thrown away with the bathwater. Highly effective r&d. Order of magnitude better than any competition on safety.
Study. We have a once in life time opportunity to invest in best American business imo.
matters: I will invest in what i understand & nothing more. The latest fad in town is ethanol plays. I have tried to understand it but seems like a commodity capex which imo is very hard to track. Even if government controls price, each & every capacity being created might not be utilized immediately. I need to do more work. I would rather maximize returns per unit work put in specially since i am a working individual & have limited time. DOnt need to attend every party in town. Only the ones I find worth attending.
but still want to know your thoughts on valuations as well as their business)ā¦Thanks!