Investing Framework

How we caught & dropped a 5-bagger – Story of AGL

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Ceramic Tiles is one space which we have been tracking for many years now. In the past, we have misjudged the potential of branded players and missed some multi-baggers like Kajaria Ceramics and Somany. (blog post from 2013)
During 2015, we studied a company called ‘Asian Granito’. With Rs 850 Cr. in annual sales AGL is the 4th largest in India’s Rs 24,000 Cr. ceramic tile industry. It was available at Rs 160 a share and a market cap of Rs 360 Cr. i.e. 0.45 times sales vs. 2-3x for Kajaria and Somany. Despite throwaway valuations, we gave it a pass owing to some concerns on the business and management quality.

We again looked at it when we learned Mr. Tapan Jena, a professional with 27+ years of experience

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Gillette’s Eroding Moat & Key Lessons

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Back in 2013, I had written a post on Gillette discussing the likely challenges it is going to face in growing its business. A business with such headwinds trading at 80 times earnings should have gone only one way- down. That’s a different thing the stock has actually more than doubled given the exuberance in markets. Nevertheless, it has significantly underperformed the broader markets.
For a long time, Gillette was touted as the perfect example of a moated business, well reflected in its 70%+ market share, 60-70% gross margins and extraordinary Return on Capital Employed. This was all being protected by sustained investments in 1). product innovation; pioneered multi-blade technology and kept on launching better razors latest being a 5-blade razor 2). branding to have a dominant recall.
The demand was

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Why we prefer ‘First-Generation Owner-Operator with Skin-in-the-game’?

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We often say while talking about our investment philosophy that we prefer companies which are led by ‘First generation, owner-operator with skin-in-the-game’. Why do we have such a preference?
A company is called to be owner-operated when it is led by the promoter(s) who own the majority stake in the company.
It is said to be first generation owner-operated if it is led by the founding promoter(s). Think Relaxo Footwear or Wonderla Holidays.
Over time the leadership could be passed on to the next generation though it will continue to be termed as owner-operated. Think Garware-Wall Ropes which is currently led by 3rd generation or Amrutanjan Healthcare led by 4th generation.
The baton could also be passed on to a professional management team; qualified and experienced managers who would now

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Should you invest in IPOs?

Posted by | Food for thought, Indian Markets, Investing Framework, Investing wisdom, Investment Gurus, IPO | No Comments

There are two kinds of Initial Public Offering (IPO) –
1). Fresh Issue where new shares are issued and money raised goes to the company which can be used for growth or retire debt and
2). Offer for Sale where existing investors (promoters and private equity) sell their shares and money goes to them rather than the company.
Unlike earlier times when most IPOs were a fresh issue in order to raise growth capital, now most issues these days are Offer for Sale. During rapid growth phase companies go to private equity firms for capital and after achieving reasonable scale comes up with an IPO at rich valuations, leaving hardly anything on the table for new investors, to offer an exit to private equity.
IPO is a seller’s market, they

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[Memo] A Note from CEO – View on Current Markets & Portfolio Strategy

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Following is a copy of memo shared with Stalwart’s clients during August 2017 –
Markets were rallying one way up since the start of 2017 and many began to believe there’s really nothing that can stop this rally amidst so much liquidity and no alternate opportunity for deployment.
Then happened the least expected regulation twist during the month of August which should have ideally effected just those 331 alleged “Shell” companies in whose stocks trading got suspended with immediate effect, but when it comes to markets the ‘cause and effect’ is complex and often goes beyond the obvious and even minor developments could spread into deadly contagion.
 
Some of our stocks too have corrected, however, these are merely mark-to-market changes as long as we have confidence in the underlying thesis.

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Why we bought Garware-Wall Ropes?

Posted by | Business Models, Investing Framework, Scuttlebutt, Stocks | One Comment

“Invest in businesses that buy commodities and sell brands” is a powerful idea for long-term investing propagated by Warren Buffet. This lends business the ability to pass on higher raw material cost without losing unit volumes and retain some benefits in times of softer raw material prices. (a.k.a. pricing power)
As per Prof. Sanjay Bakshi, an attractive hunting ground for mis-priced companies is often where Mr. Market is valuing some businesses as commodity, perhaps because they belong to sectors which are labeled “commodity” for example textiles, whereas in reality some of these might have carved out a niche for themselves enjoying a strong pricing power (think Ambika Cotton)
In 2015 we got lucky when we spotted both these elements to be present in a business called ‘Garware-Wall Ropes’, a Pune based technical textile giant.

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[Video] Individual Investor’s Real Edge – TIA 28th Jan 2017

Posted by | Investing Framework, Investing wisdom, Investment Gurus, Investor Meetup | No Comments

Presentation made by Jatin Khemani, Founder & CEO, Stalwart Advisors at Bullet Proof Investing Seminar organised by Tamil Nadu Investors Association on 28th January 2017 at ITC Fortune, Chennai.
Notes on Presentation:
00:00    Introduction
00:38    Are large caps safe and easy to decipher?
07:35    How did Warren Buffet and other veterans start investing?
12:20    Why prefer smaller companies?
13:45    What goes into making of a 100-Bagger?
15:20    Case Study – Hero Honda – A 100-bagger for Ramdeo ji
16:25    Industries with High Potential
17:57    Case Study – Titan – A 100-bagger for Rakesh ji
19:58    Structural Theme: Unorganised to Organised
21:40    Sources of Information
23:00    How many companies in India do quarterly conference calls?
27:00    Scuttlebutt & Common

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[Video] Surat Investors Meetup

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Team Stalwart travelled to Surat, Gujarat and organised a meet up on 26-27th November 2016 at Ginger Hotel, addressing 100+ investors in five different batches explaining some of the key frameworks, investment philosophy followed by us and addressing queries around investing.
If you are visiting our blog/website for the first time and/or contemplating signing up for our research, we strongly urge you to spend some time viewing following videos; this should help you understand our investment style and set the expectations right. To us it is paramount that every prospective investor who associates with us is able to understand and connect with our philosophy.
Part I – Key Frameworks
Notes to part I of the video which covers the following:
00:00 About Jatin Khemani, Founder & CEO
03:36 How he started & his journey so

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SA’s Founder in ‘Wizards of Dalal Street’ with Mr. Ramesh Damani

Posted by | Investing Framework | One Comment

Interview Video: Jatin Khemani, Founder, Stalwart Advisors, in conversation with legendary investor Mr. Ramesh Damani in his show ‘Wizards of Dalal Street, A Fresh Breeze’ discussing:

His journey,
Why tips are hazardous to wealth,
Stalwart Advisors’ Investment Philosophy,
Why it matters to have high quality management team with skin-in-the-game,
How he found stocks like Tasty Bite Eatables and Relax Footwear,
Why understanding Operating Leverage is crucial for investors and
How it applies in case of businesses like Wonderla Holidays.

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Indian Markets at Cross Roads

Posted by | Food for thought, Indian Markets, Investing Framework | 2 Comments

Disclaimer: We are totally into bottom-up stock-picking and are amateurs when it comes to making sense out of Macros. This post is just a small attempt to share our thought process regarding current market environment and some interesting observations Imagine a conversation between two investors regarding a hot mid-cap which has recently done pretty well. The optimist might justify buying or holding on to it saying ‘Boss look at this new CEO who seems like an intelligent fanatic, has fire-in-the-belly to make it a global giant, look at his execution quality over last three years and the earnings potential of this business given humungous size of the market opportunity’ The cautious investor however would differ by pointing out to current valuations being close to life-time high and the potential

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