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Buying the Pessimism 1
Twitter - @niteen_india
Niteen S Dharmawat
Buying the pessimism
(Everything that you wanted to know about)
27th Aug 2022
Co-Founder, Aurum Capital
Website: https://aurumcapital.in
Twitter: @CapitalAurum / @niteen_india
Email: info@aurumcapital.in
Be a wise
investor…
Buying the Pessimism 2
Twitter - @niteen_india
IMPORTANT DISCLAIMER:
The information herein is used as per the available sources of bseindia.com/nseindia.com/brokers websites, company’s annual
reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the data. Investors
should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for
necessary explanation of its contents.
Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For
queries / grievances – support@aurumcapital.in. SEBI registration No: INH000008118
Readers/attendees/viewers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in.
This presentation indicates opinion of the author to understand the case studies and it is not a recommendation to buy or sell
securities. Aurum Capital & its representatives may have vested interest in the mentioned securities at the time of this
publication, and its partners / company may have positions / financial interest in the securities discussed.
Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the
companies mentioned in the report.
Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock:
may own/may have recommended to clients. Served as a director / employee of mentioned companies in report: No. Any
material conflict of interest at the time of publishing report: No
The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or
issuers; and no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or
views expressed in the report.
Buying the Pessimism 3
Twitter - @niteen_india
Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No:
INH000008118) and Investment Advisory (SEBI Registration No: INA000011024)
services company. Started by Jiten Parmar and Niteen S Dharmawat, who together
have more than 4 decades of experience investing in equities and guiding and
mentoring fellow investors.
This rich industry background helps us understand companies, complexities of
business and tipping points that make or break a company. Our approach is not
limited to just number crunching but going beyond. We focus on the business,
strategic direction, the competitive landscape, the governance process, the
background of the promoters, turnarounds, to name a few. Often these are more
critical items than just numbers. Jiten and Niteen have successfully waded through
multiple bear and bull market cycles.
Buying the Pessimism Twitter - @niteen_india
Buying the pessimism
4
Agenda…
 What is pessimism?
 Problem of plenty while buying optimism
 Correction types and impact
 Price correction
 time correction
 time and price correction
 Braveheart
 During buoyancy or during decline
 Importance of human behaviour
 Margin of errors
 Framework for Buying the Pessimism: Debt/ Management actions/Understanding sector v/s Understanding company during pessimism
 Case studies
 Paper Stocks in 2020-21
 Capital Goods in 2020-21
 Rush for Gold: NASDAQ 2020-2022
 IT companies in 2017
 USFDA Ban on a pharma company
 COVID wave
 Hotel/Tourism sector in Apr-2021 (2nd wave peak in India)
 Video Communications company in Oct-2020 (3rd wave peak in the USA)
 Power sector crashed in 2009: should I go for the Windmill company?
 My mistakes
 Home work
 Summary
Buying the Pessimism Twitter - @niteen_india
What is pessimism?
5
Background…
A tendency to see the worst aspect of things or
believe that the worst will happen.
Examples
 End of markets when corrections happen
 End of sectors when darling sector collapse
 End of a company when events happen
• Evaluate each case
independently/ rationally
Buying the Pessimism Twitter - @niteen_india 6
Pessimism in the market
How does it look like and how to navigate?
Buying the Pessimism Twitter - @niteen_india
What is pessimism?
7
The news headline will look like this…
23 Mar 2020
Buying the Pessimism Twitter - @niteen_india
What is pessimism?
8
The news headline will look like this…
23 Mar 2020
Non-market
& you get to read this
Buying the Pessimism Twitter - @niteen_india
What is pessimism?
9
The news headline will look like this…
23 Mar 2020
Hugo Erken, Senior
economist & country
analyst for North
America, Mexico and
India, Robobank
FinTwit account with 400k+ followers asking to
stop short selling: 18 Mar 2020
Buying the Pessimism Twitter - @niteen_india
What is pessimism?
10
Background…
There is no tomorrow v/s there is no tomorrow
Extreme thinking
During buoyancy v/s During collapse
Fear of missing out v/s fear of crashed out
Panic Selling
Panic Buying
Pessimism
Optimism
“The market is a pendulum that forever swings between unsustainable
optimism (which makes stocks too expensive) and unjustified
pessimism (which makes them too cheap). The Intelligent Investor is a
realist who sells to optimists and buys from pessimists.”:
Jason Zweig, The Intelligent Investor
Buying the Pessimism Twitter - @niteen_india
Buying the pessimism?
11
Meaning…
 Buying when there is a carnage
 Apply mind and not emotions: Think rationally than emotionally
 Have a view to hold the business for the next few years without significant returns
 Keep expectations to minimum
 Expect the underperformance
 Even if we can’t control our emotions, we can control the attention we give to our emotions
 WhatsApp/Telegram groups/Social media
 Media (eMedia, print media)
 Distracted by emotions, list three activities that you can busy yourself in, e.g., for me
 Act of random gratitude, Meditation, Reading books
Buying the Pessimism Twitter - @niteen_india
Correction types and impact
12
Meme stock… Time correction
5 Year stagnation
Buying the Pessimism Twitter - @niteen_india
Time Correction
13
Meme stock… but prior 10 years
10 years: 6.6X
CAGR: 21% in 10 years + Dividends
5 years stagnation
5 year: 4X+Dividend
Buying the Pessimism Twitter - @niteen_india
Price corrections: permanently dead
14
Infra stocks… post 2009 carnage
Punj Lloyd, JP Associates, GMR, IVRCL: Lost 95-98%
(1 Lac became 2k or 5k)
It's only when the tide
goes out you know
who's swimming naked:
Warren Buffett
Buying the Pessimism Twitter - @niteen_india
Winner-Takes-All
15
Infra stocks… post 2009 carnage
Price correction
by 50%+
Price correction
by almost 50%+
Buying the Pessimism Twitter - @niteen_india
Braveheart?
16
During buoyancy or during decline
Should I consider buying
in this sector here?
Or here? Returns: 56X
Buying the Pessimism Twitter - @niteen_india
Importance of human behaviour
17
To win over Algo trades there is only one way: Control your emotions.
 Your biggest enemy, when investing, is within yourself.
 Success will only come when you learn to control your emotions.
 Apparently, one of the easiest ones but the most difficult to follow.
