Southern_Cross's Portfolio

Thanks for your questions.

Here is my attempt to answer your questions

  1. Covid has impacted the business of Non-Covid for Dr. Lalpath labs in the initial quarters of the pandemic. In Q2 FY22 revenue, 90% is from Non-Covid business which means it almost regained earlier revenue mix. What Covid has brought to us is the healthcare awareness apart from taking term insurance. Majority of the people will now go through the precautionary/yearly/half-yearly check-ups which will eventually benefit the diagnostic businesses. Dr. Lalpath labs has got the omni channel presence and so is the distribution reach. The company has consciously invested in technology(AWS case study) in 2017 to reduce the turn around time for a medical test result - most of the times within a day. During distress times like in the pandemic, the strong ones become even stronger. The management is also excellent capital allocator, they did not raise any capital from market till now and recently acquired Suburban Diagnostic chain in an all cash deal of ~1000 Cr. Many senior investors in valuepickr as well as Warren Buffett consider this to be one of the key tenet for a great business.

Further information…

The MD has mentioned a use case about how the patient medical data can help in differential pricing in case of insurance in the video link I posted. In fact, they also started the vertical Genevolve as next growth area. From what I understand, based on the past medical data, there is a 70% chance that they can predict the future possibilities. Now, here we have Dr. Lalpath labs ahead of other chains in technology and also understands the use cases of data and has the data.

Recently, there is a news of capping of RT-PCR test cost in Delhi.

The government reduced the RT-PCR price as well as asked the diagnostic chains to report the positive case information within 12 hours. The small chains could not break even as well as will not have infrastructure to report within 12 hours mandate. Again, the stronger ones like Dr. Lal will take more volumes now, which will at least compensate for their Covid revenue that is again only 10% of total revenue. I increased allocation gradually during this time.

  1. What are your thoughts on FED rate hikes and its effects on high P/E companies in your portfolio?

I am still trying to understand macros.
What happens when FED rate hikes?

  • The excess liquidity is taken out which means some of the FII/FPIs will reduce their share-holding in some of the stocks/ETFs they own as they need to rejig their asset mix balance. This can have some impact on the share-prices of stock where FII/FPIs hold more share-holding. In some cases, the DIIs and retail buy these in case they are of good quality. All through 2021, there was continuous selling from FII/FPIs. Most foreign inflows are indirectly based on MSCI Emerging Markets index. Now, for them to return, India should be in attractive valuation within the emerging markets space - India, China, Taiwan, South Korea and Brazil constitute ~80% of the MSCI Emerging Markets Index.

I don’t know when India becomes attractive in terms of valuation comfort. However, South Korea has been lobbying to get its position moved from emerging markets to developed markets index.This rejig decision will happen in FY24 and so the decision will be out in Mid-FY23. If this happens, a big majority of flows can move to India as it is one of the fastest growing economies in large countries in terms of GDP and also relatively stable. This can again bring in some flows to India.

  • Funds will be difficult for the capex heavy companies. Corporate India is very much de-leveraged now and banks are far away from NPA mess and in much comfortable position to lend. In case of interest rate hikes in India, the companies with debt, will have more interest outlay that will reduce PAT.

Here are the high P/E companies in my PF.

Company P/E
Fsn E-Commerce Ventures Ltd (XNSE:NYKAA) 2,227.64
OLECTRA GREENTECH LIMITED (XNSE:OLECTRA) 250.91
AVENUE SUPERMARTS LIMITED (XNSE:DMART) 184.95
NAZARA TECHNOLOGIES LIMITED (XNSE:NAZARA) 153.27
TITAN COMPANY LIMITED (XNSE:TITAN) 123.56
PAGE INDUSTRIES LIMITED (XNSE:PAGEIND) 109.31
ASTRAL LIMITED (XNSE:ASTRAL) 85.44
JBM AUTO LIMITED (XBOM:532605) 78.75
INDIAN ENERGY EXCHANGE LIMITED (XNSE:IEX) 74.16
DR. LAL PATHLABS Limited (XNSE:LALPATHLAB) 60.97

There is a history for Astral, Page, Avenue Supermarts, Titan and these companies will have elevated P/E as they demonstrated superior capital allocation, great management pedigree and consistent performance. They fall under consistent compounders and given my investment horizon, I don’t see any issue with them.

Nykaa and Nazara is at very high P/E but then there is no debt part to it. Both these companies do not raise capital for their operational purposes. These are new age and so will take more time to show numbers that justify their valuation.

Dr. Lal Pathlabs doesn’t have debt and market gives a premium P/E for these companies for their management pedigree and capital allocation

IEX is a long term bet on channelising the power/gas into exchanges from long-term contracts and it does not have debt or needs to raise capital from market

Olectra does not have any debt but it needs to raise capital for its growth. No problems here as the promoter is having money muscle and as mentioned in the Nov 21 ICRA report, they are in a very comfortable situation to support the growth plans of Olectra. The only company with reasonable debt(d/e ~1.44) is JBM Auto which forms 3% of PF. This is something I see as benefit of EV theme. The management guided that they will deliver 700 E-Buses by March 2022 and it is a play on CNG and E-Buses. At the moment, it is a risk I am willing to take.

Above all, in the case of massive drawdown, I will buy some more equity by reducing debt component further.

2 Likes

A few months back I was watching the annual iPhone launch event and when I saw the latest features of the Apple Watch, it got me thinking about the inherent strength of the business model of Dr Lal Path Labs.

