Slow Compounding

Abbott India Revenue up by 15% Expenses up by 8% Profit up by 41% (YoY) Q-o-Q Revenue up by 10% Expenses up by 6% Profit up by 25% Raw materials @ % of Revenue 56%, 57% and 55%, in order of this Q, last Q and last Y same Q For Abbott India, the key point is Operating Profit margin. This Q: 24%. Last Q: 22%. Last Y same Q: 22%. Boring FMCG type of business. No acquisition. No capex. No concall. No big heading.

PI Industries Revenue up by 25% Expenses up by 21% Profit up by 79% (YoY) Q-o-Q Revenue up by 21% Expenses up by 18% Profit up by 39% Raw material prices this Q, 53%. Last Q, 55%, Last Y same Q, 56%. Raw materials prices are softening. Operating Profit margin This Q: 24% Last Q: 22% Last Y, Same Q: 22% All agro chem (Yes, all) companies showed drop in revenue, profit and profit margin. Except for SRF and PI Industries. In headwinds, these boats are sailing smoothly. Hallmark of moats!

Berger Paints Revenue grew by 10% Expenses grew by 6% Profit grew by 33% (YoY) Q-o-Q Revenue up by 24% Expenses up by 18% Profit up by 93% Raw materials last Year, same Q, 64% and now 60% of total revenue. So, raw material pricing cooling off. Operating Profit margin now 18%. Last year same Q, 15%. Last quarter margin was also 15%. So, operating Profit margin improved.

Today's Results PI Industries Abbott India Berger Paints PI Industries: Chemical spaces, bad outlook as companies are reported drop in revenue, profit and profit margin. The market assumed that PI would show minor compression. Remember, Aarti Industries showed 3% margin reduction. Eager to see what happens for PI Abbott India: As raw material prices are softening, margin sequentially would improve. The market is expecting a better margin with above average revenue growth. Berger Paints: Asian and Berger together control >60% of Market share. Earlier, Asian paints published results. They showed muted growth in revenue but profit margins were very impressive. Will Berger show the same pattern? If so, is the paint demand softening? The market is looking for an answer.

China minus one Recent data showed that China is currently reporting deflation. What is that? Increase in commodity prices with time reduces the value of money. The opposite is deflation. Means , commodity prices softening. After sleeping big time, China has opened up. Growth slowed down. The factories started producing, but very low demand. So, the price is down. Simple to understand. If you are checking news/concall, you probably know that bulk chemical prices are dropping because china is dumping their products at a much cheaper rate. So, the same will continue for some more time. Impacts: The company who are selling bulk chemicals will continue to report poor results. The company who buys raw material and converts them as a product that has a pricing power, will enjoy better margin. The best example: Domestic formulation branded generics.

Aarti Industries Aarti Industries is the big boy in the chemical class. The best way to look at the results of Aarti Industries over every five year basis. Over the long term, Aarti Industries will be thought of as a proxy of the chemical sector. Results are bad as expected. Revenue down by 12% Profit down by 48% Margin down by 3% As communicated through video, I have strong reasons to dislike the company. However, Aarti Pharma Lab is looking very attractive at this price point. No position, tracking the whole chemical sector carefully.

Sudarshan Chemical Revenue up by 9% Profit jumped by 200% Margin improved from 7.5 to 11.5% (YoY) Quarterly dull result Revenue dropped by 12% Profit dropped by 28% D/E ratio improving This quarter 0.61, last Q 0.99, last year same Q. 1.04 Big capex is already done. Profit is hit by depreciation. Demand has collapsed after the capex. So, company is sitting with Engine with no fuel. One fuelled, scenario may change drastically. However, it is a shallow cyclical company. Disclaimer: Biased since invested @420.

Dr Lal Path Revenue growth 7.6% Profit 43% Profit margin improved but volume growth remained muted. It simply indicates that pricing pressure in this space is easing out. When the volume growth kicks in, the market outlook will change.

