Thanks for your nice reply. On specific, one has to assume certain return on dividend cashflow. In my case, I have assumed that Dividend being reinvested in market at the prevailing level. Hence, results in higher units of Index holding, resulting higher dividend inflow in future and also high terminal end value. Now, another approach could be assume dividend being invested in G-Sec and then to calculate terminal value of G-Sec. While it may be correct for some investor, it is difficult to calculate for me.
On point of dividend being taken at nominal value my view is if period is longer, one has to account for reinvestement of dividend. Dividend of Rs 1,000 at 31March2000 is equivalent to Rs 4000 in 31Mar2010 (assuming 15% growth) or Rs 1967 (assuming 7% of growth). The growth rate might vary, but absolutely wrong to assume 2000 Dividend value being same as 2020 Dividend value. That is why it is very difficult to do calculation of Total Shareholder return over 20 years period. Any return generated would have reinvestment rate which may vary from person to person. I have assumed that the funds generated from Dividend are reinvested in Index on that year level. I find that being simple, fair and practically executable assumption. Just adding nominal value of dividend and than compare to market value of portfolio after 20 or 25 years, would give to wrong results in my view.
Compounding appears simple/neglible in initial years, but become very complex to comprehend once time horizon of investment increases above 20 years.
Hey @harsh.beria93 . Really interesting thread here.
Had a question, earlier you had a 8% position in ITC, which shows your conviction on it. Howcome you have not wanted to bet big on another position of yours (just out of curiosity) ?
Hi @harsh.beria93, thanks for the amazing thread and for sharing your strategy.
You were invested in Shri Jagdamba Polymers earlier. i made a small tracking position in it last year. fundamentals look good and it seems cheap. I have couple of questions regarding companies like this:
How do you get more information about such companies when they don’t have regular concals and not much available on the web?
Trading volumes are very low and it’s easy to manipulate the price i think. most of the time, volume traded is in 100s. is it a risk?
There are more opportunities now vs in 2021 where it was much harder to find good value companies. In current market, I am facing more problems in deciding what not to buy as a lot of very good companies are trading at cheap valuations
Unfortunately, Shri Jagdamba doesn’t share much information with investors, even their annual reports do not have much details. One can try to look at other proxy sources of information like trying to figure out US residential demand, sales trajectory of their largest customer Epilay, etc. but its very hard to get much insights beyond what we already know. About liquidity, volumes in smaller cos dries out during bear markets. Its a feature meant to be used by investors rather than a bug.
In my observation, problem of information availablility is widespread in very small cos. My way of dealing with this is to allocate smaller positions and diversify extensively. Also, beyond a point I dont see the logic of tracking companies very closely. Having more data points has often not resulted in superior investing results for me, instead sometime I get an interesting insight and that simple logic helps me holding through a longer period of time.
For e.g. I have been buying Propequity recently where the only meaningful insight I have is, this is one of the few Indian cos with real estate data for last 15+ years. This data required investments of 70-80 cr., company’s enterprise value is around this number. Indian real estate data should be more valuable than 100 cr. I dont know if this logic sounds reasonable to you, but I feel this company’s market cap should be significantly higher than what its quoting at today (how much? I dont know). Side note: Propequity is the first company that Berkshire has partnered with for its real estate activities in India.
Have u ever gone through Kfin technologies? At what valuation you feel comfortable to enter it if at all you are interested… Comparing to CAMS size of Kfin is small, but runway looks bigger as they are expanding outside India also. Your thoughts would be very helpful and insightful.
Reduced position size in Punjab Chemicals from 4% to 2%. This reduction is because of their share prices seeing a sharp drop and not due to my own selling. As we are coming off a huge agchem upcycle, I want to be more measured in buying as channel inventory is still at high levels and might require 6-12 months to clear. I still feel Punjab is one of the most promising bets with multiple drivers (sales growth, margin improvement, balance sheet improvement), but want to add further once I have better visibility.
Added 1% position in Shree Ganesh Remedies (SGRL) PP (rights issue shares). SGRL IPO’d as a SME co in 2017. In the next 5-years, their sales multiplied by 3.5x and PAT by 4.3x. SGRL manufactures intermediates for pharma and agchem cos. Their business model is to manufacture intermediates with small market size and high realizations which large players don’t want to manufacture, thereby giving them higher margins. SGRL has garnered 50% market share in their top 4 molecules which is very impressive for such a small company. Additionally, they are doing multiple capexes which should result in good growth going forward. What attracted me towards SGRL was their margins, which have been maintained at 24-25% even in this chemical downturn. I think this is indicative of their differentiated business model. I initiated the position at a small size due to high starting valuations. In addition, I have preferred buying SGRL rights issue shares (SGRLPP) as there is a 15% arbitrage between SGRL and SGRLPP.
