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[b]Stock Name Quantity Held Holding Percent Holding Value (Rs.)[/b] Ador Fontech Ltd. 850,000 4.86% 10.82 Cr La Opala RG Ltd. 2,411,482 4.35% 57.39 Cr Indian Terrain Fashions Ltd. 1,580,782 4.17% 21.19 Cr Mayur Uniquoters Ltd. 1,824,353 3.99% 72.06 Cr Vaibhav Global Ltd. 961,909 2.95% 65.79 Cr Neuland Laboratories Ltd. 217,911 2.45% 17.5 Cr Eveready Industries India Ltd. 1,277,199 1.76% 32.19 Cr Cera Sanitaryware Ltd. 190,061 1.46% 50.6 Cr CCL Products India Ltd. 1,900,645 1.43% 50.9 Cr Fairchem Speciality Ltd. 484,784 1.29% 20.17 Cr Orient Refractories Ltd. 1,400,000 1.17% 35.31 Cr eClerx Services Ltd. 455,525 1.14% 48.15 Cr Suprajit Engineering Ltd. 1,451,602 1.11% 33.37 Cr
Vaibhav Global is one of those companies with a terrific management theme. It was very focussed on creating an opportunity. What they have been able to do is nothing short of phenomenal. To be in that business in the US where there are only a handful of people, maybe four or five people who have been able to create businesses of that size despite huge barriers to entry. It is amazing. People still see that with a lot of scepticism and maybe rightly so.
In a couple of times in the past, there have been big runups and decline in the stock but it is the nature of that business, it is a business with high fixed costs and brings in a lot of volatility if your top line cannot grow. But if your top line is growing, it has tremendous operating leverage. Over the last one year, their earnings have more than doubled.
Page Industry and Bajaj Finance
There were two phenomenal businesses that we bought fairly early -- Page Industry and Bajaj Finance. In both cases, we came back in later but we had got out of them early on valuation concern. But they are phenomenal franchises run by terrific management teams and once we realised that mistake, we got back in. But it was a mistake to get out early.
When you find those great businesses with long run growth, where your moat can keep expanding over a period of time, you should hold tight through that high valuation. It will still keep creating value. Even in those businesses, there have been three or four instances where the valuations had become more reasonable and you could add more to those companies. If you find great companies like that, even if you feel that their valuation is high today, you just need to be patient. At some point of time, you will get the right valuation when you can add more.
Commodities and cyclicals an absolute no-no
It just does not fit into our philosophy. We try to find businesses where we can say with a lot of confidence that three years or five years from now, this business in terms of its renew, its profit would be better than where it is today. With businesses that have very high cyclicality it is tough to say that.
How many stocks have you added or how many new businesses have you invested in this financial year?
We are long-term investors. We do not churn our portfolio very much. In most cases, we add to existing positions. But selectively, we always look to find great ideas and it is always with the view that if you find a great idea that is better than what you have in the portfolio, then you make that switch. But you want to keep that concentration. The one very sizable investment that we made over the last one year was in a technology company. But we added to many of our existing portfolio companies where we thought the valuations have become reasonable and it provides a good risk-reward tradeoff.
What have you bought or added more from the public market?
From the public market, we have got many of the existing portfolio positions. One of our largest adds was in Safari, something that I had mentioned before. The luggage industry is doing very well. Within that, Safari is gaining share by virtue of being the third largest player but sort of increasing its market share over the years. With increasing size, comes operating leverage and they are benefitting from all of those trends. This has been one of our additions. We have added to the professional staffing companies as well.
Are they expensive?
They had become quite expensive in between but over the last few months they have come under pressure and have gone to reasonable levels. They are expensive if you just look at trailing numbers but if you see the level of growth and scalability, these companies can easily become 10 times, 15 times, 20 times the size of where they are today. Given that potential. they are still fairly small.
Avanti is at a cyclical downturn. Avanti as a business still has a runway to grow on the feed side, maybe the growth comes off but on the processing side they have a long runway to still grow. The challenge with Avanti was that on peak margins, people were willing to give it peak multiples and that is one of the reasons why we very reluctantly ended up selling that position even though we have a lot of faith in the management.
Out of Avanti as a portfolio investment
Yes. We sold that off because we still believe very strongly in the business and the management theme but this notion of peak earnings or peak margins and peak multiples on top of that it usually does not end well. And that is what ended up happening but they at some point will become attractive again and over the long term, it is still a great business to be invested in.
There are more opportunities in the small and midcap stocks. Just because small and midcap stocks have fallen off the cliff right now, you are not looking at changing your portfolio and you are happy to commit to your existing stocks more and in fact, if at all, you have only bought the decline this year.
If you have companies that can compound their earnings at significantly above market average growth which means 20-25% plus year on year and they can do that even through the turmoils in the market or because of the macro situation, I do not think you should worry too much about where the market is heading.
Yes, in the short term you will take a hit. If the entire market comes down, your portfolio value will come down as well but eventually if these companies are able to compound their earnings at that high enough rate, markets will reward you for that.
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