Often in my tweets have mentioned this market reminds me of the bull market of 2002 to 2007.Now during those days,I was what a kid of 14-15,bunking school classes to know more about the market stuff.Had no demat accounts and dealt whatever I could with the small amount of money dad had in his account.Though I was lucky to earn 45 bucks in Wellwin industries,the subsequent blunders cost me nearly everything.In the present scenario,often members are upto interesting mischief(read mistake),and they are so alike to the blunders I committed in my early teens.Am penning 3 mistakes which really changed my life for good.Often blunders help you to get better than ever before,you understand the methodologies and if you can learn from them,you ought to perform way better in your future dealings.
1)In the very early stages of my life,I was churning the portfolio like hell.The lure of easy money and the childish excitement cost me a fortune notionally.Knowing all the details and after doing those childwood due-diligence, I bought Ttk prestige at 25 only to sell it at 30 around a week later.Got into Havells at 5 to exit at 6(adjusted split bonus).Today Ttk quotes at 3200 bucks and Havells at 900 respectively.
Lesson:In both the cases I made money.On a percentage annualised term,those were big but too miniscule if compared to the returns they would have provided if those were held on to even today.There was no obligation to exit them,but the greed of easy money took the better out of myself.Profit booking is a good habit but the longer term always provide big returns.Stay put in a business till the growth is intact.Active portfolio churning would never make you rich but ya your broker may well become your best companion as long as the chapter continues.
2)Just by using logic, I zeroed in on a counter called Kec international.Hailing from the coveted RPG stable it was one of the largest power transmission companies in Asia.Am not putting the whole analysis but opted for it at 16 bucks.The next day it nosedived to 14,a week later to 12 and a fortnight later to below 10.It was too much of a tension,money going down the drain and folks at that age,even 10k was like a million to me.Kec dropped more and I couldn't take it.Sold it off at one ago when it was finally below 8.Was kinda relieved,felt it would come to 5 and would buy more.3-4 years passed by and Kec moved to 800.
Lesson:Understand what the company is all about.Read as much as you can.The more amount of confidence and conviction you got,the higher the chances of returns.Market is all about greed and fear,they pay no heed to short term emotions,let alone relation with the intrinsic value or inherent fundamentals.But markets seldom overlook quality or value for long.If you have got a good company,stick to it and buy more provided the conviction and margin of safety is at helms.
3)Bought into a counter called Alphageo at 60 bucks with high amount of conviction backing it up.I already had the experience of Kec and hence even when it moved to below 50,was cool and kept holding it.What followed was pure frustration and boredom of your's truly.Entire markets moved up,its peer like Shiv vani moved 4 times yet Alphageo stayed at around 65.A year and a half passed by,alphageo traded at below 70.Out of depression,I exited at 65 to move on to some other counters.Within 20 months,Alphageo went on to hit a level of over 1000 bucks.
Lesson:Even if the market doubles, triples or quadruples and your quality stock is around your acquisition price,don't get bored but stay put and if possible add more of it.Your patience may well get tested but ultimately the conviction would be rewarded.It would also be prudent to note that when those overlooked superstars move,they really move big and results in massive 10-20-30 bagger gains for its owner or the stakeholders.Even the great Rakesh Jhunjhunwala got bored of Hawkins and sold it at below 100,as we all know hawkins quote over 2000 bucks this days.Learn and earn folks.Happy investing.
Quote:In a matter of less than couple of weeks,TCI delivered a spectacular return of 40% for the members.Enjoy folks.Its funny how market rewards a particular stock so fast,what I presumed would be achieved in 9-12 months got done just in 12 days.
High Conviction long term bet:-
Scripscan:Transport corporation of India ltd
Long term call:High conviction bet,expect 30% CAGR for next 5 years.
Quote:Was discussing about TCI with Ram,great mate of mine who also happens to own a lot of TCI.He was kind enough to forward me his note.Am aligning my thoughts with his note for the same.
Business+Moat:TCI is India's leading Multimodal Integrated Supply Chain Solutions Provider with a Global presence. With expertise developed over five decades, customer centric approach and extensive infrastructure,TCI today moves 2.5% of India's GDP by value.In a highly fragmented road transport sector, TCI is no more a commodity kind of player but a business driven by Brands and Networks => moat => pricing power. Apart from moving goods, TCI doing more complicated works like 3PL,inventory management, order processing, delivery, payment collection, labeling &packaging, warehousing and storage.
Management:Very important criterion-the people whom you are dealing with? If you get it wrong,then all other facts and numbers become unreliable, everything is a waste of time.Good conservative Management with over five decades of experience.Governance and disclosure standards are high from the legacy of being listed over 4 decades since 1974. Now, infusing young blood with Vineet Agarwal elevated as MD last year,only raises hope. He is not only the face of the co but represents the industry on many issues.
