The SME portfolio

[Dhvanit_Merchant17]

This portfolio might be categorized as very irrational, naive and very risky amongst ideal portfolio.

I started my journey in 2017 (I didn’t know anything at that time) when my family was allotted shares in Retail of Dmart. (My father didn’t invest but had a DEMAT account which he used for IPOs once/twice a year) and I was mesmerized by that. I started little by little and investing mainly from access of moneycontrol and some random bets of 200-500 Rs here and there. I was in 60% loss in 2020 March fall.
My portfolio from 2018-2021 consisted of major wealth destroyer penny stocks like Gammon Infra, Suzlon, SAB events, Kwality, etc., several trending stocks like Tata Motors, Happiest, Tata power, HDFC Life, etc. It was a complete mess and I was fed up. Till here you can imagine how naive my picks were. Completely baseless.

In June 2021, I invested in a SME named Knowledge Marine and Engineering Works by selling almost all stocks who were in red. From there slowly I started investing in SMEs and now 97% holdings are in SMEs and rest in Mutual Funds.

Momentarily I also took Personal loans (since I have technically no fundings and no earnings) and repay them in 1-3 months the moment I turn profit in stocks which were taken on leverage.

My average holding period is 103 days which is increasing day by day. (used to be in 30s a year before)

I hereby present to all forum members my holdings.

|Stock|Latest %|
|Omfurn India|25.88%|
|PNGS Gargi FJ|9.00%|
|Chaman Metalics|8.17%|
|Bondada Eng|7.24%|
|Kotyark Industries|7.08%|
|Labelkraft Tech|6.30%|
|Magson Retail|6.15%|
|Knowledge Marine|4.52%|
|Technopack Polymers|4.19%|
|AURDIS|3.76%|
|AA Plus|3.72%|
|Evans Electric|3.02%|
|EP Biocomposite|2.78%|
|Silicon Rental|2.23%|
|Nirman Agri|1.98%|
|Uma Converter|1.87%|
|Oriana Power|1.07%|
|Markolines|1.03%|
||100.00%|

1. Omfurn India:
   The latest credit report shows order book of Rs. 95 crores against mcap of 58 crores. Company is into furniture manufacturing and have several corporate clients wherein they handle the whole project till installation instead of manufacturing and selling.
   Company has good promoter shareholding and whole family is into the biz.
   Red flags are higher remuneration and company was hit hard in Covid times.

2. PNGS Gargi Fashion:
   Great management and support from parent is huge. Company is into selling fashion jewellery from their parent company’s stores and franchisee stores.
   Valuations are very expensive.

3. Chaman Metallics:
   The numbers of these company looks superficial or I am not understanding the business properly. The company follows good governance and has capex planned with sanctioned loan. Company is managed by a GR group who also has other business within the same sector

4. Bondada Engineering:
   The valuations are expensive but their future prospects and order book seems great from the RHP. Being in a trendy sector, there are less chances for this share to fall extensively. Company is into 4 business:
   EPC and O&M of Telecom Towers (Main)
   EPC for Solar power plant (Secondary)
   Manufacturing of Autoclaved Aerated Concrete (“AAC”) blocks (Small)
   Manufacturing of Unplasticized polyvinyl chloride (Small)

5. Kotyark Industries:
   Company manufactures Biodiesel and Glycerin. Company has big orders in hand which gives some cushion against the valuations.
   Company is very much dependent indirectly from diesel-petrol prices and next year being election year, the Company’s margins can take significant hit.

Other Companies from above not mentioned with a long term view:
a. Knowledge Marine
b. Aurangabad Distillery (Aurdis)
c. Oriana Power

Other Companies from above not mentioned with a short- medium term view:
a. Magson Retail
b. Technopack Polymers
c. Evans Electric
d. Markolines

Other Companies from above not mentioned with a short term/half yearly results view:
a. Labelkraft Tech
b. EP Bio
c. Silicon Rental
d. Nirman Agri
e. Uma Converter.

Company to be sold the moment rally stops:
AA Plus Trade (I entered with a risky view on receiving of the orders, but when did some homework realised this company is complete avoid but being operated and in upper circuit, I might wait 1-2 days)

TLDR PF:

1. Complete SME
2. Low holding period
3. Very limited reasoning behind investing
4. Hell lot of risk (enough to blow entire capital)
5. Absence of ideal and basic principles of investing.