Apple Watch initially introduced heart rate monitoring, then a year later it added irregular heart rhythm notifications. Another year later it added the ability to take an ECG (for which we currently go to a diagnostic imaging center) and now in the latest avatar it has also added the ability to measure your blood oxygen saturation levels (for which medical devices up to Rs 3000 have been widely purchased in the past 2 years necessitated by Covid). Every year, a new medical feature is being introduced on the Apple Watch. But this is not about the Apple Watch.

This is about the business model of Dr Lal Path Labs. What is the business of Dr Lal Path Labs? It’s nothing but taking different kinds of human body samples (blood, urine, etc.) and giving you a diagnostic report of your body’s key metrics (example - blood glucose, cholesterol, haemoglobin, thyroid, vitamins, etc. etc.). And I have just 1 basic question for this business.

Why is this business not an ideal candidate for technological disruption and why will technology not progress enough in 8-10 years that most key/common metrics of a human body are available at the click of a button on a watch or some kind of smart medical device?

The only answer I can think of is that the blood samples need to go through multiple different tests in an accredited laboratory which would not be feasible in a normal medical device.

The whole future of Dr Lal Path Labs hinges on this question according to me. Because once technology advances, most health care / diagnostic businesses will see a sharp sharp decline in revenues apart from very advanced/complex tests which can only be done in a laboratory.

This sole question is why I didn’t pile on to Dr Lal in the recent correction else it’s a fabulously well run company.

PS: If somebody comes back saying the Apple Watch costs 40-50k or those medical devices would be exorbitant, then please just think about the pace at which technology becomes cheap as well. The same watch would be available at less than half price in 3 years. Anyways, we all know how Chinese competitors work at lightspeed to copy latest technology and making it democratic for the entire world to use.

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Its already happening , https://bluesemi.io/ IITH incubated startup has non-invasive device to measure many vital parameters.
BlueSemi launches non-invasive consumer healthcare gadget EYVA
Many other healthcare innovations are being bootstrapped in IITH .

Not everything in this space might get disrupted , there will be some test which will need labs .

Not tracking or invested here .

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You need to check your labs regularly if.you have chronic issues. Maximum people generally go to lab when doctors tell them to go. Doctors will always tell you to go to lab. Apple will not certify the results of their devices but a lab will do.

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Here’s a doctor for you using technology for a patient check-up

The threat is not imminent, certainly not in the next 3-4 years but from a long term cash flow discounting perspective there are grave threats in my view.

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Dr. Lalpath labs or for that reason any diagnostic lab is a facilitator for the doctor to understand the condition of the patient’s current condition by providing medical reports. The first thing to note here is the accreditation from government as that is one of the sole reason why not anyone can set up a lab. If we look at the bigger picture, there are devices to measure the diabetes level but then doctor asks for a report from a diagnostic lab only. The other way to look at is, whether there is any reduction in opportunity size in the market.

During its IPO, the MD mentioned the diagnostic market was 37000 Cr and growing about 16-18% which is fastest within healthcare sector. The reason why it is growing this fast is due to rise in incidents related to lifestyle disorders, practice of medicine is becoming more evidence based and as healthcare awareness goes up, people are going for preventive healthcare check-ups.

All the above points are relevant even now and as per capita income increases, the market size also expands. Based on the below article, the domestic diagnostic industry estimated at $9 billion (around Rs 675 billion), would grow at a compounded annual growth rate (CAGR) of ~10 per cent over the next five years. The pathology segment contributes ~58 per cent of total market revenue, the bulk of this sector. In a market where diagnostic chains command approximately 16 per cent market share, the Edelweiss report predicted consolidation, with national players increasing their market share.

Now, within the 16 per cent market share of diagnostic chains, the bigger ones - Dr Lalpath labs, Metropolis, Thyrocare and SRL diagnostics together constitute only 6%. My understanding is, there is going to be lot of consolidation left in this industry and the overall market opportunity itself is expanding. Like in IT, automation reduced some work load and it did not hinder the market as consultants are focusing on more productive work, I assume, in the diagnostic industry as well , the less complex ones which are substituted with better technology, gives way to next level of tests.

Especially, the government is looking at creating digital health records which is announced as part of the current budget. The diagnostic labs have a role to play here and only the certified records will be maintained as sanity of data is of utmost importance here. In fact, Om Manchanda(MD) is aware of the technology disruption based on the talks in Marcellus team video. The companies which are looking at consistent 35% ROCE growth, cannot afford to miss revenue visibility for next few years so soon. Even if they do, they will be reminded in the quarterly concalls. In the video, they showcased Dr Lalpath labs gained market share during Covid compared to others.

In the end, Saurabh Mukherjea after his channel checks, will meet the management and share his observations, before dropping Dr. Lalpath labs from Coffee Can Portfolio stocks…

