Surya Kanth Portfolio

My portfolio:

Stock Allocation current year profits

ING Vysya bank 23% -12%
GRUH finance 27% 37%
Repco Home finance 19% 34%
Kajaria ceramics 21% 31%
Atul Auto 10% 43%

I am carefully maintaining a portfolio which can grow at 30% rate. My basic strategy is to pick on basis of observation (Peter Lynch Style.).

Few things I have learnt in five years over Peter Lynch style:

1). Certain sectors in the market may get a higher liquidity share which bubbles up earnings. This is currently happening in consumers, housing, healthcare sectors.

2). It’s always better to pick market favourites

(not necessarily leaders) among such sectors.

3). Stock prices don’t fall just becuase the prices are high.

4). Stock prices can move from high to higher (Jesse Livermore.)

5). Stocks quoting at less than 10 PE

and greater than 40 PE very rarely move very fast.

A stock quoting at less than 10 PE with 10 yrs history is definitely not a market favourite. Very Rarely such stocks become multibaggers.

On the existing portfolio, On Atul Auto I am a bit lucky to find a stock that is capturing market share.

And I believe Atul Auto sells more at a rural level and baja auto sells at metro level. Since **at rural level GDP is 2% higher than national level **

there is bit of movement in Atul Auto.

But I think Atul Auto is slowly becoming market favourite. But I could not imagine Atul Auto selling at more than 20 PE. I personally feel that any auto stock is dangerous above 20 PE ratio.

The only exception in today’s market is Eicher Motors because of Royal Enfield. Unbelievable Auto Stock.

On ING VYSYA bank, This is a market favourite. The possibility of sale keeps the price stable under bad conditions.

But here, I preffered it over IndusInd, actually I sold off **IndusInd **(a five-bagger for me

) favouring ING VYSYA.

ING VYSYA is very much placed to get ratings of HDFC and Kotak in recent future I believe. In 5-6 quarters I think the margins are ready to hit 4.

** And even now at 3.5% margins, The loan book is still having only 2% in higher margin loans like personal loans, Gold loans, CV loans etc. But currently all banks are facing headwinds.**

I bought and sold PVR for 50% profit. PVR is the market leader and favourite in multiplex space. The reason for selling it off is I realised that It is not highly scalable as people think it to be.

I am not worried about the PE ratio but the growth, I think it cannot grow beyond 25%. But I think The PE may not fall for next three years.

But once the number of screens crosses 1000 I think growth will further slow down. For next 3 years, as far as I remember from Ajay Bijli, PVR is planning to grow at 20% in number in screens.

Increasing margins in F&B and Advertising can keep profit growth at 25%.

** I am one of those happy happy investors in GRUH,Repco.**

Regarding Kajaria, The business is highly scalable. Market leader and favourite. The stock is up 40% this year and profits went up 18%. kajaria should be a multibagger for me.

ROE at 30 and PE at 20 seems to show a little scope in PE improvement. But this one may not get 45 PE like Page Industries.

I believe that future is in healthcare and agriculture. Agri, especially if Narendara Modi comes into power.
Healthcare should be the next biggest trend. I am looking for a proper business model. I have some in my mind. They may come up as IPO’s next year. Lets keep our fingers crossed.

Dear Surya Kanth

I have been reading with interest your posts in various threads.

I have generally not seen banks discussed in detail in this forum, especially ING and Indusind. Interesting to note that you sold off Indus and preferred ING. Could you please outline your thoughts on this. I am invested in both as I feel Ing is at a place where Indus was 3-4 years back and Indus is somewhat where HDFC was 4-5 years back.

Some similarities between the two:

)- Both have a lot to credit their current management for their performance. I dont think they have a good 2nd rung leader in place in case their respective MD/CEO leaves unlike HDFC Bank. To that extent there is a high level of management risk.

)- Both have some sore points. Indus has its CV portfolio baggage, although they seem to have managed it very well with the NPAs in this book trending down and well in control. ING has concentration on SME and is to that extent more dependent on industrial recovery. In addition, ING is still largely a south India story, though I dont see it as a big negative.

)- Ownership - ING parent selling its shares is a support like you pointed out, although they have been denying it, ad I feel it can also act as an overhang. Hindujas in Indus do not have a great reputation, however they seem to have left the management alone to do their thing.

Would appreciate your views on the above as well as what factors do you see leading to ING going the HDFC bank way.

On a related note - have you looked at DCB? Their eps has quadrupled since 2011 (Rs 1 in FY11 to Rs 2 in FY12 to Rs 4 in FY13 and 4.5 for 9 months FY14) and the stock has gone absolutely no where.

