ValuePickr Forum

Sahil's Portfolio

I do not know. Frankly all these questions are best asked to abhishek sir. I don’t want to presume and give wrong answers.

No window dressing. 46% cagr is past returns. Nobody knows what future holds. It could be 20 30 or 40. Or 60. I am here to participate and find out what that numbers would end up being. Stock markets much like history does not repeat but it often rhymes. Lets see what happens.

Why I run pf: because I love equity research and it isn’t a black box. I know why I own what I know. With sir’s strategy it is a black box which is not as intellectually satisfying an outcome. At the same time I think style diversification is important one has to derisk against one’ s own self .

Sorry I am not qualified to give investment advice. What I can tell you is that I have roughly 6% of net worth in the strategy and it would go down substantially unless I put more money over the next year (annual savings to net worth ratio is quite high). So in terms of risk for me this is negligible risk.

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Hi Sahil, can you tell us your rationale for Saregama?

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#saregama had an amazing Q4 concall. My key takeaways also summarize my investment thesis. See if this helps:

  1. Music licensing industry growing at 11-12%. Saregama growing at 21%. Guidance to grow at 22-25%. In b/w lines: growth guidance revised up, purchase of 20-25% of all new music in india. Business is total cash cow.
  2. Carvaan is not just a profitable product they sell at 25% GPM, they want to make it into a platform for audio streaming: podcasts, new songs, and thus generate recurring revenue through ads and subscription.
    In b/w lines: reminds me of Google home. The focus should not be in the product But rather strategy of using the product to capture mindspace of the user. Also, enables B2C interactions with customers enabling data analytics. Only music content company in india which also has B2C
  3. Movies biz to grow 15-20% for 3-4 years. Can make 100 films a year some years from now.
    In b/w lines: film is also content IP. monetization will continue forever. When saregama makes a film for Netflix, saregama still owns it. Netflix will only show it for 3-7 years. This second monetization would be very high margin directly flowing to bottomline. Lot of future Operating leverage in the future. In all 3 businesses. Even caravaan (specially 2.0) which some might consider a gruesome business is actually not.

PS: I am being lazy and copy pasting my concall summary i has posted on twitter:

if you want more details i’ll have to take some time, think then get back to you.

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1st and 2nd point ok while the 3rd one is very risky business.
While in long run they will be able to recover the cost but
In short run 3-4 flop films of >100cr Budget can hamper or degrade the overall performance.

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What is happening is that the twiiter conversation is getting replicated here :smiley: someone has already asked this on Twitter. I has clarified. Saregama does not have high budget films they make made to order films for digital platforms which are low budget low capital low risk. When Netflix has already bought the rights there is no risk to yodlee. They simply won’t make 100cr films. The MD literally said this in the latest concall. Besides they also have very stringent SOP which enable them to ensure that only good films get made not ones which are vanity projects for the management or corporate bosses.

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@sahil_vi Since you have very well articulated your view of Saregama, wanted to check if you have any views on Tips and its current demerger plans and its current valuations.

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Still studying tips don’t understand it as well as saregama. The current earnings are inflated due to no content Aquisition in last few years. They claim to have payback period of 1 year. Maximum 2 years. Which seems a bit whacky. Who is selling their songs at such a low valuation I am unable to understand.

I felt the management is not as professional as saregama’s. Seemed a little more mom and pop operation. At same time they are guiding for 25-30% topline growth. Revenue for 9MFY21 went down compared to 9MFY20. you wont find the reason easily but I understood reading the concalls. They get only 60% from OTt digital right now and rest from tv/traditional means so due to covid the traditional revenue would gone down.

As the digital grows the lumpiness would go down.

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Thanks @sahil_vi for the prompt response. I agree with your assessment management of Saregama is more professional than Tips, which is a more of a family run enterprise. The current buzz around the demerger has piqued my interest, but I unable to figure out the demerger maths under current valuation. Earlier Suven demerger story had played out very well and valuations were in favour. Under current prices I am not so sure if it holds. Sharing a interesting piece on the same. Do share your thoughts after going through. TIPS Industries: 3-5x Optionality Play - Diary Of A Private Investor

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Will probably do so. But still trying to understand it. That knowledge may turn out to be useful later. On Sasta Sunder, Moneylife covered it a few weeks back. You may find it helpful.

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Thanks for sharing, i have read everything publically available on sasta sundar. :grin:

The article has some factual inaccuracies. Apart from that i already knew most of what was in the article. The author believes tips is undervalued. Author believes saregama’s other businesses are gruesome. I disagree on all fronts. What we can agree on is that tips will definitely deliver good business growth. At same time i like saregama content library way more than tips.

Tips keeps hitting UC how does one even buy such a company? I would not be investing in tips, or even playing it as a demerger play.

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@sahil_vi

Question on small case.

Assuming you receive the monthly update on last market day of every month , next day few of them either hit upper or lower circuits or price moved more than 5% (North or South), how will you handle this situation ? Since the small case tracks the performance based on the closing price (I am assuming) how your absolute returns will be compared against their released numbers over a period of time?

