Yes valuations are very high .
Kept in watchlist.
Yes, I hold Navin Fluorine .
can you explain a few thing to me about embassy riet
1)P/e ratio is around 35 but divdend yield is around 7%
2)Are buildings being valued at book value?reason for this is current book value is 290 with 90% occupancy ,a dividend of18 rs with dividend payout being 90% it should give a eps of 20 rs which when divided by real estate value excluding vacancy gives a rental income being close to 9 to 10% higher if we reduce the book value of hotels(as not fully occupied) .This figure seems to high to me considering that usually real estate are bound to give 4 to 5 % rental yields and wealth in real estate is created by capital appreciation because indians like to invest in gold and real estates.
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Hi Sahil,
Do you track CAMS? Would like to know your views.
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Also would like to discuss which is better play between CAMS and CDSL, assuming lots of IPO’s (especially LIC) are coming in 2021 and thus huge Demat account might get open.
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Embassy REIT did their first step in simplifying the holding structure. Details here
https://www1.nseindia.com/corporate/EMBASSY_05032021210511_EmbassyREITSEAnnouncement5March2021.pdf
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Application of Bromine is not that wide compared to flourine…hence growth can be slow in neogen
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CDSL will be better than CAMS…already people r dumping their MF and focusing on direct investing or ETFs
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I think people who are dumping MF’s for equities are the ones who have time to devote to read about various industries/companies and keep a track of it on a regular basis.
For an average investor who doesn’t have bandwidth, and is entering this segment, MF is the easiest.
Even when we purchase ETF’s, CAMS generate revenue out of it since it is considered as a part of fund house AUM.
Disc: Invested in CDSL and tracking CAMS.
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It is probably that there is hype due to current rally, soccer people have made money and belive in their skill to identify winners
Many of their friends who think themselves to be more intelligent have jumped in thinking if John can identify multi baggers, I can identify multi multi baggers.
This is my opinion basis inputs from some of my friends.
Some had used lock down to embark on this journey
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When mutual fund houses do the bulk/block deal, are they not anyway executing through CDSL?
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Working capital of Neogen chemicals is stretched. As a result, you can see the cash flow from operations as negative. The company says, working capital will come down a bit, we should see in the next few quarters how it goes. Opportunity wise, they have good opportunity (they have revenue target of 450 crore by end of FY22, 675 crore by end of FY24). Bharat Shah sir grilled them on this particular aspect in the recent concall.
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Hi Sahil
Any views on Titan Biotech/ Kothari Fermentation? As this would be next beneficiary for biotech companies as yeast is the raw material needed in fermentation…
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Because they structure their payout in such a way that dividends are only a small part of the distribution per unit. there is also debt from SPV which is ammortized.
Not true for commercial real estate. High quality Commercial real estate has intrinsically higher rental yields due to huge demand and lack of quality (building, design, location) spaces, which is why i invest in it. 
Also not true. Over very long durations, the appreciation is only as much as inflation, nothing more. The reason you see faster than inflation appreciation is due to some demand supply mismatch which is local and temporary in nature (imagine an expanding part of a town/city where one has to forecast whether builders are building enough homes compared to # of people who want to live there). Any and all wealth made here is purely by chance and cannot be repeated sustainably and is hence not a skill.
Not really. It is quite overvalued. Also, with 70% of market share, they would only grow as much as the market. A fundamental characteristic I like in my businesses is that they gain market share by growing faster than the market. So, no CAMs for me.
For a similar reason, I do not like CDSL. In addition, CDSL is the smaller company, so it would find it much harder to operate (higher operating costs). CDSL is also somewhat of a platform which is why being the less dominant player also means that they are stuck in a vicious downward spiral cycle and should ideally lose all their market share to NSDL unless they are able to differentiate.
Yay!
Agreed.
Agreed except for ETF part.
Not true. You’re forgetting the Robinhood investors.