I know the risky bets I am taking but might still not know the actual quantum of risk.

I discovered this forum a month ago (almost 6 years after starting/knowing equity market) and have been spending 10-15 minutes every day till today 16.09.23 when my account got approved.
I am still a newbie and seeing my portfolio, majority will instinctively say that I am newbie. I take these risks because almost 60% of my capital at the moment is of reinvested profits. (Major profits arrived from 1 stock Knowledge Marine where I just got lucky)

I myself don’t even know what kind of feedback I might receive, and I might receive some harsh hearing, but I am still willing to post this because I do understand how utterly weird my portfolio is and I want to change it soon. (I have not done de-risking of my portfolio because I continuously feel that small and mid caps will again destroy my capital, like it did in the past; though it was before the amount of good time I spent before investing into something)

I do the investing independently and the websites I use are screener, bsesme.com, moneycontrol and nseindia.com > Market view > SME

Thank you for reading this.

Note: In most cases I don’t have enough funds to buy the lot in SMEs so I co-invest with some of my friends and only in some stocks like Omfurn India I do actually have a full lot. Till now the gains are below taxable income in any individual name and the transfers among friends are treated as loans so I don’t exactly know the impact of clubbing.

[ChaitanyaC]

There are members who invest in SME enterprises, but I don’t think I have come across anyone with a PF of stocks exclusively of SME. Interesting.

Can you expand on your process of selecting a stock, that would be helpful, particularly the low holding period. And why this kind of investing?

I don’t have any such stocks in my PF, but I do occasionally check such stocks when I stumble upon them, hence the question.

[Dhvanit_Merchant17]

Low holding period:

1. New SMEs get listed on frequent basis and time to time better companies arrive and so I prefer to sell companies which I am convinced that would not spike up/down. (More on holding period in point 4)

2. I remain very low on cash and do not prefer to. (Probably due to FOMO because if SME catches traction, it gets stuck in 5% UC/LC)

3. Investment rationale is that Large Cap companies are too large and complex for me to understand properly. I have spend around 60%-65% burning in mid and small caps so I went extremely at miniscule level where the businesses are a little easy to handle and generally those are managed by people with high shareholding. Hence if a SME is good from corporate structure and managent quality is good and honest then the company doesnt blow capital easily.
   This is what I believe. Obviously I am interested in small caps and this forum had been some sort of eye opener for such rash investing style. I do all this independently and had been in past on twitter , so basically my adapted style is not in line with the generally advised and acceptable style.
   All this till now for me might be beginner’s luck or something of that sort. (Market conditions were favourable)

4. My PF exists of stocks with more than 11 months holding period and less than 2 months holding period.
   I generally enter in newly listed SME (which I believe are good) or some company which I briefly know or is from my watchlist have posted good results.
   I exit to enter some other stock, somethings goes wrong result or otherwise eg: Eki (from mainboard), Cargosol, Silicon, BEW, etc.

[blue]

I myself would probably find it hard to hold such a portfolio. I have only recently dabbled in SMEs. Lot based buying has always looked very scary to me. However, if you do continue with this approach, and provide periodic updates, with short notes about the buying and selling, I would follow this with great interest.

All the best.

[Dhvanit_Merchant17]

Thank you sir. It has been 27 months since I started into SMEs. I sometimes feel comfortable (because I booked profits luckily in the past which are significant to my current portfolio level) at the same time scared. I will try to give regular updates if I tend to stick in this type of investing.

[blue]

Among all the companies which you have, Knowledge Marine is the only one I know about. And one, which, imo, If I already owned it, and was sitting on a decent cushion, would hold for a while.

Prospects are good.

[ChaitanyaC]

It also appears to me like speculation with some thesis, w.r.t the time period, as the stocks are not held for longer periods, also w.r.t risk to return, except for the capital loss part. As the capital required is more, so will be the loss, and if LC happens, with no buyers, it could turn into a big loss. Although once in a blue moon, there comes a small business, that has the potential to become a large cap.

Nevertheless, there are many ways to skin the cat, and this is the way you are doing. Do post updates if you want to.

[Ashusharma]

This is high risk portfolio,. In downturn. Levarage will kill your portfolio. SME is in flavor currently but till when God knows.

SMEs currently remind of harshad mehta time when Infy, etc shares were pushed to high valuations.and then dumped.

