ValuePickr Forum

The harsh portfolio!

Can you provide more insights into this? Any useful links or documents?

Not a biotech expert :frowning:

NO!

HCL tech has taken a path less traveled by Indian IT majors, that is of acquiring product based IP to expand capabilities and drive revenue growth. This is clearly seen in superior revenue growth over the large cap peers over 5, 10 year periods (compared to Infy, tcs, wipro). HCL’s operating margins have expanded and are now inferior to only TCS and Infy, cash generation has also been consistent. All this and they have been trading at lower valuations compared to TCS and Infy over last 5 to 7 years. That made HCL a low risk bet for me, that’s why I have been able to size up in HCL. About your point on acquisition based growth, my personal thought process is once ROICs are over a given threshold (say 20-25%) it’s growth which drives value.

3 Likes

I see you have good understanding of IT capabilities of different companies. Would be good to know your thoughts in two firms - Oracle finance - this is a product MNC with a leading financial/insurance product with cloud capabilities and trading at 18 PE. I think it is one of cheapest IT stocks. Do you see this for valid reasons? How do you see future growth path for it?
Other is Mphasis - DXC has been a issue that dependency on DXC revenues. With Blackstone, this dependency was being addressed. Blackstone maybe replaced by new PE so that’s not an issue but DXC seems to be getting taken over by Atos and Atos has significant indian offshore presence. Is that a big risk for Mphasis? Thanks

1 Like

Hi Harsh, Greetings!! Would like to know your view on Wonderla…I am holding Wonderla from past 3 yrs with -30 retruns…planning to book loss and go to Pharma API or CDMO companies…

Please let me know your valuable thoughts on Wonderla

I have expressed my views on the wonderla thread. COVID has obviously hit the amusement park business in a very adverse way. This business is consumer discretionary in nature and is strongly impacted by economic cycles, the global leader Disney is a shining example of this. Now getting to facts, here are the detailed business numbers.

BANGALORE FY14 FY15 FY16 FY17 FY18 FY19 FY20 Increase
Total revenues (cr.) 86.30 103.26 114.12 118.06 114.60 124.32 110.50 4.21%
No of visitors (in '000) 1’188.00 1’248.90 1’187.10 1’040.50 964.20 1’057.10 901.50 -4.50%
Avg. revenue per visitor 726.00 826.80 961.00 1’134.00 1’188.00 1’176.00 1’225.70 9.12%
Avg. ticket revenue 898.00 934.00
Avg. non-ticket revenue 278.00 292.00
KOCHI FY14 FY15 FY16 FY17 FY18 FY19 FY20 Increase
Total revenues (cr.) 63.12 73.10 82.03 84.84 80.89 70.57 75.08 2.93%
No of visitors (in '000) 1’103.00 1’091.60 1’049.00 999.10 880.80 757.00 775.80 -5.70%
Avg. revenue per visitor 572.00 670.00 781.90 849.00 918.40 932.20 967.70 9.16%
Avg. ticket revenue 694.00 724.00
Avg. non-ticket revenue 238.00 244.00
HYDERABAD FY14 FY15 FY16 FY17 FY18 FY19 FY20 Increase
Total revenues (cr.) 57.09 64.25 75.60 74.22 9.14%
No of visitors (in '000) 619.80 641.90 709.00 703.70 4.32%
Avg. revenue per visitor 921.00 1’001.00 1’066.30 1’057.70 4.72%
Avg. ticket revenue 776.00 767.00
Avg. non-ticket revenue 290.00 288.00

In good times, an amusement park can do upto 100 cr. in revenue. As and when COVID normalizes, growth will come from operationalization of the Chennai park and hopefully the Bhubaneswar park (which is still not sure). In any case, revenue for the company can be in the vicinity of 400 cr. with 4 operational parks and 1 operational resort in a 4-5 year timeframe. In normal times, they can do PBT margins in the range of 30-35% with PAT margins of 20-25%, implying PAT of 80-100 cr.

