Assessing and reviewing your portfolio is critical to be on top of your positions, While till today I have not found any structured way to go about it, What has helped me to think objectively is to focus on

• status of key variable of business
• risks identified
• buying hypothesis – does it still hold good

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The next question is how often do you review ? 6 months, 12 months , 2 years ? Frankly there is no right answer – But I found 6-8 months is a good period to start with

Below is my simplistic review of two businesses in model portfolio – If would be foolish to buy or sell any business based on below discussion

I highly encourage you to write your thesis in comments if you own or track these business that will take this post to next level

Ashiana Housing

The best lead indicator to gauge Ashiana housing’s performance is ‘Equivalent Area Booked’, Q1-2016 numbers took me by surprise as this lead indicator tumbled by almost 50%

Moreover it is sliding down

Source : Ashiana Housing Investor Update, June 2015

Is the real estate slowdown finally showing signs ? one quarter can be an aberration but management which has always walked the talk is saying that they see more pain coming, see investor update here 

What is company doing about slowdown ?

Management is not slowing pace of construction, they are now using newer avenues to reach out to customers – eCommerce (via snapdeal), mass mailers to prospective buyers, we are not seeing price cuts till now

Demand slowdown for any company is not easy to sustain however the company is debt free therefore it has more capacity to suffer in adverse times

The other key variables are being controlled well

• The company is well funded at least for next 18-20 months
• Construction / Delivery is on schedule
• Geographic foot print is expanding

Risks

The real estate demand slowdown risk has materialised and it is likely to impact company performance in next 12-24 months

Concentration risk ( Ashiana is predominantly a north India based real estate player) is managed well with expansion in southern and eastern parts of the country

Execution capability on scale – With multiple projects running next 12-18 months will showcase management’s execution capability

Funding risk is not there for foreseeable future as management has raised sufficient funds through QIP

Key buying tenets were

Excellent corporate governance standards

Low debt compared to other real estate players

Decent execution record of management, fantastic return ratios

Constant and uninterrupted demand for mid income housing in Indai– I was wrong here

Final mental notes

In terms of market swings this has been a roller coaster ride last year with market cap highs of INR ~2800 crores to lows of INR ~1600 crore

There is fear that demand slowdown will hurt company, until and unless the whole real estate sector collapses I deem this to be short ter, Therefore increase my exposure at extreme pessimism as company continues to invest in building its brand, sales and execution capabilities

VST Tillers

Any agriculture based company is impacted by vagaries of monsoon in India, The company was going through pain as last year rains were scanty in many parts of western Maharashtra (key market of the company) resulting in decline in sales of power tillers and tractors

I am afraid I don’t have good news for you this year as well, See below

Source – Indian Meteorological Department

The other key variable for the company is the state subsidies for farm equipment given to farmers and lack of thereof or delay can impact company in a big way

Farm Mechanisation is not going to stop as labourers continue to move from farming to constructions and other urban jobs, The company is focused on the 20HP segment which is still growing compared to the de-growth in other segments

Also company has commissioned a 36000 units per annum tractor plant in Tamilnadu, This helps company to expand further in the low HP tractor market.

Before talking about risks, I will talk about buying tenets

2014-15 was aberration and company was attractively priced while entering, plan was to sell when price-value gap bridged, Generally I don’t like price takers operating in difficult industries but the company had long successful operating history, this indicates it is doing things right

Risks

Key is risk is monsoon and its impact on Kharif crop, This has materialised which means that this year is likely to be flat

The other key risk is rising competition, See the honest admission of management in Annual Report of 2014-2015

We have always conceded that we are not insulated from competition both in power tillers and tractors

More than Indian companies like Mahindra & Tafe, it is Chinese imports which are creating competitive pressures

see a reader comments scuttle buck on Jana’s wonderful blog

and another one from investor announcement from company

Final Mental note

This one is a tough cookie operating well in challenging environment, The testimony of the fact is that company has 47% market share in power tiller and one of the largest share in low-power tractor segment

Price-gap value will not bridge very quickly as monsoons are weak this year, to be cashed if another tempting opportunity comes by or

Do more deep dive on industry dynamics if this needs to be moved as a core holding (subject to available at pessimistic valuations)

Now over to you,

Do this exercise for each of business in your portfolio and you will have clear road map for your position

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We have started  research notes section on Tankrich – Check out our first one on “Byke – Hospitality Limited” drop suggestions in comments

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