Buying the Pessimism Twitter - @niteen_india 18
Buying the Pessimism
Important parameters to consider
Buying the Pessimism Twitter - @niteen_india
Framework for Buying the Pessimism
19
Parameters
(buying the pessimism)
Survivability test
Permanent
disruption
Sector/
company out
of favour
• No one wants to talk about it
• Hesitation to post about the
company/sector as people may laugh
• Valuations at historically low
End
Yes
Yes
Not manageable
Debt
level
No
How high is “high”
No
Cashflows of 5
“good” years
Manageable
(Low/No debt)
Reconsider/Wait
Healthy
Few
survivors?
Mgmt buying shares
Cost reduction
Consolidation
Low capacity utilization
Demand improving
...
Yes
Yes
Twitter - @niteen_india
Go-ahead
No
Corporate Governance
Large
seller?
No
No
Yes
Buying the Pessimism Twitter - @niteen_india 20
Buying the Pessimism
Case study: Paper sector in 2020-21
(Cyclical and multiple parameters affecting it)
Buying the Pessimism Twitter - @niteen_india
Paper Stocks
21
Headwinds & Tailwinds
Source: screener, publically available data
• Stocks were down by ~60-70% in a year and a half between 2018 –2020
• Stock were already coming down before COVID-19
• Sector was facing headwinds
• No one wanted to publically own this sector
• “Experts” were sighting lack of demand and deteriorating pricing power as a possible reasons for the “death” of the sector
• Difficult period did help companies put their acts together and there will come “external” unknown reasons to rebound
• Now when mojo is back everyone is on another extreme and counting on the “global shortfall”, “multi year bull run” and
“uninterrupted paper demand” and huge growth!!!
• There are certain things that never change
Buying the Pessimism Twitter - @niteen_india
Paper Stocks
22
West Coast Paper Mills & JK Paper
Source: screener, publically available data
This is a case study and not a recommendation
Recommended stock to our clients, we own it too. We may exit too without any notice.
2018-2020 & 2020-2022
625
• Our estimate: in good times it could achieve
800-1000Crs EBITDA while it came to 261Crs in FY21
• Our estimate: in good times it could achieve
1200-1400Crs EBITDA while it came to 563Crs in FY21
Recommended on
02-Sep-2020 @185.
Still in coverage
Recommended on
22-Feb-2021 @137
Not under coverage anymore
Buying the Pessimism Twitter - @niteen_india
Paper Stock
23
West Coast Paper Mills
Source: screener, publically available data
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Buying the Pessimism Twitter - @niteen_india
Paper Stock
24
West Coast Paper Mills
Source: screener, publically available data
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Buying the Pessimism Twitter - @niteen_india
Paper Stocks
25
JK Paper
Source: screener, publically available data
This is a case study and not a recommendation
It was a recommended stock to our clients, we own it too. We may exit too without any notice
Buying the Pessimism Twitter - @niteen_india
Paper Stocks
26
JK Paper
Source: screener, publically available data
This is a case study and not a recommendation
It was a recommended stock to our clients, we own it too. We may exit too without any notice
Buying the Pessimism Twitter - @niteen_india 27
Buying the Pessimism
Case study: Capital Goods 2020-2021
[Multiyear issues, tired (read “dead”) investors ]
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
28
Headwinds, Headwinds and only Headwinds
Source:
IBEF Presentation 2019, Engineering & Capital Goods
Care Report, Capital goods sector Aug 2020
• Capital Goods industry is often called the ‘mother of all
manufacturing industry’.
• By definition, any good (plant, machinery, equipment) that
is used to manufacture other products (either directly or
indirectly) is called a Capital Good.
• The Capital Goods industry contributes ~2% of GDP in
India. In China it is 4.1%, in Germany 3.4%, and in South
Korea 2.8%.
• The performance of capital goods sector is directly linked
to the overall manufacturing sector.
• While the exports were stagnant during 8 years, the capex
in domestic economy was almost stagnant
• One of the major contributor in Engineering exports is Iron
and Steel & products made of Iron and Steel. If remove
this contribution then Capital Good sectors should have a
negative demand
• This sector has the highest number of stocks
recommended put together in in our two research services
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
29
Headwinds, Headwinds and only Headwinds
While imports were rising and expected to rise further
Titbit
• The country meets almost 40%
of its demand of Capital Goods
through imports.
Source:
IBEF Presentation 2019, Engineering & Capital Goods
Care Report, Capital goods sector Aug 2020
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
30
Negative CAGR for a 6 year period & Stagnant Utilization
Source:
IBEF Presentation 2019, Engineering & Capital Goods
Care Report, Capital goods sector Aug 2020
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
31
TD Power Systems Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Source: screener, publically available data
?
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
32
TD Power Systems Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Source: screener, publically available data
Zero debt; cash positive
No equity dilution; buy-back
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
33
TD Power Systems Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
IPO @ ₹261 on
Aug 26, 2011
Recommended here on 10-Feb-2021 @150
Source: Google, publically available data
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
34
TD Power Systems Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Source: screener, publically available data
?
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
35
TD Power Systems Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Source: screener, publically available data
Q3FY21 results declared on 04-Feb-2021
Recommended on 10-Feb-2021 @150
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
36
Apar Industries Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
37
Apar Industries Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Source: screener, publically available data
Q3FY21 results declared on 04-Feb-2021
Recommended on 21-May-2021 @524
Buying the Pessimism Twitter - @niteen_india
Capital Goods sector
38
Apar Industries Ltd
This is a case study and not a recommendation
It is a recommended stock to our clients, we own it too. We may exit too without any notice
Recommended here on 21-Ma-2021 @524
1321.05
Source: Google, publically available data
Buying the Pessimism Twitter - @niteen_india 39
Buying the Pessimism
Case study: NASDAQ & Rush for Gold
Buying the Pessimism Twitter - @niteen_india
South Sea Company Stock
40
Rush for the Gold…
This is a case study and not a recommendation
Source: Google, publically available data
Sir Isaac Newton lost fortunes and
went almost bankrupt to speculation in
The South Sea Company stock.
He is also quoted as stating:
"I can calculate the movement of the
stars, but not the madness of men”.
Buying the Pessimism Twitter - @niteen_india
NASDAQ
41
Rush for the Gold post Covid…
This is a case study and not a recommendation
Source: Google, publically available data
Buying the Pessimism Twitter - @niteen_india
NASDAQ
42
Rush for the Gold post Covid…
This is a case study and not a recommendation
Source: Google, publically available data
Buying the Pessimism Twitter - @niteen_india
NASDAQ
43
Rush for the Gold post Covid…
Source: Google, publically available data
This is a case study and not a recommendation
Buying the Pessimism Twitter - @niteen_india
International Funds & Equity Funds with overseas investments… from India
44
Rush for the Gold post Covid…
Source: - Returns, publically available data
This is a case study and
not a recommendation
• Out of total 89 fund analyzed
• 56 launched between 1998-2020 (67%)
• 33 Launched between 2020-2022(33%)
• Out of 33 funds launched between 2020-2022
• 21 are negative
• 11 are positive
• Out 11 positive
• Only 1 has beaten the benchmark index
in the last one year
• During this period, we have got several investor
enquires asking if we can provide research on
the NASDAQ listed company.
