D-Street Talk: Time to move over from H R I T H I K stocks to A K S H A Y stock to tap into emerging opportunities: Kshitiz Mahajan of Complete Circle Consultants

K - Kajaria Tiles (sector – Tiles)

S – Shree Cement (Sector – Cement)

H - HDFC Limited (Sector - Housing Finance)

A - Astral Poly (Sector – PVC Pipes)

Y – PolYcab (Sector - wires and cables)

Here are edited excerpts of the interview:

Q) On the global front it is FAANG while in India HRITHIK was quite popular – you have coined your own acronyms which taps into emerging opportunities in the forthcoming years – tell us more about it?

A) Time is for AKSHAY – a superstar who will gain from Real estate and infra turn around. Covid and post covid, one thing is for sure that work from home will be a new normal (it will be a mix of office and home).

Work from home increases productivity, saves travel time, reduces office expense, enriches work-life balance and is more nature friendly.

In the near future, people will look at buying bigger/better houses, because as a percentage of time spent at home will increase. It will benefit close to 50 sectors.

Asian Paints

The trend suggests that decorative paints volumes are growing at about 1.5x GDP growth rate, and Asian Paints is expected to benefit from this category growth being the market leader with a dominant market share.

Branded players are growing faster on account of up-trading from the non-branded segment. With the increasing affordability of households due to rising incomes, the middle class has jumped from 15 percent to 35 percent changing the trend from joint families to nuclear families.

Through the organic and inorganic routes, the company has made a foray into adhesives, bath fittings, and kitchen improvement.

Kajaria Ceramics

Kajaria Ceramics’ performance was strong across the topline & bottom line. Tiles sales volumes were up 39.2% YoY at 25.4 MSM, driven by a stellar rebound in demand and benign base (Q4FY20 had 19% volume decline). The average capacity utilisation during Q4FY21 was at ~98%.

Shree Cement

It no longer a cement company only. There are various products which the company is making such as -

OPC Ordinary Portland Cement (OPC)
PPC Portland Pozzolana Cement (PPC)
PSC Portland Slag Cement (PSC)
AAC BLOCKS.

Shree Cement is a market leader in the North. It has a strong pedigree. India is the second-largest cement producer after China.

HDFC limited

Robust pick up in individual disbursement at 60%, margin expansion of ~10 bps and collection efficiency at 98% reflect healthy revival in individual business which comprises ~74% of gross loan book.

Valuing core business at 2.5x FY23E ABV and subsidiaries at 15% holding company discount. It is a stock worth looking at. If we take out group companies, the entire business of HDFC Limited is available for 1.1 lac cr. This company will have a long runway.

Astral Poly:

Astral is one of the major players in the plastic pipe and fittings market which is estimated to be ~ Rs 280 billion in size.
CPVC pipe and fittings market is expected to grow at a rapid rate due to it replacing the GI/copper pipes market.

CPVC resin from SEKISUI will be sourced from its Japan or Thailand plant and compounding will be done in-house. Making own compounds will help improve margins due to better sourcing. The adhesives business is a big opportunity for the Company

POL.Y CAB:

Polycab is a leader in the domestic Cables & Wires category and is increasing its product portfolio in the fast-moving electrical goods space.

It is a leader in Cables & Wires (C&W). The company has in-house manufacturing and backward integration that help in cost and quality control. It has a strong network, and a healthy return profile.

Q) I see a mix of good old quality companies such as Asian Paints, Shree cement, HDFC Ltd, along with new players. What is the kind of time frame investors should keep in mind in case they plan to invest in A K S H A Y and why?

A) In terms of equity investment, more than price, time spent in the market is more important.  You can enjoy the power of compounding if you focus on T (time period) more rather than R – Return on stocks.

Investors who join D-Street for wealth creation should have a minimum time frame of 5 years.

The formula for compound interest is
FV ==P (1 + r/n)^(nt), where P is the initial principal balance, r is the interest rate, n is the number of times interest is compounded per time period and t is the number of time periods.

Q) What makes you so positive on the real estate/infra space?

A) There is a strong demand for IT/ITES sector in the southern region like Chennai, Bangalore, and Hyderabad. An infrastructure investment plan for 1.5 trillion is expected for the next 5 years.

The rural demand is also rising amid expectations of a good monsoon for the last 3 years. Better agriculture income and govt support will support rural housing.

Lower interest rates along with govt participation for underprivileged support our argument. Rapid urbanization - 33% in 2011 to 40% in 2030 will only fuel demand.

Capital expenditure budget likely to see a robust 26.2% growth. Govt CAPEX on key infra is up 15.6% on a Yoy basis.

Q) How should investors pick stocks especially at a time when markets are trading at record highs and most stock prices look stretched?

A) For picking stocks, investors should stick to stock SIP which is the best way from picking a stock.

Stock investing is like drinking tea. Rather than drinking in one go, you will enjoy it more if you take sip-by-sip before it cools down. Stagger your investment.

If you have 100 today – start with 25-30 across stocks/Mutual funds – not more then 12-15. Slowly built your portfolio and enjoy the benefit of compounding (the rule of 72)

Q) I am sure you get this question quite often. But, let me repeat it as well for the benefit of our listeners.

In terms of portfolio allocation especially for salaried investors say above 30 years and can contribute 30,000-40,000 per month towards equity. What would you advise – invest in stocks or MF or both. If both, what should be the ideal allocation for long-term wealth creation?

A)Mutual funds and stocks both should co-exist in your portfolio. The percentage may vary depending on risk appetite, time horizon, knowledge, and interest in stocks.

Someone who doesn’t have time to track his/her portfolio – should do only Mutual Funds.

But, someone who tracks it but doesn’t understand or know how to read financials of a company should do 80% MF, and only largecap stocks.

Someone who has time to track his/her portfolio and read/understands financials of a company should do 50:50.

By investing into MFs/Index funds/ETFs you diversify your risk.

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