First step sell your low conviction bets. Second step learn about stop losses. Stop losses are tricky because big players know about them.

Cheers, my 2 cents

[Prabhat_Mohanty]

This is not investing. Please don’t mind if I say that what you are doing is playing lottery games. Because almost all SME stocks are presently overpriced. If you have gone through earlier postings in Valuepickr, you will understand that in a bear market, you will be lucky if your portfolio looses 90% value.
I know that few SME will be tomorrow’s star, but it is very difficult to identify them early, because of paucity of information. Also I fail to see the logic of SEBI setting trading lots for SME much higher.

[YK_Bu]

I have been trading in multiple SME Stocks in last 2 years. Here are few cents which I have understood of this whole segment –

1. SME platform is not a very old concept in the market. BSE & NSE introduced this so that small cos. can raise money easily and with lesser info. to be shared with the market and lesser rules and regulations as compared to main board interms of compliance and public sharing info. One such example is – many cos. do result declaration bi-yearly basis rather than quarterly basis.
2. This move was purely to encourage more and more cos. coming to the board and thus BSE & NSE having better volumes and better businesses. When you compare the IPO’s which have come in on these platforms vs. main board, you will understand that there is huge difference where SME platform is leading by a big margin.
3. These stocks generally are having pretty low float and thus no doubt comes with a certain kind of a risk. But when you are investing in such stocks, it is prudent that you have high conviction and are doing your own research since as many have said earlier too, burrowed conviction will get you soon or later.
4. I have been holding and have traded and made decent money in below stocks –

a) Prevest Denpro
b) Sealmatic India
c) Inflame Appliances
d) KMEW
e) EKI
f) Beta Drugs
g) Insolation Energy
h) And now recently entered Bondada Engg., etc.

One thing I have personally experienced in SME is – If your stock selection is right – You will make decent money as compared to any main board stock. Stock selection and at right price is v.v. important. I personally feel that management quality and transparency interms of sharing info. to the public is something which is very critical while choosing an SME stock. These days, there are many SME cos. which are doing quarterly con calls, sharing updates too, sharing investor presentations time to time which is helping the investors to understand the business better.
5. I also feel that SME platform stocks are now gaining traction and would continue to become something like Small Caps and Mid Caps since earlier these platforms were not there and hence people used to make money from small and mid cap stocks only and make stories of 5x-10x returns. Now since these stocks are listing on SME platform, more and more better cos. are listing in their early days and going on to be listed on the main board in 2-3 years and thus making their shareholders wealthy by 15-20x as well.
6. There has been now a surge in investments from the veteran investors too in this segment. I see many strong names like Ashish Kacholia sir, Vijay Karnani sir, Mukul Agrawal sir, etc. investing in this segment. This to me tells a lot about how good this platform is.

Conclusion – I think it’s a simple R:R ratio. If you do a proper research there is nothing to worry about SME platform. In fact, this is one of the best thing that can happen to your portfolio if a stock selection is right at right price. Rest, its upto an individual as to what kind of a risk profile and time he has to do the study and research on such stocks.

Discl. – Invested and biased in the above names. I may or may not have holdings in the above names. And this is not at all a stock recommendation. It is only my personal view.

[ganesh_bastwadkar]

Hi all
I feel SME portfolio shall be for investment and not for trading.

I have one such stock - ALL E TECHNOLOGY

All E Technology - cmp 163

This small company is worth having a look.

Company is co-develop with Microsoft. Contributed product improvements in MS Dynamics industry solution.

Few of its customers name include make my trip, naukri, bluedart etc
These customer are repeat customers

It is Looking to acquire a co in US who has a similar business profile so that net billing rate can go up significantly. For e.g. Right now client in US pays them $30/day, if they get in with a local talent then rate can go up to $200. But so will the expenses. But if they buy a co in US then they can pass some part of that to India and bring the net rate to $70-80.

All E Technology

Alletec Investors Call August 07, 2023

[ramanhp]

Useful details here.

https://twitter.com/Finstor85/status/1700905937823732013

[Jadewade]

Found this company interesting as the management seems to know their stuff. Ended up going through the entire recording. Took some running notes, sharing it below.

For their IP led products, they get around 25% of the rev share. Going forward this share will only increase. IP component revenue is recurring every year, in addition to MS component revenue and then services component.