• In fact one investor showed us how to open
account and trade in the US market.
• None asked post carnage
Buying the Pessimism Twitter - @niteen_india 45
Buying the Pessimism
Case study: IT companies in 2017
(Everyone is saying IT sector is dead now as we do only menial job)
Buying the Pessimism Twitter - @niteen_india
IT companies in 2017…
46
All around negativity….
Source: Publically available data
This is a case study and not a recommendation
By Ex JPMorgan& HDFCSec, Economist, MBA Finance,
Ranked in Asiamoney
Media
Media
Fund Manager
Buying the Pessimism Twitter - @niteen_india
People say Covid helped
47
But Infosys doubled before Covid from 2017 bottom
Source: screener, publically available data
• The stock was down by 33% in a year from 2016-17
• Covid did help get the Mojo but even before Covid it was
already up 90% when there was negativity around the
sector between 2017-2019
• No one wanted to publically own this sector
• “Experts” were sighting lack of innovation and no product
focus as a possible “death” of the sector
• We may not be in product space as strong as we could, but
overall our echo system in IT is strong and adds significant
value to the client
• Difficult period did help companies put their acts together
and rebound
• Now when mojo is back everyone is on another extreme
and counting on the “digital revolution” and huge growth!!!
• There are certain things that never change
This is a case study and not a recommendation
2017-2022
1953.00
Buying the Pessimism Twitter - @niteen_india
People say Covid helped
48
But Infosys doubled before Covid from 2017 bottom
Source: screener, publically available data
• This set the tone for the market
participants
• Price drives the perception
• Reasoning takes back seat when
emotions are on the forefront
• During the next two years, the
stock was up almost 100%, what
was changed?
This is a case study and not a recommendation
Buying the Pessimism Twitter - @niteen_india
People say Covid helped
49
TCS also almost doubled before Covid from 2017 bottom
• Same was the case with TCS
• The stock was down by 20% in a year from
2016-17
• So was the case with entire IT pack
• There are certain things that never change
This is a case study and not a recommendation
2017-2022
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
People say Covid helped
50
But TCS almost doubled before Covid from 2017 bottom
• This set the tone for the market
participants
• Price drives the perception
• Reasoning takes back seat when
emotions are on the forefront
• During the next two years, the
stock was up almost 91%, what
was changed?
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india 51
Buying the Pessimism
Case study: IPCA Labs
• 4.4X returns
• 40%+ XIRR
• 4.5 years
Buying the Pessimism Twitter - @niteen_india
IPCA Labs
52
Brief profile
• Incorporated in 1949.
• Incorporated under the name The Indian Pharmaceutical Combine
Association (IPCA).
• Fully-integrated manufactures over 350 formulations and 80 APIs for
various therapeutic segments
• One of the 20 largest formulation companies in India
• Business segments:
• API Business (30% revenue):
• produces over 80 APIs at 12 production facilities
• Export of 79% of the APIs and Intermediates business to 70
countries
• Focus on backward integration, superior supply chain reliability
and cost competitiveness
• Formulations (70% revenue):
• Manufactures over 350 formulations
• Leaders in Pain, Rheumatology, Antimalarials, and Haircare
therapies
• Co's leading brands include Zerodol, Hydroxychloroquine Sulfate,
and Solvin.
• Three manufacturing sites still under US FDA import alert
• Geographical Mix – FY21: Europe -28%, Africa -20%, America – 21%,
Asia – 17%, CIS – 7%, Australia – 7%
2009-2014
• Post 2009 crash
• 15X in 5 years
This is a case study and not a recommendation
Buying the Pessimism Twitter - @niteen_india
Ban, Ban, Ban…
53
Test the patience…
• Outperforming pharma during last 5 years, peak in 2014
• IPCA peaked at ~450
• US FDA bans imports from IPCA Labs plant in MP: 2015
• US FDA issues import alert to 2 plants of IPCA Labs: 2015
• Bought 10% of quantity in 2015 @310
Peak of pharma sector in 2014
IPCA peaked at ~450
Price adjusted to split in the ratio of 2:1
2013-2015
2016-2018
• Brexit impacted
• Anti-malarial drug Hydroxychloroquine banned by WHO
• USA-China trade issues
• Chinese raw material supply/price issue
• 90% quantity between 2016-2018
• Bought 30% of quantity in 2016 @230
• Bought 20% of quantity in 2017 @210
• Bought 40% of quantity in 2018 @320
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
IPCA Labs
54
Profit & Loss…
This is a case study and not a recommendation
Topline: 2X
Bottomline: 2.33X
Stock price: 15X
Topline: 1.64X
Bottomline: 2.37X
How about buying the
pessimism?
Stock price: 2X Stock price: 4.4X
40%+ XIRR
Buying the Pessimism Twitter - @niteen_india
IPCA Labs
55
Balance Sheet…
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
IPCA Labs
56
Cash Flows
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
IPCA Labs
57
Corporate actions
This is a case study and not a recommendation
2016 ₹ 0.00
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
Patience, Patience, Patience…
58
Slow and steady accumulation helps…
• USFDA issue did not get resolve
• Operations in other countries started showing
results
• COVID happened in 2020: game changer
• Got special approval to ship Hydroxychloroquine
in the USA market
• Stock touched a peak of ~1250
• Peak revenue, peak profit, peak share price
• Fully exited in Oct 2020. Overall:
• 4.4X returns
• 40%+ XIRR
• Total duration ~4.5 years from start till end
• Did we consider recommending it to our clients?
• Yes at 425. But missed it: Why?
