Reason for selling IOLCP were
Wanted concentration in my portfolio
Couldn’t track more than a few companies and researching new ones takes me at least a month before I decide to buy a company. My process involves, researching a company from screener, reading about it on value picker (the entire thread from start to finish), reading conference calls (at least of the last 2 quarters), researching the industry, listening to management, researching about them on LinkedIn and whatever material I can find and then finally building my one page thesis on possible triggers for the industry along with the company.
All of this takes me a lot of time and if a company doesn’t excite me in first few hours of research, I don’t follow it with further investing.
Having a full time job + studying for my CFA designation and having a life in between doesn’t leave me with much time. So I had to decide to concentrate my portfolio into companies I really believe in and understand very well.
This exercise left me with 12 stocks that I am most convinced about, so much so that if they were to fall 50% tomorrow, I would be taking a loan to buy them. Every other stock that didn’t meet this 50% drop criteria was removed from my portfolio.
This meant selling
Hindustan Foods (I bought it at 800, sold it off at 870. Its gone 2x since I sold it)
IOLCP (reasons for selling mentioned in detail below)
Happiest Minds (I decided to passively invest into Nasdaq ETF rather than track tech service companies in India, sold it off at 350, gone up 60%+ since I sold it)
Tata Chemicals (sold it at 480, gone up 70%+ since then)
Why I sold IOLCP
The company while cheap right now has various reasons behind it. I entered the company at avg buy price of 140 and sold it off in multiple tranches till it reached 900.
Its a single product company that is trying to remove concentration risk by diversifying into other sectors like specialty chemicals. IOLCP benefitted from the Covid related tailwinds and BASF temporarily exiting ibuprofen market. IOLCP also sells its product at current market spot rates without really having any purchase agreements in place with its customers. This also created temporary tailwind for them as demand for ibuprofen shot through the roof during the pandemic. All this helped the stock rerate itself.
These tailwinds will disappear or at least significantly diminish in the coming months. BASF has re-entered the industry, demand for ibuprofen is declining and reverting back to mean and as such elevated prices are reducing further.
IOLCP’s tailwinds from the past year will now become headwinds. It will find increasingly hard to keep growing its revenues by just being in Ibuprofen business and I think its management realizes that. They are diversifying into other products due to that reason.
Vinati Organics is on the other hand is a well run high margin already diversified business that will keep getting bigger as it identifies new areas to enter. It meets my criteria of 50% drop and I bought it at attractive valuations. I will just keep adding more to it as and when they keep delivering on their growth story. I have no doubts that Vinati Saraf will grow the business much more in the next decade than it has grown in the previous one.
A pure play CRAMS business is Syngene. Its a giant in the making.
If you want a CRAMS business within Specialty Chemical industry with high barriers to entry, look at Navin Fluorine.