SELECT COMPANY PERSPECTIVES

Investment Thesis on Pix Transmissions Limited

Summary

We believe opportunity exists for Pix to compound earnings at ~15%+ this decade.

In a very over-valued market, our entry points over the last 2 years have been in the range of 17-20x TTM PAT. We believe entry priced paid are reasonable for a business with a long growth runway, leadership of a niche in India, and a high pre-tax ROIC¹ of 26-32%.

Pix is still sub-scale in exports but should reach critical scale in 2-3 years, which will add more stability and a kicker to earnings. With more predictable ~15% earnings growth and >25% ROIC profile, valuation multiples could expand to ~25x. Pix offers good upside/downside prospects, especially in a very over valued market where value is hard to find.

Industrial consumables are good businesses to own.

Solidarity Partners Meet- interview with promoters of RACL GearTech & Neogen Chemicals

We had the privilege of hosting the Promoters of Neogen Chemicals Ltd., RACL Geartech Ltd, at our Partners Meet in Mumbai. It was truly insightful to learn about the key drivers behind their success.

Watch the full interview with them here

Investment Thesis of our Top 15 Positions held under the PRUDENCE Scheme

Please click here if you would like to read the investment thesis, financials and valuations of the Top 15 positions under the Prudence scheme

Investment in Shivalik Bimetal Controls Ltd

Summary views

Shivalik Bimetal offers possibilities of 15-20%+ Sales CAGR and 17-20%+ PAT CAGR over long periods. We see structural tailwinds of end market growth, potential for market share gains globally and forward integration into value-added products. Margins should expand from forward & backward integration and operating leverage.
The Ghumman family now has full control over the company with larger shareholding having recently bought stake from the other promoter group at 610 per share¹. A single promoter group can drive more decisive decision making and we are already seeing more investments behind Sales and R&D.
Business is resilient & derisked and should generate meaningful Free Cash Flow over next few years despite Cap ex due to high steady state post tax ROIC of 30-35%+ due to the wide Technology moat.
Recent share price correction (~35% decline from peak) can be explained by short-term growth challenges and market corrections. We remain optimistic long term and have used the correction to increase our position size to ~4% as we find current valuations attractive. Any further decline will be an opportunity to add more to our positions.
Shivalik is a Phase 3 co poised to become Phase 4. We have explained our framework in our last blog.

What do they do?

Investment implications for Indian investors in a Trumpian world

“There are decades where nothing happens; and there are weeks where decades happen”-Vladimir Lenin

This is a new Trumpian world. Within 8 weeks of being sworn in, Trump has voted alongside Russia at the UN against historical allies, threatened to annex Greenland, to cut defence aid to Ukraine, to exit NATO, pulled the US out of the Paris climate change agreement, defied the US judiciary ….

Moving forward with strategy, not with emotion – our view on investing in Small and Mid Caps at present

Last week, S Naren, CIO of ICICI Pru MF and a market veteran we respect immensely, warned investors about exuberance in Small and Mid-Caps. His statement “we think it is a clear time to take out lock, stock, and barrel from small and midcap” created quite a stir on social media. “With great power comes great responsibility” and we endorse the general warning that Naren is dispensing to the price agnostic retail investor.

However, our views on investing in Small and Mid-Caps today are more nuanced, and we share our specific stance on this subject below.

Stillness, backing a mission oriented promoter and the rewards of good Karma – Rakesh Jhunjhunwala’s incredible 340x returns in Inventurus

Inventurus Knowledge Solutions, a company promoted by Sachin Gupta and the late Rakesh Jhunjhunwala in 2006, is expected to list in the next 2 weeks. The grape vine has the IPO valuation of the company pegged at between 20000-25000 Cr. If we take the mid-point of that range, the original investment has compounded ~ 340x for the Jhunjhunwala family in the last 17 years, an IRR of 41%. This adds to the long list of 100 bagger returns generated by him.

Why can’t more of us be like him? Other than the ability to see the future with more clarity, what attitude is needed to earn such returns?

Stillness by deliberate choice. Read More

Investment thesis on indiamart

IndiaMART share price declined ~17% post Q2 FY25 results.

In this note we explain potential reasons for this steep correction and why we have used this opportunity to add to our positions.

Summary message

Despite healthy profit and cash flow growth, the sell-off in IndiaMART was driven by continuing lack of momentum in addition of paid suppliers and muted customer collections in Q2 FY25. The market perhaps believes IndiaMART is at a mature stage on its growth life cycle.
We believe IndiaMART is still early in growth life cycle with significant room both for user growth and ability to monetize its platform (higher FCF¹ via upsell, cross-sell and margin expansion.
At 20x FCF TTM for its core listings business, valuations are very attractive even if the business is mature stage of life cycle. These valuations imply 7% FCF growth to perpetuity² which is significantly lower than what we believe is possible. There are few businesses in India with the ROE profile and moat of IndiaMART.
We have used the steep price decline to increase our position size to 7%.

investment in shivalik bimetal controls ltd

Shivalik’s core competency is high precision metal welding used to make specialized products like Shunt Resistors, Thermostatic Bimetals and Electrical Contacts (explained below).

Shivalik can grow topline at 15-20%+ CAGR for long periods benefitting from multiple secular domestic and global tailwinds (growth in Domestic Smart Meters/ Electric Vehicles/Hybrid and global customers derisking supply chains). They have a dominant position in India and can become meaningful global players in their niches over time as customers derisk supply chains.

investment thesis on racl geartech

Manufacturing from India for the world promises to be a decadal theme. We favour categories that are strategic to customers supply chains and which are more immune to dumping from China.

Rising geopolitical tensions between the West and China have prompted MNCs to strategically reevaluate their high dependence on China and seek alternative supply chains for derisking.
European manufacturing faces structural challenges (low-cost competitiveness, long lead times for environmental clearances). Current macro challenges are driving higher outsourcing to players in low-cost destinations like India.
Manufacturing may not offer as high ROCEs as IT Services/Consumer. However, they offer 15-20% growth with longevity at 18-20% ROCE. When growth slows down, their ROCEs could further expand as useful life of plants is greater than life over which they are depreciated.