Overall
• 4.4X returns
• 40%+ XIRR
• 4.5 years (avg duration)
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india 59
Buying the Pessimism
Case study: COVID wave
(should I invest in Hotel/Tourism sector in Apr-2021 (2nd wave peak in India)
• Negatively impacted sector
• Survival was in question
Buying the Pessimism Twitter - @niteen_india
India’s 10 Hotels v/s IPCA
60
Buying The Pessimism
This is a case study and not a recommendation
IPCA 27,500
During Corona 2nd Wave Peak
(Mar-Apr 2021)
No Company
Market cap
(in crores)
1 Indian Hotels 7,735
2 EIH Ltd 3,306
3 Chalet Hotels 3,160
4 Delta Corp 1,674
5 Lemon Tree 1,264
6 Wonderla 638
7 TajGVK 585
8 EIH Associated Hotels 552
9 Advani Hotels 139
10 Sinclairs Hotel 78
Total market cap 19,131
Total debt ~ 10,000
55,000 rooms + Restaurants + Iconic brands
available at a Market Cap of 19k + Debt 10k (EV 29K)
<<
ARR < INR 3500
Occupancy < 20-30%
No one wanted to talk about this sector publically
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
India’s Top 10 Hotels v/s IPCA
61
Buying The Pessimism
This is a case study and not a recommendation
No Company
Market cap
(in crores)
1 Indian Hotels 38,860
2 EIH Ltd 10,040
3 Chalet Hotels 6,780
4 Delta Corp 5,640
5 Lemon Tree 5,510
6 Wonderla 1,910
7 TajGVK 1,118
8 EIH Associated Hotels 1,058
9 Advani Hotels 376
10 Sinclairs Hotel 282
Total market cap 71,574
IPCA 23,200
Today
• 1.4 year and basket is up 3.7X+ from bottom
• Even if bought staggered it is 1.5-2X
>>
ARR > INR 8000+
Occupancy > 70-75%
(Rooms not available at Leisure locations)
Everyone wants to own a hotel stock/book a hotel
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
Some of the Hotel properties
62
Pessimism gives the best price but it comes at the cost of patience
Source: screener, publically available data
This is a case study and not a recommendation
Buying the Pessimism Twitter - @niteen_india
Some of the tweets on Hotel industry
63
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india
Some of the tweets on Hotel industry
64
This is a case study and not a recommendation
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india 65
Buying the Pessimism
Case study: COVID wave
(should I invest in Video Communications company in Oct-2020 (3rd wave peak in the USA)
• Positively
impacted sector
Buying the Pessimism Twitter - @niteen_india
Zoom in – Zoom out
66
How about Selling the Optimism?
This is a case study and not a recommendation
Oct-Dec 2020
1st wave 2nd wave 3rd wave
No of cases Peak price
Stock down 83%
Source: screener, publically available data
Buying the Pessimism Twitter - @niteen_india 67
My Mistakes
Buying the Pessimism Twitter - @niteen_india
Errors of Omission v/s Errors of Commission
68
I have made both…
• Omission is less costly v/s Commission where real loss of
hard cash
• I have made both on several occasions
• Lessons:
• Mistakes are unavoidable and a part of life
• Try to avoid repeating esp. Errors of Commission
• Avoid mistakes that can take you off the market on a
permanent basis
Buying the Pessimism Twitter - @niteen_india
Importance of connecting the dots
69
Case study 1
• Made an investment in MCX in 2012 post IPO
• Approached by brokers to invest in “guaranteed FDs” of National Spot Exchange (NSEL)
• Questions asked on viability of high returns
• Avoided NSEL and could sense trouble brewing
• Failed to connect the dots
This is a case study and not a recommendation
Buying the Pessimism Twitter - @niteen_india
In search of the “Next”… 2014
70
Case study 2
• IDFC Ltd was going through a difficult phase due to loans in infra sector
• IDFC Limited got banking license in April 2014
• Invested in IDFC Ltd in Jul 2014
• Banking license
• New vigour to handle crisis
• Banking license to give access to “easy” money
• “Professional” team
• Thought it to be the next…
• Mistakes:
Underestimated
• the liabilities of IDFC’s previous avatar
• the complexities of setting up a bank
• regulatory requirements of IDFC AMC business: demerger/merger…
• Not taking exit when merger with Shriram Transport announced
• overestimating the competency of the management
Learnings
• Correct the mistakes early
• Focus on headwinds
• Do not underestimate complexities
This is a case study and not a recommendation
Buying the Pessimism Twitter - @niteen_india
Summary
71
 It is mostly rewarding to be positive during pessimism
 Avoid companies with Corp Governance issues
 Like fall right after IT raids. This could be a trap esp in companies with poor Corp Governance history
 Focus on business, health of the organization, balance sheet strength, cash flows
 Check survivability of the company
 Set clearly defined milestones and measure the performance against that. If things not moving as per
expectations then reconsider
 Do not get perturbed when others making money in different sectors. “Aapka time aayega”
 Patience, patience and patience
Buying the Pessimism Twitter - @niteen_india
Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No:
INH000008118) and Investment Advisory (SEBI Registration No: INA000011024)
services company. Started by Jiten Parmar and Niteen Dharmawat, who together
have more than 4 decades of experience investing in equities and guiding and
mentoring fellow investors.
This rich industry background helps us understand companies, complexities of
business and tipping points that make or break a company. Our approach is not
limited to just number crunching but going beyond. We focus on the business,
strategic direction, the competitive landscape, the governance process, the
background of the promoters, turnarounds, to name a few. Often these are more
critical items than just numbers. Jiten and Niteen have successfully waded through
multiple bear and bull market cycles.
Buying the Pessimism Twitter - @niteen_india
Thank you
Email: info@aurumcapital.in
Twitter: @niteen_india
@CapitalAurum
73
Buying the Pessimism Twitter - @niteen_india
IMPORTANT DISCLAIMER:
The information herein is used as per the available sources of bseindia.com/nseindia.com/brokers websites, company’s annual
reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the above mentioned
data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this
report or for necessary explanation of its contents.
Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For
queries / grievances – support@aurumcapital.in. SEBI registration No: INH000008118
Readers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in. This report
indicates opinion of the author to understand the company and its business operations and it is not a recommendation to buy
or sell securities. Aurum Capital & its representatives have vested interest in above mentioned securities at the time of this
publication, and its partners / company have positions / financial interest in the securities mentioned above.
Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the
companies mentioned in the report.
Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock:
yes. Recommendation to client: this stock is not recommended to clients so far. Served as a director / employee of mentioned
companies in report: No. Any material conflict of interest at the time of publishing report: No
The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or
issuers; and no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or
views expressed in the report.

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Buying the pessimism: 27 Aug 2022 CFA Institute

  • 1. Buying the Pessimism 1 Twitter - @niteen_india Niteen S Dharmawat Buying the pessimism (Everything that you wanted to know about) 27th Aug 2022 Co-Founder, Aurum Capital Website: https://aurumcapital.in Twitter: @CapitalAurum / @niteen_india Email: info@aurumcapital.in Be a wise investor…
  • 2. Buying the Pessimism 2 Twitter - @niteen_india IMPORTANT DISCLAIMER: The information herein is used as per the available sources of bseindia.com/nseindia.com/brokers websites, company’s annual reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for necessary explanation of its contents. Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For queries / grievances – support@aurumcapital.in. SEBI registration No: INH000008118 Readers/attendees/viewers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in. This presentation indicates opinion of the author to understand the case studies and it is not a recommendation to buy or sell securities. Aurum Capital & its representatives may have vested interest in the mentioned securities at the time of this publication, and its partners / company may have positions / financial interest in the securities discussed. Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the companies mentioned in the report. Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock: may own/may have recommended to clients. Served as a director / employee of mentioned companies in report: No. Any material conflict of interest at the time of publishing report: No The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or issuers; and no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or views expressed in the report.