When I created the position, prices were in the range of 100-150 and my estimate for fair value of the business 5-years hence was ~400 (giving an IRR of 25%+). There have been no changes in my estimates so far. Given that the position had run up recently and went above my target weight of 2%, I trimmed a bit to bring it back to 2%. Hope this clarifies my thought process.

1 Like

Hi Harsh

Could you please enlighten How CERA will comes under Compounding story…I feel it is cyclical …more over depend on one sector real estate…and there are cycles in real estate …so I believe CERA also comes under cyclical in nature…so cyclical in nature companies can not compound as other consistent FMCG kind of business.
2. For compounding companies strong moat is required…CERA working on less margins. compare to Kajaria …and more over no exports…from Where we can expect consistent growth to compound.
3. In order to grow in compound…Large market size is required. Do you have any idea what is addressable market size in sanatory ware, faucets and Tiles…

These are just my observations…I am may be completely wrong also…trying to understand company…

Please advise

3 Likes

As of today, I reduced position size of biocon from 2% to 1% and increased position size of ashiana from 3.5% to 4.5%. The basic rationale is biocon is already pricing a lot of growth whereas ashiana is not pricing much growth. Cash position stays at 0. Updated portfolio is below.

Companies Weightage
HCL Technologies Ltd. 6.00%
InterGlobe Aviation Ltd. 6.00%
I T C Ltd. 6.00%
Larsen & Toubro Ltd. 6.00%
PI Industries Ltd. 6.00%
Power Grid Corporation of India Ltd. 6.00%
Ajanta Pharmaceuticals Ltd. 4.50%
Kolte-Patil Developers Ltd. 4.50%
Ashiana Housing Ltd. 4.50%
NESCO Ltd. 4.00%
Bajaj Auto Ltd. 4.00%
Suprajit Engineering Ltd. 4.00%
Housing Development Finance Corporation Ltd. 3.50%
Lupin Ltd. 3.50%
Manappuram Finance Ltd. 3.50%
HDFC Asset Management Company Ltd 3.00%
Reliance Nippon Asset Management Co 3.00%
CARE Ratings Ltd. 3.00%
Avanti Feeds Ltd. 2.00%
Cera Sanitaryware Ltd 2.00%
Indian Energy Exchange Ltd. 2.00%
Infosys Ltd. 2.00%
National Aluminium Co. Ltd. 2.00%
NATCO Pharma Ltd. 2.00%
Wonderla Holidays Ltd. 2.00%
Biocon Ltd. 1.00%
Ashok Leyland Ltd. 1.00%
Cadila Healthcare Ltd. 1.00%
Inox Leisure Ltd. 1.00%
Maithan Alloys Ltd. 1.00%
Cash 0.00%

My criterion for compounding stories is stated above (positive FCF + ROCE > 20% for a large part of the last 10 years). This is not the perfect criterion like any other. Cera is a very good business, having compounded sales at very high rates in the last 10 years. Post FY16, growth has slowed down due to real estate slowdown. About margins, cera’s margins are at par with competitors (net margins of 8-10% which is industry standards in building material companies). Cera has differentiated itself by spending more on ads (~4% of sales) to create a brand and enjoy pricing power. Last quarter commentary of cera clearly shows that they are enjoying pricing power, sales didnt grow because of labor union problem in their factory which has been resolved. Management said that real estate project sales demand are back to 2012 levels, growth will come back. However, a lot is already priced in.

2 Likes

Any idea how much is addressable market size in Sanitaryware, tiles and faucets in India

I am not able to find the details in google

You may be able to get it from listed players ARs. Also Johnson Tiles has largest installed capacity and this division of PrismJohnson has turned profitable after a long time. One needs to track this as sign of good things for the industry or one off.

As of today, I have reduced position size in Indigo from 6% to 4% and used the incremental cash to add 1% position in Maithan alloys and Cadila Healthcare, both of these are now at 2% of portfolio.

