BC VALUATION
Saved by @AnmolNarula11

A thread: How to value? 🏦💰❓

Sharing my learnings from my journey so far.

 Initially when I started out I used to ignore what anybody would have to say about their style of valuing a business and I would blindly copy what Benjamin Graham’s book, The Intelligent Investor had to say.

Later came a stage where I realized Benjamin style was not working.
Before we get into the learning, here is the background to it:

If you have been following me for the past 1 year you would have noticed how my valuation method has changed.
I used to struggle a lot with valuation and it would be at the back of my mind the whole day thinking what are these investors doing to value. I tried DCF but that didn’t work for me. (Don’t hate me for that, its my personal choice)
I used to attend Bloomberg Quint’s talk on Zoom, message investors, read books, etc. to figure out: How to value? (The frustration had got to a level that I took break from investing for 3-4 weeks)
I has asked @contrarianEPS on how to value and this is what he replied: https://t.co/qO0TQnaQBs

“Take help of someone to learn it” is the crucial line there.
Soon I met @ishmohit1 via Twitter and that’s where I started to get clarity on valuation.

Again if you have been following me for more than a year, I used to be the “CCL Product guy”. I was so bullish on the company that I had my 70% portfolio in it.
Don’t worry about my allocation skills, I have got better in portfolio allocation overtime - thanks to @ishmohit1, @ashishkila sir, and @ashwinidamani sir.
One of the best days in my investing journey: https://t.co/ujz0O3emZ2

After we connected we discussed various businesses, especially CCL Products because we both were tracking it very carefully. Soon, he offered me to write blogs for @soicfinance and the learning started.
Coming to the learnings, mostly I try to make a bet when it fall in the falling three categories:

1. Good business available at extremely cheap valuation
2. Great-Good business with reasonable valuation
3. Good business but can’t compromise on valuation
First: Good business available at extremely cheap valuation

In this situation the business analysis provides you insights that you understand such a business should not be trading at current valuation.
The business has growth triggers, the industry cycle is getting started, problems which the business is facing are short term, etc.

The example for this situation would be companies like ICICI Securities and Manappuram Finance.
ICICI securities: The business is not the old broking firm it used to be. Management has realized that discount broking is the real threat and their platform sucks. Now, they are focusing on their strength and trying to leverage their brand of ICICI.
But such businesses are deep cyclicals and one can only enter when the valuations are extremely depressed. I entered when the business was trading around 13-14 PE, the industry structure was changing, and the market was booming.
As I said these are cyclical stocks so I reduced my position at intervals when it hit 20 PE but I still hold the business.

Manappuram Finance: This gold lending business is another one which falls under this category...
...The business is currently facing short term competition from banks as they entered Manappuram’s territory and started gaining market share in the high customer segment but I feel management is learning from their mistake and the fundamentals are going to improve.
Totally visible from the latest concall where they finally changed their loan tenure. Someone I admire had mentioned that, “Don’t worry about the stock performance. One day it will get so cheap that it has to rerate.” :)
But one thing I still have to learn is when to get out, because sometimes it can take years for the stock to rerate. Right now the whole market is in a bullish phase hence it is easy to say for me that rerating would happen, but if it doesn’t such stocks become difficult to hold.
Second: Great-Good business with reasonable valuation.

In this situation you would be able to identify that there is a Great-Good business which on the face of it looks expensive but actually available at reasonable valuations.
Here you won’t be able to make the call independently. You need to talk to smart investors out there, in my case my mentors, and understand what they think about the business. Getting a third opinion matters a lot as you don’t want to blind fold yourself.
Once, you get their feedback and you realize that you are not being irrational then one goes ahead with the bet.

In this category falls the music streaming business Saregama.

Disclosure: my buying price is around Rs.2400 with the highest allocation.
Let’s look at the chart when I was buying:

The stock was already 10-11x from its March 2020 lows and trading around 40 PE.

My first reaction was, “Dammit! I missed the bus.” I saw the chart and looked at the 1999-2000 peak and thought “Aur kitna upar jaayega”…
@ishmohit1 is very bullish on this company, so I asked him that the business has already gone 10x why would you buy it now?

He said absolute valuation matters. New facts of the business were emerging as their Caravan sales went to zero, the hidden gem came into the limelight.
That is where I got confidence to reject the chart and focus on the business and it’s been a good journey so far. :)

1. Their music streaming was growing above 20% (rather they have increased the guidance to 25-30% now)
2. industry tailwinds were such that as more people would buy streaming services their profit would increase multiple times
3. no threat from new entrant (except foreign players)
4. Top player was losing out focus on the music business
5. visibility of growth for next 2-3 years
Third: Good business but can’t compromise on valuation.

