Thanks GRP for your response and thanks to all who liked my first post.
Investement rationale for Hindustan Foods (6% of portfolio, 46% profit):
Background – My first entry in HFL was in February 2018 at 60 rs (accounting for split/bonus impact). My profit % looks distorted as I trimmed and added through the period. My realised profit on the stock is 2.4x of current position. This stock used to be my largest holding (in 15-20% range) from 2019 to 2021. I kept trimming out of fear and thinking “aur kitna upar jayega”. Though it never reached my intended/targeted valuations of 3x sales.
I have a habit of reading at least 2-3 hours a day. I read all business, markets, and economy related news as much as possible. I came across this news dated December 2016 Sixth Sense bets on Kurkure snack maker Hindustan Foods. I started reading about the company and its products but I could not find much on this company but I could find that the company, Vanity Case India, which bought Hindustan Foods in 2013 is in contract manufacturing for decades. Its client list also included some MNCs. Then after few months in March 2017, I came across this article Nikhil Vora harvests 75-fold gain from Paytm stake sale. I further noted Mr. Nikhil Vora was head of research at IDFC. My Job was easy to just follow a renwoned, successful and a person with investment acumen.
The above helped me in screening the stock. While my simultaneous research on Vanity Case led me to know that company has over three decades of experience in contract manufacturing. Based on some articles I could note the hunger in the management (Mr. Sameer Kothar). Sharing below some excerpts from a 2004 article from business standard https://www.business-standard.com/article/beyond-business/the-gennext-makeover-104100101071_1.html :
“ while the Rs 250-crore Vanity Case Group of Companies continued supplying a wide range of skin care products to a host of Indian and multinational cosmetics brands, the young Kothari wanted a quick makeover. …… And since he could not launch his own cosmetics brand in India for fear of competing with his heavyweight clients, he’s grabbed the next best opportunity.
He has turned Vanity Case into a one-stop shop for product design, formulation, manufacture and packaging for almost all FMCG products such as powders, creams, shampoos, etc.”
Then this excerpt was the key trigger for me: “However, the success with third party brand launches has finally pushed Kothari to think about introducing a brand of his own. If all goes well, Vanity Case will launch its first brand in Dubai, tentatively named Mayfair.”
My Immediate thought was that Mr. Sameer has lot of hunger of launching his own brands and with Hindustan Foods they will not have conflict with existing clients given new company. So I gave my first buy order around 30 rs. Order did not execute, I retried with higher, very high and lower and very low quantities but my orders did not execute. Then I realised company was in some ESM/GSM category. I did not do anything for 6-9 months and stock tripled. Then when it came off of ESM/GSM and price also cooled down from ~90 to 60. Then I entered. The company was loss making. I bet on management hunger, their experience , and piggy back on successful investor (Nikhil Vora). Though my initial thesis of launches of its own brands went kaput, I was impressed by company’s focus on contract manufacturing, GST benefits, Mr. Sameer Kothari and continued large investor interest.
Company has never met my valuation target of 3x sales (no PE as it was loss making). I kept building my position with entry of Convergent Finance Convergent leads Rs 100cr investment in Hindustan Foods – Times of India , Westbridge and Jawalamukhi etc. Management met most of the guidance they provided. During my journey, new segments of OTC healthcare product is added, shoes got added, and beverages got added.
To move into next orbit they need to do a Syngene (R&D for FMCGs), they need to be a single sourcing place (backward integration), they need to be forward integrated (distribution like Varun Beverages). Opportunities are immense but what is there on hand itself is huge now.
Before I close it will be injustice to not talk about Mr. Sameer Kothari, his humbleness, his vision, his openness. Please do read Annual reports of last 4-5 years. I will keep some excerpts below to entice you more into reading them.
Mr. Sameer though acquired the company Hindustan Foods, he gave full respect to Mr. Dempo Srinivas. Mr. Srinivas remained Chairman of the company for several years even after being acquired by Vanity Case. Mr. Sameer treated him like guruji. In fact during one of the AGM meeting during COVID Mr. Srinivas gave opening remarks and Mr. Sameer played a very ancillary role as if he did not exist. I am your fan Mr. Sameer Kothari just in case you read it someday.
Now coming to some annual report excerpts:
Source: Annual Report 2016-2017
Source: Annual report 2021-22
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. My last transaction was in July 2023. I may buy more, exit or partly sell the stock without any prior intimation.
Please share your feedback as I continue to write rationale for remaining over the next few days.
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