September 16, 2017

Q1FY18 - Portfolio Companies Performance

Of 12 companies in our new client portfolios (2016 and later members), 10 companies have declared their results for Q1FY18. Two companies have seen a dip in their revenues on YoY (Year-on-Year) basis and two companies have seen a dip in their net profits.

In a tough quarter for corporate earnings due to GST roll out hurdles, we are satisfied to see a healthy growth rate in our portfolio. Contrary to high valuation premiums of growth stocks in the current market scenario, our portfolio stocks are in the “Cheap-To-Fair” valuation zone on the EV/EBIDTA, PE Ratio and PB Ratio basis. Most companies have macro tailwinds in their favor and w expect revenues to grow at a healthy pace.

We have always emphasized on the construction of a well balanced portfolio between growth and value picks. Of the 12 stocks that we own in the portfolio, 9 are selected based on triggers for revenue growth (apart from fundamentals) and 3 are because of a statistical bargain in terms of margin of safety and peer valuation gaps. It would be unfair to say that there are many bargain “value-picks” out there.

In current conditions, we prefer companies with reasonable growth rates available at reasonable prices.

In an earlier post (Read: Nifty 50 Earnings Analysis – Q1FY18), we spoke of the deflated rate of growth in corporate earnings which has dragged the Indian markets to a crucial juncture (Read: Markets at a Crucial Juncture) for a better understanding of earnings and valuations in current market scenario.
Our portfolio is cheaper than the broader markets and has a better growth in earnings. Ideally investors should focus on their portfolio and the individual stocks in that portfolio instead of the broader markets, however when the broader markets are heated up then the number of opportunities evaporate. However, in the month of August, we identified a wonderful company for a long term investment (3+ years).

Q1FY18 performance of our portfolio: Q1FY18 Performance

5 key points of our portfolio:

i) We do not own more than 15 companies in our portfolio
ii) Our annual churn in the portfolio is usually 3-4 companies
iii) We maintain a equity-to-cash allocation weightage based on different parameters
iv) Our holding period of every stock on an average is 3+ years
v) On becoming a member, only 50% of your portfolio is invested into stocks ~ The remaining amount is invested over the next few months (Rupee cost averaging)