Both ING and IndusInd are good stocks.

There is scope of PE-rerating in ING. That is the reason stock has been holding on. That is why I sold off Indus and got into ING. But the thing is Indus is 30% growth story and ING is a 25% growth story. But both stocks can sell at 25 PE trailing. and I can think ING can get a higher PE also because it is in the rural theme. And ING’s business Strategy is very much trend-based. They are building on Agri loans for example which is where all liquidity is going. Indus I I think it is sufficiently re-rated. And moreover Indus is a wild stock. It is moving like ECG…

Actually ING is going the HDFC way. They are very very conservative. Sometimes I feel that they are too conservative. I do not want to think about all other things because These are two banks in private banking Space that are the market favourites. After HDFC bank and Kotak.

The CEO is HDFC guy. He is actually a turn-around specialist. Shailendra Bhandari. The main point is they are perfecting all the parameters. NPA, CASA and NIM. I think ING can reach an NIM of 4.5-5 also.

But what banks like ING and Indus are missing is Proper portfolio of loans. HDFC is good at maintaning loan portfolio. Why should a bank be called SME based or CV based. That reduces the number of “growth engines” that bank has.

Anyway Let the economy pick up. ING and Indus will start growing at 35-40%.


Banking is a funny animal. banks have to improve on many parameters to get higher PE’s. Growth itself is not sufficient. And Moreover It is a regulated business. That is the reason why YES bank will stay at low PE. They are unable to improve NIM or CASA. DCB has to improve on all parameters.

Let’s see. But both ING and Indus are good.




What is your view on Axis Bank?

There is overhang of Infra portfolio on the stock. But the Bank is set to grow its retail business as well. With a decent CASA, I feel it should do well.


Aren’t Banks valued at PBV rather than PE and BV growth is far more critical than earnings to a banking stock? Should’t we be concentrating more on trio of BV, ROA & leverage/CAR in case of banks rather than earnings growth or PE itself, even in case of private banks?

Have found one view that says Private banks should be valued at PE and public at PBV but I’m more inclined towards PBV for private banks too. What’s fellow Valepickr members take on this?

Views invited

Hi Nadakarni,

Axis Bank is a mega-largecap. I do not buy Mega-largecaps. I do not want to buy largecaps also but once in a while I do that when i see clear re-rating.

Now with an economic recovery, all banks will move up. It seems like making money is easier. But I always Prefer Market Favourites where downside risk is low.

Current Market Favourites are: HDFC, Kotak, Indus, ING.

Axis for me it looks like a PSB with a private bank touch. Large Infra Portfolio is not just overhang but it caps NIM’s. Even if they grow retail business The existing base will cap NIM’s.

In CASA, Decent CASA makes a Decent bank. Not a top-class bank. In ING if you see, 30% is CA at 0% interest rate and 70% is SA

. It has the lowest Net deposit rate. So even if 35% CASA in ING looks a decent but on a overall basis it is as low-cost as HDFC.

I think because of the bigger base Axis cannot move its CASA to a top-level. Or if it moves It takes longer time. But ING has a small base. So it can move faster. This is how I think about growth but you can make money in many recovery stocks in India. I always stick to growth.



Book Value is traditionally the way to analyse Loan companies. Think of Book Value as resources and Growth as productivity. From the beginning Loans were thought to be unproductive and many are even today. And many produce NPA’s. And many don’t. Infra loans can produce produce higher NPA’s and Home loans produce Low NPA’s. Many loans in India are productive also.

Private banks in India maintain rock-solid portfolios and clean books with <0.5 Net NPA’s. And see their margins. I didn’t find a PSB with 3% margins. Only Bank of Baroda is going there. High Margin loans always come from good customers. And Good CASA is also very important. So they are growth franchises. And Growth is valued at PE not on PBV.

Hi - just a little bit more on DCB.

Look at their presentation which give a very good idea of the trend in their performance, NIMs, CASA, NPAs, ROAs, ROEs, Cost to income, etc. One cannot but notice the improvement in every parameter.

They gave a lot of loans to Aga Khan supported companies in the past, which turned bad resulting in losses, which are still on their balance sheet. Due to this they are paying no tax till 2015 mid. This is the only negative as one cannot be 100% sure how the picture will look like once they start paying taxes. Here management has a key role to play and their current team is doing a fantastic job on that front.

