Yogesh, Have you have exited Can Fin Homes and PNB Housing?
Yes but I am not bearish on those companies. Just moving towards a concentrated portfolio strategy so focusing on few names.
(Added Bajaj Finance) to the previous post).
No Manappuram as well ? I though you have lot of conviction on that stock.
Won’t it come as trading, which result in frequent churning of portfolio when you feel a stock is over priced. Also, we may miss the bigger ride if stock doesn’t correct from high levels.
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Manappuram is a good company but I don’t see a lot of potential for in the long run for gold loan as a business. I am following a strategy of projecting profitability for the long term and using a DCF model to arrive at the present value. Bajaj finance with its distribution model is much better placed to offer all kinds of loans than most other finance companies. Only banks with access to low cost of funds and companies with strong distribution model (Bajaj Fin, LIC) or companies that target segments that banks will stay away from (Indiabulls) will have a long runway. Others will be eaten up by one of these but it can take a while. I am also focusing on few names so mannapuram did not make the cut. It quickly rebounded from 60 to 80 before I could build a position.
For holding, I have a tolerance band for holding the stock just that it is narrow. This strategy (of not holding companies that I don’t want to buy) is also a new change so I am still in the process of testing it to see how well it plays out. In the past, I held on the expensive stocks only to see them going down so I am being proactive now in pruning them and just parking till some opportunity emerges. So far there has not been much trading or churning in the portfolio as large caps are not so volatile. I am also focusing on companies where I can see long growth period ahead so can ignore short term spikes.
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Yogesh,
A question on selection criteria -
How do you select the mid/small cap that you have selected?
Do you have a minimum number for operational profits say 10% or 50% or xx?
Do you consider a five or ten year period during which profitability is maintained?
Hi Yogesh, Since it is diversifying in other areas except gold, would that lead to better values for manappuram
No common criteria across companies. General criteria I used is
- Company should have good long term growth prospects and company should have a clear plan and ability to actually capitalize on these growth prospects.
- company should have a consistent operating history (Margins, leverage etc).
- Company should be better than it’s close peers in terms of profitability, leverage, working capital management, cashflow etc.
- I should be able to value the company with high confidence.
- Company should be trading within the fair value + tolerance band.
- There should be sufficient information available about the business (in annual reports, presentations etc) so I can make calculated-risk type investment. I don’t make leap-of-faith investments.
- The industry should not be going through a structural change so that future cash flows can be calculated with reasonable confidence.
- Generally avoid cyclical and turnarounds unless the balance sheet is good.
That’s all I can think of now. No company meets all these requirements but most of these requirements. Valuation criteria is a must.
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My observation is companies diversify when they see their current business is reaching a saturation point so they are looking for other sources of revenue and growth. I like companies diversifying forward or backward in their supply chain compared to those that are diversifying horizontally.
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@Yogesh_s bhai - How do you think Dhirubhai AMbani Exhibition Center effecting Nesco Exhibition Center? Do you think it can effect Nesco’s business going forward? Pie is the same at the moment, so if monopoly is broken, it would effect the existing player.
DAICEC is a world class convention center that is built with $680 mil budget. I work in a building that directly overlooks the center and it is occupied more often than I thought it would. So there will be competition to BEC however in terms of costs I would imagine DAIECE will be much more costly than BEC. It is suitable for diamond shows or celebrity weddings rather than industrial trade shows. As a test, whenever I park there, I end of paying 250 per day compared to MMRDA lot right next to that which charges me Rs 70.
Reliance is not in the exhibition center business. This center is a drop in the bucket for them. It is also called Jio Garden and open to public when there is no event. So it looks like a branding cum CSR initiative (similar to Dhirubhai Ambani International School which is just a block away). I don’t think they will try to compete with BEC in terms of price. In fact, I would say they only want to hold premier exhibitions there to set a standard.
MMRDA grounds just a few blocks away in BKC can be a competition to BEC more than DAICEC but it just an open ground and not a built up center.
Moreover, with Nesco building IT park on its land, BEC will be a smaller share of the total revenue in few years.
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Currently Avanti feeds is trading 8 times its book value as per screener data. What is your view on this, is it a decent bet for long term i.e 7/8 years?
Book value multiple although an important number, isn’t so important for non-financial companies. Value of non-financial companies largely depends on how much earnings is generated by deploying and leveraging that book value, in other terms return on book value or return on equity.
For non-financial companies including Avanti, ROE can be very high and can stay high if company has a strong competitive advantage and operate in a growing industry.
Avanti is expensive at this valuation but again valuation depends how much growth you expect in future and for how long and that itself isn’t an exact science. A reasonable growth estimate is priced into the stock but the company can grow (and many have grown) faster than growth already priced into the stock and that can result in good future returns.
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Consider adding Dai-Ichi Karkaria with five year perspective?
Hi @ausking - di ichi had few things that got me started, however, somehow I was not persistent enough to go further deep. Do u mind sharing a quick summary of your POV. this will be condensed learning for all. (think we have a dedicated thread, u may use that)
Thanks
http://www.bseindia.com/xml-data/corpfiling/AttachLive/3C82816C-83D8-44E9-B212-F6CA4AB40C4D.PDF
The report suggests on a equity capital of 7.45 Crore, the company is making twice as much of profit. EPS 21+. Debt free. Dividend from joint venture is 6.19 crore. And yet this small cap appears under a p/e ratio of 20.
The question is - this kind of performance is sustainable over next few years?
@Yogesh_s,
I must say that it has been a great learning going through the visual representations you put in the posts. Thank you for that.
With the buy/sell strategy at a given market price you follow, do you still continue to hold companies like Avanti feeds?
Have you made any changes to the mid and small cap portfolio in the recent months?
My personal portfolio is fairly active as I keep getting out of positions that become expensive. That helps me sleep peacefully at night.
Avanti Feeds is an exception though. I have trimmed my position in the recent rally just so that I can jump back in if there is a correction. But I continue to be bullish as it has potential to deliver strong returns for many years.
Other smallcaps added are Nitin Spinners and PSP Projects.
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Hi Yogesh,
very interesting and lots to learn from you on portfolio churning and construction. With Yes bank mired in controversy & Lupin in doldrums what did you do. Also if you are switching stocks every year (large caps) how do you find compounders.Are’nt you missing out on compounding. Please share your views
Churning is mainly to maintain margin of safety in the portfolio. Regarding Yes bank, I think this controversy is just noise. NPA is after all just an opinion and estimate. What matters is how much assets are finally written off. Having said that, I am quick to change my opinions when facts change.
Churning has nothing to do with compounding. Even a day trader can compound. If you reinvest all your sales proceeds back in the portfolio and earn a positive return, you will compound those returns.
Dear Yogesh, Although I have never messaged you, I do follow your posts. I have gone 50% cash yesterday. I don’t know why but when everyone is exuberant I get nervous 
I get scared when the Nifty hits new highs one after the other. I was buying as much as I could between Nov-Dec 2016 and that was all giving me over 26%. So I moved out of most positions. Am I overreacting in your opinion. I too like to sleep peacefully at night.
I have been thinking on the lines of your blue chip portfolio for some time with churning as valuations change but not implemented. Maybe I should wait for an opportune time with a healthy amount of cash available? What do you think?
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