Due to the news of market coupling.
Posts in category Value Pickr
Nesco (28-01-2024)
little radical and opposite to what current mgmt think and work is to go and leverage and aim to complete all building by 2028-29 . the profit would go down in first 3 years because of interest but then new earning would kick in early . from there it would remain cash flow based company and mgmt can plan to invest free cash into newer business.
however i also see the merit in current approach and continue to hold it.
Rudra’s PF and Information attic (28-01-2024)
Great session from Madhu Kela. Past experience can indeed be an hindrance at times stopping your participation in changing themes as your preconceived notion of the past stops you, as was the case for many who missed the PSU rally. PSU basket overall had an almost 4x rise in aggregate Market cap from 14L to 50L Cr.
Importance of connecting a stock idea to a mage theme. And only bet in stocks which have some fitment with the mega theme so that it has enough tailwinds and not sectoral headwinds to battle.
Next #MegaThemes
(1) Carbon Neutrality- Anything and everything that can make this happen. Even ancillary plays like transmission players who can help in transmission of greener energy sources
(2) AI and Cybersecurity- Another evolving theme, with the advent of Quantum Computing all our existing cyber security will be rendered useless. So this space certainly will have blots of actions and new players. Currently Madhu is betting on a few unlisted names.
Market Café | Madhu Kela On How To Invest In A Bull Market | CNBC TV18 | N18V
Also from this recent tweet : Luxury Consumption
Some key learning:
- NPV of Relationships: this is the key to success and happiness. Biggest investment that one ever makes is in nurturing trusting relationships. Who stands with you in your drakest time is your true friend: “Chota aadmi hi kaam aata hai.”
Business Plans and making 100X investments: “Jo excel pe dekh sakte hain woh 100X nahin ho sakta.”
Portfolio Management: Never sell when exceptional companies land in your portfolio.
Value Creation: Scarcity creates multiplied value.
Investing Genius is to identify when a lot of people are fools in the market.
Group identified Luxury Consuption and Climate Tech as the two mega opportunities.
Why be satisfied with 2X wealth multiplication when there is a sea full of 100X opportunity.
The harsh portfolio! (28-01-2024)
I see a lot of stocks in core compounder that are at best cyclical businesses. A compounding businesses has three main characteristics that are repeated over the years regardless of anything: 1)stable top and bottom line growth 2) stable margins 3) long term upwards trending pricing chart.
Trent, Nestle, Titan, HDFC banks to me are good examples of compounders. You can buy into these companies at any point in time regardless of valuations, economic cycles or general mood of markets, and still compound wealth at 15-20% over a long period of time. They have great underlying business model, a tangible moat and high quality management with great track record.
Calling some of the companies, whose businesses and stock prices have done nothing except post-covid, compounders will be a leap of faith. Also it’s hard to distinguish a compounding stock from the rest in a scorching bull run, we have seen post co-vid, where every single stock runs and market cares least about quality of books, management or underlying businesses. Narrative about every second company is so good that it leads common investor to believe that nothing can go wrong.
To me a good judge for a compounding business is if one can see themselves staying invested in a company for next 10 years and being confident of maintaining their returns.
I’d love to see how many of some of these small/micro-caps are still around in next 4-5 years and if they are still generating wealth. I’m sure 1-2 of them will become large caps or compounders but I don’t see any of them coming from real estate, chemical or pharma space. It hasn’t happened in the history so very less chance will happen in the future.
HDFC Bank- we understand your world (28-01-2024)
Nice parallel, but Indian banking i suspect is more fragmented with HDFC bank though largest pvt sector bank still current %age is only 4.4% of India’s GDP. Also Indian banking is very dynamic due to major presence of Fintechs plus increased prudence coming to PSU lending since last few years.
But i agree given the other opportunities in the market, HDFC bank at current valuations and any falls, may provide a decent 14-15% returns over 5 years…
Sharda Cropchem – Can it get into indian market in a bigger way? (28-01-2024)
Q3FY24 Notes:
Q3FY24
- Europe 37% to 36.4% Gross margins, Volume from 3300 to 2850
- Latin America 24% to 31% Gross margin, Volume from 422 to 503
- NAFTA region 27% to 12% GM, Volume down by 35.3%
- Rest of world 25% Gross margin: remained same, Volume from 1055 to1105 up by 5%
- Volume 21% down overall
- Inventory losses due to products returned by customers (due to price fall)
- Huge Inventory piled up in China, availability is abundant, prices have fallen too much
- Not affected by Red Sea issue
- Registration costs went up significantly and became difficult too
- The same level of ROCEs and asset turn will continue
- Within the next year prices may become normal or increase but headwinds are there in the near term, gradual recovery would be there
Nesco (28-01-2024)
For this kind of business I always struggle to find operating leverage. To expand growth the company needs to be building new facilities with long gestation cycles.
In the short run, to increase topline, best they can do is increase the prices but with increasing competition not sure if it will be viable. Plus don’t see any differentiation in their offerings. With such high margins, it’s a matter of time new players will start coming up with the same solutions driving down margins.
So NESCO’s is a business, that doesn’t have any operating leverage or competitive differentiation and yet they continue to generate 40-50% PAT (quite uncommon in asset-intensive businesses).
Could this be the reason that valuations (18 p/e) are subdued and rerating has happened ever since company was listed (multiples are trading at long term averages)?
Would like to get some more views that explain low multiples despite such high profits and cash flows.
Indian Energy Exchange (IEX) (28-01-2024)
Can anybody explain why the stock price corrected so much?
I thought the results were good for Q3 Fy 23-24 with Dec EPS = 1.0 (+ 27% from last Dec) and Sep EPS = 0.93. and ROE = 39.4
HDFC Bank- we understand your world (28-01-2024)
I see a flaw in your calculation. In my view giving out dividend and raising money at the same time for a company with above average ROCE (signified by P/BV>1) is irrational. It is only done as a positive signaling mechanism to retail investors.
Taking your numbers, Price= 400, BVPS= 100, Total Outstanding Shares(OS)= 100. Lets say company makes a total profit of 100 at the end of the year, and the management just needs 100 for future investments.
Management has two options:
Option 1: Use 100 from profits to invest in future investments.
Total BV=10100; to keep P/BV at 4, price will increase to 404.
Option 2: Give out 100 as dividends and dilute 0.5% to raise 200.
Total BV=100*100-100+(0.5)400100=10100; and Total OS=100.5.
To keep P/PV at 4, price will increase to 402.
As compared to Option 1, the existing shareholders loose even after including the dividend (of 1) in the final share price of 402.
The harsh portfolio! (28-01-2024)
Finally, my humble opinion is that buying 50 stocks and churning them every 3-4 months is not a great strategy for wealth creation (I’m yet to see anyone building great wealth over a long period of time with this strategy) unless you are regularly beating the representative index or mutual funds (having the same portfolio mix).
I think Sir Templeton had around 200 stocks in his portfolio. Not sure about his churn rate though. There are various strategies in value investing.