  • 3. Buying the Pessimism 3 Twitter - @niteen_india Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No: INH000008118) and Investment Advisory (SEBI Registration No: INA000011024) services company. Started by Jiten Parmar and Niteen S Dharmawat, who together have more than 4 decades of experience investing in equities and guiding and mentoring fellow investors. This rich industry background helps us understand companies, complexities of business and tipping points that make or break a company. Our approach is not limited to just number crunching but going beyond. We focus on the business, strategic direction, the competitive landscape, the governance process, the background of the promoters, turnarounds, to name a few. Often these are more critical items than just numbers. Jiten and Niteen have successfully waded through multiple bear and bull market cycles.
  • 4. Buying the Pessimism Twitter - @niteen_india Buying the pessimism 4 Agenda…  What is pessimism?  Problem of plenty while buying optimism  Correction types and impact  Price correction  time correction  time and price correction  Braveheart  During buoyancy or during decline  Importance of human behaviour  Margin of errors  Framework for Buying the Pessimism: Debt/ Management actions/Understanding sector v/s Understanding company during pessimism  Case studies  Paper Stocks in 2020-21  Capital Goods in 2020-21  Rush for Gold: NASDAQ 2020-2022  IT companies in 2017  USFDA Ban on a pharma company  COVID wave  Hotel/Tourism sector in Apr-2021 (2nd wave peak in India)  Video Communications company in Oct-2020 (3rd wave peak in the USA)  Power sector crashed in 2009: should I go for the Windmill company?  My mistakes  Home work  Summary
  • 5. Buying the Pessimism Twitter - @niteen_india What is pessimism? 5 Background… A tendency to see the worst aspect of things or believe that the worst will happen. Examples  End of markets when corrections happen  End of sectors when darling sector collapse  End of a company when events happen • Evaluate each case independently/ rationally
  • 6. Buying the Pessimism Twitter - @niteen_india 6 Pessimism in the market How does it look like and how to navigate?
  • 7. Buying the Pessimism Twitter - @niteen_india What is pessimism? 7 The news headline will look like this… 23 Mar 2020
  • 8. Buying the Pessimism Twitter - @niteen_india What is pessimism? 8 The news headline will look like this… 23 Mar 2020 Non-market & you get to read this
  • 9. Buying the Pessimism Twitter - @niteen_india What is pessimism? 9 The news headline will look like this… 23 Mar 2020 Hugo Erken, Senior economist & country analyst for North America, Mexico and India, Robobank FinTwit account with 400k+ followers asking to stop short selling: 18 Mar 2020
  • 10. Buying the Pessimism Twitter - @niteen_india What is pessimism? 10 Background… There is no tomorrow v/s there is no tomorrow Extreme thinking During buoyancy v/s During collapse Fear of missing out v/s fear of crashed out Panic Selling Panic Buying Pessimism Optimism “The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”: Jason Zweig, The Intelligent Investor
  • 11. Buying the Pessimism Twitter - @niteen_india Buying the pessimism? 11 Meaning…  Buying when there is a carnage  Apply mind and not emotions: Think rationally than emotionally  Have a view to hold the business for the next few years without significant returns  Keep expectations to minimum  Expect the underperformance  Even if we can’t control our emotions, we can control the attention we give to our emotions  WhatsApp/Telegram groups/Social media  Media (eMedia, print media)  Distracted by emotions, list three activities that you can busy yourself in, e.g., for me  Act of random gratitude, Meditation, Reading books
  • 12. Buying the Pessimism Twitter - @niteen_india Correction types and impact 12 Meme stock… Time correction 5 Year stagnation
  • 13. Buying the Pessimism Twitter - @niteen_india Time Correction 13 Meme stock… but prior 10 years 10 years: 6.6X CAGR: 21% in 10 years + Dividends 5 years stagnation 5 year: 4X+Dividend
  • 14. Buying the Pessimism Twitter - @niteen_india Price corrections: permanently dead 14 Infra stocks… post 2009 carnage Punj Lloyd, JP Associates, GMR, IVRCL: Lost 95-98% (1 Lac became 2k or 5k) It's only when the tide goes out you know who's swimming naked: Warren Buffett
  • 15. Buying the Pessimism Twitter - @niteen_india Winner-Takes-All 15 Infra stocks… post 2009 carnage Price correction by 50%+ Price correction by almost 50%+
  • 16. Buying the Pessimism Twitter - @niteen_india Braveheart? 16 During buoyancy or during decline Should I consider buying in this sector here? Or here? Returns: 56X
  • 17. Buying the Pessimism Twitter - @niteen_india Importance of human behaviour 17 To win over Algo trades there is only one way: Control your emotions.  Your biggest enemy, when investing, is within yourself.  Success will only come when you learn to control your emotions.  Apparently, one of the easiest ones but the most difficult to follow.
