Santosh Portfolio ..feedback/suggestions from members

I have started investing in stocks from last three years. I am trying to understand more about the stock market and started reading books on investing and following different forums. I am a long term investor(more than 10 years) and will keep on accumulating when ever there is a good opportunity. I am posting my portfolio below for feedback from all forum members.

Granules 25%
Repco 23%
Page Industries 18%
Gruh 15%
PI Industries 10%
Relaxo 5%
Premco 2%
Kitex 1%

As of now I am planning to increase my exposure to relaxo, kitex and add newly kaveri seeds(because of recent drop and prospect for future growth is high as per my understanding). I am also thinking on exiting out of Gruh and searching for another stock(started looking into ajantha/shilpa). My preference is not to have more than 10 stocks in portfolio as it helps me in focusing on the stocks that I own and will try add new stock only if i find a new stock which has more value.

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What is your reason to exit gruh.

Housing finance co have good prospects, in my opinion.

Hi Santosh,

I really like how your portfolio is structured. Although, I do not understand why would you sell Gruh.

Is it a recent buy? If not, I’ll suggest you to hold.

Secondly, I would suggest you to reduce allocation to page and granules. I just can’t see page maintaining the high enough growth rate to justify the astronomical valuations.

Granules can be the other stock where you can book partial and invest in other stocks which you find value buys at current juncture.

Since you have been investing for the last three years I presume your equity portfolio is not a big part of your net worth and therefore my suggestion is to not sell Gruh or any of the top stocks in your portfolio. These are all multi year stories which you have got right and now just sit tight. You can add more to your tail enders/new ideas from savings and fresh cash as and when you have some.

Thank you for providing you feedback. Please find my comments below.
@mayekar
As per my thinking I thought that I am over exposed to NBFC sector around 40%, so thought of exiting from Gruh and try to find a new company in another sector i.e Kitex/Kaveri. As of now I am thinking of holding onto Gruh and may be add new surplus cash into new companies.
@NikhilJain
I will try to reduce my allocation to Granules and try to add into new ones. For page I am not sure on what to do, it has track record of high growth and may be my entry price is low so I may hold it for now and try to exit when the story is over (which I am not sure when it will happen).
@madhug
I am 29 years old and I started learning about markets from 2008 (the time when I started earning). For first three years I did not give importance to stocks and invested in mutual funds and that too a little amount and I was afraid of putting more money into markets. Now I have invested 50% of my savings into stocks after getting some confidence in investing. My friends bought a flat or plots and I decided to start early into markets because of compounding effect (from warren buffet, peter lynch, charlie munger and other famous investors). The main reason for exiting from gruh is because of overexposure to NBFC and other than that nothing else. May be I will think through it again of holding onto Gruh and adding surplus into other new ideas.

Any reason why Granules has to be sold…
It seems to be performing well and is expected to give even better results after 2 qrts, by when market would start to price it even higher.

I’m skeptical if granules can replicate the past growth rate.

I don’t believe there is anything wrong with the business. But I don’t find it balanced, maximum capital being allocated there. Rather move some capital where ‘stock’ and business are set to outperform.

i am biased against kaveri for a couple of reasons:

  1. it seems to be fully dependent on monsanto for tech knowhow. why would
    anyone want to invest in kaveri when you can easily buy monsanto?

  2. a backlash is happening against BT cotton and I fear maharashtra is the
    first state to rein in use of GM seeds.

  3. on ideological grounds these companies dependent on an MNC for
    technology is ushering in neo colonialism in a new format. This time by
    destroying India’s agricultural independence.

disclosure: no holdings and no intention to hold in the future as well.

Shiv Kumar

1 Like

12years, The reason is that granules has increased in allocation and wanted to shift some into next finding.

Thank you Shiv for your views on kaveri. As of now I am in the process of reading about Kaveri and trying to understand more about it. I will look into Monsanto also and decide on what to do next.

@santu555

Granules will continue to do quite well over the coming year or two, though the longer term is a monitorable.
I agree with @NikhilJain suggestion to dilute the Granules holding from 25%.
Perhaps a 50% position switch to Shilpa Medicare can be considered.

