Portfolio Qtrly and Yearly Update - Mar 2013

Review and Outlook: 

It has been a mixed quarter of sort for the Indian market.   Most of the consumer driven business disappointed right from automobiles to FMCG.  Prolonged inflation combined with bad policy making by the Indian government seemed to have taken its toll now on the Indian consumer.   India continues to grapple with high Current Account Deficit and a falling rupee. Government has done what it does best that is to increase the import duty on Gold.  Instead of ensuring that it improves its export where rupee has depreciated, government of the day is concentration on cutting down on imports and therefore the increase in gold import duty.  Time will tell if that works.   I recently saw the Finance Minister of India saying gold is another commodity that glitters.  I do not understand why then the central banks including the RBI buy gold from time to time.  If gold is just another shining commodity why would the US hold so much gold (8500 tons plus) in Fort Knox and then guard it.  Why that any other commodity is is not guarded and cherished so much by any central banks.  Hope our Finance Minister gives some explanation.  I would be interested to know how much gold his family possess J being a South Indian myself.

I think an average Indian investor have been smarter and done better to invest in Gold because if they had invested in the Indian market, bond, FD or in real estate the chances are that they would lost in inflation adjusted return in the past 5 years.  Only investment that would have given them positive real return is gold (the useless commodity).  Would Gold continue to outperform other asset classes in the next 5 years?  Your guess is as good as mine.

The government of the day seems to be completely dysfunctional and not up to the task. The hot foreign money which was helping fund our deficits is now flying out and creating problems.  Consumer spending is slowing down and the short term looks bleak.  RBI and other banks sold some dollars to support rupee as it was close to the precarious Rs.60 mark.

Market has started now to tank and I absolutely love it.  This somehow reminds me of the time in 2003.  Most of the times the best return are made when everything looks pessimistic.

Quarterly and yearly results of our holdings

Results of our holdings has been a mixed bag with some companies reporting decent profits while others reported lower profits.  We do not have any company that had reported any losses.

