The harsh portfolio!

[harsh.beria93]

@Shankar

I had a query pertaining to Amararaja.

In case of valuation a large part of value is terminal value. With EV adoption and Amararaja not having a solution what is their play. Eventually as advanced batteries become efficient ( more power pee cm and gram), wouldnt they replace lead acid ones

I think current stock underperformance is more of a function of margin compression and not due to terminal value loss. I say this because in Feb 2021, they were trading at 2.5x EV/sales (~30x P/E) which is the higher end of their valuation band. The EV story was also known in Feb 2021. You can read my more detailed analysis in the link below. Overall, I feel company’s competitive positioning is intact (and actually better than 5-years ago). The management also gave a couple of interviews at the Davos meeting which are worth watching to know about company’s future outlook (link1, link2).

Amara Raja Energy & Mobility Limited: Powering Ahead

I had an interesting discussion with @Rafi_Syed about Amara Raja and am trying to capture the same on VP. Prices have gone down by 40%+ from a peak of ~1000 in January 2021. [image] That was also the time of peak operating margins, since then margins have come down (for both Exide and Amara Raja) due to increase in lead prices. [image] They also ran into environmental compliance problems starting in Q4FY21. [image] All this being said, they are trading at ~16x P/E on trailing profits (w…

@Rafi_Syed

Once you research a stock and set the target returns, say in 4 years you are expecting the stock price to double. The company is doing good on QoQ and YOY basis. But the stock has runup quickly ahead of growth of the business, in such cases how do you react ? A detailed explanation would be a great help to the followers of this thread.

I remember you made a quick doubler in Jubliant Ingravia and the same is playing out in Sharda Cropchem as well. In the above scenario the business still doing good but market has rewarded in advance.

I look at stocks from an expected return perspective. Let’s demonstrate this with a couple of examples:

1. Maithan alloys: I first bought the stock at 350 in March 2020. I expected a cyclical uptick by FY24/25 and projected a stock price of 1408 (link). This implied IRRs of ~32% in a 5-year time frame and seemed attractive at that point of time. The stock moved very fast and crossed 1000 in June 2021 which was when I sold my last chunk of shares. Why? Because my price projection of 1408 didn’t change and at >1000, future IRRs came below 10% and I didn’t find it attractive anymore. So I sold.

2. Jubilant Ingrevia: I first bought the stock at 267.35 in March 2021. Based on my business understanding, I projected sales to grow by 12% in next 4-years and an exit multiple of 3x EV/sales. That implied potential stock price of 1004 by FY25 implying 39% IRR which seemed attractive at that point of time. Stock moved very fast and I ended up selling my last chunk of shares at 683 (where expected IRRs became <10%) as I didn’t find it attractive anymore. Plus, business was going through an upcycle and there was no way for margins to stay at those levels. Thus I exited.

Hope this clarifies my thought process, let me know if you need more clarifications.

@manoopatil

Hi @harsh.beria93 - Given that you are fully invested, are you not able to take advantage of deep fall in share prices of your holdings?

I also have cash coming in from my day job, so I have been able to add money to positions whose weightage came down. Also, I have been switching from low growth to higher growth cos if both are available at similar valuations (thus trying to improve risk reward at a portfolio level).

@Chaitanya_Tanti

Hey Harsh, just a minor question. Can you explain why you have HDFC AMC as core compounder while Aditya Birla AMC as cyclical stock in portfolio?

I feel that bank backed AMCs have a structural competitive advantage over non-bank backed AMCs. Also, I consider HDFC group of cos to be much better in terms of execution, you will also see that I categorize HDFC as a core compounder and other NBFCs (like Sundaram, Manappuram) as cyclicals.

HDFC AMC is probably one of the very few businesses that can be held for a decade and can offer >20% IRRs. If ICICI AMC was separately listed, I would also have considered it as a core compounder (rather than a cyclical).