The harsh portfolio!

Thanks for your time and your questions, I have tried to answer them below.

Really? I guess you haven’t seen the folios of Peter Lynch, John Templeton, and Warren Buffett (in 1950-1960).

CARE: Remember Amtek Auto issue of 2016 (link)? At that time, would you have said the same about Crisil? Anyway, this is a business hazard that comes wrapped with the business model. The more important question that you should be asking is the probability of abandonment of the Internal Rating Based (IRB) Credit risk Approach which was the main driver for rating revenue growth for CARE (the RBI paper for suggestions is on this post). My bet on CARE is that they will be successful in diversifying their revenue base by gaining market share in Risk assessment and training solutions business. Will they be successful? I don’t know, but that’s my bet. And I size my bets appropriately.

INOX: Will multiplexes ever open again? If not, I am going to lose my money. If yes, the shift towards multi-screen theatres will continue and PVR and INOX will continue gaining market share. Good prices and good news seldom come together (although I have to say that INOX price is still not very cheap, that’s why the smaller allocation). About bankruptcy, companies go bankrupt when they can’t pay creditors. INOX has a strong balance sheet as they did equity raise last year.

Nippon: Value trap is when there is no growth. If an AMC simply keeps its AUM, revenues will grow at 8-10% because of inherent equity compounding. The problem with Nippon is not in its equity portfolio but in the debt one where they have kept losing market share (detailed post here). Actually, Nippon is the industry leader in B-30 cities which gives them the permission to charge additional expense ratio. Also, in some businesses the inherent economics is very good and the profit pool is not limited to only one player. AMC is one such business where if a certain scale is reached, everyone makes money. There are few such businesses and when I get one at reasonable prices I latch onto them. About comparison with HDFC AMC, I will buy it at a certain price. I dont chase prices, if they get to my level I take them. If not, I have enough other things to do. Also for context, even HDFC is losing market share to SBI. Thats part of business cycle, but the overall pie is growing and as long as that continues compounding will continue.

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