Added 1% position in Propequity (P.E. Analytics). Propequity runs a website that shows historical property prices in different parts of India. Their main customers are banks, NBFCs, investors, and real estate companies. Recently, they have started a new business vertical where they provide valuation services for housing finance companies. In this vertical, they do due diligence on real estate properties and give valuation reports to the financing co, on the basis of which financiers can underwrite loans. Co has been growing fast and have a very long growth runway.
Recently, Propequity has also announced a partnership with Berkshire Hathaway Home Service, but not much is known about the deal terms. I guess this will be a real estate agency kind of setup. Valuations are very reasonable for the co, especially if one removes the 55-60 cr. cash they have on their balance sheet. I want to scale this position as I get more conviction in this idea.
Added 1% position in RKEC projects in the deep value portfolio: RKEC does EPC work and has strong positioning in marine works. Their current order book is around 1150 cr. and their Mcap is 150 cr. About 5-years back, their Mcap was 400 cr. on an order book of 400 cr. Company is coming off a poor couple of years and disclosed very good results in Dec-22 quarter (~10 cr. quarterly PAT). I am hoping they are able to execute their order book in 2-3 years, which can give them annual PAT of 40-50 cr. On a Mcap of 150 cr., it becomes a very interesting bet.
Apart from these, I am also looking to add Mayur Uniquoters and Glenmark Lifesciences in the model portfolio, and want to increase position sizes in Transpek and Caplin Point. I need to think what I can switch out of. My current thoughts are to sell Control Print and Chamanlal Setia, as both have done very well in the past few weeks and are reaching cyclical high valuations. Any other suggestions?
Cash stays at 0 and updated folio is below:
Core compounder (41%)
I T C Ltd.
Housing Development Finance Corporation Ltd.
Eris Lifesciences Ltd.
Ajanta Pharmaceuticals Ltd.
HDFC Asset Management Company Ltd
Aegis Logistics Ltd.
HDFC Bank Ltd.
PI Industries Ltd.
LINCOLN PHARMACEUTICALS LTD.
Caplin Point Laboratories Ltd.
P.E. Analytics Ltd
Kolte-Patil Developers Ltd.
Sharda Cropchem Ltd.
Avanti Feeds Ltd.
Aditya Birla Sun Life AMC Ltd
Alembic Pharmaceuticals Ltd.
Amara Raja Batteries Ltd.
Chaman Lal Setia Exp
Stylam Industries Limited
Ashiana Housing Ltd.
Ashok Leyland Ltd.
Kaveri Seed Company Ltd.
Control Print Limited
Sundaram Finance Ltd.
Time Technoplast Ltd.
RACL Geartech Ltd
Manappuram Finance Ltd.
Transpek Industry Ltd.
Shree Ganesh Remedies Ltd - PP
Punjab Chem. & Corp
Deep value (7%)
Jagran Prakashan Ltd.
Shemaroo Entertainment Ltd.
Sorry I haven’t looked at Kfin. At current multiples, I prefer HDFC AMC over Kfin or Cams.
Alembic has been there in my portfolio for above 8 years and you have rightly put it in the cyclical basket and I am holding on because they have this ability to spot once in a lifetime opportunity. I am tempted to sell because of their bad capex call and depressing commentary from the management, What is your thesis on holding on to this
Hi Harsh. Hope you are doing well.
What do you think about HDFC AMC’s current valuations? With a PE of 27 and a P/B of 7, it looks quite fairly valued. Do you think it would be good to double down and add at current levels?
Thanks for the reply…In regard to Punjab chemicals, I am planning to buy for the first time in the range of 725 to 750 and possibly it may come at any time as it is not interested to participate in recent “rally” in smallcaps. However I feel technically it will become buy near it’s previous all time high in the zone of 725 and valuation is any how will become attractive. Chamanlal I am expecting to reach 210+ before coming down significantly. So still holding it from my first buy of 110+ which we had discussed in same thread I guess previously.
Punjab chemicals will have a good Q1 - they seem to be ticking right boxes. Sizing ur positions is apt but i still feel they have it in them as per the last concall they are getting inquires + plant visits. So in small caps like Punjab Chem this is one optionality that can play out any Qtr. Playing the probability here.
My logic is simple, Alembic has gone through a bad business cycle and its valuations (on EV/sales) is at pre-2014 levels. The idea in any cyclical business is to buy during bad times and hope for mean reversion. When it plays out, you want to sell to people who thinks this cyclical is now a structural opportunity. Sometimes, this logic works out, sometimes it doesn’t. So far, I have observed that it works out more often than not.