  • 18. Buying the Pessimism Twitter - @niteen_india 18 Buying the Pessimism Important parameters to consider
  • 19. Buying the Pessimism Twitter - @niteen_india Framework for Buying the Pessimism 19 Parameters (buying the pessimism) Survivability test Permanent disruption Sector/ company out of favour • No one wants to talk about it • Hesitation to post about the company/sector as people may laugh • Valuations at historically low End Yes Yes Not manageable Debt level No How high is “high” No Cashflows of 5 “good” years Manageable (Low/No debt) Reconsider/Wait Healthy Few survivors? Mgmt buying shares Cost reduction Consolidation Low capacity utilization Demand improving ... Yes Yes Twitter - @niteen_india Go-ahead No Corporate Governance Large seller? No No Yes
  • 20. Buying the Pessimism Twitter - @niteen_india 20 Buying the Pessimism Case study: Paper sector in 2020-21 (Cyclical and multiple parameters affecting it)
  • 21. Buying the Pessimism Twitter - @niteen_india Paper Stocks 21 Headwinds & Tailwinds Source: screener, publically available data • Stocks were down by ~60-70% in a year and a half between 2018 –2020 • Stock were already coming down before COVID-19 • Sector was facing headwinds • No one wanted to publically own this sector • “Experts” were sighting lack of demand and deteriorating pricing power as a possible reasons for the “death” of the sector • Difficult period did help companies put their acts together and there will come “external” unknown reasons to rebound • Now when mojo is back everyone is on another extreme and counting on the “global shortfall”, “multi year bull run” and “uninterrupted paper demand” and huge growth!!! • There are certain things that never change
  • 22. Buying the Pessimism Twitter - @niteen_india Paper Stocks 22 West Coast Paper Mills & JK Paper Source: screener, publically available data This is a case study and not a recommendation Recommended stock to our clients, we own it too. We may exit too without any notice. 2018-2020 & 2020-2022 625 • Our estimate: in good times it could achieve 800-1000Crs EBITDA while it came to 261Crs in FY21 • Our estimate: in good times it could achieve 1200-1400Crs EBITDA while it came to 563Crs in FY21 Recommended on 02-Sep-2020 @185. Still in coverage Recommended on 22-Feb-2021 @137 Not under coverage anymore
  • 23. Buying the Pessimism Twitter - @niteen_india Paper Stock 23 West Coast Paper Mills Source: screener, publically available data This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice
  • 24. Buying the Pessimism Twitter - @niteen_india Paper Stock 24 West Coast Paper Mills Source: screener, publically available data This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice
  • 25. Buying the Pessimism Twitter - @niteen_india Paper Stocks 25 JK Paper Source: screener, publically available data This is a case study and not a recommendation It was a recommended stock to our clients, we own it too. We may exit too without any notice
  • 26. Buying the Pessimism Twitter - @niteen_india Paper Stocks 26 JK Paper Source: screener, publically available data This is a case study and not a recommendation It was a recommended stock to our clients, we own it too. We may exit too without any notice
  • 27. Buying the Pessimism Twitter - @niteen_india 27 Buying the Pessimism Case study: Capital Goods 2020-2021 [Multiyear issues, tired (read “dead”) investors ]
  • 28. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 28 Headwinds, Headwinds and only Headwinds Source: IBEF Presentation 2019, Engineering & Capital Goods Care Report, Capital goods sector Aug 2020 • Capital Goods industry is often called the ‘mother of all manufacturing industry’. • By definition, any good (plant, machinery, equipment) that is used to manufacture other products (either directly or indirectly) is called a Capital Good. • The Capital Goods industry contributes ~2% of GDP in India. In China it is 4.1%, in Germany 3.4%, and in South Korea 2.8%. • The performance of capital goods sector is directly linked to the overall manufacturing sector. • While the exports were stagnant during 8 years, the capex in domestic economy was almost stagnant • One of the major contributor in Engineering exports is Iron and Steel & products made of Iron and Steel. If remove this contribution then Capital Good sectors should have a negative demand • This sector has the highest number of stocks recommended put together in in our two research services
  • 29. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 29 Headwinds, Headwinds and only Headwinds While imports were rising and expected to rise further Titbit • The country meets almost 40% of its demand of Capital Goods through imports. Source: IBEF Presentation 2019, Engineering & Capital Goods Care Report, Capital goods sector Aug 2020
  • 30. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 30 Negative CAGR for a 6 year period & Stagnant Utilization Source: IBEF Presentation 2019, Engineering & Capital Goods Care Report, Capital goods sector Aug 2020
  • 31. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 31 TD Power Systems Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Source: screener, publically available data ?
  • 32. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 32 TD Power Systems Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Source: screener, publically available data Zero debt; cash positive No equity dilution; buy-back
  • 33. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 33 TD Power Systems Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice IPO @ ₹261 on Aug 26, 2011 Recommended here on 10-Feb-2021 @150 Source: Google, publically available data
  • 34. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 34 TD Power Systems Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Source: screener, publically available data ?
  • 35. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 35 TD Power Systems Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Source: screener, publically available data Q3FY21 results declared on 04-Feb-2021 Recommended on 10-Feb-2021 @150
  • 36. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 36 Apar Industries Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Source: screener, publically available data
  • 37. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 37 Apar Industries Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Source: screener, publically available data Q3FY21 results declared on 04-Feb-2021 Recommended on 21-May-2021 @524
  • 38. Buying the Pessimism Twitter - @niteen_india Capital Goods sector 38 Apar Industries Ltd This is a case study and not a recommendation It is a recommended stock to our clients, we own it too. We may exit too without any notice Recommended here on 21-Ma-2021 @524 1321.05 Source: Google, publically available data
  • 39. Buying the Pessimism Twitter - @niteen_india 39 Buying the Pessimism Case study: NASDAQ & Rush for Gold
  • 40. Buying the Pessimism Twitter - @niteen_india South Sea Company Stock 40 Rush for the Gold… This is a case study and not a recommendation Source: Google, publically available data Sir Isaac Newton lost fortunes and went almost bankrupt to speculation in The South Sea Company stock. He is also quoted as stating: "I can calculate the movement of the stars, but not the madness of men”.
