@1957 that’s pretty insightful. Thanks!!
I agree that REC will be trading at a discounted PE to IREDA, but the point is how much discounted PE as compared to IREDA, currently REC PE is discounted by 50% in comparison to IREDA. What does your mind say?

How I decide to hold average down when company is not performing as expected

Averaging down when only price goes down is much easier as compared when ‘bad news’ or ‘earning miss’ accompanies price movement. It becomes very challenging to take a judgement as there is a thin line between being ‘patient’ and being ‘wrong’. There are many examples where patience was not translated in desired IRR over investors horizon, at the same time there are also examples where investors have lost hope and investment idea becomes many ‘bagger’ in subsequent months. Therefore taking call on averaging down is never easy

My take –
In my view any for any manufacturing company valuation depends on assets on book + franchise value + growth value. Company franchise and growth give company valuations above book value. As an investor i have accepted the bug – Growth for the most of the businesses is non linear. That means I accept – earning up-down swings is feature and not a bug over my investment period. What decides my decision to average down or hold ( during company specific muted earning periods ) is – has the quality of franchise worsen or not. In my opinion broken franchise takes lot of time to comeback but growth comes back easily.

In my portfolio Suprajit eng being a drag from earnings point of view – i still think its franchise is as strong as before because of following reasons

1. Mechanical cable franchise is the strongest in company’s history with global presence of manufacturing, engineering and business development
2. Mechanical cable franchise is not impacted by EV with a diversified portfolio across market segments
3. Company continues to gain market share from global competitors
4. Only Hilex and Suprajit has global presence in mechanical cable space
5. Cash generation has been very strong. Company keeps generating free cash flow even with depressed earnings
6. ROE is still 12-13%

Coming to the earnings ‘Growth’ part. Why I think EPS Growth will swing back

1. The current drag in earnings is because of the newly acquired – konsberg LDC entities
2. Company has long history and track record of acquisition. Company has turned around each and every acquisition they had done in past albeit slight delay. In my book – definition of successful integration is 1)Bringing acquired company in 14-16% margin range and 2) scaling up operations. Last two acquisitions – Phoenix lamps is back to 13% margin and wescon clocked 14% margins last 2 years
3. Jim Ryan who is heading global operations wad working as a head of acquired entities before
4. Sales pipeline is very strong

Came across this thread on X from Harsh. Very insightful in the context of this thread.

https://x.com/theHarshFolio/status/1730885204842082316?s=20

@Investor_No_1

Your current portfolio has all the hallmarks of a consistent compounder portfolio. Most of these are stocks with a long runway for growth, high ROE businesses, high PE businesses. Those holding these kind of portfolios need a special kind of mindset. They have a long holding period, usually 5-10 years and have the ability to go through temporary periods of underperformance and pain.

The current market is a typical risk on market, where companies which were earlier perceived to be “poor quality or inferior quality” , those with questionable pasts, with promoters with somewhat questionable reputations, which have not done anything till now, govt companies which had long been out of favour, (and other similar attributes) are those in focus. In such a scenario the consistent compounder kind of companies will not perform as well as the above mentioned kind of companies.

But nothing lasts for ever. Even above kind of high quality companies will someday have their day in the sun and start performing. These had a great run post the 2018 market correction when small and midcaps were decimated and these kind of high quality companies kept going up inspite of crazy valuations. Current period of time seems to be a period of rest for these kind of companies.

Finally, Neuland comes up with a pretty detailed post on their partnership with Karuna Therapeutics;