As of today, I have reduced my position size in Care Ratings from 4% to 2% and allocated the proceeds in Time Technoplast, which now moves from being a 1% deep value bet earlier to a normal portfolio bet (position size of 2%).
Care Ratings: The recent management churn puts the turnaround in question, additionally their FY22 ratings growth rate was lower than ICRA and CRISIL. Other business lines are not yet meaningful to make a big difference to company’s performance. In short, they are losing market share in ratings, have high level of management churn and are unable to meaningfully grow other businesses. Thus, turnaround is clearly not happening at a satisfactory rate. In light of other more attractive opportunities, I am reducing its weightage. I will look at execution in the next couple of quarters and exit if they keep losing market share in ratings business.
Time Technoplast: The business has come back to pre-covid level, management has appointed investment bankers to sell low ROCE international businesses and use the proceeds for capex in higher ROCE composite business, in which they have meaningful competitive advantages. Time Techno entered the portfolio as a deep value bet in June 2020, at that time prices were very depressed (~0.5x P/B). In the last 2 years, business has improved and incremental growth is coming from higher ROCE composite cylinders. Current valuation of 1.1x P/B is not very demanding if they are able to execute their business plans. However, given the subpar return metrics, I am currently capping the position at 2%.
Updated portfolio is below. There is a residual cash position of 1% which will be deployed soon.
Core compounder (44%)
| Companies | Weightage |
|---|---|
| I T C Ltd. | 8.00% |
| Housing Development Finance Corporation Ltd. | 4.00% |
| NESCO Ltd. | 4.00% |
| Eris Lifesciences Ltd. | 4.00% |
| Ajanta Pharmaceuticals Ltd. | 4.00% |
| HDFC Asset Management Company Ltd | 4.00% |
| Aegis Logistics Ltd. | 4.00% |
| Gufic Biosciences | 4.00% |
| HDFC Bank Ltd. | 2.00% |
| PI Industries Ltd. | 2.00% |
| Shri Jagdamba Poly | 2.00% |
| LINCOLN PHARMACEUTICALS LTD. | 2.00% |
Cyclical (42%)
| Companies | Weightage |
|---|---|
| Kolte-Patil Developers Ltd. | 4.00% |
| Sharda Cropchem Ltd. | 4.00% |
| Avanti Feeds Ltd. | 4.00% |
| Aditya Birla Sun Life AMC Ltd | 4.00% |
| Manappuram Finance Ltd. | 4.00% |
| Alembic Pharmaceuticals Ltd. | 4.00% |
| Amara Raja Batteries Ltd. | 4.00% |
| Ashiana Housing Ltd. | 2.00% |
| Ashok Leyland Ltd. | 2.00% |
| Heranba Industries | 2.00% |
| Kaveri Seed Company Ltd. | 2.00% |
| Control Print Limited | 2.00% |
| Sundaram Finance Ltd. | 2.00% |
| Time Technoplast Ltd. | 2.00% |
Slow grower (4%)
| Companies | Weightage |
|---|---|
| Cochin Shipyard Ltd. | 4.00% |
Turnaround (2%)
| Companies | Weightage |
|---|---|
| Punjab Chem. & Corp | 2.00% |
Deep value (5%)
| Companies | Weightage |
|---|---|
| ATUL AUTO LTD. | 1.00% |
| Jagran Prakashan Ltd. | 1.00% |
| D.B.Corp Ltd. | 1.00% |
| RACL Geartech Ltd | 1.00% |
| Shemaroo Entertainment Ltd. | 1.00% |