Over here, one identifies a good business but the entry valuation is very important here. As with these businesses the cycle could change suddenly, their raw material prices could fluctuate, or they do not have moat, etc.
One such industry is Pipes industries. It is a shallow cyclical industry, one has to exit as soon as the cycle ends but due to the nature of the industry one would get time to exit.
You would start getting signals that their end consumer industry has started facing headwinds and now could be the time to exit. But yes, it is not that simple and that is why entry valuation matters which provides you margin of safety for wrong exit.
Apollo Pipes is a good example.

I was a little late to read this business and missed the opportunity. I couldn’t buy a small player at 40 PE, 3.5 Price to Sales, and with lowest return ratios in the hope that management would perform. The risk to reward was not in favor.
But the same was not true with Prince Pipes, they are one of the top 4 players in the industry, with the required capacity and distribution system, and with a good brand name.
The only thing required was better execution of the management with relatively favorable valuations at around 30-35 PE, price to sales less than 3, fast grower, and among the top players.
Inshort

The mistake in the first situation would be opportunity cost. In second, it would be the risk in identifying the wrong business and in third it is overpaying for the business.
There is a lot of wisdom out there on how to value but such abundance is the problem itself. One would say follow DCF another would say relative PE is just fine. But the best way to learn is, find a mentor whose approach you admire and learn under them.
Link to blog post: https://t.co/W7pGIskdWb

More from Valuation

Intrinsic Compounding
Intrinsic Compounding
@soicfinance
What is a Qualified Institutional Placement and what do I like about them (more to do with the QIP doc)

Time for a thread🧵🧵🧵🧵🧵🧵


What is a QIP?

A QIP or a Qualified Institutional placement allows a company to raise capital by issuing securities (by diluting equity) only to institutions.

Only Qib's or Qualified Institutional Buyers can participate in QIP's. This includes Mutual Funds, Foreign institutions

and Pension funds etc. (From my knowledge PMS' or any individual investor cannot participate in Qip's).

Just to give you an example:- Look at the investors who participated in the QIP of Saregama (750 crores)


Another example is the Qip of Deepak Nitrite in 2016 for the Phenol Project (size of the project was 1400 crores+)

The QIP witnessed participation from some of the top domestic institutional investors namely Reliance MF, Birla MF, ICICI Pru MF

Question arises, Why did SEBI allow for creation of QIP as an instrument for raising money?

QIP was introduced in the Indian Markets in 2006 by Sebi. As the regulator was concerned that the domestic companies were getting too dependent on raising money through
VALUATION
Conviction | Patience
Conviction | Patience
@unseenvalue
When we put a high multiple to sales, the most important thing to worry about is - what could disrupt those cash flows. A lower multiple to sales (like a 1x or 2x) justifies Yo-Yo cyclicality and 10x sales implies relatively stable gross margins, cash flow and business economics.
VALUATION
Advertisement
Siddhartha Bhaiya
Siddhartha Bhaiya
@sidd1307
@ramnath2015 DCF is a lot of bullshit.
5 yrs back u could have run a DCF in ITC and come to great conclusion but over the last 5 yrs the youth globally has moved away from cigarettes to weed
VALUATION
Varinder Bansal \U0001f1ee\U0001f1f3
Varinder Bansal 🇮🇳...
@varinder_bansal
Has anyone compared AB Fashion in lieu with Nykaa valuations?

Nykaa FY21 TOTAL sales at around 2500 cr: expected m-cap over 50,000 cr

Aditya Birla Fashion FY21 online e-commerce sales 900 cr (total sales 5600 cr) – has done 8700 cr pre-covid; m-cap is 25,000 cr

#justcurious
VALUATION
pranav mandora
pranav mandora
@pranavmandora
@soicfinance @suru27 Indeed. For later, industry/sector has to be within your circle of competence to judge the turnaround correctly.

Because according to Warren Buffett
"Both our operating and investment experience cause us to conclude that turnarounds seldom turn"
VALUATION

You May Also Like

AKASH
AKASH
@AKASHBH95801446
THE SCIENCE BEHIND YAJNA

Fire is, of course, one of the greatest discovery of mankind. Our control over the fire dramatically changed the entire human habits; earlier it was used to cook food, protection from animals and to stay warm.


Among the many applications of fire, one is Yajna (यज्ञ, yajña); also called as Havana (हवन) or Agnihotra (अग्निहोत्र).
Yajna is elaborately described in Yajurveda. In Yajurveda, Yajna is the greatest among all works (Karman). One can purify his /her soul by performing Yajna.

In Vedic culture, it is thought that the holy fire is the mediator between Gods and us; when the offerings are made to Yajna with chanting mantras, it directly reaches the Gods, who bless the people with rains, food, health, and good luck.

According to Apastamba Sutra, the definition of Yajna is Vedic sacrifice; an act by which we surrender something for gods e.g. grains (Anna), pulse, milk and milk product (ghee, butter, curd) fruits, plant juice (soma), etc.

As we said; Yajna is the contact medium for gods and

to seek their blessings.

