I have sold Godawari Power today. Friends who track the company very closely think there’s still upside left, valuing it at around 5x EV/EBITDA (compared to 4x EV/EBITDA today). I’m happy to give up some of the upside.
To summarise my current framework:
I have roughly 50% of my portfolio in investments where I see longer runways of growth. I do not plan on touching these unless:
-
Something I’ve priced in turns out to be untrue.
-
There’s a large one-off that has resulted in a rally that takes valuations to a point that is unsustainable.
-
There is a sudden change in business momentum during which holding results in an extremely unfavourable risk-reward.
The remaining 50% I want to keep rotating into ideas that I think can produce a 30% upside. Here, I’d like to be stricter in entry/exit, even if I lose out on the upside. Then, move into companies that are cheap, and repeat.
So far, I’m happy with my hit rate in this basket.
NMDC, AB Capital, Godawari Power, Equitas, SJS, and now Suryoday have played out.
PDS, Deepak Fert and Aegis are examples that used to belong in the first basket, but moved into basket 2 and were subsequently sold. Would leap at the opportunity to add them again.
Current watchlist and thought process:
I’m planning on reducing Avanti Feeds from 7% to 5% during the next rally, lowering my average in the process.
| Stock | Thesis | Trigger |
|---|---|---|
| Caplin Point | Very successful scale up of sterile injectables, with multiple optionalities | H2FY23 Onwards |
| Kriti Industries | Recovery from the fire, horrible base for earnings. Sector has seen pain | After Q3FY23 results |
| Ultramarine | Discussed above | – |
| Sudarshan Chemicals | Can benefit from demand from the paints industry, competition from China is exiting the space | After Q3FY23 results |
| Punjab Chemicals | Great business, horrible margins. Thesis is of growth, and margin expansion closer to peers. | Possibly after Q3 results |
| Maithan Alloys | Lowest cost producer of alloys. Great business even during downcycles. Is currently at bottom valuations. | ? |
| Gokaldas Exports | High inventory from retailers should hurt the business in the next 2-3 quarters. | H2FY24? |
On performance, portfolio is up 20.8% on realised profits, and around 27% including unrealised since April 1 2022. Small cap index is up 4% in the comparable period. Currently hold around 20% cash.
| Subscribe To Our Free Newsletter |
