I made my first investment note on Dhanuka Agritech in 2010.
"Valuation of 7.5x PE; earnings yield of 13% on a trailing basis with mgmt guidelines for 40% topline CAGR"
"Capex is insignificant; their distribution reach and brand recall are significant barriers to entry"
"They seem to be more license-savvy, and understand their strengths and may be getting into hybrid seeds"
"Little potential of a loss and significant upside"
"The industry is very appealing, and consumption of agrochemicals should rise undoubtedly."
With that stupid analysis and a lot more literature and reading, I made my investment in 2011.
The question is: Was I smart or was I lucky?
I was definitely lucky.
But I was definitely wise when I chose not to sell at 130 a share in 2012, in favour of a cheaper company with better prospects.
I said that I should just hold on to a company that is making significant returns on capital even in a bad year.
And currently, at 430 a share - I seem wise. But I'm not. I still think I got lucky with my relatively shoddy understanding.
Now: High returns on equity and capital, moat is improving with their focus on formulations and distribution in India only (Bangladesh ignored).
The problem is: what will the company do with the sizeable free cash flows?
They cant buyback shares.
Another story is that of Tata Motors DVR, which I wrote about 2 years ago.
Here, I believe my analysis was much better. I was focused on the returns on capital at JLR, and the downside muted growth that JLR would do, and still I would do well.
The domestic business got clobbered both on PV and CV, and still, the company has done stupendously well.
All because of the gumption of the Tata and JLR heads who had the cojones to invest sizeable sums of money, and to release a game changing RR Evoque.
I think they got lucky with the Evoque.
I think I got lucky with the RR stable.
But I was smart to understand the irrationality of the mispricing.
Something similar happening in Korea with Hyundai that Tilson wrote about; and amazingly, Tata Motors DVR is cheaper than that, and according to me has a stronger moat and business.
Notes:
China is a big profit center and the China bubble deflation will take a toll on JLR
Capex is super heavy, but most of it is towards expanding capacity and creating new models (unlike redevelopments at the German 3)
Accounting for depreciation is odd, because they capitalize 80%+ of spends relative to the Germans who capitalise 30% odd
Margins are higher than reported because China sales figures are inflated (I think, recorded gross of import duties)
The company is doing a lot to significantly improve the positioning and retain the premium value of Jaguar and Land Rover brands (and sub-brands)
The company is not chasing volumes at the cost of margins
The cyclicality of the sector can be a big headwind (as is usually)
It's good to be lucky.
As you can see: I am clearly biased.
By the way: Eicher Motors is valued at 27000 Cr and DVRs are valued at 120000 Cr
Which one is cheaper?
"Valuation of 7.5x PE; earnings yield of 13% on a trailing basis with mgmt guidelines for 40% topline CAGR"
"Capex is insignificant; their distribution reach and brand recall are significant barriers to entry"
"They seem to be more license-savvy, and understand their strengths and may be getting into hybrid seeds"
"Little potential of a loss and significant upside"
"The industry is very appealing, and consumption of agrochemicals should rise undoubtedly."
With that stupid analysis and a lot more literature and reading, I made my investment in 2011.
The question is: Was I smart or was I lucky?
I was definitely lucky.
But I was definitely wise when I chose not to sell at 130 a share in 2012, in favour of a cheaper company with better prospects.
I said that I should just hold on to a company that is making significant returns on capital even in a bad year.
And currently, at 430 a share - I seem wise. But I'm not. I still think I got lucky with my relatively shoddy understanding.
Now: High returns on equity and capital, moat is improving with their focus on formulations and distribution in India only (Bangladesh ignored).
The problem is: what will the company do with the sizeable free cash flows?
They cant buyback shares.
Another story is that of Tata Motors DVR, which I wrote about 2 years ago.
Here, I believe my analysis was much better. I was focused on the returns on capital at JLR, and the downside muted growth that JLR would do, and still I would do well.
The domestic business got clobbered both on PV and CV, and still, the company has done stupendously well.
All because of the gumption of the Tata and JLR heads who had the cojones to invest sizeable sums of money, and to release a game changing RR Evoque.
I think they got lucky with the Evoque.
I think I got lucky with the RR stable.
But I was smart to understand the irrationality of the mispricing.
Something similar happening in Korea with Hyundai that Tilson wrote about; and amazingly, Tata Motors DVR is cheaper than that, and according to me has a stronger moat and business.
Notes:
China is a big profit center and the China bubble deflation will take a toll on JLR
Capex is super heavy, but most of it is towards expanding capacity and creating new models (unlike redevelopments at the German 3)
Accounting for depreciation is odd, because they capitalize 80%+ of spends relative to the Germans who capitalise 30% odd
Margins are higher than reported because China sales figures are inflated (I think, recorded gross of import duties)
The company is doing a lot to significantly improve the positioning and retain the premium value of Jaguar and Land Rover brands (and sub-brands)
The company is not chasing volumes at the cost of margins
The cyclicality of the sector can be a big headwind (as is usually)
It's good to be lucky.
As you can see: I am clearly biased.
By the way: Eicher Motors is valued at 27000 Cr and DVRs are valued at 120000 Cr
Which one is cheaper?
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