Nestle India Revenue growth 15% Profit growth 35% Fifth consecutive quarters of double digit growth

So true! "A lot of financial debates are just people with different time horizons talking over each other" Morgan Housel

Abbott India This company continues to improve its profit margin. Major reasons: launch of new medicine in which profit margin is higher. For Abbott India (also applicable for Nestle India), the question is not what to launch, but when to launch. The retail investors who sold at the choas of Marcellus exiting this stock, sold at last massive loss. There were many youtube videos which lectured the retail investors that MNC are bad because they launch new products through unlisted entity. True. Not just in business, always look for what to have instead of what you don't have. What you have if it's better than average, there is no point regretting. Since our purchase, we sat on this position and let it compound at 21%. Long-term investing is not about activity. The major task is now clearing out the noise. And focus on what you intended and what you are getting. Hope this idea helps in your own investing journey.

Abbott India_PAT Margin

ROCE of Abbott India

Boxing Ring Asian paints is entering into adhesive space. Pidilite is venturing into paint. Who will win? Listen from the management of Asian Paints during concall. Video will go live at 6 PM today https://youtu.be/PcU3-oNzloI

Investing lesson from Darwin I have recently read a book named, "What I Learned About Investing from Darwin" by Pulak Prasad. Indeed Very interesting thought experiments! When you "buy and hold", you will miss a lot of winners. How to square off this facts? A very different type of podcast which does not talk directly about investing. Podcast will go live today at 6 PM https://youtu.be/Bm7zy7q0CHU

Six Months of Inactivity - P2 When the bull market was on its full pace, Warren Buffett in Berkshire Hathaway Annual Meeting faced several heated comments and suggestions about his stock picks. It was the time when it is easiest to make money even if you pick stocks blindly in IT sectors.. Buffet strongly explained why he didn't participated in IT rally. You all know that. In that annual meeting, an interesting question was asked about his view on overall market. We will come to his answer in a while. Before that, let's understand that if you ask this question to experts, everyone will have an outlook. Based on overall PE of Market, or debt situation, or interest rate, or election, or recently development. Even today, when you open CNBC, you will hear all the experts are predicting the market behaviour. The partner of Warren, and the man with Horlicks glass on his eyes, Charlie Munger says....all the experts knows how the market will behave, but still most of them underperform. The retail investors must think about this. We don't predict the market. Warren Buffett more clearly articulates that he wants a company which does well regardless of the market scenario. To him, market prediction is just like prediction of tide. It is very difficult to do precisely. We rather focus on the swimmers who will swim well in both high tide and low tide. Probably, this is why Warren Buffett keeps doing well. He is never interested to win big in next bill run. Or he is going to lose less in next bear market. When the street is playing two games: market prediction and stock picks, Warren is playing one game. We all read Warren Buffett and say that we are all long term investors. Then, we try to align our portfolio for upcoming bull market. Probably, that's why Buffer says... investing is simple but not easy! P.S. We are trying not to align our portfolio to take advantage of next bull market. And trying to focus on business that do well in all Market.

Six Months of Inactivity A job of a portfolio manager is to make sure the portfolio is aligned towards the sectors that has tailwinds. Currently, wire and cable, hospital sector, banking and microfinance, consumption segment are the sweet spots where market is savouring tailwinds. As days follow night, liquidity chases these sectors. And we have seen, KEI Industries, Apollo hospital, South Indian Bank, Ujjiban small finance Bank, CCL, Varun Brevarage doing well in last 6-8 quarters. Now, we can connect the dots with tailwind and return. The blueprint of momentum investming is borrowed from physics. You need forces to stop the momentum. Since these sectors are going up, it will continue to move upwards until some negative setup develop externally. On the other hand, slow Compounding portfolio stocks are facing headwinds. Asian Paints - landscape of Paint space is going to change. Will the Gorilla remains Gorilla, a big question. Pidilite - Other competitors are now aggressively expanding products and distribution network PI Industries - late monsoon this year, H1FY24 are going to flat for agrochem companies. HDFC Bank- merger will reduce profit margin, remaining concern for PE derating Kotak Bank- While the banking sector is doing well, kotak bank in last two years clocked no return. Probably, the concern of Uday Kotak moving out of CEO chair is a concern. Abbott India - the market share of top contributing drugs has slipped away. Company will depend on new launches for future growth Nestle India - In FMCG space, Nestle India is showing decent growth but not market beating. number. Dr Lal Path - post acquisition, margin of Dr Lal Path has slipped and management is not showing any definative timeline for margin improvement. After all these, how inactivity in portfolio can be justified? Will share the thoughts in next post.