4 Likes

Here is the portfolio update for February 2022

Sr. No Company Sector Capitalisation Allocation % Rationale
1 BSE Limited (XNSE:BSE) Financial Small Cap 12% Financialization theme
2 HDFC ASSET MANAGEMENT COMPANY LIMITED (XNSE:HDFCAMC) Financial Mid Cap 11% Financialization theme
3 AVENUE SUPERMARTS LIMITED (XNSE:DMART) Services Large Cap 9% Long-term retail play, debt free
4 HCL TECHNOLOGIES LIMITED (XNSE:HCLTECH) Technology Large Cap 8% Coffee Can
5 LAURUS LABS LIMITED (XNSE:LAURUSLABS) Healthcare Mid Cap 8% Growth
6 OLECTRA GREENTECH LIMITED (XNSE:OLECTRA) Automobile Small Cap 6% EV theme
7 DR. LAL PATHLABS Limited (XNSE:LALPATHLAB) Healthcare Mid Cap 6% Coffee Can
8 DEEPAK NITRITE LIMITED (XNSE:DEEPAKNTR) Chemicals Mid Cap 6% Growth
9 ABBOTT INDIA LIMITED (XNSE:ABBOTINDIA) Healthcare Mid Cap 5% Coffee Can
10 ASTRAL LIMITED (XNSE:ASTRAL) Chemicals Mid Cap 5% Coffee Can
11 NAZARA TECHNOLOGIES LIMITED (XNSE:NAZARA) Technology Small Cap 4% Promising sector for future
12 TITAN COMPANY LIMITED (XNSE:TITAN) Cons Durable Large Cap 4% Long-term retail play, debt free
13 PSP PROJECTS LIMITED (XNSE:PSPPROJECT) Construction Small Cap 4% Asset Light business in construction
14 GATEWAY DISTRIPARKS LTD. (XNSE:GDL) Services Small Cap 4% Promising sector for future
15 Fsn E-Commerce Ventures Ltd (XNSE:NYKAA) Services Large Cap 3% Growth
16 INDIAN ENERGY EXCHANGE LIMITED (XNSE:IEX) Services Mid Cap 2% Growth
17 HDFC BANK LIMITED (XNSE:HDFCBANK) Financial Large Cap 2% Coffee Can
Stocks
Top 5 48%
Top 10 76%
Top 15 97%
Market Cap
Large Cap 26%
Mid Cap 43%
Small Cap 31%
Sector Split
Financial 25%
Healthcare 20%
Services 17%
Technology 13%
Chemicals 11%
Automobile 6%
Cons Durable 4%
Construction 4%
Defensive 32%
New Age/Theme 14%

Investing Objectives –

Return of Capital - :+1:
Beat BSE Sensex in terms of CAGR :+1:
Beat FD returns :+1:
Reach 15% CAGR :+1:
Beat MF(direct) returns (23% Vs 20% CAGR) :-1:

Changes -

  • Consolidated holdings further and currently 97% of holdings in top 15 stocks

  • Sold off JBM Auto at 5% loss on the day of Q3 results as conviction is not very high

  • In the textiles category, sold off Page Industries(2% of PF) at 42.5k and bought Ambika Cotton Mills(3% PF) on the day of its results. I sold off Ambika at 20% profit within few days as my understanding of its business is very less. In the future, I will buy Page Industries again

  • Bought Nykaa at 1330, taking allocation to 3%. I don’t know how to value it properly but fundamentally it seems to have a characteristics of a compounder

  • I increased allocation to Dr. Lalpath labs further

  • Bought the same amount of stake in BSE Limited which I sold in January after results and increase of stake further by Zerodha

Notes -

  • The MF portfolio CAGR is down by 2.4% where as stock PF is down by 3%

  • Stock PF is down by 10% from All time high in Oct-21 and also YTD

  • HDFC AMC is categorized to Mid Cap from Large Cap and so the weightage of Mid Cap is higher at 43%. HDFC AMC was focus stock of the month and I am still convinced about investing in it after doing some more research.

  • There was a lot of temptation to buy GPIL after following the excellent analysis presented in the VP thread at around 260. I stayed away from it as I can get immediate profit however without efforts and understanding of that sector will have a long term impact on my PF performance as well as the confidence. One of my client asked me whether we have any prediction capabilities, I asked him whether they have a strong business case and sponsor who can support it. Here in this case, I am the sponsor and I am not yet ready. In general, discretion is the theme of February.

  • Changed my job in the best interests of raising capital as well as prudent capital allocation of my time

  • I connected with some seniors in VP and their views and counter arguments have opened the doors further on investment analysis. Networking is one of the key benefits of Valuepickr and an essential element to lessen the unknowns in investing. Couldn’t find enough time these days…

  • I did tax harvesting by selling 30% of my PF on March 4th. I will deploy the proceeds slowly in coming weeks. Incidentally, it coincided with continuing war reaching the nukes.

1 Like

Here is the portfolio update for March 2022

Sr. No Company Sector Capitalisation Alloc % Rationale
1 BSE Limited (XNSE:BSE) Financial Small Cap 15% Financialization theme
2 HDFC ASSET MANAGEMENT COMPANY LIMITED (XNSE:HDFCAMC) Financial Mid Cap 12% Financialization theme
3 AVENUE SUPERMARTS LIMITED (XNSE:DMART) Services Large Cap 8% Long-term retail play, debt free
4 HCL TECHNOLOGIES LIMITED (XNSE:HCLTECH) Technology Large Cap 8% Coffee Can
5 LAURUS LABS LIMITED (XNSE:LAURUSLABS) Healthcare Mid Cap 8% Growth
6 DR. LAL PATHLABS Limited (XNSE:LALPATHLAB) Healthcare Mid Cap 8% Coffee Can
7 OLECTRA GREENTECH LIMITED (XNSE:OLECTRA) Automobile Small Cap 6% EV theme
8 DEEPAK NITRITE LIMITED (XNSE:DEEPAKNTR) Chemicals Mid Cap 6% Growth
9 ABBOTT INDIA LIMITED (XNSE:ABBOTINDIA) Healthcare Mid Cap 5% Coffee Can
10 ASTRAL LIMITED (XNSE:ASTRAL) Chemicals Mid Cap 5% Coffee Can
11 TITAN COMPANY LIMITED (XNSE:TITAN) Cons Durable Large Cap 4% Long-term retail play, debt free
12 PSP PROJECTS LIMITED (XNSE:PSPPROJECT) Construction Small Cap 4% Asset Light business in construction
13 GATEWAY DISTRIPARKS LTD. (XNSE:GDL) Services Small Cap 4% Promising sector for future
14 Fsn E-Commerce Ventures Ltd (XNSE:NYKAA) Services Large Cap 4% Growth
15 INDIAN ENERGY EXCHANGE LIMITED (XNSE:IEX) Services Mid Cap 2% Growth
16 HDFC BANK LIMITED (XNSE:HDFCBANK) Financial Large Cap 2% Coffee Can
Stocks
Top 5 51%
Top 10 80%
Top 15 98%
Market Cap
Large Cap 25%
Mid Cap 47%
Small Cap 28%
Sector Split
Financial 29%
Healthcare 21%
Services 17%
Chemicals 12%
Technology 8%
Automobile 6%
Cons Durable 4%
Construction 4%
Defensive 29%
New Age/Theme 9%

