@hitesh2710 – Hi Hitesh, Happy 2024 !! I came across a couple of businesses which I thought made for an interesting Techno-Funda set up. Presenting my thoughts here on the same, more from a fundamental and business prospect standpoint. Requesting your technical expertise to understand if there is actually a potential techno-funda set up here. As always, thank you for your insights.

1. LUX INDUSTRIES

• Cotton (the main raw material) prices have been stable and also falling slowly
• Given clean chit by SEBI on the insider case (CG issues were the main drag on the stock)
• Rural consumption upcycle will also act as a tailwind
• They have long term contracts with buyers in place
• Most negatives seem priced in (Price levels still at or less than pre covid)
• Your insights on this chart from a technical perspective please? To my layman’s eyes, this chart seemed similar to the one you posted about Polyplex. Just curious if they are at similar stage of a breakout?
  

2. NATIONAL ALUMINUM (NALCO)
   • Central government recently approved royalty rates for critical earth metals, including Lithium. NALCO is amongst the top Lithium mining companies and stands to gain.
   • Metals sector is an upward trend (iron ore, base metal prices going up). Metal index has also been showing good traction. However, I am not sure when this cyclicality might end.
   • Price action wise, it’s at a 15-year breakout. Your views on this set up please?
   

Thanks again.

Good question on the sustainability of PE re-rating.

One of the ways to look at Newgen is to look at how a private software product company (a.k.a. a “product startup”) are valued, even when they are not making profits. I believe this comparison is valid because Newgen is still barely a ~$1.5 B value company, despite the run up – that is, it’s still a small company, with lot of growth potential.

A typical software product startup is valued ~20x their revenue – at least during good times. Based on the Q3’24 revenue, their revenue is around INR 1248 Cr. So, if another larger company were to acquire them, they might not see a valuation of ~INR 24960 Cr as out of norm. So, I do not believe it’s overvalued at the moment. Of course, this is just one of the ways to value, and also the value changes based on the economic cycle and desperation of the acquirer. Also, non-trivial part of their revenue is from “implementation”, and in that sense they cannot be valued like a true product / SaaS company yet. But since they are profitable, have close to zero customer/geo-concentration risk, and I would like to believe that as they expand in US, their margins may improve further and they may also win even larger deals. With all of this, I would think they would be even more valuable to any large company trying to expand their product portfolio and revenues, profitably.

Note that I am not speculating/suggesting that Newgen is open for being acquired. This is just an example to illustrate one common way to value small product companies.

Disc: Invested from lower levels, it has grown into my largest holding now, and views could be heavily biased. I could change my views fast too, with new information and learnings from the fellow members here. I am still a novice investor though I do have experience working at SaaS startups.

Would be interesting to know what for

Edelweiss has fully existed AIF exposure at par value with no impact on profitability/provision as per latest filing.