The harsh portfolio!

What about the valuation

Although it’s on the higher side, Eureka provide optionlaties not only on the consumer products, also fast growing PLI electronic sector too

The management is incentivised Directly proportional to the growth, almost all of the senior management that is

Their compensation is directly tied to the growth of the company

If I m not wrong, it’s 2.5X minimum growth upto 5-6X growth within next upcoming 6-7years , something like this as target for management

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Seems like big money is coming in this portfolio stocks. Some serious up moves can be seen in Opto and Agi.

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4th successive Qtr of Double digit growth.

@harsh.beria93 Whats ur view on Eureka’s result this time around.

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Hi @harsh.beria93 Its been couple of quarters since you shared your portfolio allocation bet, would like to hear you thoughts on your latest bets and exit rationale. Thanks much appreciated the good work which you are doing, I have been benefiting from it a lot in terms of generating quality ideas.

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@harsh.beria93 Thanks for sharing your framework on fairchem organics.

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Hi Harsh, there has been a steady rise in global shrimp prices. I’m trying to figure out which of the shrimp players will get most benefit of it. From Q1 end there has been a rise of more than 10% you can check it by searching global shrimp prices in Google and opening the trading view link.


As per my understanding Avanti is into Shrimp foods mainly as their shrimp processing revenue is small compared to it so they won’t get that much benefit due to shrimp price rise. Sharat Industries is mostly into Ready to eat product and frozen shrimps so I believe they will get benefit.
I’m also tracking Apex frozen foods they are also into mainly frozen shrimp and small portion of ready to eat they should also get benefit… what’s your thought on it. I’m going to attend Apex concall and will ask if they are going to see shrimp price rise benefit in Q3.

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I am sharing my notes on Eureka from last few quarters, please make up your mind on valuations and what you want to with the stock.

02.01.2024 Care

  • Discontinued loss-making businesses such as security division, coronaguard, cleaning services business, etc.
  • Distribution network 3,000+ direct sales force and 750+ channel partners. They have presence in 14,700 stores across 800 towns through distributors
  • Service network of 1,500 service partners with 7,000 service engineers across 21,000 postal codes of India
  • Capacity utilization of 65-70%, no major capex plans
  • Funds-based utilization: 29% in Sept 2023

FY24Q3

  • Revenue growth is coming back to double digit levels
    image

FY24Q4

  • Four successive quarters of volume growth and 2 successive quarters of double digit volume growth which was across water purifiers and vacuum cleaners. Growth from continuing business improved from 2.5% in H1 to 14% in H2FY24
  • Saw market share increase in water purifiers and vacuum cleaners
  • Market is sluggish and customers are prioritizing coolers/ACs due to hot summer
  • Robotics and upright vacuum cleaners more than doubled in FY24
  • E-commerce slowed down in Q4
  • Launched tiered and segmented AMCs by offering AMCs at prices as low as 599
  • New water filters have a QR code allowing customers to self-authenticate the filters
  • Seeing significant increase in the proportion of AMC revenues coming from own online D2C channels with a significant number of these AMCs coming from customers who had lapsed previously and were out of warranty
  • Rental model of water purifiers were tested in Chennai and they are contemplating rolling it out in Southern markets towards end of FY25
  • AMC revenue will grow faster than service charges, however AMC revenues are staggered over the life of the contract while charges are incurred at time of acquisition
  • On-ground staff is on payroll of their business partners, and not on Eureka’s payroll
  • Net cash surplus of 108 cr. vs net debt of 50 cr. in FY23
  • ESOP charges were 34.5 cr. in FY24
  • One-off charge of 15 cr. was due fire at their Delhi warehouse (insurance proceedings have started)
  • Beginning to see initial commodity headwinds

FY25Q1

  • High-teen growth in product business, led by double digit volume growth in water purifiers, price increase in water purifiers aided by premium innovations, and double digit growth in service business
  • Double digit volume growth in water purifier with some price increase, muted volumes for vacuum cleaners with growth driven by price increase
  • Reported continuing business growth was lower at 10.8% because AMC revenue recognition is staggered over the life of AMC (18-20 months), even as associated costs are incurred upfront
  • 21% growth in ad spends
  • Q2 is their strongest quarter (margins are generally lower in Q2)
  • 45-50 cr. Capex in FY25

