Yash Portfolio Feedback

yrm91 · September 7, 2021, 7:06am

What a few weeks! Market has been on a tear. Portfolio has performed really well up >10% over the last month. Most of the performance has been due to Faze Three, which is up >50% in the last month. Was surprised and happy to see Ashish Kacholia pick up a decent stake in the company in the last few days. Some minor weight changes and 1 new entrant in the PF:

Added Century Textiles: Dont go by the name, this is actually a real estate company and I am happy to continue adding to the residential real estate basket. Company is sitting on a large land bank in Mumbai (Worli and Kalyan) which they are developing starting this year. In addition they have started signing JDAs to increase the size of the portfolio. Given the consolidation in the real estate state, I think Century with the Birla brand name is poised to capitalize due to brand trust and access to capital. They have also built a solid team from Godrej, Prestige, Indiabulls, etc. At our entry price, we felt that we were pretty much getting the paper and textiles business for free.
Some shifting of weights. Sold small stakes in Faze Three after the monster upmove. It was getting too large a position. Also sold some small stakes in Sunteck and Jamna to reallocate to other names. Increased weight in Arvind Fashions, Century & Godrej.

Other Thoughts:
I have now reached the point where good ideas are at a premium. Dont really have too many ideas that I am excited about so if the market continues like this, I would expect some sales and cash levels to start increasing. A number of the portfolio companies are now at the point where I think valuations are stretched: Raghav Productivity, Bajaj Finance, Indiamart and maybe Saregama as well.

Watchlist:
Doing some work on the General Insurance and Life Insurance Space. Also looking at Olectra Greentech for a possible EV play and P&G Hygiene and Health. As mentioned, I dont have too many companies that I am even excited about researching after these 3.

yrm91 · November 1, 2021, 2:47pm

Been a while since last update. A few changes with 4 new entrants to the PF and some shuffling of weights.

Added Olectra Greentech: This is a high risk - high reward kind of investment. Management has hinted that it is looking to expand from just making EV busses into other areas. Given partnership with BYD, I am hoping these are EV CVs or EV 4Ws. The optionality of the partnership with BYD is absolutely immense. It is the kind of investment where if things work out, one could make absolutely monstrous returns: 10x or more even while there is a serious risk of significant capital loss. Hence the relatively low allocation.
Added ICICI Bank: Cant ignore this one any longer. The turnaround under the leadership of Sandeep Bakshi has been phenomenal. It is now beginning to churn out HDFC Bank like growth and asset quality. At the same time, investing immensely on digital experience as well as data collection and analytics. Liability side is one of the best in the country and asset side now beginning to catch up. There have been many stop starts in this one in the past but hoping under new leadership, the change is structural. If that is the case, one could make a case for re-rating closer to 3-3.5x PB for standalone bank.
Added ICICI Lombard General Insurance: leading GI player in the country. This looks like buying HDFC Bank 10-15 years ago. 1) Hugely under-penetrated industry growing rapidly (14-15%) & 2) PSUs have a dominating market share (40+%) and are performing PSU like. Leading players should be poised for a setup of high industry growth + gain in market share. Not many listed options here but this is not a bad one at all. The important thing in insurance is longevity and growth. Longevity comes from the ability to take a step back and refuse to underwrite business when prices are unreasonable. ICICI Lombard has time and again demonstrated this ability; most recently with its decision to exit crop. Combined ratios have consistently been significantly better than industry. Growth in the Indian context is a given from a long time-frame. Being the industry leader also gives it a very favourable cost structure. Looks like a buy and forget kind of investment We are getting a good entry point due to 2.5 years of pain; low growth due to exit from Crop and Covid as well as elevated loss ratios recently due to Covid. All this will normalize. Also keenly awaiting the IPO of Star Health which looks like it will be another fantastic player.
Added Rossell: Still doing work on this one. This started off as a tea player but has now morphed into an aerospace player. >50% of revenues now come from aerospace. However, company has just one customer: Boeing and has year on year increased revenue from it. Also heartening to see it win Boeing Supplier of the Year award numerous times. Looks like a large margin of safety here which is why was willing to enter with limited research. Company has also undertaken a massive capex program in the aerospace business last year which came onstream in FY21.
Also added weight in HDFC Bank. Decreased Faze Three after the sharp run up and exited Jamna Auto and Sandur Manganese with hefty gains. This was mainly because I felt the other opporutunities we added were better.

yrm91 · January 3, 2022, 10:06am

Not too much change in the PF since the last update. Some shifting of weights and 1 exit. Seen the first two down months in a while; from the all-time highs, PF is down about 6%.