The reason for reducing position size in Indigo is because its trading close to its fair price, which allows me reallocate capital into other bets. Alongside this, increased crude prices may impact company margins in the next few quarters. My bet on Indigo is on Indians traveling more and a budget airline to gain from this, so far that these has never been broken since I first bought Indigo (sometime in 2017).

About increase in position size in Maithan, I have wrote about my thought on its valuations (link), I expect Maithan to double in the next 4-years. About Cadila, I have done a detailed valuation work (in the next post) and would appreciate any feedback. I expect Cadila to double in the next 4-years. One thing I am contemplating is whether I should switch Cadila to Cipla which has a smaller US business (so can grow more). The updated model portfolio is below.

Companies Weightage (cost basis)
HCL Technologies Ltd. 6.00%
I T C Ltd. 6.00%
PI Industries Ltd. 6.00%
Power Grid Corporation of India Ltd. 6.00%
Larsen & Toubro Ltd. 6.00%
Ajanta Pharmaceuticals Ltd. 4.50%
Kolte-Patil Developers Ltd. 4.50%
Ashiana Housing Ltd. 4.50%
InterGlobe Aviation Ltd. 4.00%
NESCO Ltd. 4.00%
Bajaj Auto Ltd. 4.00%
Suprajit Engineering Ltd. 4.00%
Housing Development Finance Corporation Ltd. 3.50%
Lupin Ltd. 3.50%
Manappuram Finance Ltd. 3.50%
HDFC Asset Management Company Ltd 3.00%
Reliance Nippon Asset Management Co 3.00%
CARE Ratings Ltd. 3.00%
Avanti Feeds Ltd. 2.00%
Cera Sanitaryware Ltd 2.00%
Indian Energy Exchange Ltd. 2.00%
Infosys Ltd. 2.00%
National Aluminium Co. Ltd. 2.00%
NATCO Pharma Ltd. 2.00%
Wonderla Holidays Ltd. 2.00%
Maithan Alloys Ltd. 2.00%
Cadila Healthcare Ltd. 2.00%
Biocon Ltd. 1.00%
Ashok Leyland Ltd. 1.00%
Inox Leisure Ltd. 1.00%
Cash 0%
1 Like

Cadila projections as on 04.03.2021

  • US sales should grow from $800mn in FY20 to $1.2-1.4bn in FY25 (transdermal + injectables): 9’600-11’200 cr. (assuming USD-INR exchange rate of 80). Taking sales value as 10’000 cr.
  • India sales should grow from 3714 cr. in FY20 to 5981 cr. in FY25 (10% growth)
  • Animal healthcare should grow from 515 cr. in FY20 to 1030 cr. in FY25 (15% sales growth)
  • Emerging markets sales should grow from 875 cr. in FY20 to 1170 cr. in FY25 (6% growth)
  • API sales should grow from 453 cr. in FY20 to 551 cr. in FY25 (4% growth)
  • ROW (including Europe) sales were ~500 cr. and should grow to 638 cr. in FY25 (5% growth)
    - EV calculations:
    o Total sales (excluding Zydus Wellness) ~ 10’000 (US) + 5981 + 1030 + 1170 + 551 + 638 ~ 19’370 cr. At 4.5x EV/sales, EV ~ 87’165 cr.
    o Zydus sales should grow from 1767 cr. in FY20 to 3114 cr. in FY25 (12% growth). At 6x EV/sales, EV ~ 18’684 cr. Debt will probably reduce from 1520 cr. in FY20 to 500 cr. in FY25, implying Mcap ~ 18’184 cr. This will value Cadila’s stake to ~9’000 cr. (assuming gradual reduction to 50% shareholding from current 57.59% in December 2020).
    o Total EV: 87’165+9000 ~ 96’165 cr. bringing market cap ~ 90’000 cr. (assuming 6’615 cr. debt). Share price: 880

I will appreciate any blind spots that others can point in my understanding of Cadila.