FY25Q2

  • Continuing business grew at 14.7% (4 consecutive quarters of double digit growth) with product business growing by 20%+ (higher growth in modern trade + ecommerce)
  • Increased their A&SP spends by 40% (vs 21% increase in Q1FY25)
  • Launched aggressive buyback offers to drive replacements and upgrades
  • Service charges reduced by 12% due to digital service requests (80% interactions are digital) and operating leverage has started improving EBITDA margins (11% now)
  • Expanding AMC by offering lower priced ASP
  • Seeing higher growth from ecommerce, South India, and Tier 2 and 3 cities

Unfortunately, I dont get enough time to update the thread regularly Also, given the higher number of stocks along with the small position sizing (only 1-4%) attracts lot of illogical comments, answering to which is draining. I have decided against posting each transaction, I always put relevant disclaimers when posting on a company’s relevant thread.

In last three months:
Bought: Sharat, Stylam, RKEC, Venkys, KSE, India Pesticides, Apcotex, Lincoln pharma, Fairchem organics, Bharat rasayan, Ashiana housing, Ambika cotton, Shri Jagdamba polymers, Avanti feeds, Propequity, Credit access grameen, Vinati organics, Modison
Sold partially: Godfrey, Caplin, Kaveri, HDFC AMC, Sharat rights, Time techno, Geekay, Ajanta, Chamanlal, Anuh pharma, SGRL, Aegis, Stylam
Sold completely: Eris life, ITC

Broadly, this market cycle has been very kind and I am preparing for the next cycle, selling things which have done exceedingly well (e.g. pharma cos) and positioning in cos which are suffering from bad margins now and (hopefully) will do well in next 2-3 years. Companies like Apcotex, Shri Jagdamba, Bharat Rasayan, IPL, Modison, Vinati, etc. are showing healthy topline growth, however their margins are subdued. At some point, if margins come back, there is a good potential. Lets see if it works out.

If shrimp sector sees an improvement, Avanti will definitely benefit as they have 45-50% market share of shrimp feeds, which are used in shrimp farming. Avanti is now also the second largest Indian shrimp exporter, although this business is more capital heavy and lower ROCE than shrimp feeds.
If you look at Sharat, its market cap is very small and if they can continue growing with improving margins, there is a huge potential. However, they are also very leveraged, which is a double-edged sword.
On shrimp prices, I do think it has increased significantly in last few months. I am invested in Sharat and Avanti in this sector.

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Actually, I kinda figured this could be the reason, this could feel thoroughly disappointing especially when you post for the community, however many of our members had given befitting reply to those Insensitive comments,

Honestly, few people may been draining, but many fold, a lot of people had been benefiting from you detailed and timely analysis and update on various business and portfolio construction in a scientific manner.

I know this is personal decision and this a time consuming activity, still
I would like to put forth a request for you to consider to do the same again, it would be immensely useful to many on this thread, I am sure most of the people whom they follow you will agree in this thread.

Thanks, regardless of your future decision, much appreciate the hard work and grateful. :innocent:

(P.s: since, tracking this many companies and reading concall is quite time consuming activity, if you need any help i would like put my hat in the ring for compiling notes for few companies to ease out the burden)

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Sir it is always great to hear from your side. We learnt a lot from your post. Keep writing @harsh.beria93 sir and never think of illogical comments. Sometimes your post also validates our thought process and believe me it encourage newbie investor like us to pursuit more for learning the things.

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Is there any reason to sell Chamanlal partially, because I find it interesting as their packaging units will go live soon and currently lower paddy prices should help their margins in coming quarters.

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He has been holding stylam since dec 2022 may be before that too, and in the past 3 months it dipped to somewhere to 1500 levels so presumably he would have added while selling mayur shares and again he would have offloaded some to buy other shares, so he would have paid long term capital tax

He is been ramping up and down the allocation based on his comfort level and other opportunities

And respectfully I beleive this is exact thing he wants to avoid and he had explicitly stated that too, so if we just stick to the broader idea and holistic thought process it would be beneficial for all

In general most of the times, if partially he is exiting means it would be either the valuation comfort or mostly he would have find better oppertunity

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Apologies, I have deleted the post.