I have thought a lot about HDFC AMC and an appropriate benchmark, as there are very few business that dont require any capital to grow. The correct benchmark for HDFC AMC in my opinion is CRISIL and if we look at long term valuations of CRISIL, they tend to bottom out around 25x PE, except for the 2009 crisis when their valuations went down to 10x. So I feel reasonably comfortable holding and adding to HDFC AMC at current multiples.
Also, if you look at presentation of HDFC AMC this quarter, the most encouraging trend is that number of individual accounts have increased by 15% and SIP monthly flows has grown by 39% in FY23. So business is back and management is doing the right things. Lets see how future unfolds.
In the past, I have seen companies adjusting their taxes in working capital items and I think thats what SGRL is also doing. If you look at FY22 annual reports, they provisioned 4.65 cr. as taxes in P&L statement. In cashflow statement, if you add provisions and debit balance of duties it comes around 4 cr. I am not fully sure, but I think these two items are w.r.t. taxes paid.
However, this is a major doubt I had when I was doing accounting verification of the company. The way I came to terms with these was using two different sources:
Their EPFO tax data broadly matches the number of employees claimed in the annual report, and they are regular in depositing these. In a lot of small companies, I have seen delays in depositing provident fund money which is not the case in SGRL.
How do you see Avanti Feeds ? What is your thesis and how long you expect the tide to turn ? On 5 year period it is zero percent profit growth as per screener and facing multiple headwinds in these years both inside and ever expanding competing business elsewhere… I can see PB is back to 2014 or before levels. But other than reversion to mean, any other triggers you see here.
Disc: I am not invested and have only very broad idea of business.
Its largely a reversion to mean story for me, its interesting to note that when I had first initiated a position in March 2020, my underwriting logic was the same as today.
Over time, as Avanti kept on gaining market share in shrimp processing business using cashflows from shrimp feed division, it became clearer to me that they are the absolute leaders in this industry.
Despite this, there has been no returns for a very long time as industry was first hit with raw material inflation resulting in contraction in profitability, which has now worsened as Indian shrimp cos are facing competition from Ecuador amidst slowdown in end markets.
All this has resulted in valuations of Avanti going back to pre-2014 levels. My observation has been that once stocks go through this kind of derating, one needs very few positive surprises to make money. That’s why I continue to hold (and also add to my existing position).
I have tried reading a bit about SGRL. It was specified in the FY22 report that it has 4 products with more than 50% share. Any info with you on the list of those 4 products ? , i have tried searching in the reports & websites of SGRL & the parent firm but no luck.
I have tried searching for the products that i have found in the IPO document & also the FY 21 Annual report.
Similarly i have tried searching for the fine & spec chem product list specified in the SGRL site, most of them are also manufactured by any of the above common indian companies.
I’m not an expert in chemicals(newbie), but some how feel entry barriers are less in manufacturing these intermediates. Also there are many Indian manufacture’s for each of the product. Few of the above companies even have list of 150-250 intermediates specified in their websites. But scale can still be matter. What do you think ?
Apologies for this long post in your thread. As i didn’t find any separate thread for SGRL, so asking here.
Disc - Just tracking & reading.
Majority of our Pharmaceutical products belongs to Anti-psychotic and Anti-parasitic Drug family accounting for 60-70% of our turnover while few intermediates go into anti diabetic, anti-viral and anti-arrhytmic. The Company is also actively engaged in catering to the Specialty fine chemicals and polymer industry using it’s core chemical expertise whose contribution to the turnover ranges from 10-20%.
Pharmaceutical intermediates used in the Anti-Psychotic therapeutic areas are responsible for 29%, 21%, and 10% of our total revenue from operations for the FY19, FY20, and FY21. We supply our products to more than one hundred and thirteen (113) customers directly and indirectly through our network of distributors in the overseas markets which exports its products to more than seventeen (17) countries. Further, our top five (5) customers constitute approximately 47% of our total revenue from operations for FY21
Since our inception in 2004 we have developed and manufactured approximately fifty (50) pharmaceutical intermediates for APIs such as Amitryptiline, Nortryptline, Haloperidol etc.
In terms of capacity, these are their existing capacities and utilization trends. Their current expansion will increase manufacturing capacity by 2000 MTPA
Hi Harsh, to start off with disclaimer that I haven’t read a lot of your threads until recently. I am very impressed by your clarity of thoughts like many others would be i am sure. Wanted to understand why 50% of companies in your PF are cyclicals?
Hi harsh. I have been following up with control prints ltd as i see it is under cyclical in your portfolio. I have got a fairly decent position myself (3%). Just wanted to know your views on the stocks latest results. I feel that it can become a compunder if infra in various companies for ex FMCG category keeps on adding.
Also what do you think of the company investing 50 cr in equity?(RED FLAG)
It is a great razer and blade model like GILLET and i think there is clear target based on tecnicals at 890. What are your views on this