W.R.T. allocation to Page, my personal point of view is that Page can offer long term earnings growth @ or in excess 18 to 20%.
Please consider the time horizon you intend to stay invested for, and then decide on the allocation / %.
It is a must hold in any long term portfolio.

W.R.T. Kitex - I recently exited, I was an early investor. I want to receive clarification from management on the “cash” they hold, as well as wait for KCL KGL merger to play out fairly.
Once these concerns are addressed, I may re-enter.

Disc: Invested in Page. Granules, Shilpa.

Please consider this as part of discussion on valuation rather than argument, as I want to understand the difference between my method of evaluation vs others’.

The TTM eps for Page stands at rs. 184.

Considering the company does not dilute equity and continues to grow at CAGR of 20% for next 10 years.

The calculated eps after 10 years at 20% CAGR comes out to be rs. 1140.

At cmp of rs. 14200, the p/e post 10 years still stands at 12.5 (means im still paying for further 12.5 years earnings at no growth/degrowth after 10 years of growth)

Am I missing something here? Because these valuations look crazy to me.

Disc : no position in page and not planning to buy unless there is a mega correction

Hi Nikhil,

Optically Page Industries - for someone who does not own it today - is expensive.

I have entered at significantly lower levels.

Though I consciously look for companies that can outperform over the medium term, I like to own stories like PAGE that can offer 17 - 18% CAGR over the longer term, these are backbones for my long term portfolio. I am aware that keeping allocation to such companies may dilute my portfolio alpha, however, for the margin of safety received, I am very willing to accept the lower return.

Please also Note that there is potential for Page earnings to surprise positively over the coming few years if the range of new offerings they are offering also gain acceptance. the Indian Consumption story is at an inflection Point, and Page is a very likely beneficiary. I will use any significant correction in this stock price to average up. I am attaching an interesting article from Prof. Bakshi which can explain why it is advantageous to average up your high conviction ideas.

Sanjay Bakshi - roller Coaster Investing.pdf (290.3 KB)

Best regards,

Consider this hypotetical example. If a stock is expected to grow at 30% for the next 10 years then all the growth can get reflected in the stock price in first 5 years. You cannot go to year #9 and expect the stock price to appreciate by another 30%. Now coming to page industries the expected growth rate and duration is considered to be favorable given their track record and current market share and growing size of the market.

Hey Aniket,

Nice of you to offer your opinion. I understand that the MOS for an early investor is extremely high for a business like page. Also I agree that a great business such as page is great for your long term portfolio. I personally hold multi year growth stories.

The problem for me arises when you consider the valuations. For a recent buyer I’ve already presented the case above.

Now let’s consider the case for an old buyer. Even if we assume everything in favor of page for the next 10 years, does it seem probable that the market will yet value it at 80x. Unless that happens, you are looking at less than 20% CAGR returns on your holdings for next 10 years from current juncture.

I can not overstate the fact how a few % can affect the compounding significantly over long period.

I do not wish to get into hypotheses as it won’t get us anywhere. Let’s stay stock specific.

And I cannot get over the fact that the stock is already valued at 80x TTM p/e. How can one be sure that the market will still value it at 80x p/e next year?

Dear Nikhil,

I have no problem holding 80 P/E - Page today and tomorrow - in fact as long as it can offer sustained quality earnings.

(My personal feeling is that over the next 5 years earnings growth would be upwards of 20 percent possibly in the mid-twenties.)

It is most likely that further P/E expansion can be ruled out, and I will possibly achieve a 18 to 20% CAGR for Page which is today about 5% of my portfolio.

Considering significant past gains already achieved, I have no problem accepting this rate of return over the next decade.

In fact if my entire portfolio could grow at a CAGR of 20% over 2 decades (while offering me the requisite MOS) I would be very happy with the gains.

Having said that, like you, I am always scouting for market opportunities where I can achieve better returns - (without compromising capital safety). :smile:

BR…

Hi Nikhil,

W.R.T. your thoughts and my response, here is a far better articulation from my favourite Prof. on looking at valuations - the different metrics to apply when buying a stock and later when holding a stock - and when to execute sell decisions. I try to apply this framework to my investing.

http://www.safalniveshak.com/email-exchange-with-sanjay-bakshi-on-valuations/

Have a good weekend.