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@harsh.beria93 Harsh it’s nice reading this thread and your portfolio is very well diversified.
I want to know your view on Tourism sector.Have you gone through any opportunity there. Your views on OTA segment like Make My Trip or Ixigo. Considering booking.com and Expedia has made huge wealth overseas.Or say theme park concept or say any specific listed resort or hotel chain you ever came across in your research.

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EIH has eyes on many such things
INDHotel is on the same path too.

Indian Hotel stocks have shown a lot of strength coz india does a lot weddings and hotel stock benefit the most during those times.

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Hello Harsh!

Thanks for Idea Generation on RKEC Projects. I have been digging in since couple of days to find more on opportunity which lies for RKEC going ahead and what capabilities RKEC has that makes it stand out v/s others. Because “Civil Contractor” space is very competitive and tendering type of business makes it even worse. Posting my finding on your timeline:

  1. RKEC Projects is specialized in doing “Marine & Harbour Related Work”. This “Marine” work is not so competitive and can be understood from the fact that ITD Cementation in one of its call has metioned: Number of companies which are capable for bidding tenders worth >400-500cr are only 7-8 in India.

  2. Secondly, RKEC has status of “Super Special Class” Civil Contractor for Military Engineering Service (MES). After finding MES Document for number of contractors in SS Class category, it looks that there are less that 250 contractors. Each contractors are approved for different scope of work. Amongst all these contractors, there are “Only 6 companies which has Marine and Harbour Works as their scope”. It shows Marine Works capabilities which RKEC has.

Apart from its capabilities, was keen to dig out on how the increase in investment in Harbour & Port Related Work will benefit RKEC Projects going ahead. The views here are contradictory and the reason for same is:

My intepretation is, “Sagarmala is one of the biggest beneficiary for Marine Related work”. The initiative started in 2015 and since then it has already completed 24% of work and 47% of work is already under development. Only ~30% of work is still to be assigned. However, despite initiating such a huge quantum of work, RKEC since 2015 has not made some significant strides in Marine Contracts…(Maybe the scope of work under development will come to RKEC later) While it is understood that they ran into problems since 2019, but it gives doubt weather they are beneficaries in big way for these policy initiatives.

Disclaimer: I have analyzed only Marine Related-Work of RKEC which forms 41% of its WIP (AR 2024). So, have nothing to conclude on RKEC as whole. My aim was to check out its capabilities in these types of work where competition is only limited.

Do you have any comments? Or if you could give me on what direction I must look at for understanding it in right way.

Disc: No Investment

Regards,
Mukul Jain

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Thanks for your kind words, maybe a way going forward is to have a summary post every few months which might include new stocks bought, stocks sold, along with a brief writeup on things that I find interesting.

I sold a little in their buyback, it was lucrative to increase the average cost price without tax implications.

I take macro bets only when things are very cheap. If you look at my posts from 2020, you can see that I created reasonably large positions in companies like Wonderla and Indigo which benefit from tourism. However, with a strong recovery, I find other sectors more attractive now. One big miss in this cycle was VFS global, someone had mentioned VFS in this thread and that turned out to be a huge winner because of the asset light and cash generative nature of the business. In next cycle, I will try not to miss this.
Other than that, I find Dreamfolks’s model to be quite differentiated, currently they are going through headwinds which is when I like buying such opportunities.

More than the broader macros, my bet on RKEC was purely based on cheap valuations. In 2017-18, their scale was around 200 cr. sales with a 400 cr. order book and share price had reached 180. When I started buying in Jan 2023, their order book had increased to 1100 cr. but share price was only 65.
The main change in RKEC since the last cycle is a deteriorated balance sheet which has impacted their order pipeline as they cannot get enough bank guarantees. Management during this AGM mentioned potential of raising capital to fund growth. Also, the proceeds from the promoter share sale is generally lent back to the company. Hopefully, they do a rights issue soon and improve their capital structure.

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Hi Harsh, can you explain this a bit more, sounds interesting?

I believe he means to say that since buybacks don’t have tax implications on investor, it’s better to book profits through this route instead of open market. In Buybacks, the company bears 20% + 12% surcharge + 4% HEC on difference amount (buyback price - issue price)

However with latest budget changes, now buyback amount is treated as dividend income in hands of investor, and slab rate is applicable. The cost of purchase is used as capital loss. Company wont bear the 20% tax thing after 1st October 2024

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Still following NESCO, Whats your outlook also Proptech is PE equity right any thesis if you dont mind sharing