Investing Objectives –

Return of Capital - :+1:
Beat BSE Sensex in terms of CAGR :+1:
Beat FD returns :+1:
Reach 15% CAGR :+1:
Beat MF(direct) returns (23.5% Vs 22% CAGR) :-1:

Changes -

  • Bought back most of the earlier holdings sold during tax harvesting except Nazara
  • Added more HDFC AMC and Dr Lalpath Labs

Notes -

  • The Equity Vs Debt is at 70:30 and within Equity Stocks Vs MF at 75:25
  • MFs entered at a favourable valuation of market, is a much safer investment option especially during transition to retirement phase than direct stock investments
  • BSE Limited share price has increased by 90% in last 6 months, it being one of the top holdings boosted the overall PF CAGR
  • It is better to buy stocks immediately after tax harvesting rather than giving time. Even though I still benefitted from it but lost some profit due to short melt-up after the sell off
  • Achieving 10 year CAGR of 15 is much tougher compared to one year CAGR of 60. I remember Zerodha CEO making a comment that only 1% of traders beat FD returns CAGR in a 3 year horizon.
  • HDFC AMC may become like Unilver of 2000s, which did not give meaningful returns for a long time before turning multibagger. With merger of HDFC and HDFC Bank, I think the distribution reach will be more for HDFC AMC however HDFC Life which is another group company is an indirect competitor with their pension funds. One interesting obervation is, standard life which is JV partner of both HDFC Life and HDFC AMC chose to keep more stake in HDFC AMC than HDFC Life. Can the current inflation dents investor’s confidence and make them go debt side where HDFC is the leader? Can HDFC AMC tap NR(Retail) opportunity with their GIFT city subsidiary? Have to see how things unfold here.
  • On abolute terms, PF is down by 2% in CY2022

Interesting video

Sankaren Naren from ICICI MF speaks(in English) about his experiences in investing of over 3 decades. One of the key things he mentioned is, usually the investors make best decisions during their 3rd cycle and it is that patience to wait till that 3rd cycle, creates wealth

4 Likes

hello sir…In case of 30% debt, where you invest?
also in case of Mutual funds, kindly share the schemes of your preference. And do you think that these schemes will be performimg even after 5 to 7 years or you will reshuffle them to new performing funds…
Also instead of Tax harvesting …in case of monthly expenditures in future, we can withdraw as and when required from portfolio and thus withdrawal will not attarct much tax…thus avoiding the large taxes…Anyways we never need to liquidate the whole portfolio at one point of time…

1 Like

@Mudit.Kushalvardhan - I keep my debt part in FDs and savings account. I tried debt funds earlier but after Franklin Templeton’s debt fund fiasco, I stopped it even though I was not affected by it. I explained about my MFs here

I prefer to keep them as long as possible due to its safety and take advantage of compounding without paying much tax. However, I recently sold off Quantum MF scheme as its performance is not upto the mark. I do tax harvesting to also pay less tax in future.

1 Like

Here is the portfolio update for April 2022.

Sr. No Company Sector Capitalisation Alloc % Rationale
1 BSE Limited (XNSE:BSE) Financial Small Cap 15% Financialization theme
2 HDFC ASSET MANAGEMENT COMPANY LIMITED (XNSE:HDFCAMC) Financial Mid Cap 12% Financialization theme
3 AVENUE SUPERMARTS LIMITED (XNSE:DMART) Services Large Cap 8% Long-term retail play, debt free
4 HCL TECHNOLOGIES LIMITED (XNSE:HCLTECH) Technology Large Cap 8% Coffee Can
5 LAURUS LABS LIMITED (XNSE:LAURUSLABS) Healthcare Mid Cap 8% Growth
6 DR. LAL PATHLABS Limited (XNSE:LALPATHLAB) Healthcare Mid Cap 7% Coffee Can
7 DEEPAK NITRITE LIMITED (XNSE:DEEPAKNTR) Chemicals Mid Cap 7% Growth
8 OLECTRA GREENTECH LIMITED (XNSE:OLECTRA) Automobile Small Cap 5% EV theme
9 ABBOTT INDIA LIMITED (XNSE:ABBOTINDIA) Healthcare Mid Cap 5% Coffee Can
10 ASTRAL LIMITED (XNSE:ASTRAL) Chemicals Mid Cap 5% Coffee Can
11 TITAN COMPANY LIMITED (XNSE:TITAN) Cons Durable Large Cap 4% Long-term retail play, debt free
12 PSP PROJECTS LIMITED (XNSE:PSPPROJECT) Construction Small Cap 4% Asset Light business in construction
13 GATEWAY DISTRIPARKS LTD. (XNSE:GDL) Services Small Cap 4% Promising sector for future
14 Fsn E-Commerce Ventures Ltd (XNSE:NYKAA) Services Large Cap 3% Growth
15 INDIAN ENERGY EXCHANGE LIMITED (XNSE:IEX) Services Mid Cap 2% Growth
16 HDFC BANK LIMITED (XNSE:HDFCBANK) Financial Large Cap 2% Coffee Can
Stocks
Top 5 51%
Top 10 80%
Top 15 98%
Market Cap
Large Cap 25%
Mid Cap 46%
Small Cap 29%
Sector Split
Financial 29%
Healthcare 21%
Services 17%
Chemicals 12%
Technology 8%
Automobile 5%
Cons Durable 4%
Construction 4%
Defensive 28%
New Age/Theme 9%