Increased Weights in HDFC Bank, ICICI Bank, ICICI Lombard, HOEC and Bharti Airtel. Most happen to be larger companies. Felt we were getting a Mar’20 like opportunity buying banks in the recent fall and took advantage to seriously increase weightage there. Purely FII selling fall, in an environment where there are serious tailwinds to asset quality and growth is likely to pick up. Similar story with ICICI Lombard. HOEC, expect to make a handsome IRR as long as crude prices dont crash whenever the B-80 block comes on which should be this month.
Reduced Arvind Fashions, Olectra and exited Rossell. Rossell was a mistake; a good lesson on what happens when you buy with inadequate research. Lesson learned. Upon further digging; couldnt find any growth visibility in the aerospace business and was not excited to own just a tea business albeit in a high cycle. Olectra; there had been a huge run up. I had initially bought as a long term hold; but seeing some promoter selling along with the high valuations made me uncomfortable. Will probably wait at this allocation; do some more digging and learn more. Arvind Fashions, maybe the initial supremely high allocation was a mistake; just correcting and re-allocating to names where I see higher probability upside. Gross and EBITDA margin trajectory in Q3 will be key to see if the story is playing out here. Was disappointed with gross margins in Q2.

Thoughts:
The market fall brought a lot of stocks into reasonably territory valuations. Particularly impacted were tech companies/new IPOs. PolicyBazaar, Indiamart, Zomato, Nykaa, CarTrade, Star Health all saw large falls. Currently doing work on PB, CarTrade and Star. Star Health we might get a unique buying opportunity at significantly lower levels toward the middle of this month with significant rise in Omicron cases and end of the anchor lock-in. Will probably be ready and pull the trigger if that happens.

Also keenly watching and studying the life insurance sector. It seems similar to general insurance; long growth runway, public insurer has dominant share but is losing share and last 2 years have been tough. In addition, it is even more moated with the risk of disruption or new entrants here quite remote since brand plays such an important role. However, its a complicated industry and bad underwriting can quickly make an insurer insolvent at the rate at which they are writing new business. Work has to be detailed here.

Guarndian_Nettings · January 10, 2022, 9:45pm

can u throw some light on faze three business model and clients??

their website doesnt seem to work…

do they have spinning also in house??

Southern_Cross · January 11, 2022, 5:44am

@yrm91 - FYI. The reduction in stake is of old promoter. The new promoter MEIL Holdings did not sell any stake

yrm91 · January 12, 2022, 4:46pm

No they don’t have spinning in-house but are vertically integrated from tufting onwards. Have some marquee clients such as Walmart, Target, etc and should be big beneficiaries of China + 1. If one sees Q2 results presentation, they have indicated that they are increasing capacities by 2-3x in all categories with a total outlay of 70 cr. Assuming they even can double revenues with this capex, incremental ROCE for this capital spend will come to 50+% showing the inherent strength of the business. This twitter thread is good to understand the business a bit better:(https://twitter.com/mystockedge/status/1481151920563650564?s=21)

@Southern_Cross , thanks for letting me know. Will keep monitoring this one and see execution in EV busses as well as future segments

yrm91 · February 17, 2022, 1:39pm

Portfolio Update:

Exited L&T and HDFC Ltd. Reduced weights in Faze Three in response to the huge run up and increased weight in Indiamart after the huge tech-led fall. L&T while I remain bullish on the core business, was getting increasingly uncomfortable with valuations on their subsidiaries. With nearly 50% of the SOTP value coming from subs, if you cant make a case for the subsidiaries to compound 15% from here, returns are going to be subpar. HDFC Ltd; think i just misread the company. With lending rates at 6.5% and increasing focus and competition; I just dont see how HDFC Ltd can make above cost of capital returns. Current price is probably fair.
Added Axis Bank. Another bank that looks undervalued. Banking cycle is playing out with incremental slippages low. Well run (and poorly run) banks should see a re rating as NPA cycle comes to an end and ROEs start improving. Axis looks like where ICICI Bank was 3 years back with new management doing a decent job cleaning up the balance sheet and accelerating digitization efforts. Expect a re-rating to 2.5x P/B here and 15-16% ROEs leading to 25+% CAGR in price. Also studying PSU banks, who will be the biggest beneficiaries of the credit cycle turning. One could see re-ratings of 50%+ in some PSUs.
Added ganesha ecosphere: this is a company that makes recycled polyester fiber and yarn. I view the shift from virgin to environmentally friendly materials as a structural long-term megatrend of which Ganesha will be a significant beneficiary. Company is adding almost 50% capacity which will be commissioned in Q1FY23. Even better, the new capacity is being added in end-user industries where the final realizations and margins are much superior (and will also unlock a much larger opportunity): bottle-to-bottle chips and recycled filament yarn. Company is the largest player in this space. While moats arent very deep, there is a small moat in that the sourcing supply chain is extremely fragmented. Ganesha, being one of the oldest players in this industry has a significant supply chain advantage with 250+ vendor relationships. It is also looking to further deepen this moat by using the same vendor base to start recycling other plastics as well. Thew new greenfield expansion, if mgmt numbers are true, would give an ROCE of in excess of 20%. This could be a long term compounder.

Malhar_Manek · March 17, 2022, 5:49am

Sir, any particular names you are looking at in PSU banks? I personally find Canara Bank and Union Bank to be interesting (disc- have positions in both).

Sir, could you please throw some light on how you find ideas to research? Any screeners, any investors whom you follow etc.?

yrm91 · March 20, 2022, 4:11am

Blockquote

In general it is hard to ascertain what skeletons are hidden in which PSU bank’s closet. The general thesis is that with corporate balance sheets healthy, incremental slippages are likely to be low for the industry as a whole; and ironically the ones who had the biggest bad loan piles in the past crisis (and have taken adequate provisions for them) are likely to be the biggest beneficiaries as they hopefully see some recoveries from the previous mess. I have not ventured into taking a concentrated bet but rather played the entire thesis mentioned above by buying a PSU bank index fund which gives me diversified exposure to all the PSU Banks.

I have Similar sources of ideas as most other investors: I use the pre generated screens on screener as well as have some proprietary screens of my own. Valuepickr threads of some investors portfolios is also a great source of ideas. I also source a lot of ideas from my own network of friends/peer investors. Lastly, I follow the portfolios of some institutional investors that I like and think have differentiated strategies (Malabar Cap, CWC , Negen PMS, Mittal Analytics, Sage One, etc). Any new entries into their portfolios/large portfolio bets is generally a good starting point for research.

yrm91 · March 20, 2022, 9:42am

Portfolio Update:

Was able to add some capital in the recent market fall. Some shifting of weights and 3 new entried to the PF.

Added Star Health: This looks like a really exciting health insurance company. Company has a dominant (and growing) market share in retail health insurance led by a massive distribution reach. Company exploited the regulatory arbitrage vs multi-line general insurers to sign up LIC life insurers by the lakhs and asking them to cross sell retail health policies. It now has 5 lakh+ agents signed up which is 3x more than their nearest competitor (Care Health). The scale advantage is translating into cost advantages in two ways: a) Reduction in operating cost/policy since this is largely an operating leverage led advantage & 2) Negotiating power with hospitals to get discounts on bills (lower claims). This leads to amazing combined ratios of 93% (pre Covid). For comparison, the leading multi line general insurer has a combined ratio of 100%. As scale continues to increase, the company can either let the improving cost advantage hit the bottom line or alternatively pass it on to its customers in the form of reduced premiums; thereby creating a completely unbeatable dominant retail health franchise. Company is available at about ~45x forward PE which is reasonable for 20+% structural growth in an underpenetrated industry for couple of decades with 20% ROE.
Added Manappuram Finance: I mainly got attracted to the gold loan franchise. While there is increased competition here from NBFCs such as IIFL Fin & Banks such as CSB; Manappuram still has a solid gold loan business especially in the short tenure low ticket size business. Multiple past cycles have shown that this is a tough business to crack and the specialized NBFCs (Muthoot & Manappuram) are one of the few who have survived and grown across cycles. While the days of 25% ROE are gone due to increased competition, 18-20% ROEs with moderate 10-15% growth over the medium term seems reasonable. Paying 1.2x Book for that kind of business seems very attractive. There is also potential upside if the MFI book recovers and gold prices seem higher. In general one has to watch gold prices here because a large decline in gold prices is a big risk. It also makes sense to have a gold play in the portfolio since it is generally counter cyclical.
Added Kotak PSU Bank Fund. See explanation in previous post.
Exited Automotive Axles and Olectra Greentech. Mainly because I felt the ideas we added had better potential returns. Also increased weight in Ganesha Ecosphere.

