I wanted to write more last month but there are times when external circumstances don’t allow you to do anything else, last month has been like one for me but that’s past however, I do have certain portfolio updates that I would like to share with you.
First of all my views on markets have been bearish for some months and just to generate a small yield & have the cash when I need it - I have put 16% of my portfolio on bonds of which 10% is invested in ECL finance NG (which is giving me 10% yield - expiring Aug 2023, interest paid monthly) the bet I think is safe as the company is likely to survive till 2023 and other 6% is invested in HDFC credit risk fund from which I expect at least making 8% a year from now.
A significant change is last week I closed all the call options I have written on stocks I own and had short positions at the index level, these leveraged shorts were never more than >15% of my portfolio and it was small but it does give you something to cheer about in the bear market but now I think risk-reward is not in favor of shorting stocks I own (i feel comfortable writing only covered calls) although the broader market still looks expensive to me as I expect the nifty EPS to revert to mean as I wrote about it in my previous post (
), if markets (nifty50) bounce back perhaps it will give a good opportunity to short it again.
At the portfolio level, as I talked about it earlier I have weeded off PEL. It’s funny it was up 70% at some point time for me over the year then in months, I found myself sitting at -3% loss when I exited this whole PEL episode made me appreciate the margin of safety even more while buying.
The two startups Ugro Capital and Nureca Inc in the listed space I always wanted to buy but valuations were always stretched to my comfort but I felt these are good times to start nibbling them.
I have written about Ugro Capital in my previous blog post:
I think it’s an interesting future-looking startup trying to solve the big unsolved problem of SME lending with a new approach with most of the pillars of success in place.
another startup Nureca Inc is an amazing company too (working on it - deserves a blog post in itself). what I like about the company is the founders saw a big problem & have been able to solve it to build a trusted brand for health monitoring products in a couple of years (which is not easy).
They don’t have a direct competitor really today, They are small fish 1% (marker share) in a very unorganized 20,000 Cr market and growing 10x of the market since its inception, Can it grow to command 10% market share (10x growth on the base of today's market size)? I am not very sure but even if it’s 50-50 then it’s worth taking some bet on it.
The market itself is expected to grow 11% cagr (which may or may not happen) & we all know there was pent-up demand due to covid which may revert to mean near term but its an interesting ₹984 Cr Mcap company to track which can be future Unicorn ( in startup space it could have been by now given how VC’s have been valuing companies lately 😉)
Below tweet is something I don’t like about them is - but as long as this stuff is capped and small as a % of opportunity size we can live it with (something we have to keep our eyes on)
Also, I added Sigachi Industries - its a really solid B2B business they are market leaders in India they make money majorly by selling Pharmaceutical excipients which are small input cost to pharma companies but it plays an important role in aiding the manufacturing process, to protect, support or enhance stability, or for bioavailability or patient acceptability.
This is actually the kind of moat Pidilite have, I have used the below example in my previous blogs –
In the case of adhesives – while making a table the cost of adhesives is the last thing you will think about because the input cost is too low. If suppose Rs 10 of adhesives are used to make Rs 1000 /- worth of table you wouldn’t mind paying 10% extra Rs 11 if you get a really trusted good adhesive or even you wouldn’t notice in some cases as the % input cost is too low. Similarly, the excipients are used to keep the drug more effective when consumed or just keep it fresh (more on this click here) but the cost of excipients is so low (0.1%) compared to the cost of making the drug, the drug manufacturer wouldn’t care about paying 10% extra for the excipients.
Also, this makes it very hard for competitors to come into this business, As the customer doesn’t care about the price, what new competitors could do to gain market share? Even if a competitor discount the prices customers won’t care.
As a customer why would you go experiment with some new excipients, doesn’t makes sense right? cost of medicine rejected by FDA is too high compared to cost saving in buying new excipients, It’s a beautiful moat this gives the company the power to keeping raising price at least as per inflation & hence keep earning a high return on Capital.
This is the reason why they Enjoy really high Margins & Earn a very high return on capital.
Currently, markets are pricing in 10% cagr growth for the next 15% and then 7% cagr terminal growth, which I think is a reasonable growth expectation.
Other bets of mine remain the same -