As a strategy, they are winding down their unsecured SME book, and replacing them with mortgage backed loans (to SMEs for working capital - not the regular mortgage loans to individuals). This has played a huge role in improving the quality of the book. In the last quarter, interestingly, their CV book has shown a big jump. Branch expansions are reasonably paced, which will result in CASA improvements on a gradual basis. Their accounting is also conservative, where like the biggies, they have recognised the negatives and not taken benefit of the positives in the MSF fiasco of the last 2 quarters .

Sorry to clog your thread. Should disclose that I am invested here as well.

Completely agree with this. In earlier times when PSBs ruled the roost, they were not tracked and rated on how fast they grew their loan book. What I mean is, interest from existing loan book can increase based on interest rate changes. Their focus was not much on growing their loan book. This plus non interest income led to PAT growth. Therefore PB made sense as an investment metric. But for lenders where the loan book itself is growing fast, it has a multiplier effect on growth in interest income. Therefore PE is a better metric. As soon as I got this mindset of mine changed, Gruh started looking very attractive because the 7-8 times PB had always held me back from investing in this super franchise.

<0.5 Net NPA’s. And see their margins. I didn’t find a PSB with 3% margins. Only Bank of Baroda is going there. High Margin loans always come from good customers. And Good CASA is also very important. So they are growth franchises. And Growth is valued at PE not on PBV.

Aren’t Banks valued at PBV rather than PE and BV growth is far more critical than earnings to a banking stock? Should’t we be concentrating more on trio of BV, ROA & leverage/CAR in case of banks rather than earnings growth or PE itself, even in case of private banks?

Have found one view that says Private banks should be valued at PE and public at PBV but I’m more inclined towards PBV for private banks too. What’s fellow Valepickr members take on this?

Views invited

If one is talking about loan growth, doesn’t the success of bank depends on how it manages the leverage ratio constrained by CAR. Technically a bank cant grow more than ROE (i.e. zero dividend), unless its moving from low ROE to high ROE, or increase in ROA. But beyond a certain point, after saturation of ROA & leverage, growth cant be more than ROE

If a bank wants to expand its credit portfolio at rate of 30%, it needs leverage headroom (bounded by CAR) or constant dilution. Dilution depends much on market conditions, dilution at higher price might lead to creating value and at lower price to destroying value, which is a function of market conditions.

So a 30% growth in banks is somehow a function of how high is someone willing to pay for the stock, which is where assigning PE based valuations seem to be skeptical. It’s like a virtuous cycle, if someone pays for it, bank creates value through credit expansion and growth at lower amount of dilution for money raised.

How high someone pays for it depends on how high PE can go in its anticipation, isn’t it?

As you mentioned let them do all the cleaning stuff. Management Credibility, I forgot to mention, is also a big parameter. HDFC, Kotak and ING have clean reputation. Even Indus, the hindujas are not that credible as you already mentioned.

Let’s see is what i can say about DCB.

But for a portfolio strategy it is unnecessary to have many banks. I prefer to hold one bank to the max. NBFC’s are better than banks. Always.

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Yes Utkarsh you are technically right. But that reasoning is not sufficient to pick a stock among many banks. You need the right metaphor for the right stock.

You are going the right way go ahead.

Dear Surya

You mentioned in Ashwin’s thread that Page is a standard 30% compounder and called it an unbelievable stock. But it is not there in your portfolio? Do you think that while the business can compound at these rates, the stock might not? From CMP of 5700, what return do you think is achievable over the long term, say 8-10 years? Did you own it any time and got out of it given relative attractiveness of other stocks?


I really really got into a nervous breakdown that I didn’t buy Page. It is a “fat-pitch” multibagger.

In 2011 - I was convinced about Consumers and housing trend. I shortlisted some stocks:

1). Titan

2). hawkins

3). page

4). kajaria

5). cera.

I bought Titan and kajaria. I sold off Titan recently.

You know Why I missed Page. Because I was defied by the opinion that apparel stocks are culture based.
I did not miss it for high price.

The correct metaphor is “Innerware Business has no culture. Be it in Gujarat or Andhra or jammu People wear Underwear according to a preference. And Branding is the methodology to upgrade preferences . So a top-class Brand like Jockey is highly scalable.”

Page is recession-free. It can play all themes. The rural theme. The “Unorganised to Organised Market” Theme. The Recovery theme. Page can grow at 40-45% I think once the economy recovers. So even if PE corrects by 30% in 10 years You may end up with 30% returns overall. Page can grow at 40% with 50% dividend payout. Cream-de-la cream.

Take for example KKCL or Symphony all above attributes does not exist.

