November 4, 2010

Some portfolio changes

A few of you may have noticed updates on my portfolio page. I don’t update this page on a real time basis, but it roughly reflects my current positions except for one stock.

I have been reviewing the Q2 numbers of most of my positions and have been satisfied with the performance of most of the companies. The results have come as expected in most of the cases. However there were a few surprises. Let me give a brief rundown on some of the changes in my portfolio and the quarterly results

The reductions
As I wrote in some of the
previous posts, I have more or less exited most of the IT stocks such as NIIT tech, Patni computers and Infosys. Infosys performed better this quarter, growing in double digits. However I personally feel the stock is fairly priced and have exited the stock completely.

NIIT tech came out with decent numbers after a long time – mainly due to their BSF order. In addition they have been able to reduce the impact of their hedge positions. As a result the hedge related losses have reduced and the company posted decent results. I personally think the stock may be undervalued by around 20% at best. However I have reduced my position substantially.

In addition I have sold off Concor completely as I think the company is now fairly valued. I have been reducing the position for the last few years. This is a very interesting position for me. I bought this stock in 2003 when the company was selling at a PE of 5. I had been investing for a few years and could not figure out why the stock was so cheap when it was doing so well.

I created a position inspite of all the doubts. In hindsight I was too timid.

I have also started reducing ashok Leyland as I think the stock is now approaching fair value. The company is doing extremely well and firing on all cylinders. I remember looking at this stock at 11-15 levels and wondering how it could not be cheap?

I closed out my position in mayor uniquoters as I feel it is fully priced and my position was too small to begin with anyway. I have also been reducing my position in clariant chemicals as it is now close to fair value

Finally, I have started reducing one of my largest positions – Lakshmi machine works. The company is doing well, but is now close to fair value.

In case of all the above stocks, it is not divorce, but a temporary separation. If the price drops or the valuation becomes attractive, I will buy again.

The additions
This is a small section. I have been adding to my positions in Balmer lawrie, hinduja global, Patel airtemp, Ricoh india and FDC. The additions have happened over the last few months. However I have been a net seller than a buyer. The only major buying has been for Diwali :)

The disappointments
BEL (bharat electronic limited) had a fairly poor quarter where their topline and bottom line dropped by double digits. I am however not too disturbed as they have quite a bit of a monopoly in the defence business and the revenue is not evenly distributed in each quarter (due to projects nature of the business).

I was also disappointed after I read the annual report of facor alloys. The company has passed several special resolutions to invest to the tune of 300+ crs in other sister firms, which are expanding into power and other businesses. I get fairly mad with this kind of diversifications. Needless to say, I plan to exit the stock in time irrespective of what happens to the business or the stock.

I had written about mangalam cement recently. As I was not confident enough, I never bought the stock. I was quite surprised to see a sudden 90%+ drop in the bottom line for the second quarter. This was a learning for me – companies with high operating leverage can see huge spikes in their bottom line. The fundamentals of the company are still intact, except that I would like to buy the stock at a time of extreme pessimism

Response rate
A few of you may be disappointed with my response time to emails and comments. Unfortunately like others, I also have a limited time and hence cannot devote more than a few hours a week on responding to comments and emails.

I will definitely read and respond to your email, but would ask you to be patient with me on that count.

A happy Diwali to all the readers

31 comments:

Anonymous said...

HAPPY DIWALI DEAR ROHIT AND TO UR CUTE FAMILY
I AM ALSO ON THE SAME LINES AS UR PORTFOLIO
I HAD ADDED DHUNSERI TEA AND FINOLEX INDUSTRIES WITH UPTO 40% GAINS
ALSO, I TRADE IN STOCKS LIKE NIIT TECH AND MAYUR WHERE VALUE SEEM TO INCREASE INTRMITTENTLY
STILL, WAITING FOR YOU TO START UR PORTFOLIO SERVICES
WE IN ARMY ARE A LARGE ADMIRER GROUP JUST WAITING TO JOIN UR NEW ENDEVOUR
HAPPY HAPPY DEEPAWALI

Proliant said...