Investing Objectives –

Return of Capital - :+1:
Beat BSE Sensex in terms of CAGR :+1:
Beat FD returns :+1:
Reach 15% CAGR :+1:
Beat MF(direct) returns (23% Vs 21% CAGR) :-1:

Changes -

  • No changes to PF

Notes -

  • Finished reading “One Up on Wall Street” by Peter Lynch. May be I will read this again in future.

  • The bull market really helped me in accepting stocks/MFs as dominant asset class . The market may go down but at least I know that there will be crests and troughs and proper preparation can give me 15+% CAGR in long term. In the book, Peter Lynch mentioned there are some generation of people(1960s) who could not look at stock market as a good asset class even though they were in higher designations like CEOs due to their family reminding about horrors of losing money in stocks. He also explained 1929-32 great depression happened because US economy was 66% in Manufacturing, 22% in Farming and only 12% in Service sector and there was no mention of pensions, medicare, unemployment benefits etc. There can be regular corrections but repeat of 1929-32 great depression may not be possible. In 1987 October when market corrected, 70% of US economy is coming from service sector and manufacturing was reduced to 27% and farming to 3%.

My PF stocks in Lynch Parlance

Stalwarts - HDFC AMC, HCL Technologies, Abbott India, Titan, HDFC Bank, Avenue Supermarts
Fast Growers - Laurus Labs, Olectra Greentech, Dr Lalpath labs, PSP Projects, Nykaa, IEX, Astral
Cyclicals - Deepak Nitrite
Turnarounds - Gateway Distriparks
Asset Plays - BSE Limited

Stalwarts give the portfolio the much needed stability. The usual quality displayed by these is giving dividends even in recession times. The growth may not be aggressive here but there is more safety of return of our capital. I miss TCS & HDFC in this list. Having been in IT and have first hand information on how TCS was leader in services in Europe and relatively low paymaster , this should have been in portfolio as it rightly fits in my circle of competence. The ship has sailed and HCL Tech is the lone tech company now.

The fast growers are the ones which can turn into potential multibaggers. As long as the growth rates are standing up, they are on track but can punish the PF in case of lesser growth rate

Cyclicals are better to be not touched without proper knowledge. Having got the confirmation that China+1 is happening on the ground, Deepak Nitrite is chosen. However, the tide may turn down anytime. I have a tracking position in Vinati Organics but did not add further as it increases the risk

Turnarounds are very rare. Lynch has mentioned about Chrysler about his one of the successfull turnaround stocks. Gateway Distriparks is going through restructuring and increasing its marketshare in rail segment which is also reported in last quarter earnings. It gives a decent dividend and significant insider buying was also seen in last few years especially by Mr. Sachin Bhanusali(~0.9%) who is the CEO of their Gateway Rail division. This can be that boring and not exciting stock which Lynch mentioned in the book…I have tracking position in Yes bank

Asset plays are about having some hidden asset/cash which are not reflected in the books or not discovered by market. I bought BSE Limited when it is selling below its book value and its hidden assets are BSE Star MF and India INX, BSE Building or BSE platform itself. 20% stake in CDSL makes it more solid to hold on. Zerodha holdings has 3.71% in BSE Limited as their treasury operation. The hidden asset value will come out soon… BSE Limited is my biggest winner so far

Interesting Videos -

The CEO of Vinati Organics talks about her journey in the company and also about the times of exuberance for speciality chemicals business.