Watchlist:
Some of the high valued names have seen corrections. Spending some time looking at those: Jubilant Foodworks, Metropolis, Dr Lals, Vijaya, etc.

Also looking at the tech names. think the fall there might be overdone in certain cases. Looking at CarTrade, Zomato and PolicyBazaar

Investor_No_1 · March 21, 2022, 5:05pm

Interesting pick and well explained rationale…can u let us know what pros and cons does a star health have over HDFC Life? I am aware one is life ( with a tinge of health as well in some products if I am not wrong) and other is pure health…but still would be good to know your comparative thoughts…thanks

yrm91 · March 22, 2022, 3:53pm

I did look at HDFC Life as well. It does seem like one of the best run life insurers companies around with a balanced product mix. To be very honest, after studying the life insurance sector, I wasnt able to answer two fundamental questions about the life insurance companies:

How efficiently do they utilize their capital? ROEV is not the same as ROE. ROEV is more a measure of growth rather than capital efficiency. The reported ROE doesnt tell the full story as well. The PAT is basically an estimation and the equity is underestimated.
How good is their underwriting? The nature of life insurance is that claims are extremely long term. While so far embedded values for most companies have seen reserve releases, we would logically expect bulk of the claims to be extremely back ended. Without 20-30 year operating history, how can one be confident that underwriting is good? To make matters worse, the numbers being reported such as VNB, EV, to me dont make much sense. If you see the assumptions that go in calculating them, most of them are being discounted at the risk free rate. I dont really understand the rationale of doing that. Since valuations are derived primarily from VNB and EV, for me its hard to make sense of the valuation as well.

In comparison, the general insurers are far far easier to understand. Claims are shorter term so underwriting can be easily ascertained. ROE is far easier to derive via the combined ratio and we are valuing the companies based on earnings rather than metrics such as EV and VNB which can be easily manipulated.

Now all this isnt to say that HDFC Life isnt a good company. Its just that I dont understand it.

Regarding comparisons between even the health insurance divisions between the life insurers and the health insurers; I think they are fundamentally different. The life insurers are only really allowed to sell benefit policies whereas most of the retail policies are indemnity based. Essentially benefit policies are extremely low touch. You buy the policy, pay the premiums and in case you are diagnosed with the covered diseases; you are immediately paid out the pre approved sum assured. In comparison; indemnity policies are way more service oriented. Claims are made more often; claim servicing is far more important as part of the overall experience and it is also important to build a hospital network so you can have cashless claims, better claims experience, etc. To my mind, even if life insurers are allowed to enter indemnity policies, they wont be able to make much of a dent on health insurers.

yrm91 · April 22, 2022, 12:11pm

Another portfolio update. Not too much change, 1 new entrant and a couple of sells.

Added Ujjivan Financial Services: I view this as a cyclical + special situation pick which provides decent margin of safety. UFSL is the holding company of Ujjivan SFB; one of the larger micro finance lenders in the country. In fact I would say Ujjivan is one of the worse microfinance organizations in the country going by their credit loss track record in the last 2 crisis. However, this is a deeply cyclical sector. Good times see next to no credit losses and healthy ROEs of 20%+ vs bad times see erosions of networth and even some blowups. My thesis is that we are past the worst of the Covid credit crisis and leadership crisis and good times should start next year with normalization of credit costs. Recent company and peer updates relating to collections in Q3 and Q4 backup my view. Company is now adequately provisioned with maybe a bit more provisions to be taken in Q4 related to the second restructuring done in Q1-Q2 FY22. From H2FY23, we should start seeing the full benefit of a) Book growth, b) Normalization of GNPAs and credit costs, c) recovery of NIMs as the GNPAs decline & 4) Normalization of cost to income ratio as the extra temporary collection staff are let go. Here are my (conservative) expected numbers for FY24 for Ujjivan SFB:
Book Value: FY24: ~4000 cr (2600 cr in FY22 + 600 cr QIP + 800 cr PAT FY22-24)
P/B Multiple in FY24: 2 (In FY24, company should deliver 18-20% ROE)
FY24 M.Cap: ~8000 cr