Hello Rohit,

Thank you for the article, its informative. How we know a company got high operating leverage? what figures we need to look..

Happy Diwali

Vineeth

Mahendra said...

Hi Rohit ,

Happy Diwali. Can you please give me advise on HB Portfolio Ltd or cover in your blog .

At current price of around Rs. 42 market cap of HB Portfolio Ltd. is around 50 crores. As per annual report 2010 company has Cash & Bank Balances more that 14 crores(Precisely Rs 140643338) on consolidated balance sheet . You can access annual report from company's website http://www.hbportfolio.com/Investor%20Information/Annual%20Reports/Report%20PDF/ar032010.pdf . So, effective market cap after reducing cash is 36 cr. Company does not have any debt .Can you imaging how much stocks and mutual fund unit this company hold ? As on 31st march 2010 value of stock portfolio is 185 cr (Rs 185,13,13,967) and mutual fund units of 10 crores (Rs 9,98,89,044) . Company is also having unquoted investment worth 39.29 crores (Rs 392897303) in associates companies at book value.

Anonymous said...

Hi Rohit - Happy Diwali to you too!

I am patiently waiting for your comments on AK Capital, though quote has been doubled in last one month.

Thanks
Prashant

rayhaan said...

hi rohit , happy diwali and nice 2 c u alive and responding, yeah i can be a bit of a persistent pest just ask ayush , the ppl at teesta agro / temp. Foods or my dad ....lol.
I guess it was pretty foolish of me 2 just rush in2 d pioneer arbitrage without much thought. Hope i'm able 2 exit without much pain. Really looking 4ward 2 ur views on teesta agro(SPECIAL THX TO AYUSH , WHO E-MAILED ME HIS COPY OF THE ANNUAL REPORT). q.do u guys have a grudge or sumthing against fairly illiquid stocks ? I mean i'm pretty sure atleast a few value oppurtunities still in T group stocks. P.s is it alright 2 make fun of technical 'analysts' on the blog?...lol @mahendra -pls check out thequitydesk. com 4 hb , u might find sum interesting views.Thx 4 calculating the Nav.

sachin8778 said...

Hi Rohit,
Happy Diwali to you, your family and fellow readers.

I have similar question like Proliant. What u mean by high operating leverage? Appreciate if u can give some more details.....

thanks,
Sachin

Vic said...

Hi Rohit,

Wish you and your family a very happy Diwali too!!

I have question on some of your ideas that are still attractive:
1) FDC: Does current price has enough MOS? You mentioned, it would be attractive below 70. I know you change your view very quickly..:-)
2) Hinduja Global: I see it is at almost year low. What's the reason for such a drastic drop? I didn't see any update from you regarding their results lately. I recall there was an article sometime back on how the company has some account in Mauritius, it was definitely some major negative that you usually stay away from. So I was surprised to see that you're adding to it.
3) I can't find Ricoh India analysis of yours. I'm sure I saw it somewhere on your blog earlier.

As always, thanks for the regular, informative and useful posts.

I want to be like you when I grow up..:-)

Vikas

Rohit Chauhan said...

Hi anon
thanks for the wishes. happy deepawali to you and your family too.

on the paid service, on one needs it now ..just get a monkey and ask him to throw darts ..buy those stocks and you will make money. cheaper to feed the monkey than pay me :)

i am joking ....have some personal stuff which i am sorting

rgds
rohit

Rohit Chauhan said...

hi vineeth
operating leverage comes when the ratio of fixed expense to variable expense is high ...as a result if the price increases, profit increases rapidly

happen most in asset heavy companies ...so low for companies the low asset - fixed and working capital ratios ..such companies have high operating leverage.

now operating leverage is a double edged sword ..cuts both ways ..helps on the upside and can kill on the downside

rgds
rohit

Rohit Chauhan said...

Hi mahendra
I think i may have glanced at HB sometime back...question is how will the value get unlocked ? the market will discount it till the management gives some visibility to how the value will returned to the shareholders ...dividend .buyback or something else

rgds
rohit

Rohit Chauhan said...