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correct. there would be minor variations. just a deficit of the product.

what if it hits UC or LC 20%, will you still go ahead and buy ? Is that not the same flaw we have in MF, where they are forced to buy since money is keep flowing in ?

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sure. i am benchmarking a product with minimal capital. I dont see what the problem is. If you are following the thread, you probably know i am not doing this smallcase for generating alpha for the PF, only as a benchmark. I have minimal capital invested in this smallcase.

my intention of asking the question is how the price movement impact your buying decision ? aint questioning your thesis.

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it doesnt you place a market order and buy it asap, as simple as that.

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Im surprised by the # of questions on smallcase on this thread. I dont know why people assume i am an expert on smallcase and ask about all the corner cases and how X and Y and Z work :smiley:
I do my best to try and give an answer but frankly these are only guesstimates because i havent been a smallcase user for very long either.

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Sorry to hijack @sahil_vi, just adding my thoughts

I have invested 5% of my corpus in Abhishek’s quant fund. Joined last November with the intention of creating some alpha (I’m not good at it) and trying a quant model (as an engineer got obsessed when read about it).

But Folks should understand that this year market is in the uptrend, so quant performance is excellent above expectation. We need to watch how it performs during a downtrend and sideway market. Abhishek’s recommendation is not to invest a significant part of the portfolio in this and to go slow as the risk is high.

In my personal opinion, if your portfolio size is good enough, diversifying a negligible portion to such high-risk bets makes sense if you are not good at technicals and momentum investing. If your overall corpus is small, it doesn’t make sense as you need to pay subscription charges and take high risk.

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Valuations

Someone had done calculations for laurus FY23 earnings based P/E of 14 and was asking whether it is cheap or not. I wanted to share my thoughts on valuations. Copy pasting my answer here to ensure my thoughts on valuations are documented on my pf thread. I could also link, but my suspicion is my laurus post might get deleted since it is technically unrelated to laurus :smiley:.

Valuations lie in the eyes of the beholder and are the most difficult part of any investment thesis for me personally. I have seen so many amazing businesses but given them a skip (prince pipes) or decided to
sell out (poly medicure) because the valuations seemed stretched/not enough margin of safety. Everyone has a different way to value a company. There is no single “valuation” to speak of. Each investor must make their own decision on what is cheap, what is expensive. I can give you some guidance on how I think though note that this is not investment advice.

I personally think valuations are completely driven by (narratives around growth & unit economics) and and opportunity cost. If the collective market thinks a company will grow topline at 10-12% for 10-20 years with high and stable or improving unit economics and with some operating leverage higher bottomline growth, then valuations would remain elevated. P/E of 100 is elevated. P/E of 50 is also elevated (to most investors). Why I add opportunity cost is that some growth hungry investors (count me in this bucket) would decide to sell off their 12-15% Asian paints compounder and rather go after economy facing stocks like X,Y,Z. As long as the narrative around growth and unit economics remains, valuations would remain elevated as price discounts decades of growing stable profits.

So we must ask ourselves about laurus labs. Are laurus earnings as predictable as some of the other companies? Does market believe so? I would say no. Thus, since you are looking at FY23 earnings whether 14 P/E is expensive or cheap would depend on Laurus’s growth prospects and unit economics in FY23 and beyond. Now investor can do their own homework (by reading this VP thread, and other laurus labs material like the collaborators laurus thread: Laurus Labs: A much bigger journey ahead?) and try and understand what laurus labs would look like in FY23 and beyond. What would the growth prospects be? What would the unit economics be? Are both trending down or trending up. How stable or sustainable are they versus lumpy or one-off. Are there going to be far superior opportunities to Pharma/Laurus in FY23 which cause opportunistic investors to jump ship depressing valuations. Answers to these questions and experience based on studying evolution of valuations of multiple companies over market cycles can help an investor answer whether a P/E of 14 based on FY23 profits is cheap, or not.

The next question becomes how do we figure out these numbers. How do I figure out what growth beyond FY23 and unit economics beyond FY23 look like. Well, this is why valuation can only be done after developing a deep understanding of the business. And since a business is like a movie, we need to keep repeating this exercise every few months/years. Some places to start doing so for laurus would be sajal sir’s biotech seminar to understand the industry structure, growth prospects. In this BQ interview Dr chava gives some soft guidance on what richcore/laurus bio could look like in K years.

In short we have to consume all publically available direct evidence/sources (interviews, concalls, ARs) as well as read industry reports and understand broader trends to figure out the quantum of the growth we can expect. Also, we can track product mix change from same management commentary to understand the way unit economics and margins are headed.

There is another interesting aspect to valuations. One does not need a weighing scale to tell whether someone is fat or not. Similarly we do not need exact estimates of FY23 beyond growth and product mix changes to tell whether a P/E of 14 is expensive or cheap. We only need to evaluate whether there are enough growth and unit economics triggers to sustain or improve current valuations. Then, as a corollary, P/E of 14 on FY23 earnings would be cheap. :slight_smile:

PS: Since valuation is an art, all of these are just my opinions. I could be entirely wrong about everything

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