Ujjivan Financial Stake in USFB: 70% (Assuming 600 cr QIP at Rs18/share)
UFSL MCap in FY24 post reverse merger: ~5600 cr (0 holdco discount)
CMP Market Cap: 1800 cr

Potential to make 3x returns in 24 months. If we even take no rerating and P/B at 1x for USFB in FY24, IRR for UFSL comes to 25% provided the reverse merger is successful.

Exited Oberoi Realty: while the thesis of increase in RE demand was playing out well, came upon some data that showed the extent of premiums filed in the last 12 months when the state govt gave premiums discount. I do think most of these will come to market and thus we are likely to see supply outstripping demand in Mumbai starting next financial year.
Reduced Saregama: hard to justify valuations

Malhar_Manek · July 24, 2022, 1:59am

Sir, do you own any stocks outside India? Why or why not? If yes, any specific names that you might want to share?

yrm91 · July 24, 2022, 10:42am

I do have some exposure to international equities. This is for the normal three reasons: a) Portfolio Diversification: reducing some country risk , b) Ability to own assets that have no good comparable in India, c) Alpha Generation: expands the addressable universe and gives more opportunities to find undervalued assets or asset classes. For eg, it looks like Chinese equities as a whole today is undervalued.

At the moment I have 3 sources of international investing:

Parag Parikh Mutual Fund: 90% of my ‘managed’ equities is via Parag Parikh Flexi-Cap Fund which gives some exposure to large cap US tech companies
Edelweiss China Fund: as of now the only fund I could find that gives exposure to Chinese equities
Investments through the LRS Route. Here I mainly own 1 stock: An Italian Textile Company called Aquafil (ECNL). This company makes recycled nylon yarn. It has dominant moats and has no close comparable anywhere else in the world or in India. Being in the same industry, it is one that fits in my circle of competence and also one where I am able to get almost real time data on the company’s evolution.

Put together international stocks may be about 10% of the overall portfolio.

yrm91 · July 25, 2022, 11:38am

Havent posted a portfolio update in a while. There has not been much to update. Very few transactions done since the last update:

Added Star Health: opportunistic buying to take advantage of the market fall. Wasnt unfortunately able to be even more aggressive. Below Rs500/share, or ~25x FY24 PE, this deserved to be a 10% weight.
Reduced HOEC: I clearly underestimated the risk of having just one major block. The company’s own history shows how risky that can be. Reduced weight here to reflect the risks. As long as it is able to keep producing from Dirok and B-80, company will be a big beneficiary of high oil and gas prices.
Exited Godrej Properties: Bad buy, and even worse hold at >2000. Did some more checks in the real estate industry and selection of projects and partnerships as well as execution track record leaves a lot to be desired here. While there was no capital loss, there was an opportunity cost loss here.

Dont have too many great opportunities at the moment. Re-looking at the MFI space. Seems to be at a cyclical low and the RBI regulation changes have improved the economics structurally and increased the TAM of the sector. Also doing work on the capital goods side: Ador Welding, Disa India, etc. DFM Foods also looks interesting at below Advent’s buy price.