While cadilla and maithan are good franchise. But personally i like glenmark and natco more.

I am aware that you have evaluated both but still felt like sharing my point of view.

While i have not invested in rajratan, huhtamaki and neogen. But find them intresting as well.

Why |HDFC Asset Management Company
|Reliance Nippon Asset Management Co|

Both u have kept? Overlapping

N no exposure to Pure Speciality chemicals( PI - I consider agro chemical) Banks, API pharmaceutical, Techonology stocks Fmcg ( ITC - Still cigarettes it’s cash cow) ??

Why not Alembic pharma instead of increased allocation to cadila??

As of today, I did small reallocation among portfolio companies purely based on valuations

  • Sold 1% stake in IEX (1% position size) and added that 1% to INOX Leisure (2% position size)
  • Sold 0.5% stake in HDFC (3% position size) and added that 0.5% stake to NESCO (4.5% position size).
    Updated portfolio is below.
Companies Weightage
HCL Technologies Ltd. 6.00%
I T C Ltd. 6.00%
PI Industries Ltd. 6.00%
Power Grid Corporation of India Ltd. 6.00%
Larsen & Toubro Ltd. 6.00%
Ajanta Pharmaceuticals Ltd. 4.50%
Kolte-Patil Developers Ltd. 4.50%
Ashiana Housing Ltd. 4.50%
NESCO Ltd. 4.50%
InterGlobe Aviation Ltd. 4.00%
Bajaj Auto Ltd. 4.00%
Suprajit Engineering Ltd. 4.00%
Lupin Ltd. 3.50%
Manappuram Finance Ltd. 3.50%
Housing Development Finance Corporation Ltd. 3.00%
HDFC Asset Management Company Ltd 3.00%
Reliance Nippon Asset Management Co 3.00%
CARE Ratings Ltd. 3.00%
Avanti Feeds Ltd. 2.00%
Cera Sanitaryware Ltd 2.00%
Infosys Ltd. 2.00%
National Aluminium Co. Ltd. 2.00%
NATCO Pharma Ltd. 2.00%
Wonderla Holidays Ltd. 2.00%
Maithan Alloys Ltd. 2.00%
Cadila Healthcare Ltd. 2.00%
Inox Leisure Ltd. 2.00%
Indian Energy Exchange Ltd. 1.00%
Biocon Ltd. 1.00%
Ashok Leyland Ltd. 1.00%
Cash 0.00%

Go up in the thread (somewhere) to read my thoughts about this, I have explained this in quite details.

I invest in companies that I understand, I dont take macro views and sectoral calls, unless a sector becomes very cheap (like residential real estate now, like pharma in 2019, like IT in 2017).

A better comparison for Alembic is Ajanta. Cadila is at a different growth stage, being much bigger than Alembic. I preferred Ajanta over Alembic because of their dominance in their Indian business, their diversified business line, their low exposure to US markets (as other pharma companies that I hold have lots of US exposure), and their debt free balance sheet.

6 Likes

Appreciate your point of view. Thanks

I also believe that residential real estate in India is very cheap. It seems to be on multi-year decline. I also observed that 100s of small builders have closed their shops which will help clean and well managed real estate companies.
Do you have any research on if it is really cheap or it looks cheap? And what would would you consider signs of recovery (if there are any)?
Plus you got a couple of real estate companies. So you would have done the research on that. You have any view on Sunteck realty ?

@VishalVerma
Lots of small builders are stuck on their existing development, because almost no fresh investment is coming in real-estate sector, Recent recovery in this sector is seems to be coming due to various government incentives like PMAY, reduced interest costs on home loans coupled with allowances on income tax, reduced stamp duty charges in states like Maharashtra, also in Maharashtra they released new DCRs to incentivise developers as lot of state-government revenues are coming from real-estate.