Hi prasanth

thats the issue ..no time these to do some patient analysis ..anyway will look at it

rgds
rohit

Rohit Chauhan said...

Hi rayhaan
persistence is a good quality in being successful

dude ..you write like your smsing ...so many questions in one comment ...for 'older' guys like me make it simpler :)

on teesta agro ..i couldnt see value ..too small ..had zero debt ..low margins and not very impressive topline and bottom line growth ..so if you know something beyond the standard numbers ..then maybe ..but i will personally not invest

on tech analysis ..feel free to comment ..just that i dont follow it and care less about it

on illiquid stocks - nothing against it ..i have bought a lot in the past ..but there has to be value in it

rgds
rohit

Rohit Chauhan said...

Hi sachin
a happy diwali to you too. i hope i have answered your question in the previous comment

rgds
rohit

Rohit Chauhan said...

Hi vikas
dude ..i am not that old that you want to be me when you grow up :) ..

on FDC ..getting it at 70 would be good ..but since then the company is doing fine and i am comfortable buying at lesser discount too..ofcourse upside is limited in that case

on hinduja ..their holding cash in abroad was an issue ..but overtime i have reviwed their conference call transcript and annual report disclosure and found them to be fine ..also they are being conservative with the cash ..which is fine

no ..you wont find ricoh's analysis on the blog ..never published it :) ..was too lazy to do so ..just bought it and it has done fine ..its not very undervalued now

rgds
rohit

rayhaan said...

hi rohit , i meant teesta looked like a bargain from a net -net point of view.i mean luk at d stats - 20 crores of cash + 22 crores of debtors (not sure , wot value 2 expect from those since lets face it ,GOI is a better creditor than a debtor ) + inventory (didnt factor that in since fertilizer prices are subject 2 the moods of the commodity market) +rs 1.76 crore approx. Of allahabad bank shares + 2000 units of sbi mutual fund AND A MARKET CAP OF 11 CRORES ! also the management owns a 36% stake. I mean at this price u are getting the fixed assets virtually free of cost! Yeah , it is a lousy biz no doubt and theres the issue of value unlocking hb portfolio style ,BUT AT THIS PRICE IT LUKS FREAKING CHEAP! with good m.o.s. Eager to hear your views on this 'cigarbutt'.
P.s.Dude,You sure sound a lot like my english teacher...lol . How old are u anyway?

Anonymous said...

Hi Rohit-

Can you suggest a good book to learn financial statement analysis?

Vic said...

Thanks Rohit for your feedback.

Please do share your review of HTMT's results when you get a chance. There has to be some reason of falling from level of 500's when the market has done the opposite.

I would like to know the discount at the current price of 400.

I had bought @ 130 when you had first posted the idea in 2008..still holding it.

Will appreciate your feedback..as always.

Thanks,

Vikas

sandy said...

@rayhaan

What is the catalyst here to unlock the value?
the balance sheet looks good and the business is available dirt cheap with all the fixed assets u get for free. For a diversified portfolio of 10-15 stocks or more it would seem a good buy but if one has a concentrated portfolio it would be seem more attractive if it had a catalyst to unlock the value otherwise it would remain a bargain forever and u mite end up buying a value trap.
yeh but its too cheap man and sometimes value can be its own catalyst.
be patient we will get some better bargains in nano cap mkt in the near future, m sure u know that we dont get paid for activity, just for being right ;)
yeh but keep searching

Rohit Chauhan said...

Hi rayhaan
your numbers add up ...i havent analysed the biz closely enough as it is too small a company. i generally dont go for such small companies
however i would not look at it from an asset standpoint alone ..it will worth more only if the management can grow this business.
so if you can figure that part out then you may have a good bargain

rgds
rohit

Rohit Chauhan said...

hi anon
i dont have specific books in mind ..try any first MBA text book on financial analysis ..that would be a good place to start

rgds
rohit

Rohit Chauhan said...

hi vic
the company sells at less than 2 times free cash flow when it is growing by 10% per annum and has an ROE of more than 50%. in addition it now has a good dividend yield ..so management is returning cash.
also the management has utilized capital for expansion prudently in the last 2-3 years ..have grown well

the biz ofcourse has risk, especially from the dollar depreciation

regarding the market ..it has a mind of its own. merck stagnated to 2+ years for me and then doubled and more in 8 months ...so one can never say when the turn will come

rgds
rohit

Rohit Chauhan said...

