To avoid clutter on the mainValuePickr Scorecard thread(recent deluge of comments), it is recommended to use this separate thread for all kinds of analysis/critique and discussions.
The Rudra analysis and all subsequent analysis/comments/refinements/suggestions may please be re-posted (if considered necessary) in thisthread. Kindly do so within 48 hours, or latest by 13:00 hours, Wednesday 27 Nov, 2013. Discussions can be continued here, freely.
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There is lot of discussion and much deliberation on Capital allocation. Since it is somewhat deeply intermingled with one’s conviction, we need a allocation free benchmark in order to analyze the true benefits of capital allocation.
The ValuePickr portfolio have had tremendous success in the recent past, while all major indices have moved no where over last 3-5 years. Hence, the portfolio would serve us as the ideal benchmark to gauge our own portfolio performance.
If after much deliberation our current capital allocations and portfolios are unable to beat/match this benchmark, it is simply better to mirror the ValuePickr portfolio itself.
The portfolio initiated with 12 recos between 12-May-2010 and 29-Mar-2011. Rs 1 lac is put into each reco at the recommendation date.
Stocks are exited on recommended exit dates and cash added back. Once a stock is sold, the net proceeds are added back to cash pool.
For each new ADD recommendation on both existing/fresh stocks, purchases worth 1 Lac is made.
Dividends are ignored, so is transaction costs and other charges, which cancels each other
Opportunistic portfolio is ignored for this benchmarking as it pertains to long term investments only.__
There have been 17 BUY and 8 SELL transactions since May-2010. The current PF consists of 6 stocks only.
The portfolio has compounded money at a staggering74.2% CAGRturning the initial 12 lakhs to 45.18 lakhs at present.
The current VP NAV stands at 37.65. The NAV will be published on a quarterly basis, which would help us benchmark our respective portfolios against it.
Please keep updating atleast twice a year so that it makes us accountable and alert. The most amazing part is that we have exited many poor performers at the right time keeping the losses to minimum while other stocks just kept moving up. Thanks to Hitesh, Ayush, Donald & other stock pickers(there are so many that I could not name them all) and also to all the fellow valuepickrs who kept the quality of stock analysis/discussion/questioning to a great level.
The best part of this valuepickr scorecard is that the stocks are not selected by any one person but it is polled among few of the senior stock pickers and then stock is inducted in the scorecard.
And congrats and thanks to all the other senior valuepickrs Donald, Hitesh, Ayush, Manish, Mahesh and others.
A 74% CAGR for the last 3 years is an amazing performance. This truly is a great platform for newbies like me to tap into minds and thinking of astute value investors. Apart from the amazing performance of the stocks, the education and reasoning behind picking the winning stocks has been truly top class.
Just one note, to make it usable. Currently with very high allocation to ajanta, this model pf is far from a model, which all of us want to benchmark ourself with. To create a benchmark consisting of valuepickr stocks, we need to create a pf, with reasonable allocation between stocks.
I know, we need help/guidance from valuepickr seniors for the allocation part. But once we have done that, that would be one of the excellent output from the collaborative platform called valuepickr.
I feel a rough allocation can be equal weight between all stocks on say Oct 1st 2013. And let it change as it is. And a suitable portfolio reallocation decision once in a quarter or so.
_ Hi Rudra,
Should not we consider the increase in ‘Quantity’ because of splits/bonuses issued by most of the current PF stocks (Ajanta, Mayur, PI, Astral, Poly), and then calculate ‘Live Price’ !!! In that case the PF performance would be different.
The only question I have is on Shilpa making the list. It has shown negative FCF in 4 of the last 6 yrs. in comparison Ajanta and Alembic have amazing FCF. So I would have expected a discount for Shilpa as compared to Ajanta/Alembic but the fair PE is shown similar.
Noticed the absence of Mgmt Q&A and the exception made for Shilpa. Do we have reasons to believe that the Cash flow story would change in future?
A big thank you to the Valuepickr team for the recos. I think one stock on which I would have liked to hear more is Symphony. The stock is growing from strength to strength and the business quality is certainly A+ in my opinion.
The stocks that are recommended have high PE, implying low margin of safety.Risk of lower than expected growth rate/ unforeseen events/ market related events would be high.Ofcourse, the businesses are A/A+ and growing/ expected to grow at 20%+, which is definitely a margin. However, since the stocks are already trading at high PE, the returns by way of re-rating is lower;
Was this aspect also considered while arriving at the reco-list?
Don’t think we ever laid any great stress on re-rating (a much-abused word in my opinion).
We are concerned about satisfying ourselves that the business will continue to grow at 20-25% CAGR for next 2-3 years - that they have a durable competitive edge in their niche - that they have low debt and can fund their growth from a mix of internal accruals and leverage - that foreseen risks are low - that the ODDS of business out-performance are HIGH. Added to above, there must be good Margin of Safety at the time of recommendation.
That’s all that we really take calculated bets on. I don’t think we ever invested knowing/thinking where an Ajanta will re-rate to or a Mayur and Astral will. We just are happy riding businesses that have the execution skills and some competitive advantage to keep growing at 25% CAGR.
If the business continues to grow at 20-25% CAGR for next 2-3 years, we have seen everything else gets taken care of :-). If the businesses fail to grow at 20-25% CAGR, our basic investment thesis is not met, execution on the ground is poor - returns maybe mediocre.
What has worked in our favour so far - we have been lucky - that our selected businesses have continued to execute solidly. That day will also come when we will go wrong - despite our rigorous analysis framework and all the process diligence.
There can always be debate/differences about whether x or y belongs to A catrgory or A+ category business. But perhaps the best place for that discussion is in Alembic thread itself, where we can continue this discussion - except making couple of points below.
Not sure if you have studied Alembic enough - to call it a processor type business - is blatantly unfair. They have 3 100 Cr brands in domestic market and quite a few 10-20 Cr brands. And I hope you have not overlooked their extra-ordinary technical success with a 505 b (2) filing which gave them 21-months exclusivity!
There is no question that they have huge pedigree and good R&D skills. They have bolstered this with a complete revamp of Technical Team for the International Generics business. The question can be about their Execution - will the newly-woken up sleeping tiger able to deliver as aggressively as they are planning. There are more risks in the Alembic business as compared to say Ajanta’s. However last 2 years they have more than walked the talk. We think the ODDS are stacked to their favour as per current understanding - we need to keep tracking and see how they perform and take calls accordingly.
I did not know where to place the following link, given that it is applicable to many companies. So given the high concentration of pharma in the ValuePickr portfolio, (Ajanta, Shilpa, and Alembic, all slated to increase profits based on US exports), I thought I should place it here.
This is a New York Times article on safety concerns for medicines made in India. Now these kinds of articles are nothing new, but the NYTimes is extremely influential, and can color a lot of people’s minds. Also, it is clear that the US FDA has decided to target Indian companies specifically.
All pharma companies carry this large risk with them. Most people who invest in these companiesknow this risk, of course, but I don’t know whether they really translate it to the sudden risksto the share price(witness Ranbaxy).
Shilpa and Alembic carry that risk. Not Ajanta - which has hardly any sales in US.You might have noticed that we introduced caution statement about the same in the Recco itself.
Everyone must be aware that while these can continue to generate market beating returns, there is extra risk added here.
We need to continue to be vigilant on this aspect. Try and understand from our Pharma professional friends - how complex and difficult is this, are risks marginal or very real - on a company specific basis.
Will urge all ValuePickrs to keep this top of mind - especially those in and connected with pharma industry - there are more than 200 of them at ValuePickr by the way:) - and help us reach more mature conclusions on this crucial risk/risk-mitigation aspect