@dinngap – The deleveraging i meant is in the future. The company is done with all capex and borrowings shouldn’t increase from here. I am trying to see what a 1500 Cr EBITDA can do to this company. Some cashflows are more valuable than the others – if the cash generated repays large debt, the next year PAT increases without the business doing anything (and in businesses like this, its the best deployment of cash) – Equity:Debt is skewed towards equity and market cap increases to the proportion the debt is reduced and interest coverage ratio improves as well
@r8b8 – Yes, I was valuing the business based on the FY24 guidance (forward earnings as you put it). These are awkward shortcuts but trying to be more precise I feel is futile when there are so many variables
@novice2014 – Maybe WSSL isn’t a bad bet either but am not sure about the valuations
@prabhat_mohanty – Topline and margins vary based on export mix. Current order book is export skewed in my limited understanding
@cathene – I think I wrote about the team approach in the last post. The key thing to note is that all members of the team aren’t equal and should never be treated as equals – that’s why you have a batting order in cricket. There’s no point having your best in form batsman coming in at #7. The same approach to me applies to allocations – The typical allocations are 18-20%, ~15%, 10-12% in my top 5-7. So these top 5-7 make up 80% of the portfolio at any point of time.
They seldom get to this allocation level at one go. I start at 3-5%. Nothing decides allocation more than valuation. I try not to allocate higher on momentum stocks (I dont average up, but there are rare exceptions, like HOEC where I added 2% more at 160 levels and 2% at 180 levels to a 12% position at 135 levels). I have a narrow valuation range to buy in and as long as stocks are in that range, I keep buying over few weeks. Since I don’t average up, it is important for me to buy the highest allocation possible when the valuation is still in favor –
For eg. I wanted to buy Spandana and Ugro in the beginning of May. Spandana opened gap up at 695 thowing it completely out of my buying range, so I was buying Ugro instead between 175-195 which was still in my valuation range. Ugro gave lot of opportunity to buy before running up – but then Spandana came into buying range (630-650 levels) – You have to know your valuations and never chase or average up. Buy cheap – that’s the only thing that can protect you when things go wrong
Top 5-7 never look at the same across quarters – mostly because they run up too much and better value emerges elsewhere. Only VBL survived Nov churn intact from my June consumption stocks – most were expensive and were sold to make way for Apar (initial at 1700, averaged down at a lot between 1400-1600 which was super juicy valuation), Shilchar, PML. VBL was sold between 1500-1700 to make way for HOEC at 135 (I still have ~3% left from a initial 20% in VBL which I might hold for long)
There’s no fixed rules to it. These are all bets and you have to manage your portfolio of bets to make sure your allocations are geared for best returns at portfolio level. I see companies as engines spinning at a set RPM – unless you are in the right gear, your linear displacement wont be big – 6000 RPM at 1st gear vs 8th gear is a world of a difference in displacement (3% allocation vs 18% allocation for a stock doubling in 6 months in our terms)
As far as universe goes – cheapness and strong chart are the starting criteria. Growth comes next – this is where there’s lot of possibility to get wrong because cheapness and strong chart are verifiable and in the past/present whereas growth is in the future. If you get the cheapness and strong chart right from the selection universe, getting growth wrong doesn’t hurt a lot because you aren’t overpaying to start with – at worst you will have to swallow your pride and cut your position size which is alright with me
Disc: I have traded in most of the stocks mentioned and it isn’t advice to buy or sell. Borrowed conviction on process probably is exponentially worse than borrowed conviction on stocks – so please use this just to think / ruminate on alternate approaches for yourself
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