Portfolio Update:
From my last udpate 24 days ago, I’ve made small changes to my PF and this is how my PF looks currently

Sell: Pitti engineering as the stock seems little expensive and relatively expensive when compared to goodluck india (I consider both of them to be equals and prefer whicheve is cheaper)
Buy:

1. Bought Fino Payments bank and scaled up the position to satisfactory levels. Mentioned the thesis here in earlier post

2. Bought Vishnu Chemicals as the it’s one of the very few chemical companies that are able to maintain margins, when most of the industry is seeing margin pressure. The valuation is attractive at mid teen P/E. Moreover the management targets to double revenues by FY26 (from FY23). I expect this profit growth combined with valuation rerating to offer good return in medium term

Minor changes: Other than this there are minor changes including partial exits in Angel One and Goodluck India and bought additional qty in PDSL, NIIT MTS, Kama Holding, Xpro India, Moldtek Technology.

Additional thoughts:

1. Valuation wise Chem/Speciality chem seems attractive. The recovery for the industry is awaited. SRF Q2Fy24 earning press release highlighted the visibility of recovery and need to check the commentary from peers in the industry
2. Agrochem is also attractive and many cos reporting loss at PAT level. Need to see when the industry recovers. May not be in Fy24 and probably in FY25
3. Sensex/smallcap index ratio is close to historical lows. Possible reasons include the small/mid cap rally in recent years and negligible returns for sensex over last 2 years (because under performance is big weights like HDFCBANK, Reliance, ICICIBANK etc)
4. SRF is entering Capacitor film business and may be a competition to XPRO India. Need to listen to the concall to confirm their capability (what kind of thickness they can produce ) and the target markets/customers
5. Angel one delivered solid numbers (probably becoz of market rally in past few months and other structural reasons). So, I changed my FY25 PAT estiamte from 1300 to 1500 and confident that the co will achieve. Moreover recent comments from the concall saying broking would be 50% of the business (?) is next 3 years. So, with this revenue mix change the co may be rerated to 25x P/E from current median P/E of 18 PE (PE band being 12-25x in last 2-3 years)

Disc: No recommendation to buy or sell. I may have missed or wrongly mentioned some changes.

Reliance retail does a Qtly EBITDA of 5800 cr vs 1000 cr for Avenue Supermart ( D-Mart )

Reliance retail’s EBITDA margins @ 7.5 vs 8 pc for Avenue Supermart ( basically – hardly any difference )

D-Mart commands a Mkt cap of 2.4 lakh cr

What should be the Mkt cap of Reliance retail ???

IMO – Minimum – North of 11-12 Lakh cr

Jio Platforms Does an EBITDA of 13500 cr for Q2. Airtel’s Q2 EBITDA is expected to be around 20000 cr

EBITDA margins for both are in a similar band – ie – 50-52 pc

Airtel’s Mkt cap is 3.5 lakh cr. Jim Platforms should command a Mkt cap of > 2 lakh cr

That makes it a total Mkt cap of > 14 lakh cr for these two businesses alone

The cash cow of O2C ( refining business ), Oil and Gas business ( which produced an EBITDA of 21000 cr in Q2 ) are being valued at 1.5 lakh cr by the Mkt ( RIL’s total Mkt cap is 15.5 lakh cr ) – That’s peanuts !!!

This looks like a huge anomaly to me !!!

Disc: holding, biased

The concept of CausalityArrow look interesting. I have been trying to find something similar for some time now without success. Right now we news analysis is a jumbled up mixture of google alerts, screener notifications, manually search on other niche websites (for e.g. for Solar or Wind energy) etc.

are you the developer of this tool? or you know the developer? Current interface looks highly confusing to me…Would like to connect to understand how best to use it and share any ideas/suggestions too!

This is partly due to pledged equity, nearly 5% is still pledged. Institutional investors have this as one of the primary health checks.

Company came out with flattish results, with sales declining by 13% and EPS being flat YOY. While results were subdued, if compared with peers (likes of Astec, Sharda, Rallis, NACL, etc.) they were quite good as the industry is going through a massive destocking cycle with Chinese driving down the technical prices. My concall notes below

FY24Q2

• Witnessed drop in volumes (due to inventory overstocking) and prices (due to entry of Chinese peers)
• Margins were higher due to focus on better product mix, better cost management, process efficiencies, R&D focus on new products leading to improved process efficiencies, and better customer support leading to better demand and pricing
• There was a one-time 2 cr. interest cost in this quarter (due to some Supreme Court judgement). This wont repeat
• Australia product has huge inventory in market
• 4 new product registrations: 2 secured + 2 under process. Full potential for approved products will be realized in 12-18 months
• Efforts on LATAM has yielded good results in last year, main problem with that market is that registrations require 3-6 years
• Receivables: generally 50-60 days. In this quarter, percentage of sales in domestic market was higher where credit period is higher
• Lalru: pharma + specialty chemicals products (no agchem products).
• Derabassi: Debottlenecking to improve capacity, will migrate towards higher realization products. Capacity will not be a challenge for growth
• The pharma intermediate products are still under approval, its generally longer cycle compared to agchem

Disclosure: Invested (position size here)