# The harsh portfolio!

How is P/E an integral(area under the curve)??? It’s a simple ratio. To get into calculus there is no correlation what so ever between the growth and change in PE all over the world. If there was even after a company stops growing it should have traded at the same PE multiples it traded before at its peak. It’s purely based on investor’s sentiment. While I don’t know if such P/Es will sustain, I might speculate that 10 percent CAGR may be possible. Buy how is that good when you might have some other businesses with predictable economics for next 10-20 years at lower PE multiples?

Oh yes!!! Luck. Couldn’t agree more. One thing that cannot be valued but that will completely define an investment. Daniel Kahneman in his noble prize winning thesis has give it such an importance that ironically, it seems that the sheer success of his thesis has also been based on luck.

Just a thought…how about playing it via travel insurance… although it comes into picture only in international travel and not a significant part of only listed private general insurance company…

Hey Harsh, I have been following this thread for a while now and the insights you provide are very useful
Could you throw some light on how you calculate your yearly returns?
Calculating returns for a portfolio is very easy from say 1st April XXXX to 31st March XXXX if all the transactions have been carried out before the start date,but I wonder how you adjust for incoming cash into the account and transactions carried out just before the Financial Year ends?
Thanks!

I track 2 metric, monthly return (which I call absolute return) and IRR return.

Monthly return: For a given month if my starting portfolio value was 100 and I bought stocks worth 10 and at the of the month, my portfolio value is 90 then the monthly return is (90-100-10)/(100+10) ~ (-18.18%). This is what I call absolute return.

IRR return is computed by putting all transactions on an excel sheet along with their respective dates, and use the XIRR function.

Generally, both these returns are quite close, if there is not a large amount of influx/outflux from the portfolio.

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In-line with my previous post, I have sold out Divis Laboratories (1% position) completely and switched it to Cadila Healthcare (1% position). Cash level remains at 3% and I am looking for opportunities to deploy the same. This keeps my broad pharma allocation at the same level, but I get a nice asset at a much cheaper price. Cadila’s biosimilar portfolio is something worth looking at. They have also been growing their generic business well and have focused on de-risking their US business by growing their biosimilar business in emerging markets and in India. Their valuations are below long term average (EV/sales ~ 3 x vs long term EV/sales of 3.5-4x). Updated portfolio is below:

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Hi Harsh,

Read ur other post regarding Real Estate cycle.
My question is why you didn’t considered Purvankara vis-a-vis the RE stocks in ur portfolio - Ashiana and Kolte Patil?

Is higher debt the main reason?

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As of today, I added 1% position to NALCO increasing its weightage to 2% in the model portfolio. This post clearly summarizes that aluminum and alumina prices have reached pre-COVID level. However, the company share prices are not reflecting it. That’s why the increase in allocation. Updated portfolio is below:

Yes

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Hi Harsh,

Have you looked at VIP Inds recently? What are your views considering the price has corrected from the 2018 highs? It seems that the company is aggressively moving away from China for its raw materials to its own plant in Bangladesh. This seems to be reflected in the Income Statement as well -

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Hey! I have listened to the recent interviews of their management where they mentioned about Bangladesh. Valuations are much more attractive now. Here is very naive projection. Let’s say they are able to get back their peak sales by FY22 and grow at 11% (their long term growth rates) over the next 3 years. That will give a topline of ~2400 cr. When operating leverage kicks in and raw material prices are soft, their net profit margins can easily go upto 10%, i.e. profits of 240 cr. Market generally gets bullish in these scenarios and can easily give a 25x multiple if trailing growth rates look high (Mcap ~ 6000 cr.). The IRR returns (including dividends) will be ~12%, and my assumptions are conservative (i.e. 0% growth until FY22, 11% growth post that). A key monitorable for me would be their market share, there are lots of cheaper bagpacks available, so as long as management can maintain market share this can be interesting.

Another way to look at it is how has market valued them in the past. Here are the EV/sales numbers taken from tikr.

On a FY25 sales number of 2400 cr., an EV/sales of 3x (which will be probably available during a bull market) will translate into a EV of 7200 cr. So, a probable doubler from these levels.