Risks - Need to strengthen international sales, gain more business outside of India. Keep cost of talent low.

All customer relationships are multiple years (5,10 yrs). And they are always increasing their business with Alletech
Adding a new Sales head in Toronto, have a sales office in Dallas - will continue to focus on sales as opportunities open up

In 2 quarters will bring solution on MS cloud to make MS co-sell ready. This is both in international and Indian market. Will leverage MS and Salesforce relationship to sell more, both in enterprise space and corporate managed accounts.

Key differentiator - 1. They are development partners and not just implementation partners for MS business applications, they have their own engineering teams working closely with MS because they know the products in and out. 2. Scale and experience - Having done more than 800 projects bodes well for clients’ confidence in them. 3. 97% business comes from existing customers. Customer life time value is key and focus will be this.

New deals - sophisticated , large footprint solutions so organizations take time to absorb and scale. Once finalized, they tend to go on for years. Typical sales cycle is 6 months (average). Customers don’t come to buy MS products, they want customized solutions which Alletech provides. Ball park of typical large customer revenue is 1Crore.
Started rolling out in international markets as well like Malaysia, Dubai, Antigua.

I liked the way management answered most of the questions - showed their core competence, focus on business, refused to speculate on matters of stock market and share price, seem focused on large term client relationships rather than short term profits.

Margins guidance - In 2-3 years times, share of International business and IP led solutions will grow and hence margins WILL grow.

There were also question from existing investors cum customers - they also sound like they are happy with how things are shaping up so far.

Azure is picking up very quickly in ways Alletech hasn’t thought of 1-2 quarters ago. Currently in the process of moving another competing smaller foot print financial accounting software in India from their own cloud to Azure (expect announcement in next con call). Once moved, solution would run 40000 users on Azure, ramping up to over 100000 users. So there is large complex projects/businesses coming in. Total cloud MS Azure cloud market is huge and growing faster than industry which bodes well for Alletech.

They didn’t disclose the size of the order book but said its substantial.

Large part of cash on books (i think ~100 crores) will be utilized for inorganic growth. 2 acquisitions may happen in the future.

No Plan to explore EU or S American markets for now - APAC is a possibility

Financials are healthy as it reflects in the AR. They have booked a loss of 90 lakhs in one of the subsidiaries 2 years ago which is no longer operational (something on the lines of writing off a loan since they ended up merging with the then acquired entity)

Why are the standalone numbers not growing? - You should look at consolidated numbers since we are working in parallel to increase international business so looking at standalone numbers can be misleading.

[Dhvanit_Merchant17]

Update:
Entered Cadsys (India) again.
Earlier exited at 189 due to some cash constraints and now entering at 210 (expensive mistake).

Current Exposure 5.85%.

Cadsys (India)
Into GIS and mapping services, Engineering Design services in telecom, Oil & Gas, Electric sectors.

(Company has provided Investor Presentation after every march result till date after listing)

Company listed back in 2017. Company did poorly in 2019-20 and since was loss making on consolidated basis. Posted turnaround result after 3 years.

As per AR company has 63 Million $ orders still pending to complete.
Company started serving orders in its subsidiary a year ago and now has impressive sales with the order book expected to be completed within 2 years.

On consolidated level almost all of their revenues arrive from One subsidiary with 63.5% stake. Apex Advanced Technology LLC. Through this subsidiary they have also acquired Irish Towers LLC. (Good thing is that PE funding arrived for the pending 36%)

Company did a preferential at 50 Rs. per share (a red flag compared to CMP but it arrived when they were loss making).

Company has huge debts (YoY more than doubled, majority of them long term and unsecured from US. Current maturity is only 9% of debt indicating recently acquired debt/moratorium period or 8-10 years tenure loans. With credit situation worsening in USA, not a good sign).

Trade Receivable Ratio is 0.83 vis-a-vis 0.57 a year ago. At the same time 95% of receivables are outstanding for less than 6 months.

Crisil on the contrary has updated the ratings but on standalone basis.

Working capital of the company is very bad in the immediate FY with increase in Trade Receivables and Unbilled Revenues as the main reason.

Promoters holding is 47.7% which is far below the general average of 60% in SMEs. Related party transaction only consists of Remunerations.

All in all Profit and Loss and immediate future outlook is positive but with situation worsening on the balance sheet. I will review it on every half yearly result as there is no indication of migration.

