I have been in markets since almost last 4 years. I am starting this thread to share my ideas that I hold and interact with community over here to learn together.
I have fairly diversified portfolio but top 20 holdings have nearly 90% allocation. I look for companies which either have potential to grow faster than 20-25% or consistent compounder types which will not have much gyrations on quarterly basis and you can just be passive with them. I also want to make sure diversification across sectors because having the right theme can keep the portfolio afloat in right direction and the sectors keep on rotating these days.
|Mold Tek Packaging||3%|
|South Indian Bank||2%|
With bull run after COVID, the ride was fairly easy in broader markets as everything moved up and there were lot of multi-baggers in 1.5 year period. For me, Saregama, Laurus Labs, Polycab, Deepak Nitrite, Mold Tek Packaging, ITC all have delivered exceptional returns.
Saregama has been there since Oct 2020 and was easy pick given the music streaming trend, licensing led heavy cash business model they have. Going forward, guidance is to grow at 20-22%.
Deepak Nitrite has been 4x at CMP but I have been trimming the position size as immediate risk reward isn’t that favourable and next set of capex still away for ramp up.
Polycab came in the portfolio around 700-800 and its wires and cables theme is fairly steady proxy on building materials front, so I plan to hold it until I find a better opportunity. This could also be a proxy play on the capex story of India, so seems fairly poised to give decent returns still from here on. 15-20% compounder likely from here on.
Mold Tek Packaging was the idea borrowed from Marcellus around 300 levels and it is a proxy on FMCG, Paints sector majorly since they make packaging containers for these products. What attracted me was the consistency and upward trajectory of margins for the company and the key relationships it holds with likes of Asian Paints. At CMP, risk reward seems unfavourable, even though they are doing lot of new capex and adding higher margin products, hence have trimmed the position.
ITC was again a very initial buy as it used to come in all valuation screeners where one puts P/E < Historical P/E It was dormant all through 2019-2021 in my time but it has been phenomenal in last 1 year. Still worth holding in my view.
Then there is LTTS in the portfolio at 2500 avg., which went up till 6000, but I did not press sell button and it came down back to 3000 . I have written about it in detail in SOIC blog and I feel it has long runway of growth. So until the time valuations become obscene again or any other structural headwind comes for prolonged period, I would not be willing to sell.
HCG turnaround story where professional management was brought in to reduce debt, focus on return ratios and now the co. is on track to improve margins year on year.
Lemon Tree is < 1 year old holding where thesis is that they would be able to do 350-400 Cr EBITDA this year and stock might be around 120-130 when it will be time to make a sell call.
Radico Khaitan compounder story in alcohol sector which has created several brands up till now. With current headwinds of higher ENA and glass prices, to me it seemed fairly valued from 5 year perspective. I expect close to 20% stock returns from this one given the topline can grow at 15% and there is lot of headroom for margin improvement with premiumization efforts and backward integration after inflation recedes.
APL Apollo is a story of excellent entrepreneur Sanjay Gupta ji who has scaled the steel tubes business magnificently and has now > 50% market share. Going forward they are nearly doubling the capacities and going into higher EBITDA/ton products. I would not be surprised if APL Apollo does 2000 Cr EBITDA in 3-4 years.
Arvind Fashions is newest buy and this is a turnaround story where management wants to consolidate on the brands and grow the EBITDA margins in 12-18 months with 12-15% improvement in topline. With improvement in perception as well given it trades at 12 EV/EBITDA, this seemed to me a good turnaround story which is still under-priced. Though I am conscious of their capital allocation that can go wrong here and competition that apparel category has.
Sapphire Foods QSR bet that is one of the cheapest option and wants to double store count in 3-4 years where PAT growth can be 25-30%. The discount is there due to PE fund holding major position and that is the risk as well to the thesis.
TCNS Clothing is another turnaround play which actually did very well in 2011-2020 period and grew 10x in sales. The business is facing some inflationary headwinds and since the competition has also increased in women ethnic apparel, it remains to be seen if they can emulate similar performance in next 3-5 years. My bet is if they can do 1500 Cr topline with 15% EBITDA margins in next 18-24 months and with some rerating, my job should be done here.
RHI Magnesita refractory consumable co. proxy of steel sector is seeing tailwinds from Indian arm. Buying thesis was reasonable valuations for a MNC co. which can grow at 15-20%+ and with some export tailwinds it can be decent compounder over a period of time.
Tata Consumer, Syngene are the older ones in portfolio which haven’t contributed much to the portfolio in terms of XIRR. Syngene is quite a unique player in India with seemingly strong capabilities in CDMO.
HCL Tech is a recent buy and is already 20% up in this IT bounce back. I bought it with thesis of good dividend yield of 4%+ and the low valuations after recent IT correction with a view to get 15-17% returns atleast including dividends.
Gokaldas Exports bet is on management which is so far defying the slowdown in textiles and apparels. Thesis is if they can become most efficient player out of India to consistently win export orders for apparel to big retail brands of the world and grow at fast pace for 3-5 years. They have guided for 20% growth in FY23 and with kind of optimism and confidence that management shows, FY24 might be another good year as well. Valuations have always been reasonable here since there is disbelief that this sector can do well.
SChand thesis is on launch of NCF. If it doesn’t come through, I might exit immediately as it is already 40-50% up.
RACL I have been studying recently and hence position size is small. Seems well placed with customers selling premium bikes and all.
Divis started buying after its massive fall. It has been darling of the markets all along but due to inflated sales of COVID drug, markets have punished the stock severely now. Management is still upbeat to grow the business and go back to 40% margin levels. Larger theme of China+1 API story is still intact. I plan to watch and nibble along if nothing major is breaking.
Navin Fluorine initially was 4% allocation but trimmed it to 2% due to obscene valuations. The existing capacities are doubling and another 1500-2000 Cr capex is getting planned. EPS growth numbers will be superb but valuations leave little comfort.
Astec again is a tracking position which is overvalued at the moment. What I learnt while buying it around 1700 was that topline can almost double here as well in 3-4 years. But valuations have shot up and I might sell or wait for some corrections to add more.
NH I have been selling since I feel incremental capex of 2000 Cr can again dent the return ratios and market might not like it. Though they are doing greenfield in same city but I find better opportunities for now to invest.
So far the portfolio has done well, but it shall be acknowledged that buoyant Indian markets have a role to play in this. It is incrementally hard to find GARP ideas these days as near term growths are mostly priced in. But every week or so, 2-3 companies come to the radar which have some or other thesis behind them.
Lately, I have been studying Ganesha Ecosphere, Elecon Engineering but still not fully convinced that GE can actually win in longer term since the rPET sector is quite fragmented in nature. Similar concerns on sustainable 3-5 year growth in Elecon have kept me away.
Some errors of omission -
- Never bothered to understand financials and they have done well now
- Did not invest time early to read more about likes of Timken, SKFs and other capital goods plays
Some errors of commission -
- Wrong extrapolation of Neuland Labs, Sequent numbers and entry point. Though saved by low allocation and did not get impacted much
- Incorrect judgement of diagnostics, though again minimal impact.