Aside from that, I continue to believe the existing portfolio itself is quite well positioned. Banking and non lending financials continue to offer attractive opportunities to deploy capital.

yrm91 · August 15, 2022, 5:27am

As of this week, have added a large weight in Arman Financial. This is a Microfinance company management that I have come to admire. Aalok Patel has come in and transformed the company from a 1 state (Gujarat), 1 product (Microfinance) company to a multi-state, multi-product entity in the last 4 years. This while facing numerous black swan events over the last 5 years, through which the management has managed to mantain best-in-class asset quality. As mentioned in the previous sport, I think the worst is behind in terms of asset quality in the microfinance sector. In addition, the new govt regulations have structurally improved the economics of the sector by allowing free pricing for MFI NBFCs. Most NBFCs have taken interest rate hikes of 2-4%. Even with cross cyclical credit cost assumptions of 3%, at Arman’s cost structure, it should be able to do 25%+ ROEs at the higher yields. Valuations here were a concern at ~5x P/B. However, promoters provided an attractive optional convertible structure that limits downside and provides a yield that makes the valuation more palatable. My equity should convert in 18 months at ~3 P/B.

My brief assumptions for FY24 are as follows:
FY24 Book Value (Post fund-raise): 427 cr
FY24 P/B Multiple: 3.5 (in line with historical average though I think the fair value for a company with 25% cross cycle ROE growing at 25-30% should be more like 6x P/B)
FY24 Share Price: ~Rs 1650
Expected IRR with preferential dividend of 10% for 18 months: 24%

This is a highly cyclical sector, so I will take a call on what to do with the convertibles after 18 months.

In addition, have sold some Faze Three in response to the price run up and added some Ganesha Ecosphere instead. Ganesha is well positioned with structural demand tailwinds and new capex coming on stream.

The portfolio now looks as follows:

yrm91 · September 12, 2022, 11:01am

Another Portfolio update,

Took the market rally as an opportunity to trim down some small holdings/companies where thesis was going wrong:

Exited Hindustan Oil Exploration Company: Thesis gone bad. Post repeated delays, have lost faith in management’s ability to execute on the B-80 block. Poor communication with investors doesnt help. This was one of the stocks bought in the peak of Covid, and as such delivered multi-bagger returns
Exited Manappuram Finance: Thesis gone wrong. It really hurts to sell this one at book value. I suspect returns might be decent here, however it starts looking like a value trap. High ticket size gold loan business is permanently impaired which will challenge the company’s ability to grow in the long run. I still think the company can do 16-18% ROEs, however growth is question mark. Booked a ~15% loss here. Probably will look to reallocate to Ujjivan Financial Services. Will keep tracking and re-look if there are signs of growth or reducing competitive intensity.
Exited Bajaj Finance: rich valuations. At 10x P/B, there is limited scope to make a good return. In addition, it was a small weight. Made sense to reallocate to other names.
Exited Sunteck Realty: thesis going wrong: In a couple of years where residential real estate sales are going through the roof, company has struggled to sell its ready inventory in BKC and meaningfully accelerate sales trajectory elsewhere. I further expect the Mumbai market to be in oversupply starting this year as mentioned above based on the advance premium collections.
Exited Century Textiles: This one might be a bit harsh. Paper business is in an upcycle and real estate business is just being setup. Valuations too are fair. I primairly bought for real estate. However, chosing to exit and make room for other opportunities given that I dont expect Mumbai real estate to do great from here. This marks the exit from all real estate stocks. I held for much lower time than I envisaged, however nevertheless, the returns from the overall basket were pretty healthy at somewhere around 50%.
Trimmed Faze Three: the expected returns had just started dipping post the monster rally. Took the opportunity to reduce allocation and reallocate elsewhere.
Trimmed Saregama: valuations are steep. Expect to exit this one completely when better opportunities become avaialble. I actually think cash might even be a better opportunity. Valuation rationale is explained here: Saregama India Ltd: India’s premier music publishing label - #414 by yrm91
Expect to add Ujjivan Financial soon. Have also taken a short-term trading bet (not discussed here). Rest is going to cash in wait for better opportunities.

yrm91 · October 3, 2022, 11:53am

As of today, have initiated a position in MCX, thus deploying some of the cash raised. These two charts explain the full thesis:

There is a massive increase in options volume on the exchange this year, primarily led by energy contracts. This is a completely new revenue stream that didnt exist last year. It is happening as a result of this:

Above is the latest investor presentation of Angel Broking. Clearly, a large part of the increase in turnover is due to retail participation. Having transacted in futures contracts on MCX myself, I can understand why it was difficult for retail investors to participate in futures: the ticket sizes were very high: multiple lakhs for a single lot. Options brings the ticket sizes down substantially. At the moment there are 2-month options, MCX is planning to launch 1-month contracts soon. That should increase liquidity even more.