There are many types of Yajna performed by Hindus for e.g.,

1. Rajsuya Yajna
2. Ashwamedha Yajna
3. Chaaturmasya Yajna
4. Vaajpey Yajna
5. Purushmedha Yajna
6. Sarvamedha Yajna
RELIGION
Brian Cates
Brian Cates
@drawandstrike
Great article from @AsheSchow. I lived thru the 'Satanic Panic' of the 1980's/early 1990's asking myself "Has eveyrbody lost their GODDAMN MINDS?!"


The 3 big things that made the 1980's/early 1990's surreal for me.

1) Satanic Panic - satanism in the day cares ahhhh!

2) "Repressed memory" syndrome

3) Facilitated Communication [FC]

All 3 led to massive abuse.

"Therapists" -and I use the term to describe these quacks loosely - would hypnotize people & convince they they were 'reliving' past memories of Mom & Dad killing babies in Satanic rituals in the basement while they were growing up.

Other 'therapists' would badger kids until they invented stories about watching alligators eat babies dropped into a lake from a hot air balloon. Kids would deny anything happened for hours until the therapist 'broke through' and 'found' the 'truth'.

FC was a movement that started with the claim severely handicapped individuals were able to 'type' legible sentences & communicate if a 'helper' guided their hands over a keyboard.
CULTURE
Advertisement
Ranvijay Singh\U0001f1ee\U0001f1f3
Ranvijay Singh🇮🇳...
@ranvijayT90
#Thread Two divine forms of Khatu Shyam ji...


On the day of Amavasya, devotees get the darshan of Shyam Baba in Shyam varan (black color). In ordinary days, the form of Baba is saffron. The reason for this is a custom. The real head of Shyam Baba which had appeared from Shyam Kund is of Shyam varan.


Every day Shyam Baba's grand Shringar is done by Pujaris. The main part of Shyam Baba's shringar is Tilak. This Shringar is done by the members of Nij Mandir sevaks. The sevaks of the Nij Mandir do sandalwood tilak to Baba everyday in the auspicious time.


This Divine Tilak is applied from the forehead to the nose. When Baba is given a bath by sevaks, this tilak comes off. Then in the auspicious time, the sevaks again apply tilak to Baba.


There is no auspicious time on the Amavasya. Because of this, tilak is not done on that day. That's why devotees have darshan of Shyam Baba on the Amavasya only in the actual real form (Shyam Swaroop). Baba's tilak is done on Amavasya only on the day of Deepawali.
ALL
Tej Dosa \U0001f602\U0001f9e0
Tej Dosa 😂🧠...
@ComedicBizman
(A THREAD)

18 Things I Would Do At 18:

I was a dumb 18-year-old. I thought I had the world figured out. I didn't.

I stayed up till the wee hours. Drank every liquor invented.

Partied non-stop. Woke up after noon.

Surfed the web aimlessly.

Read BS self-help.

Repeat.

If I could do it all over again, here's 18 things I would do...

PHASE ONE: GET MY MIND RIGHT

ACTION #1: Break the chains - I wish I made the decision earlier. I didn't. I was scared. Anxious. Nervous. I knew once I made the decision, there was no going back.

Don't be like me.

Make the decision at 18. The decision to pave your own path in life. To go against the herd. To choose your own adventure. To commit to whatever sets your heart on fire.

ACTION #2: Cut off every negative person in your life.

Scroll through the contacts in your phone...

Notice how the names make you feel.

Delete any and all names that fill you with doubt and negativity.

ACTION #3: Condition your mind to embrace the producer mindset instead of the consumer mindset.

Consume 20% of the time. Produce 80% of the time.

Case closed.

ACTION #4: Set an intention to make $10k a month and write it out every MORNING and NIGHT as if you already achieved it (in the past tense).

Visualize yourself already having the money as you write.

Cheesy?

Yes.

Does it work?

Yes.

PHASE TWO: EDUCATION
LIFE
The Light - Truthpaper
The Light - Truthpaper
@LightTruthpaper
Latest update from @TheBernician

1/19

Hancock, Whitty, Vallance & Ferguson Stand Accused of Pandemic Fraud.

After yet more damning evidence arose last week, further additions had to be made to the court papers, which we are now aiming to lay in the coming week.

2/19

The four defendants will be Matt Hancock, Chris Whitty, Patrick Vallance and Neil Ferguson, each of whom has inextricable and ultimately incriminating connections with Bill Gates and Big Pharma.

3/19

As well as three counts of fraud by false representation and seven counts of fraud by non-disclosure, under sections 2 and 3 of the Fraud Act 2006, we can now also prove that the entire worldwide scamdemic originated on these shores.

4/19

In fact, we can show that, without the dishonest statements and non-disclosures of the four defendants we are initially proceeding against, COVID-1984 would not have transpired.

5/19

Furthermore, the 1st defendant, Matt Hancock, cannot rely upon the defence of Parliamentary Privilege, on the ground that none of the evidence relied upon by the prosecution is capable of preventing parliamentarians from carrying out their lawful business in Parliament.
CULTURE