This is not related to investing as such but in general about building a life…

4 Likes

Here is the latest portfolio

Sr. No Company Sector Capitalisation Allocation % Rationale
1 HDFC ASSET MANAGEMENT COMPANY LIMITED (XNSE:HDFCAMC) Financial Mid Cap 11% Financialization theme
2 LAURUS LABS LIMITED (XNSE:LAURUSLABS) Healthcare Mid Cap 9% Growth
3 BSE Limited (XNSE:BSE) Financial Small Cap 9% Financialization theme
4 AVENUE SUPERMARTS LIMITED (XNSE:DMART) Services Large Cap 8% Long-term retail play, debt free
5 HCL TECHNOLOGIES LIMITED (XNSE:HCLTECH) Technology Large Cap 8% Coffee Can
6 OLECTRA GREENTECH LIMITED (XNSE:OLECTRA) Automobile Small Cap 8% EV theme
7 DR. LAL PATHLABS Limited (XNSE:LALPATHLAB) Healthcare Mid Cap 7% Coffee Can
8 DEEPAK NITRITE LIMITED (XNSE:DEEPAKNTR) Chemicals Mid Cap 6% Growth
9 ABBOTT INDIA LIMITED (XNSE:ABBOTINDIA) Healthcare Mid Cap 6% Coffee Can
10 ASTRAL LIMITED (XNSE:ASTRAL) Chemicals Mid Cap 5% Coffee Can
11 GATEWAY DISTRIPARKS LIMITED (XNSE:GATEWAY) Services Small Cap 4% Promising sector for future
12 TITAN COMPANY LIMITED (XNSE:TITAN) Cons Durable Large Cap 4% Long-term retail play, debt free
13 PSP PROJECTS LIMITED (XNSE:PSPPROJECT) Construction Small Cap 4% Asset Light business in construction
14 ADITYA BIRLA SUN LIFE AMC LIMITED (XNSE:ABSLAMC) Financial Mid Cap 4% Financialization theme
15 Fsn E-Commerce Ventures Ltd (XNSE:NYKAA) Services Large Cap 3% Growth
16 INDIAN ENERGY EXCHANGE LIMITED (XNSE:IEX) Services Mid Cap 2% Growth
17 HDFC BANK LIMITED (XNSE:HDFCBANK) Financial Large Cap 2% Coffee Can
Stocks
Top 5 46%
Top 10 76%
Top 15 98%
Market Cap
Large Cap 25%
Mid Cap 49%
Small Cap 26%
Sector Split
Financial 27%
Healthcare 21%
Services 17%
Chemicals 11%
Technology 8%
Automobile 8%
Cons Durable 4%
Construction 4%
Defensive 29%
New Age/Theme 11%

Investing Objectives –

Return of Capital - :+1:
Beat BSE Sensex in terms of CAGR :+1:
Beat FD returns :+1:
Reach 15% CAGR :+1:
Beat MF(direct) returns (21% Vs 17% CAGR) :-1:

Changes -

  • Bought 4% ABSL AMC based on this rationale

  • Sold 1/3rd of stake in BSE Limited

Notes -

  • BSE Sensex is almost neck to neck with PF returns

  • The gap between returns from MF and stocks has increased even further. Thanks to fund managers

  • Ideally, I would have increased stake in HDFC AMC in place of adding new entrant ABSL AMC but valuation wise, ABSL AMC is very attractive. The only thing which can hurt can be any possible corporate governance issue which HDFC AMC is considered to be quite good. It also means, I spread my risk in financialisation theme from 2 to 3 - BSE Limited, HDFC AMC and ABSL AMC. To be very honest, UTI AMC is even better in terms of valuation but the promoter share holding is going to be a recurring problem there. HDFC is also attractive in its valuation especially with real estate upcycle however, in financials, but I am little biased towards exploring financialisation theme specific to AMCs.

  • Olectra lost 5450 mega electric bus tender to Tata Motors due to lowest cost quote. I did a very good research about Tata Motors in 2018/19, especially their R&D spend was one of the best in the world at that time. However, I did not go further looking at its debt. During the March 2020 crash, the price of Tata Motors has fallen below its book value and in fact, the market cap was below 30k crores. With a strong promoter like Tata, given that it was its down cycle, it must have been an easy pick, given the fact that with so much of liquidity around, the interest expense also can be brought down. For now, comparing between Olectra and Tata Motors, the chance of Olectra giving higher returns is much more given that the market cap of Olectra is below 5k Crores and recently they won 2100 Electric Buses Order which is worth ~3600 Crores. As Olectra has to deliver them in an year’s time, the price/sales is going to be less than 1. Apart from that, the promoter is rebranding Olectra where they are no longer going to be dependent on BYD from China. With government itself looking for 50,000 Electric Buses in 5 years, the sector can give multiple winners with demand in place and also with localisation policy enforcement in place, costs also can become less in future

  • The reduction in share price of Dr. Lal path labs is significant. Diagnostic space is attracting multiple big firms as the opportunity size is gong to be huge. The latest one is Tata 1mg which started with promotional pricing of 100 Rs for some medical tests whereas the existing players are charging higher. Now, the valuation multiple got reduced immediately. My idea of staying put in this company is - the company is nimble in upgrading its technology, have deep understanding of target market and looking for adding the next level tests. Mr. Arvind Lal who is the MD mentioned that they are not going to cut the prices due to the competition. As per Dr. Velumani, ex-CEO of thyrocare technologies, to capture B2C market of diagnostic space, around 1 billion dollars of money needs to shell out. For a Tata backed company, funding should not be a problem but then Tatas are also not successful in all of their ventures. I could have sold my shares immediately after Tata 1mg news came up and sit on the sidelines till I get the confirmation but then I wanted to stay put. The experience is going to be more useful here
  • Studied a mining company called OZ Minerals by going through their annual report. The company gives dividend regularly and also is a big beneficiary of post-covid commodities boom. Their incentive structure for executives is well worth replicating in cyclical industries.

Interesting Videos -

Astral is one of those few companies which has increased their cashflows significantly. Their enterprising foray into adjacent segments is worth listening to from the founder & promoter himself in this video. From pipes and adhesives, now they are expanding into the new segments - tanks, valves, faucets, paints and some infrastructure divisions. Many companies are entering the paint business with Grasim recently announced 10,000 crores capex to their paints business. I have a vague feeling that Saurabh Mukherjee in his appreciation for Asian Paints business spilled out to the market that its not about the quality of paint but mastering the logistics in selling paints. Astral is targeting 600 cr revenue in coming years from its paints business. With signs of real estate cycle in the uptrend, may be Astral wanted to capitalise the opportunity the market is presenting now.

