Vineet Jain portfolio

[Vineetjain111]

@Investor_No_1

selling was not really for risk management but rather for trading or being in cash in case of a fall

Yes, this is probably true as well. I’m wondering if it would have made more sense for me to look to completely exit out of one or two lower conviction positions, as opposed to trimming bets only because they have “gone up”, if I was confident that the market may have a deep fall. The market timing worked out this time, but is it sustainable? I don’t know.

Understanding oneself better is key to sustained alpha generation in the markets. I am trying to figure out if I am someone who can profitably trade into and out of positions consistently, or one who is better off buying and holding while the thesis is in tact, irrespective of external factors. The answer is probably somewhere in between these two.

[Investor_No_1]

@Vineetjain111

The answer is probably somewhere in between these two

If the answer is between the two then either one can have best of both worlds or neither…that’s a risk because more often than not, markets tests and extracts the maximum out of risks around from us…so I think it’s better to chose between the two or clearly demarcate the boundaries and create solid rules around it for self…
Again views personal…do let us know if you devise a strategy around the two hats!

[Vineetjain111]

@Investor_No_1

clearly demarcate the boundaries and create solid rules

This is precisely what I was referring to. I think every risk mitigation effort must be substantiated with a commensurate reward estimate. Need to build out some kind of a framework around this.

One approach which I have found interesting that some investors and fund houses use is to have a narrow range for portfolio weightage for each company, depending on conviction, growth potential or whatever one’s investment thesis is. Sell when the upper end gets breached to come to the middle of the range, and buy when the lower end gets breached to come back to the middle of the range. I will experiment with this approach for a while and see if it is for me.

[Vineetjain111]

Quick update:Needed money for something, so sold out of Sequent Scientific for now as it seems like the weakest risk reward position with higher valuation and more near term headwinds than other positions. I may buyback back in the future if we see more favorable prices.

[Vineetjain111]

The stock markets are a beautiful place. Portfolio was down 5.5% yesterday, and is up 6.5% today Overall down close to 9% from ATH, while the nifty is down about 10% from ATH. Not bad, given that my portfolio is almost exclusively small and mid cap focused.

Major exits

Like I have said before on this thread, I have been anticipating macro related drawdowns over the past few weeks. The Russia-Ukraine situation developing in the backdrop of the impending rate hikes and collapsing US tech - for me the writing was on the wall and so I decided to sell out of lowest return expectation positions and create some cash. Zeroed down on four stocks and sold them over the past two weeks when Nifty got close to 20 dma.

1. Sold Jubilant Ingrevia at 560 (low growth guidance, volatile acetic acid prices)

2. Sold Indiabulls Real Estate at 145 (got a feeling that I overpaid into the special situation hype)

3. Sold ITC at 225 (has always been cash, seemed like a good time to make the conversion)

4. Sold Solara (tracking position) at 975 (plain luck before the results)

5. Sold GoldBEES yesterday after the large spike as stocks looked more attractive

New / significant additions

1. As it turned out, earlier this week, Indiabulls real estate crashed on unrelated news and went close to 100. I got super tempted and at 105 I bought back the shares that I had sold. So effectively I had managed to bring my buy price down by about 40 bucks and now have a higher return expectation and margin of safety on the position. It is still a very small position, just about 2% of the PF.

2. And then Solara posted shocking results and the market absolutely thrashed the stock. On the second 20% lower circuit, I bought back the tracking position (got almost 50% more shares for the same amount).

3. Upped Ugro to 3.5% of PF - Super excited about the fact that co-lending is picking up big time and will pump up RoE. Low leverage leaves massive room for growth. Loved their latest concall. However, I will not increase stake beyond 5% as it is an untested business (even through the management is experienced), but the reward if they are able to execute is disproportionate.

4. Added HCG worth 2.5% of PF - Expecting operating leverage to kick in soon, super strong on charts. Considering it a 12 month swing trade

5. Added PDSL worth 2% of PF - still studying but the uniqueness of the business model, high growth prospects with tailwinds in textiles and reasonable valuations in spite of a run up were hard o ignore. Studying and will add to this if I get better prices

With the leftover cash that I had generated, I added to Globus, Tips, IDFC, Intellect, Kilpest, Neuland, Strides, Equitas, Indoco, Rain and NiftyETF on all big red days, and largely yesterday. Have about 3% cash now and the salary should come in on the weekend to take it up a notch.

The big drawdowns

Strides is down 50% for me, but I am adding to it at these prices. Yes I should have seen this drawdown coming and sold out after the results two quarters ago, but at the present juncture I think the business has bottomed and the Endo portfolio additions will come in partially in this quarter and completely from next quarter. Price erosion is also easing as per the latest concall and they are guiding for $250 million sales in the US in FY 23. If and when normalcy in pricing returns, and with the added Endo portfolio and 6-8 new launches per quarter, I am expecting 4k crore sales and minimum 600cr EBITDA available at 3k Mcap. The business itself looks like good risk reward, plus Stelis is free. Promotors are issuing equity warrants at 485 a share, almost 50% above the market price. That signals massive confidence.