Company’s valuations are expensive at this point because any profit earned is first adjusted in minority interest and then to the parent company, but this dilution is what survived them in the first place.

My initial acquisition, selling and subsequent buying has led my average to the 130s. Though this is a wrongful comparison as initial selling is done and shouldn’t be clubbed but I am willing to give away earlier profits and treat it as a margin of safety. I knew it was a mistake to sell and so bought it as soon as I can.

Note: I don’t have sound knowledge of the field and investing on purely financials basis.

[Abhishek_Rao]

How would you be playing with Kotyark given that in near term the margins might take a hit even though the topline might grow 3-5x? And also do you think this margin hit would be structural or temporary? What do you feel is an ideal sustainable margin % for Kotyark?

[Dhvanit_Merchant17]

Gross margins should stabilize somewhere around 6-10%. The promoter previously mentioned in concall or investor meet (I dont remember) that they get raw materials and processing at 80 and sell it at 92 (incl. 5% Gst).

India is and always will be a pocket friendly country first irrespective of environmental concerns and so Biodiesel will never surpass diesel rates.

Kotyark’s venturing into further processing of Glycerin can make its bottom line a little better.

At the end of the day the main business is linked with commodity and upcoming elections’ effect (2024) could reduce prices of diesel (cuts in taxes) which can significantly hamper its margins or can lead into losses. If they could diversify into geographies with very high taxes on diesel, they could expand their bottomline since they could have a bigger say on sales level.

The merger (with group company) will also help their topline.

[abhishek_sinha1]

I did some research on All E-Tech . The management seems quite honest . and recently they won a big project in west africa

[Nitya_Shah]

Prevest Denpro SME KamayaKya IC.pdf (1.5 MB)

[Dhvanit_Merchant17]

Exited AA Plus some days ago.

Today added Holmarc Opto.

CMP: 68.5
Mcap: 69 cr
P/E: 19.5
Mcap/Book Value: 3x

Company having low debt and debt/profit is 0.35x
Company doing 3.5 cr capex from IPO funds.
Working Capital is not stretched with miniscule receivables outstanding over 1 year. Apart from it, Operating cash flow is positive and cash flows is not misleading with borrowings into operating and things like that.

Company incorporated in 1993 and promoters are associated with the company since incorporation.

The Company manufactures variety of scientific and engineering instruments for research, industry and education i.e. Imaging Instruments, Measuring Instruments, Spectroscopy, Analytical Instruments, Lab Instruments, Physics Lab Instruments, Breadboard/Table Tops, Opto-mechanics, Optics, Linear & Rotation Stages, motorized Linear & Rotation Stages, Industrial Automation etc.

Company has not revealed the capacity utilization stating that it is not possible to calculate the same.

RHP: Prospectus_NSE_Holmarc_11092023.pdf

Company has listed its products from page 109 - 120 along with process flows.
Company has two Building with space cumulative of 30000 sq ft.
Sector is niche and small but with more R&D expenditure being done in economy, this sector might do well in the upcoming time.

Company has exports around 15% of total revenue. Around 45%-50% sales are done to Government sector.

Surprisingly for a company incorporated almost 30 years ago, there are no direct/indirect tax cases outstanding as on date. They do have a 18 lakhs Property Tax matter.

One of the most weird thing is their Board of Directors. They have 15 Directors of which 5 are Independent, which is both a boon and bane.

Related Party Transactions: Red Flag

1. With 10 directors all around 7 lac per director remuneration it totals to 70 lac. (Fair enough).
2. Sales Incentives. This here is a bit troublesome. Around 3% of sales are distributed among the directors as incentives with 2% to promoters and rest to heads of different departments. (This can be an issue in future as they can increase the ratio whenever they want with special resolution, although the main promoters remuneration has decreased more than present remuneration + sales incentive combined).

Rationale:

1. Niche sector with growth in company possible due to capex.
2. Decent valuations at listing price.
3. Experienced promoters with long history.
4. Export though small; is done to many countries.

Neutral Reasons:

1. No listed peers

Cons:

1. Related Party - Sales commission (Things can go downhill affecting PAT)
2. Company too small.

[aceinvestor_75]

Have you looked at Taylormade renewables? Any thoughts on it? Addressable market is huge and they have patented their technology. Bagged order from Asian paints, quiet remarkable.