Also, I think property rates corrected around 20% from its peak, but still, I feel its too expensive to invest in real-estate.

Like in Mumbai where I live, rental yields are around 3%, which is very low, also the property rates are not going up, like it was doing earlier in 2005 to 2012, so government bonds are looking more attractive investments then real-estate.

There is still lots of inventory yet to be cleared, where as big developers are creating more, which may reduce property rates further, also as commodity prices are increasing, steel, cement, raw materials prices are increasing day by day which may also put pressure on margins.

Similar situations are there in other metro cities like Ahmedabad, Surat, Thane, Bangalore etc.

4 Likes

As of today, I have switched my position from Biocon to Jubilant Ingrevia. Reason is valuation is quite high for biocon and growth delivery is definitely not up to the mark. On the other hand, Jubilant Ingrevia has leadership in a few chemistries (pyridine, acetic anhydride), is ramping up their specialty chemicals division and are quite cheap (~1.5x EV/sales). The recent investor presentation provides valuable insights into their business (link). Updated portfolio is below, cash stays at 0%.

Companies Weightage
HCL Technologies Ltd. 6.00%
I T C Ltd. 6.00%
PI Industries Ltd. 6.00%
Power Grid Corporation of India Ltd. 6.00%
Larsen & Toubro Ltd. 6.00%
Ajanta Pharmaceuticals Ltd. 4.50%
Kolte-Patil Developers Ltd. 4.50%
Ashiana Housing Ltd. 4.50%
NESCO Ltd. 4.50%
InterGlobe Aviation Ltd. 4.00%
Bajaj Auto Ltd. 4.00%
Suprajit Engineering Ltd. 4.00%
Lupin Ltd. 3.50%
Manappuram Finance Ltd. 3.50%
Housing Development Finance Corporation Ltd. 3.00%
HDFC Asset Management Company Ltd 3.00%
Reliance Nippon Asset Management Co 3.00%
CARE Ratings Ltd. 3.00%
Avanti Feeds Ltd. 2.00%
Cera Sanitaryware Ltd 2.00%
Infosys Ltd. 2.00%
National Aluminium Co. Ltd. 2.00%
NATCO Pharma Ltd. 2.00%
Wonderla Holidays Ltd. 2.00%
Maithan Alloys Ltd. 2.00%
Cadila Healthcare Ltd. 2.00%
Inox Leisure Ltd. 2.00%
Indian Energy Exchange Ltd. 1.00%
Jubilant Ingrevia Ltd 1.00%
Ashok Leyland Ltd. 1.00%
Cash 0%

Plenty of data available on this, the spark capital report provides a lot of insights. For a quick summary, you can look at the presentation by @rupaniamit

Inventory situation was high in MMR, I preferred buying developers where existing inventories were lower (Pune, Bangalore, Hyderabad, Jaipur).

4 Likes

Hi @harsh.beria93 - A lot of learnings for me from your portfolio. Did you happen to compare Cera with HSIL; HSIL appears to be cheaper compared to Cera but I might be missing out on certain elements.

1 Like

Hey! I did evaluate HSIL a while back and preferred cera mostly because of Cera’s slightly differentiated business model ranging from outsourced manufacturing of low margin products, being early adopters of gas based manufacturing, culture of innovation such as 3-d printing critical parts, and large spending towards brand building (~4% sales).

If we look back in time, cera took market share from HSIL, despite HSIL having a better product recall. This is clearly reflected in growth numbers for last 10-years, despite both companies originally coming from the same family. Additionally, HSIL is into glass manufacturing which is more or less a commodity business (as reflected in their volatile margins). However, cera has also ventured into tiles business (totally outsourced) a few years back which is more or less a commodity.

Overall, as a business Cera has superior economics (reflected in higher return ratios). A better comparable will be the building products division of HSIL which was recently carved out into Somany home innovation, and this business is not at all cheap!

1 Like