Neuland is down 40% for me. I made the mistake of extrapolating the good performance of a few quarters and bought expensive. At 1.3cr Mcap and less than 1.5 times sales though, I think it offers great value. The product portfolio will improve over the next few years and whenever peptides work out, it should surprise on the upside. Patient and adding slowly.

The most resilient

In my entire watchlist of over 250 stocks, just one did not fall yesterday, and it happens to be my largest holding Sunteck. I have no idea why it did not fall, but gives me a lot of confidence to see such resiliance while the entire market collapsed. Also pleasantly surprised by the resilience of Apollo Finvest. They have posted excellent results yes, but the stock has stayed stable in spite of being extremely illiquid.

International portfolio

Have been adding Ark K, Ark G and KWEB consistently. Now have close to 10% of the PF in ETFs listed on Nasdaq. At present valuations, I am happy to raise it to 20%, but unfortunately India collects 5% Tax at source on all money transferred out of the country beyond a threshold in a year. I have exceeded that threshold and don’t want to pay such a large tax to just move money to the US. I will wait till April and if valuations are still favourable, I will build some cash and double the international holdings.

No changes in crypto yet. It is close to 3% of the PF. May take it up to 5% if there is some more crash. Like Etherium the most, followed by Bitcoin, Polygon, Polkadot and Cardano.

[Vineetjain111]

Bought some of HDFC Limited (1.5% of PF) yesterday. My first real large cap after ITC. And the reason is simple - I think the valuations have corrected to levels from where HDFC can meet my return threshold of 20% CAGR, and that too with minimum downside risk. In fact if it corrects more to 1800-1900 levels, I may add big to it, probably at the expense of Equitas Holdings.

The two charts below gave me technical and valuation buy signals.

The first is the weekly chart of HDFC Ltd. Notice that over the last 15 years, it has not managed to stay below its 200 week simple moving average for long. And this makes sense - it is probably the perfect proxy to the India growth story. The second is its long term PE chart. Now of course PE is probably bot the best metric for HDFC, but I’m sure PB and other charts will follow similar patterns.

The valuation hits bottoms of around 16/17 times, and down to 13 times in peak uncertainty like the global financial crisis and covid. The reversion to mean (and well exceeding it) is rather swift too. I bought yesterday at 17.8 times and will buy more if it gets into the 16-17 times range. The mean PE is 22.2 times, and I will sell whenever it hits 24-25 times over the next three years. So essentially expecting a 40-50% gain from rerating, plus 10-15% per annum on earnings, netting to at least 2x in three years, with minimum permanent downside.

At the end of the day, HDFC is the best retail focused housing finance NBFC business in India, owns 25% in the best bank in India, has large stakes in the other listed HDFC group companies, several profitable unlisted entities and start-up investments, consistently growing and their moat getting stronger by the day, all at under 200 week DMA, sub 4 lakh crore mcap. On a risk adjusted basis, it looks like a no brainer, even for a higher return threshold investor like me.

[paran_raja]

@Vineetjain111

So essentially expecting a 40-50% gain from rerating, plus 10-15% per annum on earnings, netting to at least 2x in three years

By 2x, do you mean the price would reach to ~6500 in three years time? 24 PE & 20% CAGR, numbers doesn’t add up, am I missing something? Please clarify.

Thanks!!

[Vineetjain111]

I bought at close to 2100. So I expect price to reach close to 4000 in three years.

20% CAGR is my returns threshold. In this case I believe I may get a bit more than that - price doubles in three years at about 24% CAGR. Hope that clarifies?

[paran_raja]

Okay thanks!! It is a reasonable estimation. Me too have the similar kind of expectation and added more in between 2090~2200 level. Now HDFC became one of the highest holding in my portfolio. That is the reason for my interest on it.

[Ganhk]

What is the correct dividend yield at this point?

[Vineetjain111]

A little over 1% - they gave 23 rupees for FY 21
Dividend is not a part of my thesis though. At 1% it barely adds to return expectations over a three year period.

[Vivek_Santhosh]

dividend is suppressed this year because of a lower payout from hdfc bank, life and ergo. It was partially compensated by a higher payout from hdfc ltd
Expect 50% higher dividend next year

[Vineetjain111]

Taking a tracking position in Panacea Biotech. This is a special situation and deep value play which I will add to whenever the present fall seems to stabilize.

Panacea has a core vaccine business and a domestic and international formulation business. It has had a troubled balance sheet for many years and this has arrested their growth ambitions. Interest costs have been very high over the years. The present debt is about 900cr and the present market cap is 1000cr.

They are now selling their domestic formulation business to Mankind for about 1900cr. So they are getting cash of 1900cr for one of their businesses, while the total EV is 1900cr. They will likely pay back all the debt, and will still have 900-1000cr cash on books, which is equal to the present market cap, while retaining the core vaccine business.