Hi sandy
the catalyst in microcap and small caps is growth and good returns..these are such small companies that the market will notice only if they grow.
growth and scalability comes down to the management ..so in such cases it is usually a bet on management and not on the asset alone - unless it such a niche business that it will grow without much competition

rgds
rohit

rayhaan said...

@sandy -thanks 4 d heads up , dude.Will be more selective in d future (sure feel lucky 2 be making mistakes right now in the hope that i'll make lesser no. of them wen i grow up...:) ) still i feel that Teesta offers good value in a diversified portfolio like mine and maybe can be viewed as a calculated risk(really hope this isnt just confirmation bias , i mean ayush 2 has a position i think and i 've already bought them) .its so freaking tough 2 buy these illiquid stocks , I mean i've been trying 2 grab these - remi process (very low p/e,bv and fcf multiples , impressive Roce and a div yield of 30%), elcid invesments( promotes stake above 75%, trading lower than cash per share and a div yield of 75% approx!) .Really wish i kud get 1 of these.anywayz r u also in2 investing fulltime like rohit?
P.S.. DOES ANYBODY HAVE ANY IDEA ABOUT THE SIGNIFICANCE OF CASH RETURN (FCF /EV)?
@rohit - sumbody really hates smallcaps , is sumbody like mark twain's cat? Did liquidity get u down? Did the management make u frown?did the management run away wid d cash? Did the profits turn 2 ash? y does everybody h8 a cigarbutt microcap?.....lol(pls 4give d rhyme , just saw sound of music and cant get how do u solve a problem like mariah out of my head) . So have u ever invested in a micro /smallcap? Are there any factors 2 b kept in mind while investing here? p.s if possible pls have a luk at navin fluorine(awsum roce ,cashreturn,fcf,gross margins and fcf to sales+gud management stake),u might find something u like esp. since u like patel airtemps.

Mahendra said...

Hi Vikas,
You can refer http://www.go2cio.com/articles/index.php?id=3217 for ricoh analysis done by Dipak Sen

Vic said...

Thanks Rohit, appreciate your feedback on HTMT.

Anonymous said...

hi rohit,
i bought mangalam cement ,as your fan club at my office was of the opinion that even those stocks u only research also give a good return ultimately, however the stock has fallen steeply so plz advice
dhiraj

Rohit Chauhan said...

Hi rayhaan
alls caps are fine for me ..have no liking or disliking for the size of a company. i only look for a underpriced company with a good management and where i can understand the risk ..till date i have not been comfortable with the risk of the micro cap stocks ..its just me and does not mean that is not an attractive area

btw, investing is not a full time thing for me. i do it on the side

rgds
rohit

Rohit Chauhan said...

mahendra
thanks for link had not seen it

Rohit Chauhan said...

Hi dhiraj
i have always stressed that one should never buy based on someone's analysis alone, it is always dicey
i analyse close to 10-20 stocks for everyone one stock i pick ..so please dont by my analysis alone. if i create a position, i declare it in the post as full disclosure
on mangalam ..i have not created a position as i am not comfortable with the company yet ..so there is hardly any advise i can give you on a stock on which i am not sure myself.

only suggestion i can give you is that you should read up on the company and make your own decision as to whether you should still hold on or exit

sorry, cannot give any other advise
rgds
rohit

Vic said...

Thanks Mahendra, really liked the analysis by Dipak.

AVG said...

Hi Rohit and all

It is good to read your views.

I have been following NIIT Tech for few quarters (5 to be precise) and am quite convinced about their future. They are taking the right decisions and now looking for venturing into the Health care industry.

The EPS (trailing 4 quarters) of the company have been growing from 15 to 19.45 (with Sep results).

Do you still fell it is fairly valued should be exited. Horizon for me is around 3 years from now.

Kindly guide.

rgds
AVG