Currently I am struggling between Page and Hawkins.

In Hawkins there is a scope for PE-rating. My sub-conscious tells me That Page can get 55-60 PE trailing but I have never touched such stocks. I will be overwhelmed and stunned if it happens.

My father suggested me to have both. I am planning to buy it for my father.

Hawkins should show up performance. If not You will see page in my portfolio mercilessly.



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Could you please explain your rationale for selling Titan? Wouldnt the same reasons as Page also apply to it? Everyone buys watches - plus it is a status-symbol that you can show others (unlike Jockeys - most of the time). Titan is also adding helmets, prescription eye-wear, bags and belts to its product portfolio. There might be some hangover of the gold import issues, but that might just be temporary.



What’s your take on Avanti feeds? Seems the opportunity size is big n xcellent ROCE of 35% over last 3-4 years .

Also your take on VP current favourite like Shilpa, Ajanta ?

Also your take on Mayur Uni, Astral poly, Kaveri, PiNiNd.

What’s the moAt for Repco?

What abt possible threats on Atul Auto from Chinese made battery operated 3 wheelers rapidly getting popular in Delhi n other places?


Titan is a phenomenal stock. Tanishq has an ROCE of 109%. It is very unfortunate that the business model is regulated by RBI. I was extremely worried that RBI attacks Gold companies like it attacked Gold Loan companies.

Frankly speaking I do not know that tanishq is regulated until 2013. The news that made me alert is RBI axing LTV of gold loan companies to 60%. Then I went in deep and I found CAD to be a dampener beyond the Discretionary nature of the business.

I was holding it. But one day I saw Repco. I decided that “When the sector is in pain It is tough to stay different.” And I quit Titan. Bought Repco.



Hi Vivek,

No idea on Avanti, Mayur and Pi ind.

Among Shilpa and Ajantha, Ajantha is very good. In Pharma the key growth areas are Ophtalmology, Urology, Anti-diabetic, Anti-infective ,CNS and oncology. Chronic Theraphy Areas is the key focus. There is an IPO sitting in moneycontrol — INTAS Pharma. I took a serious look at it and I am bullish. I think Pharma will take a big loop in india due to the healthcare uptrend.

But pharma companies are more technology related. I like dumb business models. Anyway Pharma companies are always attractive.

Do not know why Astral is not getting a very high PE. Astral has got good business model. But I liked kajaria . Actually if you see Kajaria was facing supply constraint when i got into it. They could not produce to the demand and they are trading some stuff even now. Trading is hitting their margins. The Joint Venture Partnership model is very interesting and if they find a proper way to address the demand it can touch 30 PE trailing.

Moat for Repco:

“It is the second stock in the market with the unique low-ticket HFC portfolio after GRUH. Best Cost-to-income and very good margins. High growth pattern. Credible Management.”

Atul Auto:

Atul Auto has only 5% market share. I liked the candid nature of management which says that there is huge competition. I think the chinese made battery operated ones are a threat to Bajaj Auto. Atul Auto is selling in Tier-II -VI areas where as bajaj sells at metro areas.

Anyway The business is highly competitive and despite the ROE being 50 for Atul Auto the stock cannot get 25 PE. The only way Atul can get a 25 PE is brand image. Auto stocks with brand image will sustain.




like your views on the market in various threads.Most of my portfolio is in the stocks of valuepickr.However iam interested in the rural play and the brands that cater to it.Iam planning to steadily increase the weightage to it.Iam invested in itc,bajaj corp ,titan and emami in this sector.Dont want to get into page because of valuations.let me know your view on this.

another brand that caters to our young population and available at reeasonable valuationsis arvind ltd,although its past track record is nothing much to shout about,their collection of brands is enviable,can it be a turnaround candidate?

I decided to buy Page Today Morning.

I was convinced that the scale of Page is very huge. I was convinced that it is better than Hawkins. The recession free nature of the business will keep the PE ratio above 40. Growth is poised at 40% and there seems to be no stopping. The company is set to become a mega large-cap in 5 years. _The stock returns would be around 35-40% and for a 20% portfolio allocation that is a star. _Page can grow faster than Repco also.

I’d stopped sucking thumbs hereon. Not going to miss it anymore.

**As usual, My father called me contrarian. But i think only few people can see the “Brand power” reflecting in the stock market.

** And very unusually I am selling ING Vysya bank to buy Page not Atul Auto. My father crashed. _And As usual I believe: The first stock to sell is the losing stock. And the first stock to add is the winning stock. _



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