Cyclicality can come from sales and margins. In most cyclical companies, cyclicality in profits comes due to margin variation.
Higher polymer prices have impacted their gross margins. Additionally, they are running at close of full utilization which implies limited potential of sales growth. In H1FY23, profits have already declined vs H1FY22.
Chamanlal has better return metrics, higher growth and are available at cheaper valuations. Most of LT Foods profit growth in past 3-4 years have come from deleveraging, despite which their return metrics are still quite low. I dont get how despite having a brand, they cannot make reasonable ROCEs. Also, they keep on spending so much on capex, generally branded companies spend on marketing and are supposed to be asset light. With these doubts in mind and cheaper valuations, I preferred Chamanlal. Also, in this whole basmati rally, Chamanlal never really rallied.
I have 4% weightage for both Chamanlal and Sharda. In general, if I am confident of achieving my expected returns, I go to 4% weightage. Currently, I have a lot of stock ideas which means I can have a number of these 4% positions. If there was a scarcity, I might have gone higher.
Business wise, I think Sharda’s business model is better than Chamanlal as it operates in a regulated space, where their competitive advantage is their registrations that require a large amount of money and time. With all the Indian agchem boom and upcoming technical supply, I think Sharda and UPL should be the ultimate beneficiaries as they will have more technical suppliers to procure from.
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