Asset size:Covered warehouse space of mammoth 10 million sq ft, 7000+ fleet of customized vehicles (1500 owned), network of 1000+ IT enabled offices, call centers across India, 5000+ strong trained work force, 4 cargo ships, nearly 200 properties across India, presence in 4 countries, 10.5MW wind forms, high potential JVs etc. Can you duplicate the setup (replacement cost) for 900 crs?Imagine how many years it will take for anyone new to come up with such gigantic stuffs.
Opportunity size & Scalability:The country’s logistics sector is expected to cross US$200 billion by 2020 from current size of US$125 billion.Logistics is middle infra, hence a direct play on economy. In 2007, India was barely $1trillion economy but now kissing $2trillion.Despite current hiccups, hopefully set to double in 6-7 years and many more trillions to follow. So does the goods manufactured, consumed, imported and exported. No choices but all things have to be moved, who is going to do it? The great new Indian consumer society consuming like never before, who is going to fill the shelves? Logistics is unavoidable bridge and you have to pay the toll. Obviously leaders like TCI, armed with some finest assets in the industry, will leverage this asset base and benefit.The industry is one of the most fragmented.With technology adoption and the advent of modern sales formats, the unorganized sector is gradually losing out to organised counterparts.
Prudent debt management:Despite being in a capex driven industry, they are very careful with its debt. Net D/E ratio at 0.6 & Longterm D/E at 0.15. Long-term debt is just 20% of total.Interest cover is 4. Highest credit ratings from rating agencies.Capex mostly funded from internal accruals. From 2006-2013, their total capex was 501 crs. During that period, net debt increased only by 123 crs (from 113 crs to 236 crs), means they generated 378 crs from internal accruals over the 7 year period. This cash generation would only increase going forward.They propose big a capex of 230 crs for this year, FY2014— 60 crs from internal accruals & 170 crs from debt. These capex are unavoidable in this business since you have to be ready with infra to seize the opportunity bcaz of likes of GST & FDI. Given their prudence with debt, these big capex may bring short-term pain as higher interest costs but do bring fruits over long-term.
Carving for better margin:Their approach seems pragmatic about growth— knowing topline is vanity, bottomline is sanity.They let go off many deals sensing bad payments.Self-restricting the growth of credit driven TCI Freight, since its debtor days crossing normal 60 days and putting stress on working capital. That’s how they keep the business in rock solid footing.Management tries for better profitability with better business mix. Now, the two high potential divisions SCS, XPS are contributing 55% in sales and 70% in profits. In future the share of SCS, XPS & Freight in sales would finally settle as, 35:30:25 respectively. As high margin businesses taking lion share and improving, margins would pickup.If Management gets things in order, TCI can finally achieve net margins around 8%.
GST proves elusive:Usually logistics grows at 1.5 times the GDP rate. As a direct economy play, lower GDP means lower growth for the co.But I think over a 5 year period, things will even out.GST for logistics is somewhat comparable to what Cable Digitisation meant for Media.It would bring a 15-20% cost advantage and more business for logistics players over 3 years period (single national market, seamless movement of goods across state borders, emergence of hub&spokes distribution model etc). Not only for logistics, the positive vibe of GST will be felt across the board. It alone can lift GDP 1-2%, really big deal for a growth starving nation.GST can be delayed but not denied.With Modi at helms now,things surely can only change for good.
Consistency:Over the last 5 years from FY2009 to FY2013, which was very difficult period for the world trade after the 2008 meltdown,the CAGR of TCI in:-
BV = 10% (rs.40 to rs.60)
Topline = 15% (1350 crs to 2140 crs),
Net profit = 20% (33 crs to 70 crs).
Not expecting anything this fiscal 13-14 as more of a period of consolidation.PAT more or less would be at the same level.
Assuming TCI will continue to grow at 20% rate from now on— which it achieved in the worst period of world trade— net profit will be in triple digits for first time in FY2015-16. And over next five years,say from 2016-17 to 2020-21, they will make 250 crs at 20% CAGR. And fortunately, say, the much expected tail winds (like GST, retail FDI, GDP growth etc) happens soon after election.Then a bit of higher growth can be possible. At 30%, they will net 370crs.At 40%, they will net 540 crs.Over last 10years, 2003-2013—they never had a down year— topline up 4 times (530 crs to 2140 crs) and bottomline up 11 times (6 crs to 70 crs).
Valuation:Last quarter results are on may 24th so not making an assumption.Better to see and pen an update once the same gets announced.For fy15-16 they will cross 100crs of PAT.So at present prices it quotes at 9 times its fy15-16 earnings.Lets put a reality check to its peer group valuations.Gati trades at 15 times forward,Blue dart trades at 20 times fy15-16 earnings.There's no point which should make the leader TCI quote at such a large discount to the peers.Putting a conservative multiple of 12.5-13,I arrive at the target price of 170 bucks.A great high conviction bet.Bet it on for coming 3-5 years to make a pot of money folks.
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