They will invest the rest of the money in R&D and future capacity expansions. They have been one of the pioneers of India’s vaccine industry and have registered vaccines in 16 countries. Their pentavalent vaccine is WHO approved and is supplied to WHO and in the private market. They also have a contract for Sputnik, which of course in the present scenario may be uncertain. Among other projects, they are likely to launch a vaccine for dengue over the next couple of years, which as you can imagine has a massive addressable market.

From a margin of safety point of view, I don’t see any permanent downside from these levels. The upside can be disproportionate in my view as this deal is solving the decade long balance sheet issue and providing the company with cash for innovation and growth.

[sanjeev_thakur]

Vineet - As per this presentation from July 2021, 58% of revenue came from domestic market. This is the pie that I believe is sold to Mankind and should be discounted from the valuation. I wonder if that led to 50% fall since the announcement (plus of course the macro factors).

Irrespective, being debt free, extra cash and company’s ability to use it an interesting bet, but I was wondering what’s your view. I don’t understand the industry very well.

[Vineetjain111]

Hi @sanjeev_thakur

The domestic business also has two parts: vaccine and formulations. Only the domestic formulations business is being sold to Mankind - as per the press release it accounts for 42% of topline for FY22.

So after the deal at present state they should be a 350cr topline company with close to 900cr cash on books trading at 1000cr. Now the management’s ability to use the cash is the single biggest factor that will determine how this does as an investment.

The vaccine business has decent economics. The infrastructure is set up already for Panacea and this is a high entry barrier business, so the supply side is largely concentrated. They have a solid R&D team and their hexavalent and pentavalent vaccines are already WHO approved which tells you about their capabilities. These products have a large addressible market and one of the uses of the cash is likely be to scale distribution of these vaccines to developed markets, through both public and private channels. The dengue vaccine is in phase 3 trials and there are a couple of others that are in phase 2 trials too. Plus international formulations business (complex generics) stays with the company and here too the focus is on expanding into developed, higher margin markets. I’d strongly recommend going through the management discussion and analysis section of last year’s annual report - it is extremely informative.

In all, I see a long runway for growth in an industry with a relatively concentrated profit pool, if they are able to execute well. Equally importantly I am fairly confident that the downside is limited (there can be short to medium term volatility ofcourse). Risk reward seems quite favourable in my opinion. That said, I am no expert in vaccine tech and am trying to learn more and build more conviction before taking a larger position.

[Souresh_Pal]

Just gone through the entire thread. You seem to churn your portfolio regularly. What is the investment horizon when you buy a company?

[Vineetjain111]

Hi @Souresh_Pal, that’s a good question.

Investment horizon for an individual position depends on how long I believe that the company offers a better risk reward than any other opportunity. The assessment of the risk reward in turn depends on my understanding of the business environment and underlying fundamentals of the company, and other companies / sectors that I study.

If I find a better deal, I am happy to take it. There are thousands of listed companies in India and many more globally, and the process of identifying opportunities is always ongoing. And by corollary I think churn is inevitable, and frankly welcome for better returns. I know fully well that I don’t know it all. I am always learning and I understand that as my knowledge grows, so will my opportunity basket, and I embrace that growth.

So essentially the answer to your question is that my investment horizon for each position is till I find a better alternative from a risk reward point of view.

Not sure if I’ve articulated my thoughts well enough?

[Souresh_Pal]

Yes understood. Since your knowledge is increasing so you find better opportunities with passing time. so churning the portfolio becomes necessary. Same thing happened with me too.

[Vineetjain111]

Sold out of Indiabulls Real Estate yesterday and using those funds to add HDFC Ltd today. Taking it up to 3% of PF from 1.5% previously. The more I read about IBRE, the more confused I get with the breadth of their assets. Embassy’s debt, the recent QIP and the price at which it was done is also a bit disconcerting. I realize that I am not equipped to make an objective estimate of how the business will go over the medium term, except for anecdotal evidence that the RE cycle is turning and that IBRE is super cheap. I’d rather buy into HDLC which is a much more sure shot play on the RE cycle too, and I already have Sunteck for direct RE exposure.

HDFC Ltd post the merger news offers even better fundamentals than when I first bought it last month. Viewing the FII selling overhang as an opportunity. I am aware that the fall may continue for sometime - it is impossible to predict when the FII selling will stop. I will keep adding on the way down. I may even convert it into a futures position if it trades significantly below 2000, with the intention to roll it over till it swings up significantly.

Had trimmed some froth in Sunteck, Mastek, Intellect and IDFC over the last two weeks. Used those funds to buy some more of Ark K, Ark G, Roundhill Ball Metaverse ETF and KWEB last night. Average price for all are ($) 76, 54, 11 and 34 respectively and they total to about 12% of the PF.

[sarthakkumar19_]

Hello Vineet,

Wanted to know your perspective on this. Going by this logic, it seems to me that both HDFC and HDFC Bank might be available much cheaper in the short term.

Thanks