Already starting to see this in previous quarter. This is not what worries me. They are overvalued compared to the opportunity size IMO. Much higher Percent of new drugs and new formulations have fluorine than bromine. We should analyze the pipeline pharma and agri innovators to know which out of navin fluorine and neogen is better investment.
have studied it. Looks ok. Decided to not invest since my threshold to invest is high for microcaps and i want to run a concentrated PF. Still continue to track.
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Hi Sahil, what is ur view on Neuland labs after the recent run-up? Does it make still look attractive at a PE of above 50?
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the PE is not 50. March quarter had an aberration of higher taxes due to corporate tax law change. On normalized earnings, TTM pe is 32. However, what we should observe is the trend in the fundamentals. OPM are mean reverting to previous levels, they will go higher this time due to business mix change, Much higher contribution from the CMS segment and shortage for key APIs in US (follow punit bansal sir on twitter he tweets about this a lot). When it comes to Neuland, I only have 1 song to sing: Abhi toh pawwwry shuru hui hai!
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PF price action updates:
| Instrument | Avg. cost | LTP | Net chg. | % Allocation | % PF | Type |
|---|---|---|---|---|---|---|
| IDFCFIRSTB | 32.22 | 54.3 | 68.53 | 0.09371422178 | 0.1110528172 | Core |
| EMBASSY | 339.39 | 319.16 | -5.96 | 0.1530450523 | 0.1011995292 | Low Risk |
| NEULANDLAB | 1210.33 | 2291.25 | 89.31 | 0.0751974695 | 0.1000971448 | Core |
| RACLGEAR | 111.01 | 250 | 125.2 | 0.05759568513 | 0.09120478803 | Core |
| VAIBHAVGBL | 2259.98 | 4021 | 77.92 | 0.06850743596 | 0.08570713428 | Core |
| POLYMED | 439.21 | 898.9 | 104.66 | 0.04797405803 | 0.06903914439 | Core |
| MASTEK | 1188.58 | 1321 | 11.14 | 0.07325061454 | 0.05724472264 | Core |
| SEQUENT | 185.3 | 241.6 | 30.38 | 0.06220538251 | 0.05702945997 | Core |
| LAURUSLABS | 306.6 | 374 | 21.98 | 0.05799183478 | 0.0497411801 | Core |
| AXTEL | 232.24 | 313.5 | 34.99 | 0.05090879566 | 0.04832180283 | Core |
| NCC | 32.37 | 78.35 | 142.01 | 0.02595018301 | 0.04416584154 | Core |
| DYNPRO | 286.83 | 498.9 | 73.94 | 0.03564133778 | 0.04359058638 | Core |
| ASTEC | 1050.12 | 1013.65 | -3.47 | 0.06050823893 | 0.04106893033 | Core |
| POKARNA | 216.91 | 257.15 | 18.55 | 0.04401617913 | 0.03669180513 | Core |
| SAREGAMA | 1575.87 | 1699.95 | 7.87 | 0.03947918105 | 0.02994564547 | Core |
| ARMANFIN | 686.05 | 597 | -12.98 | 0.03781169941 | 0.02313633387 | Core |
| ROUTE | 1616.88 | 1527.5 | -5.53 | 0.01620263048 | 0.01076313385 | Exploratory |
| Growth in Capital Deployed | 12.9% | ||||||
|---|---|---|---|---|---|---|---|
| Total Returns | 60% |
I think my PF has managed to hold on to the gains despite weakness in the market as a whole. This is most likely due to fact that all of these are high earnings growth companies.
- Sold out of tricoat as I had said I will. Tricoat product volumes have also gone down.
- Added Saregama. Read the concalls and annual reports. Watched some interviews and also talked to an investor friend who is invested. Saregama has a very bright future due to their massive song catalog. The music streaming revenues they will generate should grow at at least 20% CAGR implying much higher profit CAGR due to very low variable costs. Caravan is a massive optionality with potential to become a platform for audio content. Yoodlee films is one of the best professionally and financially prudent run film houses I have ever seen. Look at their SOP. Look at the checks and balances. They also intend to acquire 20% of new songs with 5 year pay back period, implying business throws up enough cash to have a self sustaining business model. Only reason I have not invested more is because I am starting to run out of idle cash. Want to keep some cash at all times to take care of responsibilities, emergencies and also a market crash fund.
