Periodically review your portfolio
Assessing and reviewing your portfolio is critical to be on top of your positions, While till today I have not found any structured way to go about it, What has helped me to think objectively is to focus on
status of key variable of business
risks identified
buying hypothesis – does it still hold good
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Below is my simplistic review of two businesses in model portfolio – If would be foolish to buy or sell any business based on below discussion
I highly encourage you to write your thesis in comments if you own or track these business that will take this post to next level
Ashiana Housing
The best lead indicator to gauge Ashiana housing’s performance is ‘Equivalent Area Booked’, Q1-2016 numbers took me by surprise as this lead indicator tumbled by almost 50%
Moreover it is sliding down
Source : Ashiana Housing Investor Update, June 2015
Is the real estate slowdown finally showing signs ? one quarter can be an aberration but management which has always walked the talk is saying that they see more pain coming, see investor update here
What is company doing about slowdown ?
Management is not slowing pace of construction, they are now using newer avenues to reach out to customers – eCommerce (via snapdeal), mass mailers to prospective buyers, we are not seeing price cuts till now
Demand slowdown for any company is not easy to sustain however the company is debt free therefore it has more capacity to suffer in adverse times
The other key variables are being controlled well
The company is well funded at least for next 18-20 months
Construction / Delivery is on schedule
Geographic foot print is expanding
Risks
The real estate demand slowdown risk has materialised and it is likely to impact company performance in next 12-24 months
Concentration risk ( Ashiana is predominantly a north India based real estate player) is managed well with expansion in southern and eastern parts of the country
Execution capability on scale – With multiple projects running next 12-18 months will showcase management's execution capability
Funding risk is not there for foreseeable future as management has raised sufficient funds through QIP
Key buying tenets were
Excellent corporate governance standards
Low debt compared to other real estate players
Decent execution record of management, fantastic return ratios
Constant and uninterrupted demand for mid income housing in Indai– I was wrong here
Final mental notes
In terms of market swings this has been a roller coaster ride last year with market cap highs of INR ~2800 crores to lows of INR ~1600 crore
There is fear that demand slowdown will hurt company, until and unless the whole real estate sector collapses I deem this to be short ter, Therefore increase my exposure at extreme pessimism as company continues to invest in building its brand, sales and execution capabilities
VST Tillers
Any agriculture based company is impacted by vagaries of monsoon in India, The company was going through pain as last year rains were scanty in many parts of western Maharashtra (key market of the company) resulting in decline in sales of power tillers and tractors
I am afraid I don’t have good news for you this year as well, See below
Source – Indian Meteorological Department
The other key variable for the company is the state subsidies for farm equipment given to farmers and lack of thereof or delay can impact company in a big way
Farm Mechanisation is not going to stop as labourers continue to move from farming to constructions and other urban jobs, The company is focused on the 20HP segment which is still growing compared to the de-growth in other segments
Also company has commissioned a 36000 units per annum tractor plant in Tamilnadu, This helps company to expand further in the low HP tractor market.
Before talking about risks, I will talk about buying tenets
2014-15 was aberration and company was attractively priced while entering, plan was to sell when price-value gap bridged, Generally I don’t like price takers operating in difficult industries but the company had long successful operating history, this indicates it is doing things right
Risks
Key is risk is monsoon and its impact on Kharif crop, This has materialised which means that this year is likely to be flat
The other key risk is rising competition, See the honest admission of management in Annual Report of 2014-2015
We have always conceded that we are not insulated from competition both in power tillers and tractors
More than Indian companies like Mahindra & Tafe, it is Chinese imports which are creating competitive pressures
see a reader comments scuttle buck on Jana’s wonderful blog
and another one from investor announcement from company
Final Mental note
This one is a tough cookie operating well in challenging environment, The testimony of the fact is that company has 47% market share in power tiller and one of the largest share in low-power tractor segment
Price-gap value will not bridge very quickly as monsoons are weak this year, to be cashed if another tempting opportunity comes by or
Do more deep dive on industry dynamics if this needs to be moved as a core holding (subject to available at pessimistic valuations)
Now over to you,
Do this exercise for each of business in your portfolio and you will have clear road map for your position
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