@harsh.beria93 has explained well about correlation between returns and the valuations here. The art of selling has to be mastered to beat index returns.

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Interesting Insight. Do these promoters listen to PMS managers like Saurav Mukherjea before venturing into any segment? I mean didn’t they already know , what is the strength of companies in general, being in Indian Business community for so long? Because , I have always found Saurav Mukherjee to be wanting in his research and data analysis. He is a Macro storyteller, which hypnotizes the lay retail investor and he always paint all with same brushes, missing out on small nuances as he may be incapable of giving proper attention to details. I have read all his books and find that he exaggerates too many thins , just to support his already decided narratives. So in my opinion, retail investors may get carried away with his style, but experienced promoters of established companies may not give him any attention. Your views are welcome.

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It is a given fact that every established company will have a market research team to continuously evaluate the competitors and also look for areas of expansion. Like you mentioned, Saurabh Mukherjea is a storyteller, the quality which inherently compels him to give more details to entice the audience further.

In the above video, he is giving out the numbers, underlying business model and strengths & weaknesses. Now, as and when his research team comes to know about some other snippet, he unknowingly will also share it with others as part of evaluating some other opportunity. When I say, I have a vague feeling, I mean to say I’m not sure but the story teller mindset can spill out information more than required to the market. In my opinion, Saurabh Mukherjea has got good research team. And this story telling helps him in getting more clients, selling more copies of his books and eventually gets more intellectual satisfaction.

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Here is the latest portfolio

Sr. No Company Sector Capitalisation Alloc % Rationale
1 HDFC ASSET MANAGEMENT COMPANY LIMITED (XNSE:HDFCAMC) Financial Mid Cap 12% Financialization theme
2 BSE Limited (XNSE:BSE) Financial Small Cap 8% Financialization theme
3 AVENUE SUPERMARTS LIMITED (XNSE:DMART) Services Large Cap 8% Long-term retail play, debt free
4 HCL TECHNOLOGIES LIMITED (XNSE:HCLTECH) Technology Large Cap 8% Coffee Can
5 OLECTRA GREENTECH LIMITED (XNSE:OLECTRA) Automobile Small Cap 8% EV theme
6 DR. LAL PATHLABS Limited (XNSE:LALPATHLAB) Healthcare Mid Cap 8% Coffee Can
7 GODAWARI POWER AND ISPAT LIMITED (XNSE:GPIL) Metals & Mining Small Cap 7% Cyclical debt free & Value
8 DEEPAK NITRITE LIMITED (XNSE:DEEPAKNTR) Chemicals Mid Cap 6% Growth
9 ABBOTT INDIA LIMITED (XNSE:ABBOTINDIA) Healthcare Mid Cap 6% Coffee Can
10 ASTRAL LIMITED (XNSE:ASTRAL) Chemicals Mid Cap 5% Coffee Can
11 PSP PROJECTS LIMITED (XNSE:PSPPROJECT) Construction Small Cap 5% Asset Light business in construction
12 ADITYA BIRLA SUN LIFE AMC LIMITED (XNSE:ABSLAMC) Financial Mid Cap 5% Financialization theme
13 GATEWAY DISTRIPARKS LIMITED (XNSE:GATEWAY) Services Small Cap 4% Promising sector for future
14 Fsn E-Commerce Ventures Ltd (XNSE:NYKAA) Services Large Cap 3% Growth
15 LAURUS LABS LIMITED (XNSE:LAURUSLABS) Healthcare Mid Cap 3% Growth
16 INDIAN ENERGY EXCHANGE LIMITED (XNSE:IEX) Services Mid Cap 2% Growth
17 HDFC BANK LIMITED (XNSE:HDFCBANK) Financial Large Cap 2% Coffee Can
Stocks
Top 5 45%
Top 10 76%
Top 15 96%
Market Cap
Large Cap 22%
Mid Cap 47%
Small Cap 32%
Sector Split
Financial 27%
Healthcare 17%
Services 17%
Chemicals 11%
Technology 8%
Metals & Mining 8%
Automobile 8%
Construction 5%
Defensive 25%
New Age/Theme 11%

Investing Objectives

Return of Capital - :+1:
Beat BSE Sensex in terms of CAGR :-1:
Beat FD returns :+1:
Reach 15% CAGR :palms_up_together:
Beat MF(direct) returns (19% Vs 15% CAGR) :-1:

Changes -

  • Sold off Titan & 60% of Laurus Labs
  • Bought 7% of PF in GPIL based on this rationale

Notes -

  • BSE Sensex is performing slightly above in terms of returns

  • PF is down by 14% in Calendar Year 2022

  • The MF portfolio is more resilient than the stock PF as I did not deploy capital in MF after Dec 2020 but I still bought/sold in stock PF after Dec 2020. Ideally, if there is no incremental capital, I should have reduced my equity component as part of rebalancing exercise of my Equity: Debt ratio.

  • It takes a lot to drop a company like Titan, but like Charlie Munger says, investing is akin to Parimutuel betting. I see better risk-reward in the case of GPIL than Titan. Same is the case with reduction in Laurus labs.

  • Mid-cap and Small-cap indices have corrected a lot. I am contemplating on restarting SIPs in my existing MFs

  • Growth continues in Dmart & Nykaa. Avenue Supermart: a compounding machine? - #1958 by akash_das - Dmart revenue jumped 95% YoY growth. I don’t want to advocate BAAP(Buy At Any Price) but holding Dmart gives a sense of safety even though it always stays at high valuation. In the end, investing is about paying for the certainty of returns - predictability and sustainability of the earnings. I convinced myself to not sell it even though the stock was way overvalued when it was quoting at more than 5000 Rs as I felt staying put is more profitable for my PF in the long run and big corrections if any can be bought on dips.