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Thanks for the clarification! Yes. I would also assume that they should be able to grow atleast 10% from FY22 onward. I understand that this is not like Indigo as you have rightly pointed out earlier in this thread where there is a clear monopoly that is happening primarily due to debt laden peers in the airline industry. But that being said, it seems there are only a handful of players (VIP, Samsonite, Safari). From the respective threads and other research, I understand that these companies have built a strong network of supply chain management which is very difficult for a new entrant to replicate soon.

That being said, the biggest threat could be Amazon and Mi who have launched bags and travel luggage online. VIP currently operates at various segments (< 3000 Rs, 3000 - 6000 Rs and > 6000 Rs). Now are they going to face a tough competition in all the 3 segments is something that needs to be seen.

In terms of advantages I see that -

1. They are early movers in terms of setting up sourcing input from outside China. For others, setting this up might take a lot of time
2. Brand Recall. They seem to have a good brand recall. Any new entrant would have to spend a ton on Advertising
3. VIP Carlton offers lifetime warranty. Even Samsonite does not provide that. I read somewhere in the VIP thread they cannot change their warranty policy only for India (which makes sense).
4. These big ticket purchases (both in terms of size and price) will still have a good share of sales in retail stores. People would want to inspect the material before buying.
5. Since these bags occupy a lot of space, only a few brands can be accommodated in these stores.

Thanks again for your initial analysis!

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Any reason for holding on to wonderla

Business not going to be great due to covid

Plus they were not doing well before Covid too

Hey Harsh,

Great to see your active interest towards markets.

Do you work at present? Am unsure how you manage time and work together or are you full time investor?

Saw your articles, you do good set of research whereas in my case am always caught in a act of work + learning (technology as am IT professional) + read about stocks (during travel or during lunch hours)

How do you handle and learn in case if you are at work?

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Hi!

I am a hobby investor, I have a full time job as a scientist. Its in the last few months that I have started sharing a lot of my research. I simply like tracking companies and building up my personal knowledge base. About managing work and time, its really personal and varies from person to person. For me, I take short breaks to track companies. Most of my in-depth reading such as annual reports, industry structure, etc. is during weekends or during holidays. Also, given that I live alone I have plenty of time to read. Not sure how long this will persist though.

Cheers
Harsh

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As of today, I have added 2% position in Suprajit Engineering to the model portfolio, bringing down the cash level back to zero. Its an unusual auto ancilliary company with higher margins (of 14-16%) compared to peers (~10%). Their focus on after market has enabled them to earn higher margins. Management of Suprajit are hungry, CEO is young, and they have managed to compound sales by 20% for a very long period of time. They are still very small in the broader context, being only leader in cables business, and currently trying their hands in lights business. EV doesn’t impact them as quantum of cables are same in an electrical vehicle, and EVs need lights. My naive projections are below.

FY20 sales: 1563 cr., assuming FY21 sales will be 1500 cr., @15% growth FY25 sales: 2623.51 cr.; To sell at 2.5x sales; EV ~ 6559 cr., Debt for FY20 was 391 cr., Debt in FY25 will probably compound at the same level as increase in sales (in sync with past) ~ 391*1.15^5 ~ 786 cr., Mcap ~ 5773 cr. (share price: 413). From current level of 166, the future potential returns are ~20% (+1% dividend yield). If price drops to 100-125 or growth improves, I will increase my position size. The updated portfolio is below.

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I would like to know how you manage with zero cash?
Which stocks do you sell to pay bills?
Do you have any other portfolio with emergency funds? Do you deploy new cash immediately?

I wrote about it in a post before.

International portfolio is shared below.

About emergency funds, I always keep 2-3 years of my expenses in my bank account.

About incremental cash from my job, I deploy in a few mutual funds along with stocks and bonds.

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Hello Harsh,
How do you invest in US stocks? Which brokerage? Any resource to understand taxation?

I am from the semiconductor industry and I have good hold over who is doing well/will do well in the coming days in the industry. The plan was NVDA & AMD but unfortunately, my venture to buy US stocks got blocked in march because vested asked me to fill some form and submit at my bank. I decided not to step out for sometime.

Thanks,
karthik

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Hi buddy,

Have you studied or had a chance to look at micron?

I live in Switzerland and invest through Interactive Brokers. Taxation is different for me due to my residential status, so I guess you need to ask your CA about it. It will be great if you can start a thread on semiconductors so that we all can learn from you