As of today, I have increased my position size in Punjab Chemicals to 4% from 2% earlier. This brings down cash to zero.

Brief thesis: Most Indian agchem cos are strong in insecticides, particularly in pyrethroids and organophosphates range of molecules. In past few years, a lot of capacity has come up in these molecules and I expect realizations to be impacted going forward. With this context, I find Punjab and IPL as differentiated as they are not reliant on pyrethroids or organophosphates. Instead, they are making niche molecules where they are the only major producers out of India. As a result, both IPL and Punjab have been able to get dominant global market shares in their core molecules.

For context, Punjab’s largest products are Metconazole, Metamitron and Diflufenican. Their exports shares in these products are shown below:
Metconazole: 40%
Metamitron: 65%
Diflufenican: 100%

Recently, Punjab launched prosulfocarb and thiocyclam. In prosulfocarb, the other significant Indian co is IPL and in thiocyclam, there is no one else from India.

If we were to look at margins, IPL’s margins are the highest in this industry, whereas Punjab’s margins are much lower. On a gross margin basis, Punjab’s margins are much higher than industry averages, however the same is not reflected at the EBITDA level. I feel with scale up, Punjab’s margins can go to 18-20% levels in next 3-years. If that happens, Punjab can make 150 cr.+ profits in next 2-3 years which makes for an interesting risk reward situation.

The reason for me choosing Punjab over IPL is both are trading at similar multiples, but there is a larger scope for margin expansion in Punjab vs IPL.

Core compounder (44%)

Cyclical (42%)

Slow grower (4%)

Turnaround (4%)

Deep value (6%)

It seems to me that Rubfila is in a sweet spot currently - latex prices are quite low (which should boost their margins) and paper/pulp prices continue to be high. I am not sure if that is true for tissue paper too (haven’t checked prices recently), but I assume it must be the case. Two things that make me nervous 1) overhang of issuing warrants to promoters at discounted prices, which I hope will not happen again now. 2) Porinju’s firm investing in it (maybe in this case, given he is from Kerala, he genuinely thinks its a great opportunity). Disclosure: Invested.

Question - does anyone know who the major customers are for their rubber threads?

TCS has mandated partially work from office - this may result little more attritions.

US and Europe recession is putting limited pain to the whole industry due to IT spending cut.

Hopefully effect might not be severe here and will not damage much from here.

As you are from business field, you know that behind ever stock there is a company, and a company does some business. So if you want to allocate a portion to a sector in your PF, know about the sector, its future growth prospects, because as there is sector rotation in the market, even though the selection of stocks is good, the stocks may not move much, as the sector is out of favor.

Then focus on individual companies. Going with one company is preferable only when there is a compelling reason behind it, say someone choosing Infosys over TCS because he works in Infosys, or valuation is a reason, there could be so many reasons. Going with a basket approach will limit any future fall to some extent, but also limits the upside too, just like an index. Again, if it is a performing sector, then the basket will be profitable.

If your technical knowledge is enough, you can wait or start building positions, depending upon the charts.

Long term means years, at least a few years. So we start at some point and slowly build our perspective, our process, along with it our PF. There could be 20 different changes owning to 20 different reasons before one reaches a long term PF.

Also, this is my perspective, there are investors with different perspectives, from different schools of thought, having different strategies, and we all develop and follow a process that suits us, many ways to skin the cat.

There are many types of investors here in the forum, know their styles, the time spent in the forum will be rewarding.