- have reduced size in Route because it seemed like the least differentiated business model among all my businesses and also due to entry of twilio in Indian market.
- Continuing to track indigo paints. If it falls a bit more there could be an opportunity to enter in my opinion.
Disc: Not investment advice, for educational purposes only.
PS: Apologies for late replies to everyone, I was in between shifting houses in BLR and hence was unable to spend enough time on my investing commitments.
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Hi Sahil,
How do you think about REITs given the WFH related risks to the commercial real estate space? Even occupancies of some of the A Grade office guys seems to be falling + most IT companies have already stated publically their intent to move to a partial WFH model over the next 5 years. How do we price the same and do you think there is a substantial margin of safety to invest today?
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This answer by dhiraj beautifully covers my own thoughts about ReITs:
Tldr is that the wfh trend is not sustainable. Despite bearing the heaviest brunt of wfh, embassy reit which is based in Bangalore only lost 2% in terms of occupancy from 93% to 91%. Imo 90% would be the local minima and as vaccinations ramp up, mortalities go down, offices would open up.
I am employed by Google. Even though they are a global giant they do not plan to implement voluntary wfh forever. They intend to make it easier go wfh but we would always have to go to office few days a week in order to collaborate. This means that the office space would have to be maintained. I believe this would be the trend going forward.
For the local IT companies which claim that their employees can wfh forever, I find that they are jumping tbe gun a little. As responsibilities increase same employees would find our congested 3 bhk homes very small for 2 people to productively wfh for multiple years at a time. Work life balance would also be much better when people work from office and hence people would tend to want to work from office in general (there would always be exceptions). Hence some reduction in distribution in short term but very stable over longer term.
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Thanks for the reply, the thread you posted was also illuminating.
Still not quite convinced by the WFH argument, especially for IT companies. As mentioned, most IT companies, including TCS which has over 500k employees have publically stated their intent to move to a hybrid WFH model: only 25% employees coming to office each day and no employee spending more than 25% of their time in the office by 2025 (can see on TCS annual report). Lets even say they achieve half of that, so 50% WFH by 2025.
Of the India-wide commercial office space, I think IT is about 35-40%. Their share of incremental absorbtion is also the same. India absorbed close to 50 mn sq-ft of commercial office space in FY20 (all-time high). If IT stops absorbing office space, or god-forbid starts net releasing space, I think we can effectively forget about the 5% annual price hike that most analysts have built into estimates. The question I am trying to answer is, what impact does that have on NAV and on DPUs? I dont think this is an overly pessimistic scenario. Had you asked residential real estate investors in 2010-2011 about residential real estate prices, I think most would have also said that prices are going to increase 5% till eternity. But, prices have been flat there for 8 years now and we cant discount the possibility that the same thing will happen in commercial.
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Portfolio Updates for April
| Instrument | Avg. cost | LTP | Net chg. | % Allocation | % PF | Type |
|---|---|---|---|---|---|---|
| IDFCFIRSTB | 35.34 | 56.75 | 60.57 | 0.134178335 | 0.1349174315 | Core |
| NEULANDLAB | 1285.25 | 2682.9 | 108.75 | 0.0950147904 | 0.1241922322 | Core |
| VAIBHAVGBL | 486.76 | 996.7 | 104.76 | 0.09030135267 | 0.1157791021 | Core |
| RACLGEAR | 120.16 | 246.55 | 105.18 | 0.07458434209 | 0.09582505909 | Core |
| MASTEK | 1208.36 | 1973.7 | 63.34 | 0.08798215111 | 0.08998408854 | Core |
| SEQUENT | 185.77 | 290.55 | 56.41 | 0.06996278318 | 0.06851706036 | Core |
| LAURUSLABS | 314.92 | 487.45 | 54.79 | 0.06984335606 | 0.06769261274 | Core |
| SAREGAMA | 1651.73 | 1975 | 19.57 | 0.07925473751 | 0.05933891764 | Core |
| AXTEL | 235.42 | 301.8 | 28.19 | 0.06088086547 | 0.04887007923 | Core |
| DYNPRO | 301.61 | 509.05 | 68.78 | 0.04509913939 | 0.04766167545 | Core |
| NCC | 34.84 | 76.75 | 120.31 | 0.0330456875 | 0.04558283944 | Core |
| POKARNA | 222.5 | 252.25 | 13.37 | 0.05958802297 | 0.04230059552 | Core |
| ANGELBRKG | 550.02 | 560.65 | 1.93 | 0.05830688048 | 0.03721512625 | Core |
| ARMANFIN | 653.92 | 550.65 | -15.79 | 0.04195755616 | 0.02212318001 | Core |
| Growth in Capital Deployed | 0% | ||||||
|---|---|---|---|---|---|---|---|
| Total Returns | 71% |
Few very interesting updates:
- In the interest of style diversification, I have decided to experiment with a couple of smallcases. I have subscribed to Abhishek basumallick sir’s Q30 smallcase which is a quant small case with momentum+fundamentals based strategy. I have very high respect and regard for abhishek sir and expect to learn more from his Quantamental newsletters while also letting my capital compound well.
