As of today, I have created 2% position in ICICI lombard which brings cash down to 0. The current fall is bringing a lot of companies in my buy range, there will be more churn where I will replace lower growth companies with higher growth companies available at similar valuations.
About ICICI lombard, I have always liked the business due to its short underwriting period thereby less risky than a life insurer and 20%+ ROE in the last 10 years. However, I was very uncomfortable with valuations (10x P/B during majority of its traded history) as I have read a lot about global insurance companies and none have traded at these valuations sustainably. I also had a very long discussion on the ICICI lombard thread in 2020 where my point was a valuation de-rating from 10x P/B to a more reasonable 4x P/B can take away years of returns. This has actually played out where prices have been flat (or slightly down) in the last 2-years and P/B has become a little more reasonable (~6x on FY22 numbers). However, its still a little bit high for my liking, but enough for me to dip my toes given the fantastic ROE company generates. You can look at the discussion I had in 2020 below, it helped me understand that Indian valuations were simply wrong. Are 6x P/B right? I don’t know but its more reasonable given its ROE profile. When an HDFC bank gets ROE of 18-20% and trades at 4x P/B, companies that generate cyclical ROE of 20%+ can trade at 6x P/B. Lets see how future unfolds.
Core compounder (66%)
| 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% |
| ICICI Lombard General Insurance Company Ltd. | 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 (8%)
| Companies | Weightage |
|---|---|
| CARE Ratings Ltd. | 4.00% |
| Lupin Ltd. | 2.00% |
| Punjab Chem. & Corp | 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% |