The harsh portfolio!

As of today, I sold my 1% stake in SJVN which was a deep value bet. This was a very recent position (invested in August 2021) and generated decent returns (~18%). On existing capacities, company is still very undervalued. However, they are going on a massive capex cycle. In the past, I have invested in Powergrid where I realized that the best time to invest in utilities is when majority of their capex are coming on-stream resulting in high free cash generation, this is also the time when market re-rates such companies. When powergrid was going through its massive capex in 2016-19 period, share prices didn’t move much. However, once market had clear visibility of debt peaking out and capex coming on stream, stock rerated quickly. Over my 4-year holding period (2018-22) in Powergrid, I had 24% IRR which could have been more optimized if I had this insight before. I will try to capture this learning in other utility opportunties (such as SJVN and NHPC which are undergoing large capex).

Also, I created a 4% position in Gufic Biosciences. I like the increased transparency in this company, along with their differentiated strategy to launch drugs with new delivery methods and in-licensing of new first to market products in India. Coming to capabilities, they are leaders in lyophilisation and are coming up with a very large capacity in Indore. One of my concerns is that management might be trying too many things. However, the COVID windfall has deleveraged their balance sheet meaning the case of going under is negligible now. Lets see how it plays out. Cash levels have reduced to 4% and updated folio is below.

Core compounder (64%)

Companies Weightage
I T C Ltd. 8.00%
Housing Development Finance Corporation Ltd. 4.00%
NESCO Ltd. 4.00%
Manappuram Finance Ltd. 4.00%
Alembic Pharmaceuticals Ltd. 4.00%
Amara Raja Batteries Ltd. 4.00%
Avanti Feeds Ltd. 4.00%
Eris Lifesciences Ltd. 4.00%
Ajanta Pharmaceuticals Ltd. 4.00%
HDFC Asset Management Company Ltd 4.00%
Aditya Birla Sun Life AMC Ltd 4.00%
Aegis Logistics Ltd. 4.00%
Gufic Biosciences 4.00%
HDFC Bank Ltd. 2.00%
PI Industries Ltd. 2.00%
Control Print Limited 2.00%
Shri Jagdamba Poly 2.00%

Cyclical (16%)

Companies Weightage
Kolte-Patil Developers Ltd. 4.00%
Sharda Cropchem Ltd. 4.00%
Ashiana Housing Ltd. 2.00%
Ashok Leyland Ltd. 2.00%
SWARAJ ENGINES LTD. 2.00%
Kaveri Seed Company Ltd. 2.00%

Slow grower (4%)

Companies Weightage
Cochin Shipyard Ltd. 4.00%

Turnaround (6%)

Companies Weightage
CARE Ratings Ltd. 4.00%
Lupin Ltd. 2.00%

Deep value (6%)

Companies Weightage
ATUL AUTO LTD. 1.00%
Jagran Prakashan Ltd. 1.00%
D.B.Corp Ltd. 1.00%
Time Technoplast Ltd. 1.00%
RACL Geartech Ltd 1.00%
Shemaroo Entertainment Ltd. 1.00%
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