- The second smallcase I invested is in Negen PMS’s Neil’s Tech+opportunistic smallcase. I’ve been following Neil bhai on twitter for quite some time now. A LOT of companies he invests in are of special interest to me. I thought there could not be a better opportunity to learn from someone while also investing in a theme that I believe in and compounding my money well.
- Due to these factors I have not grown my own PF at all this month, since capital is limited.
- I also had to go through covid for last 3 weeks. things got a bit out of hand and had to get admitted to a hospital due to low oxygen and very high fever even on the 12/13th day. Thankfully doing much better now and recouping @ home. I mention this on my PF thread because I had to make some large purchases (oxygen concentrators which were being sold for 3x the usual price) by dipping into my emergency funds which will also need to be replenished. Capital deployed into PF might not grow a lot in coming few months.
- I decided to sell out of astec. Astec has a bright future and will grow bottomline at 20% for many years. In general i liked their Q4 commentary and like the direction company is going in. However, I want to have high allocation to my top picks and hence over time want to reduce PF size as much as possible. Astec seemed like the most obvious candidate being quite highly valued at 4x sales and with growth which IMV pales in comparison to the company to which I switched capital (next point).
- I decided to deploy astec funds (and then some) into Angel broking. The more i read about angel the more i realize how absolutely under a rock I have been living. Indian equity markets are full of such amazing transformation stories that just need our research to uncover. Will try to start a VP thread on angel when i feel better/stronger mentally (still recovering from covid physically and mentally). While most brokerages were losing customers to zerodha in 2020, angel was only one able to grow similar to zerodha. They are focussing on market share gains which will translate into high topline growth for 2-3 years at least. They are cognizant of the somewhat cyclical nature of broking and are working to apply for an AMC license. Their vision for AMC (smart beta, ETFs, algorithmic/quant ETFs) is also something i agree with (this is the future). The new CEO, Narayan is an absolute tech giant and is the ex CTO of ola and ex head of engineering at Uber. Has worked at Google too. His leadership will transform angel from a broking to a true fintech. First time I heard an indian CEO talk about 4 9s reliability being a top level goal. Angel has not even started the distribution of MF and insurance yet. This cross selling will directly add to the bottomline and hence large operating leverage will play out. My PF sizing here is not at all proportional to conviction. Reason I have started with a small position is that i am not a hasty person. I will continue to study and build the position over next few weeks.
- Results season is going on and companies are performing phenomenally, including PF companies. Will post complete analysis post all results declaration. IDFC First, Angel broking, Laurus Labs, Mastek and Astec (ex company) and embassy have all given stellar results.
- I stopped tracking embassy here in the table simply because capital appreciation is not really the point there. I liked embassy’s Q4 commentary and remain bullish on the long term prospects of REITs
Disc: This is not buy or sell advice. Only a catalog of my thoughts and decisions. Nobody should construe this as investment advice.
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