BR,

Aniket.

Hi Aniket,

Thanks for pointing me to that wonderful article. I read it for the first time when Mr Khandelwal posted it and I’m still in awe after reading it for the second time.

Now, allow me to point out few things hiding in plain sight (at least that’s what I believe).

This, I believe, applies to anyone looking to invest in Page at current price.

The professor says -

“Now, all that one has to do is to figure out it makes sense to buy the stock or not by calculating the expected return and comparing it to other opportunities available to you at that time.”

In one of my previous posts I tried to arrive at a conservative eps after 10 years for page, which came out to be Rs 1140/share. For the sake of convenience, let’s consider it to be Rs.1200/share.

The prof. mentions that he uses exit multiple of well below 20x. For Page, let’s say it is 30x.

So we arrive at a conservative(?) price of
rs. 36000/ share. That’s a 2.5x from current position. That’s approximately a CAGR of 10% for next 10 years.

I believe, a new investor certainly has better opportunities available in the market.

Now, for those who hold from lower levels (I know you savvy folks have made great returns).

The professor says -

“One last point: If something is working for you, and you don’t have cash and if something else turns up and you like it a lot, then you should sell what’s working for you only when what you want to buy will give you a significantly higher expected return. Otherwise, just hold on to your great businesses and let them compound your capital for you.”

Now, I agree that I don’t hold page so it’s really not my stock to worry about. But for the sake of learning, pray tell me folks, do you see any opportunities in the market that can provide significantly better returns than a 2.5x in next 10 years?

P.S. - Aniket and other boarders, I hope I’m not being over-persistent with my point. I just want to learn and improve myself.

Santosh, apologies for diverting from the main topic consistently.

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about page, i agree its not a buy at this level. for some one who has been holding from a lower levels, i dont see any reason to switch. some points. i will keep it simple since most of us know page very well.

  1. no meaningful competition.
  2. some of the other names like bluedart,Gillette, jubilant foodwork etc trading at 100 plus pe. this is despite repeated under performance in several quarters. HUL with flat growth is trading at 50 pe. what it implies is that one can get out with minimal damage even in the event of bad result. ( page had its first bad (relatively ) quarter in q1 and the price didn’t fall much.
  3. in this overvalued market (even after this correction), where are other compelling buys in the high quality space? ( business with predictable earnings, scalability etc)
  4. pays 40% of net profit (consistently) dividend. usually high growers dont give that kind of dividend.
  5. i have seen tons of companies/instances where reported eps growth is a lot higher than sales growth. you can call it operating leverage, margin expansion or whatever. but this cant go on. in case of page, the profit growth rate has always been equal (more or less) to sales growth. this is one thing i like about page.
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Thanks Gautham, I agree with your thesis.

@NikhilJain, just take my views for what it is worth. We cannot take someone’s exit multiple as base and arrive at PE. Market will not oblige us in both upside and downside. There is a HIGH price to pay for predictability and sustainability. If page can grow at 35% fo the past 6 years when the economy is not very good it can very well grow at at least 25% when economy leaps. So EPS after 10 years would be 1840. Coming to PE, I would say it will sustain 50 PE if the business maintains its current high ROCE, ROE, Dividend payout, Cash flow. Capex also would have been reduced by then. In which case the price would be 92000 plus dividends each year. I myself do not like to predict 10 years ahead. I would only go 3 years from now and I believe Page could be a doubler from here in 3 years and I’m happy with it.

Generally, companies like Page will be valued at “X times Sales”. I would say page can command 7 times revenue. Currently it is at 10 times sales. So reverse engineering from my above paragraph, would Page attain a sales of 13000 crore in 10 years? Let’s see. I think Page can command 25% market share. Market size for men, women, kids, swim wear in aggregate can be 75000 crore.

Very forward looking statements, so please feel free to sideline me.

@Donald and other admins, I think the last few opinions on page could be moved to Page thread.

Disclosure: I hold page in my concentrated portfolio and I’m not good at predicting stock prices, just that you wrote next 10 years from your view, I wanted to pitch in with my view. Of course, if the current business case changes I would exit.