Portfolio Updates:
Not too much change. Bit of churn in a few tail positions and few addition and weight changes
Buys:
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Agarwal Industrial Corporation: One of the largest importers and specialized logistics players in the bitumen place. The company is also completely integrated, owns its own ships, storage tankers at ports, processing units as well as logistics trucks. For now, View this as a short term bet to play the expected unpriced pickup in Q4 numbers. Along with this, doubling of ship transportation capacity in Q4 should also lead to significant growth in profitability in the upcoming year. Could even be a longer term play if road capex revives as incremental demand will all be met via imports. Could make a 50%+ return here very quickly.
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Madison Ltd: Still a work in progress and could be an exciting long term play on growth in the power sector. Govt has announced ambitious plans to grow the country’s transmission network in order to future proof renewable capacity addition which is more transmission heavy. The biggest growth will come in high voltage substation capacity addition as per CEA projections. Madison seems to be the only company in the country that makes contacts for HV switchgears. 50% of the company’s EBITDA comes from this product. In addition, company also makes LV contacts which has immediate tailwinds with real estate demand and is also a beneficiary of the govt smart meter drive. Company is not expensive on normalized margins (<15x PE). Expect a catchup to normal margins this quarter itself with silver prices shooting up. Given the immediate tailwind to margins, it became necessary to buy even with limited research.
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Added PB Fintech and HDFC Bank
Sells:
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Sold SIS: one that I was wrong in. Kept waiting for the turnaround in margins that never came. The entire pain was self-inflicted by mgmt. They chose to take poor contracts with low margins during Covid to show growth and appease investors. This is biting them back now. Some of the acquisitions have also been poor with less due diligence. Not qualities I want in long term investments. This was one of my worst ever investments in terms of opportunity cost given it was bought in 2020 and yielded <20% absolute returns.
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Coastal Corp: Another one it seems I made a mistake in. The structural factors of competition from Ecuador in the shrimp industry are outweighing everything else. There is still some hope here with anti-dumping ruling by USA expected soon. In addition, there have been challenges with grain based ethanol as well with FCI not releasing broken rice stock to ethanol producers amongst shortages/high inflation in rice. Enough for me to exit. Had redeployment opportunities as well.
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Trimmed Faze Three, Godfrey Phillips & Bharti Airtel. All playing out well; just valuation and opportunity cost reasons.
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Sold Garware Hi-Tech: Quick buy and sell. I feel I diluted PF quality in order to buy this with the known governance issues. In addition, trade data showed the pickup in PPF films may have been temporary.
General Thoughts:
I continue to have more ideas than resources at the moment. While market may be choppy in the near term, I feel there are still plenty of good opportunities available. It helps that in general, I believe the PF quality to be the highest at this point than it’s ever been in the past. Finding plenty of opportunities in financials space for even long term investments. At the same time there is clearly froth in certain segments such as a few PSUs in certain segments, hot themes: railways, renewables, defense and cap goods where prices are much much above fundamentals.