  • 41. Buying the Pessimism Twitter - @niteen_india NASDAQ 41 Rush for the Gold post Covid… This is a case study and not a recommendation Source: Google, publically available data
  • 42. Buying the Pessimism Twitter - @niteen_india NASDAQ 42 Rush for the Gold post Covid… This is a case study and not a recommendation Source: Google, publically available data
  • 43. Buying the Pessimism Twitter - @niteen_india NASDAQ 43 Rush for the Gold post Covid… Source: Google, publically available data This is a case study and not a recommendation
  • 44. Buying the Pessimism Twitter - @niteen_india International Funds & Equity Funds with overseas investments… from India 44 Rush for the Gold post Covid… Source: - Returns, publically available data This is a case study and not a recommendation • Out of total 89 fund analyzed • 56 launched between 1998-2020 (67%) • 33 Launched between 2020-2022(33%) • Out of 33 funds launched between 2020-2022 • 21 are negative • 11 are positive • Out 11 positive • Only 1 has beaten the benchmark index in the last one year • During this period, we have got several investor enquires asking if we can provide research on the NASDAQ listed company. • In fact one investor showed us how to open account and trade in the US market. • None asked post carnage
  • 45. Buying the Pessimism Twitter - @niteen_india 45 Buying the Pessimism Case study: IT companies in 2017 (Everyone is saying IT sector is dead now as we do only menial job)
  • 46. Buying the Pessimism Twitter - @niteen_india IT companies in 2017… 46 All around negativity…. Source: Publically available data This is a case study and not a recommendation By Ex JPMorgan& HDFCSec, Economist, MBA Finance, Ranked in Asiamoney Media Media Fund Manager
  • 47. Buying the Pessimism Twitter - @niteen_india People say Covid helped 47 But Infosys doubled before Covid from 2017 bottom Source: screener, publically available data • The stock was down by 33% in a year from 2016-17 • Covid did help get the Mojo but even before Covid it was already up 90% when there was negativity around the sector between 2017-2019 • No one wanted to publically own this sector • “Experts” were sighting lack of innovation and no product focus as a possible “death” of the sector • We may not be in product space as strong as we could, but overall our echo system in IT is strong and adds significant value to the client • Difficult period did help companies put their acts together and rebound • Now when mojo is back everyone is on another extreme and counting on the “digital revolution” and huge growth!!! • There are certain things that never change This is a case study and not a recommendation 2017-2022 1953.00
  • 48. Buying the Pessimism Twitter - @niteen_india People say Covid helped 48 But Infosys doubled before Covid from 2017 bottom Source: screener, publically available data • This set the tone for the market participants • Price drives the perception • Reasoning takes back seat when emotions are on the forefront • During the next two years, the stock was up almost 100%, what was changed? This is a case study and not a recommendation
  • 49. Buying the Pessimism Twitter - @niteen_india People say Covid helped 49 TCS also almost doubled before Covid from 2017 bottom • Same was the case with TCS • The stock was down by 20% in a year from 2016-17 • So was the case with entire IT pack • There are certain things that never change This is a case study and not a recommendation 2017-2022 Source: screener, publically available data
  • 50. Buying the Pessimism Twitter - @niteen_india People say Covid helped 50 But TCS almost doubled before Covid from 2017 bottom • This set the tone for the market participants • Price drives the perception • Reasoning takes back seat when emotions are on the forefront • During the next two years, the stock was up almost 91%, what was changed? This is a case study and not a recommendation Source: screener, publically available data
  • 51. Buying the Pessimism Twitter - @niteen_india 51 Buying the Pessimism Case study: IPCA Labs • 4.4X returns • 40%+ XIRR • 4.5 years
  • 52. Buying the Pessimism Twitter - @niteen_india IPCA Labs 52 Brief profile • Incorporated in 1949. • Incorporated under the name The Indian Pharmaceutical Combine Association (IPCA). • Fully-integrated manufactures over 350 formulations and 80 APIs for various therapeutic segments • One of the 20 largest formulation companies in India • Business segments: • API Business (30% revenue): • produces over 80 APIs at 12 production facilities • Export of 79% of the APIs and Intermediates business to 70 countries • Focus on backward integration, superior supply chain reliability and cost competitiveness • Formulations (70% revenue): • Manufactures over 350 formulations • Leaders in Pain, Rheumatology, Antimalarials, and Haircare therapies • Co's leading brands include Zerodol, Hydroxychloroquine Sulfate, and Solvin. • Three manufacturing sites still under US FDA import alert • Geographical Mix – FY21: Europe -28%, Africa -20%, America – 21%, Asia – 17%, CIS – 7%, Australia – 7% 2009-2014 • Post 2009 crash • 15X in 5 years This is a case study and not a recommendation
  • 53. Buying the Pessimism Twitter - @niteen_india Ban, Ban, Ban… 53 Test the patience… • Outperforming pharma during last 5 years, peak in 2014 • IPCA peaked at ~450 • US FDA bans imports from IPCA Labs plant in MP: 2015 • US FDA issues import alert to 2 plants of IPCA Labs: 2015 • Bought 10% of quantity in 2015 @310 Peak of pharma sector in 2014 IPCA peaked at ~450 Price adjusted to split in the ratio of 2:1 2013-2015 2016-2018 • Brexit impacted • Anti-malarial drug Hydroxychloroquine banned by WHO • USA-China trade issues • Chinese raw material supply/price issue • 90% quantity between 2016-2018 • Bought 30% of quantity in 2016 @230 • Bought 20% of quantity in 2017 @210 • Bought 40% of quantity in 2018 @320 This is a case study and not a recommendation Source: screener, publically available data
  • 54. Buying the Pessimism Twitter - @niteen_india IPCA Labs 54 Profit & Loss… This is a case study and not a recommendation Topline: 2X Bottomline: 2.33X Stock price: 15X Topline: 1.64X Bottomline: 2.37X How about buying the pessimism? Stock price: 2X Stock price: 4.4X 40%+ XIRR
  • 55. Buying the Pessimism Twitter - @niteen_india IPCA Labs 55 Balance Sheet… This is a case study and not a recommendation Source: screener, publically available data
  • 56. Buying the Pessimism Twitter - @niteen_india IPCA Labs 56 Cash Flows This is a case study and not a recommendation Source: screener, publically available data
  • 57. Buying the Pessimism Twitter - @niteen_india IPCA Labs 57 Corporate actions This is a case study and not a recommendation 2016 ₹ 0.00 Source: screener, publically available data
  • 58. Buying the Pessimism Twitter - @niteen_india Patience, Patience, Patience… 58 Slow and steady accumulation helps… • USFDA issue did not get resolve • Operations in other countries started showing results • COVID happened in 2020: game changer • Got special approval to ship Hydroxychloroquine in the USA market • Stock touched a peak of ~1250 • Peak revenue, peak profit, peak share price • Fully exited in Oct 2020. Overall: • 4.4X returns • 40%+ XIRR • Total duration ~4.5 years from start till end • Did we consider recommending it to our clients? • Yes at 425. But missed it: Why? Overall • 4.4X returns • 40%+ XIRR • 4.5 years (avg duration) This is a case study and not a recommendation Source: screener, publically available data
  • 59. Buying the Pessimism Twitter - @niteen_india 59 Buying the Pessimism Case study: COVID wave (should I invest in Hotel/Tourism sector in Apr-2021 (2nd wave peak in India) • Negatively impacted sector • Survival was in question