  • Long-term Investing in small/micro caps is very difficult. As I mentioned in the beginning of the thread, Muthoot Capital Services was selected as part of Coffee Can Portfolio stocks mentioned in the namesake book by Saurabh Mukherjea. That means, the stock displayed a consistent sales growth YoY and also ROCE for 10 years. Even then, the stock is now a fallen angel. The chance of it raising is very less as compared to its market cap of 276 Cr, it has a PBT of -229 Cr. I sold this last year as I could not convince myself staying on course with this even though, management is good, consistency in execution till March 2020. Especially, in finance sector, it is better to stay with leaders. The stock has fallen more than 50% from my sell price.

  • For a part-time investor like me, I see two approaches to make profit in stock market

    1. Looking at index’s long-term PE or develop some other mechanism where we already track the company and get an estimate of normalized earnings and then enter when risk/reward is better. This PF thread explains this well.

    2. Study a company in-depth, do extensive research and if the conviction is very high, enter at full force even in the middle of a bull market. The number of companies in the watch list should be very less and also conviction should be very high.

Based on the investing style, top-down works well with 1) and bottom-up with 2).
I am more of a top-down investor.

  • Few years back, while I was working in Paris, having seen different regions of France, I asked my then French manager about what would have been the motivation of general public(not government) to leave this resource rich, beautiful and highly developed region and work in relatively tough climates & foreign conditions elsewhere during French empire. He is a wise man and thought for sometime and told me, the primary reason must have been about inflation, security of future and then of course the attraction of high lamps & services. Reading about high inflation these days, I remembered those words

Words of Experienced Investor -

@zygo23554 has explained about the last decade in investing in this blog and I found the below words worth reading again

From whatever experience I have as a money manager in India, I can tell you this -

At an annual pre tax return of 8.5% from fixed income, many investors will happily take that over the volatility of investing in the equity market.

The most likely outcome of buying and holding the headline benchmark index in India over a 5-year timeframe has been a CAGR of 10-12% p.a. Across the world, investing gurus and academicians agree that the equity risk premium is broadly in the range of 5-6%. From here one can do the math and see how a 12% p.a. return from equity isn’t very superior to a credit risk free 8% p.a. in fixed income on a risk adjusted basis.

Doesn’t mean one stays away from equity, it is still one of the only few asset classes that has been proven to beat inflation over longer time frames.

It just means that one should be more demanding of above average growth from businesses rather than happily pay up 50 PE for a 10% growth based purely on 5-year average multiples. Consider 10-year average multiples to demand a higher margin of safety from here, of course adjusted for changes in business quality over the timeframe.

For this very reason, valuation is an art and not just a science.

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Where are such opportunities apart from PF / PPF ?

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PPF returns is 7.1% and not 8.5% and going forward this return will come down…

I did not explore much into debt category and right now, my debt portfolio contains only FDs/Savings Account.

Apart from this, the fixed income constitutes debentures, bonds, debt mutual funds & ETFs.


In the above screen-shot you can see that Aditya Birla Low duration fund has a 7-year CAGR of 7.55 and the category average is 6.62

In the below screen-shot, UTI Treasury Advantage Fund 1-Year returns are close to 9. Usually, the higher the risk in the underlying bond is, more will be the returns. You may explore the underlying securities from this debt fund to find high yield ones. I have seen bonds from big listed firms like Muthoot Finance giving close to 10% yield as well in the past. As a cautionary note, government of India & RBI bonds are gold standard but even bonds from state government corporations carry risk.

In the past, Franklin Low duration fund was giving more than 9 as 3 year CAGR and I invested in it. In the first stint, I did not see any issue but in the second stint, even though I got my money back but I felt fixed income is not really fixed in debt funds.

What the author means here is, as soon as the debt funds/bonds/debentures give secured returns of 8.5%, the institutions/FPIs/FIIs leave much of high risk equities and prefer debt funds.

Rajeev Thakkar from Parag Parikh Mutual Fund actually started his career as a debt fund manager and continued in that role for many years - in fact, MF AUM has been much more on the debt side till 2014 as institutions are happy with debt fund returns. You can see that debt funds were quite popular back then. Aditya Birla MF Equity AUM jumped to 41% in FY22 of its overall AUM from 26% in FY17. FDs itself used to be touching 9% in 2000s & early 2010s. If those days are back, the demand for equities which we see now(ref high PE stocks) is meant to fall down drastically. The retail will be left high and dry. I just want to explain this to tell the importance of equity : debt mix in the portfolio.

Hope this helps.

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Thanks a lot, it throws lot of light on the aspect.

Sharing may experience, for understanding of your readers who might be interested in debt options:

  • Historically my debt portfolio was divided in 2 components : EPF with my employer & Debt MFs.

  • For last 2 years, returns on Debt MFs had been dismal. I was not lucky enough to have invested in UTI Treasury advantage fund & thank you so much for sharing this example, shall help to deepen my understanding on debt funds. Shall study further what exactly happened from 20th Sept to 15th Oct 2021.

  • So i initiated renovation of my debt portfolio, have found few interesting material which is guiding me in addition to above post.

So am diversifying my debt portfolio with inclusion of Senior Secured bonds through Wint Wealth & RBI bonds too.

All the best in your investing journey.

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Thanks and wish you the same

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