Made my final buy for the time being with my embassy office cash today… A year ago I wrote that the most expensive company I owned was Vaibhav global and that I would never make the mistake of buying an expensive high PE company again. Well, I broke that rule today. I’ve always wanted to own a paints company… But they’ve always been too rich for my taste (though the likes of Asian paints and berger have been ever presents in my family’s PF since the early 2000s). 2 years ago the indigo paints ipo was announced. I studied the company and was all aboard until I actually saw the valuations. For context they made 47 crores in FY20 and the IPO was priced at nearly rs. 1500 ie 7000 crore mcap giving a PE of over 100. It then rose to past rs. 3000 and I just totally forgot about it and never looked back. So why have I started investing in it today (with a first tranche of a planned 5 over the next few years).
Since the IPO their profits have doubled… They hit 26 crores last quarter and will hit nearly 30 crores in Q4(usually their best quarter). Q1 and q2 are usually mute meaning around 20 crores in each. So without considering any growth they’ll be at double FY20 profit over 12 months. That means the company is available at 1/3rd less the price at IPO (at current sub rs. 1030) and has doubled it’s profit too so it’s even cheaper And we are closer to the Capex coming in which was announced during the ipo with ipo proceeds. Even with a disruption in the paints business via AB and with the dependance on crude prices I’d still say this is one of those sectors that can grow for years to come with a high terminal value. So I’ve ignored my rules and worries and paid a premium here.
That being said… While I do tend to be a bit cavalier… I also am very conservative. There seems to be no respite with the overall markets, beating of paint company valuations and beating of the Indigo stock price…
So I’ve split my investment into much longer time periods Vs the ones I usually follow
I’ve put in one tranche now fully expecting a further drop. The next tranche will only come in if the company is available at 3x sales(I can’t see this happening unless the whole sector gets a derating since it’s already at 4x sales which is a rare sight for a profit making growing paints company ) OR if the company continues to grow well and it’s still available at similar valuations further down the line. Further tranches will come in when there’s more data when grasim enters the market.
This has the potential to be one of my core long term bets so the tranches aren’t that small either… For eg my first tranche is Just enough where I won’t miss it if it goes to zero or stays flat for a few years… And just enough to enjoy a nice profit if the market goes crazy and gives the company sky high valuations again and I never get to put my second to fifth tranches. Realistically, the worst I’m expecting the price to stay within this range(*/- 20 percent) for 3 to 4 years until valuations catch up (fully expecting them to double their revenue and profits by then giving a big Mos even if the sector gets a derating to 20s type PE) which would give me enough time to invest and then sit back and enjoy a 18 to 22 percent CAGR company for a decade+. Using this failsafe is probably the only way il ever get to enjoy quality premium companies and premium valuations instead of just chasing cheap companies all the time and will improve my learning too since skin in the game with the markets is the best tutor
Disc: Not a sebi advisor.
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