  • 60. Buying the Pessimism Twitter - @niteen_india India’s 10 Hotels v/s IPCA 60 Buying The Pessimism This is a case study and not a recommendation IPCA 27,500 During Corona 2nd Wave Peak (Mar-Apr 2021) No Company Market cap (in crores) 1 Indian Hotels 7,735 2 EIH Ltd 3,306 3 Chalet Hotels 3,160 4 Delta Corp 1,674 5 Lemon Tree 1,264 6 Wonderla 638 7 TajGVK 585 8 EIH Associated Hotels 552 9 Advani Hotels 139 10 Sinclairs Hotel 78 Total market cap 19,131 Total debt ~ 10,000 55,000 rooms + Restaurants + Iconic brands available at a Market Cap of 19k + Debt 10k (EV 29K) << ARR < INR 3500 Occupancy < 20-30% No one wanted to talk about this sector publically Source: screener, publically available data
  • 61. Buying the Pessimism Twitter - @niteen_india India’s Top 10 Hotels v/s IPCA 61 Buying The Pessimism This is a case study and not a recommendation No Company Market cap (in crores) 1 Indian Hotels 38,860 2 EIH Ltd 10,040 3 Chalet Hotels 6,780 4 Delta Corp 5,640 5 Lemon Tree 5,510 6 Wonderla 1,910 7 TajGVK 1,118 8 EIH Associated Hotels 1,058 9 Advani Hotels 376 10 Sinclairs Hotel 282 Total market cap 71,574 IPCA 23,200 Today • 1.4 year and basket is up 3.7X+ from bottom • Even if bought staggered it is 1.5-2X >> ARR > INR 8000+ Occupancy > 70-75% (Rooms not available at Leisure locations) Everyone wants to own a hotel stock/book a hotel Source: screener, publically available data
  • 62. Buying the Pessimism Twitter - @niteen_india Some of the Hotel properties 62 Pessimism gives the best price but it comes at the cost of patience Source: screener, publically available data This is a case study and not a recommendation
  • 63. Buying the Pessimism Twitter - @niteen_india Some of the tweets on Hotel industry 63 This is a case study and not a recommendation Source: screener, publically available data
  • 64. Buying the Pessimism Twitter - @niteen_india Some of the tweets on Hotel industry 64 This is a case study and not a recommendation Source: screener, publically available data
  • 65. Buying the Pessimism Twitter - @niteen_india 65 Buying the Pessimism Case study: COVID wave (should I invest in Video Communications company in Oct-2020 (3rd wave peak in the USA) • Positively impacted sector
  • 66. Buying the Pessimism Twitter - @niteen_india Zoom in – Zoom out 66 How about Selling the Optimism? This is a case study and not a recommendation Oct-Dec 2020 1st wave 2nd wave 3rd wave No of cases Peak price Stock down 83% Source: screener, publically available data
  • 67. Buying the Pessimism Twitter - @niteen_india 67 My Mistakes
  • 68. Buying the Pessimism Twitter - @niteen_india Errors of Omission v/s Errors of Commission 68 I have made both… • Omission is less costly v/s Commission where real loss of hard cash • I have made both on several occasions • Lessons: • Mistakes are unavoidable and a part of life • Try to avoid repeating esp. Errors of Commission • Avoid mistakes that can take you off the market on a permanent basis
  • 69. Buying the Pessimism Twitter - @niteen_india Importance of connecting the dots 69 Case study 1 • Made an investment in MCX in 2012 post IPO • Approached by brokers to invest in “guaranteed FDs” of National Spot Exchange (NSEL) • Questions asked on viability of high returns • Avoided NSEL and could sense trouble brewing • Failed to connect the dots This is a case study and not a recommendation
  • 70. Buying the Pessimism Twitter - @niteen_india In search of the “Next”… 2014 70 Case study 2 • IDFC Ltd was going through a difficult phase due to loans in infra sector • IDFC Limited got banking license in April 2014 • Invested in IDFC Ltd in Jul 2014 • Banking license • New vigour to handle crisis • Banking license to give access to “easy” money • “Professional” team • Thought it to be the next… • Mistakes: Underestimated • the liabilities of IDFC’s previous avatar • the complexities of setting up a bank • regulatory requirements of IDFC AMC business: demerger/merger… • Not taking exit when merger with Shriram Transport announced • overestimating the competency of the management Learnings • Correct the mistakes early • Focus on headwinds • Do not underestimate complexities This is a case study and not a recommendation
  • 71. Buying the Pessimism Twitter - @niteen_india Summary 71  It is mostly rewarding to be positive during pessimism  Avoid companies with Corp Governance issues  Like fall right after IT raids. This could be a trap esp in companies with poor Corp Governance history  Focus on business, health of the organization, balance sheet strength, cash flows  Check survivability of the company  Set clearly defined milestones and measure the performance against that. If things not moving as per expectations then reconsider  Do not get perturbed when others making money in different sectors. “Aapka time aayega”  Patience, patience and patience
  • 72. Buying the Pessimism Twitter - @niteen_india Aurum Capital is a SEBI registered Research Analyst (SEBI Registration No: INH000008118) and Investment Advisory (SEBI Registration No: INA000011024) services company. Started by Jiten Parmar and Niteen Dharmawat, who together have more than 4 decades of experience investing in equities and guiding and mentoring fellow investors. This rich industry background helps us understand companies, complexities of business and tipping points that make or break a company. Our approach is not limited to just number crunching but going beyond. We focus on the business, strategic direction, the competitive landscape, the governance process, the background of the promoters, turnarounds, to name a few. Often these are more critical items than just numbers. Jiten and Niteen have successfully waded through multiple bear and bull market cycles.
  • 73. Buying the Pessimism Twitter - @niteen_india Thank you Email: info@aurumcapital.in Twitter: @niteen_india @CapitalAurum 73
  • 74. Buying the Pessimism Twitter - @niteen_india IMPORTANT DISCLAIMER: The information herein is used as per the available sources of bseindia.com/nseindia.com/brokers websites, company’s annual reports & other public/private database sources. Aurum Capital is not responsible for any discrepancy in the above mentioned data. Investors should seek advice of their independent financial advisor prior to taking any investment decision based on this report or for necessary explanation of its contents. Future estimates mentioned herein are personal opinions & views of the analyst. Analyst Name – Niteen S Dharmawat. For queries / grievances – support@aurumcapital.in. SEBI registration No: INH000008118 Readers are responsible for all outcomes arising of buying / selling particular scrip/ scrips mentioned here in. This report indicates opinion of the author to understand the company and its business operations and it is not a recommendation to buy or sell securities. Aurum Capital & its representatives have vested interest in above mentioned securities at the time of this publication, and its partners / company have positions / financial interest in the securities mentioned above. Aurum Capital, or its associates are not paid or compensated at any point of time, in last 12 months by any way from the companies mentioned in the report. Aurum Capital, or its representatives do not have more than 1% of the company’s total shareholding. Ownership of the stock: yes. Recommendation to client: this stock is not recommended to clients so far. Served as a director / employee of mentioned companies in report: No. Any material conflict of interest at the time of publishing report: No The views expressed in this post accurately reflect the author’s personal views about any and all of the subject securities or issuers; and no part of the compensations, if any was, is or will be, directly indirectly, related to specific recommendation or views expressed in the report.