This interview with the Angel One Chief Growth officer explains why this shift has happened. The large volume jump has happened due to just one single brokerage house providing advisory services for commodities. Seems like a large opportunity here. Furthermore, the exchange will shift over to a new software system from Q4 hopefully. This will increase EBITDA and cash flow by a further 30-40 cr/year and make the software line item fixed rather than variable (more operating leverage).

My assumptions for FY25 are as follows:
Operating Revenue : 645 cr (predicated on 20k cr futures ADTV and 62k cr options ADTV)
Interest income: 98 cr (this is interest income of only the equity part, interest income from float goes into operating income)
Operating EBITDA: 425 cr
PAT: 338 cr

Exit EV/EBITDA Multiple: 25x
FY25 EV: 10.6k cr
Net Cash: 1250 cr (assume 100% payout ratio)
FY25 M.Cap: 11.9k cr (or equal to 35x FY25 PE, long term average multiple)
Today M.Cap: 6.35k cr

IRR : 28.5% + 2% div yield

Trajectory in options volume is the thing to track here.

yrm91 · November 13, 2022, 2:31pm

Portfolio Update:
Not too much change since the last month. Trimmed some Raghav Productivity in response to the large gain in stock price. Some signs of euphoria there in valuations. Exited Saregama as discussed earlier and further trimmed Faze Three. Added some Ganesha Ecosphere and Axis Bank. Wish I had been bolder with my decision on PSU Banking and weighted that better; thesis there is playing out to a T. Risk reward at the time was extremely favourable.

When I look back on the last 12 months performance of the portfolio, even though it has beaten the index, I feel I missed out on a significant opportunity to compound at a higher rate. The list of stocks that I looked at, passed on and which did well during the year was extremely long. Some of them are Orbit Exports, Tyre Stocks, Raymond, Mirza Intl, Shivalik BiMetals, Maharashtr Seamless, Voltamp Transformers, Rossell (sold too early), Zomato. All were significant wealth creators during the year. The list doesnt even include stocks that were suggested to me by others and which I didnt have time to look at: Aegis Logistics, Ramkrishna Forging, Amara Raja, Varroc, Dixon, etc. I have decided to start keeping a decision journal to jot down the reasons why I decide to not buy a stock after research and see what patterns emerge over time.

The sheer volume of good opportunities identified in a fairly difficult 12 months for the market leads me to 2 conclusions:

Great opportunities are available even in overvalued markets. You just have to work hard to uncover them
When those opportunities are identified, you need to be courageous to act on them even if it means portfolio churn is higher. In fact, for portfolios of small size, high portfolio churn is actually preferable if it leads you to reallocate funds to ideas which have better return potential.

Hoping I dont make the same mistakes in the next 12 months and am more pro-active pulling the trigger where I am able to find good opportunities.

Portfolio looks as follows:

Watchlist:
Continuing to look at technology stocks. Am ready with target price for Zomato, will pull the trigger at Rs 55 though I dont think I will get that opportunity. Have passed on Nykaa: I actually think contrary to general market perception that Nykaa is the worst of the lot and will constantly require cash to grow unlike the others (being an inventory model). They also have the worst balance sheet; having taken the call of not raising money in the IPO and are consequently now funding a large chunk of working capital with debt. Doing work on PolicyBazaar now.

Also continue watching the agro-chem export basket closely. Pharma (both domestic and export) also are on my list to look at.

At the moment, I think a historically great capital deployment opportunity is available in Chinese stocks. There are a few mutual fund options available to investors. There is a general perception that Chinese stocks are ‘uninvestable’ due to geopolitics, excessive govt control, poor policies, etc and thus the entire basket as a whole has been beaten down to levels that I believe to be very attractive. One must remember that the value of a company is the discounted value of future cash flows and decide if the narratives above affect that in the long run and to what extent. In fact, even in his latest speech, Xi Jinping mentioned his support to encourage private enterprise, enterpreneurship and view to let the market play the decisive role in capital allocation. These points have been completely ignored by the global media