Few changes to the portfolio since the last update. Cash pile had gone up post a number of sales in the last few months, can look to deploy some of that in the coming weeks/months.
- Added Religare Enterprises: New addition, have been following this company for a while but never had the guts to take a position. The successful resolution of the One-time-settlement with the lenders in the lending subsidiary RFL was the trigger for me to start buying. Essentially view this as a special situation value-unlocking play for the Care Health Insurance subsidiary. The last funding rounds at Care were done at ~22k cr valuation (~5x FY23 GWP). Current valuations based on grey market are in the range of 15k cr (~3.3x FY23 GWP and broadly on par with Star Health). This implies that Religare’s 65.5% stake in the company should be worth between 10k-15k cr vs current entire market cap of ~5k cr. In her media interaction last week, the MD of Religare in no uncertain terms mentioned that the next step is to unlock value for shareholders either through an IPO of Care or a demerger (interview found here: Religare Finvest Completes ₹2,178 Crore One-Time Settlement With Lenders: Rashmi Saluja Exclusive – YouTube). If its a demerger, then that will be an immediate 2-3x for Religare holders. An IPO would actually be less preferable as it will entail a large Hold-co discount. Probably not much upside in that scenario. In the meanwhile, I am happy to wait as Care is a phenomenal health insurer. It caters to a slightly more premium target market as compared to Star; thus even at almost 33% the scale of Star, it is able to do better combined ratios (94% in the last quarter).
At the same time, with the OTS completed in RFL, the NBFC becomes quite healthy. Further we should see a massive writeback to the tune of ~3k cr next quarter due to the OTS. I think the NBFC itself will turn profitable in the next quarter as long as no more asset quality stress. There are also some other subsidiaries: Religare Broking and an affordable housing subsidiary which are profitable to which I am ascribing no value.
Seems like another one of those Heads I win big, Tails dont lose much kind of bet. Also thinking of swapping some part of Star Health Holding to Religare. The only short term risk here is the composite license where Life Insurers will be allowed to sell Health insurance. I have written previously how I dont think this is a long term threat. However, it is bound to sour sentiment and cause panic in the short term which will impact the stock price. This is one of the reasons I hadnt made Star 10% of the PF despite a very attractive valuation.
- Few other updates: had added Star Health @Rs 500 and exited Arvind Fashions and Delta Corp completely; as mentioned in the last update
Have a number of ideas which I think are becoming interesting:
-Punjab Chemicals: Trying to understand the agro-chem cycle better before buying; but price seems attractive. Some near term risks on the horizon.
- XPRO: may have missed the boat on this one. Felt at the CMP werent being compensated adequately unless the company was able to crack exports in a major way. Was comfortable to buy at Rs 450-500 before the price took off.
- FDC: good margin mean reversion play for the next 12-18 months available at 30% lower than historical P/S.
- Also looking at number of other companies such as Krsnaa Diagnostics, Kabra Extrusion, Bajaj Consumer, GHCL, etc.
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