Results and my comments are provided below

Stock	Operating Profit			Net Profit		Comments
	QoQ	YoY		QoQ	YOY
Andhra Bank	8%	-2%		0	-3%	Finally the Net Profit has been flat.   Asset quality continues to remain a concern.  Stock has corrected quiet a bit.  If it corrects too heavily, I will add.  Otherwise, I am looking for opportunities to exit this stock
Atul Auto	62%	45%		1	66%	While the auto market (including the three wheeler market) continues to disappoint, Atul Auto continues to outperform.  Will continue to hold
Axis Bank	37%	43%		0	22%	Continues to perform well.  I look to add more in this counter in the coming days
BHEL	-6%	-4%		0	-6%	Operating profit and Net Profit dropped by around 6%.  This may continue for few more quarter until the order flow increases.  This was much less than what I initially expected.  I would continue to hold this.
Bliss GVS	11%	42%		0	7%	Muted quarter albeit a positive one.   Net profit was lower due to higher tax outgo.  Result tend to lumpy for this business.  I will continue to hold this
Engineers India	-25%	-18%		0	-1%	While the top line had a big drop, the operating and net margins have improved and thus a negligible drop in net profit compared to last year.  Company margins have improved by the working capital requirements have gone up reducing the free cash flow.  I continue to hold this
HDFC	35%	4%		0	22%	Operating profit growth  has been very good.  Net Profit growth has been decent.  This has been a permanent member in our portfolio and continues to be a great compounding machine
HDFC Bank	23%	-41%		0	30%	Company continues to deliver great performance and also continues to be highly priced.  Would luv to accumulate more of this if price comes down (praying for the price to crash)
Indag Rubber	-1%	14%		0	20%	Starter position on this one.  Net profit grew 20% while the operating profit declined by 1%.  Need to take a closer look to ascertain reason.  Minority position as of now
Indian Bank	-29%	57%		0	-9%	While the operating profit reduced drastically, the net profit decline was lower due to lower provisioning.  Price has corrected a lot and I may add more to this counter for short term play
Infinite Comp	33%	19%		0	8%	Company continues to report growth albeit a single digit one.  Market seems to price it as if it is a dying company.  Not sure why.  Company seems to be doing a good job on information sharing. Margins remains intact and the company sits on cash.  Company has announced share buy back which is great news for investors. However, we should watch close to make sure that they do indeed by
Kirloskar Pneumatic	3%	-15%		0	-23%	Both OPM and NPM declined in line with what is happening in the capital goods sector.  Have a small position on this one and will continue to watch closely and exit if required
Lumax Auto Tech	4%	-7%		0	-19%	At the operating level it seems to be doing okay but the net profit margins as well as drop in profits is concerning.  The business prospects look decent, however the recent corporate governance issue of management trying to increase the pay of MD and as well as trying to push the hospital bills on to the shareholders are negatives.  Good news is that they have revoked this decision after someone complained to SEBI.  I will not be adding any position to this because of the corporate governance standards and will exit when the profit is decent
Mayur Uniquoters	17%	29%		0	31%	It continues to perform very well albeit at a growth lower than what it was giving in the recent quarters.  This was expected.  I see it growing on an average between 10 to 15% on longer term.  Management continues to be good and focused. Will continue to hold.
MCX India	-34%	-1%		0	5%	This was more of a starter position.  Commodity specially gold futures is the main product of the company.  Bear market in gold will have impact on companies turnover and margins. They have floated their own stock index now but not sure how much traction it would have.  May add more if the valuation gets very attractive as I like the business model where the entire assets being funded by other people money (they have negative working capital).
NMDC	-12%	-17%		0	-13%	NMDC continues to under perform both at growth level as well as margin levels.  This being a commodity, its future is tied to the steel cycle.  Price has corrected.  Cash remains in balance sheet and may buy more if the dividend yield gets very very attractive
Piramal Enter	-14%	-1778%		4	-305%	With the absence of any interest earning component on the cash, it continues to post negative results.  Cash is tied in investments in Vodafone and in acquisition of DRG.  All businesses bled at operating level.  Reduced my position slightly on this one.  I may be exiting this or just keep a reduced position on this based on the developments
RS Software	-26%	27%		0	30%	Quarterly growth as well as margins disappointed while the yearly growth seems to be okay.  This has lead to price correction.  This is a small position and will continue to watch and exist anytime
Sun TV	6%	-2%		0	-2%	Ad spends are getting better and there is decent subscriber addition.  I expect a long term growth of 12% on this one.  Anything above this rate is ambitious.  Will continue to hold as long as the moat exists.
Suprajit Engineering	5%	12%		0	18%	Company has maintained its growth and margins even in difficult times.  Growth has slowed due to be subdued auto market.  The management is good and is very focused. Will add to this position from time to  time to increase exposure
Supreme Industries	28%	9%		0	14%	Continues to grow with increasing margins.  Management is walking the talk in terms of value addition.  Added  to the position and will continue to add whenever there is price correction.
Swaraj Engines	-10%	4%		0	4%	Operating growth and margins fell a bit due to slowdown but the net profit and margins were maintained.  Company has declared good dividends.  Company is being managed well and I will continue to hold this.
TCS	18%	25%		0	34%	Operating margins and growth has slowed down a bit.  This is the best in the IT pack.  Just hoping there is a price crash on this one, so I can add to this position to a meaningful size
Vinati Organics	4%	26%		0	25%	The operating and net margins slightly contracted.  ATBT continues to be main stay.  With the currency depreciated the interest cost is very likely to go up.  This may be compensated to some extent because of dollar revenues.  Management continues to be positive.  Will add only if it corrects a lot.
VST Industries	-24%	-17%		0	-11%	Both top line and bottom line continued to disappoint.  Not sure if they are losing market.  Will provide the update after reading the annual report.  It continues to dole out good dividends and the return on original investment continues to be awesome
VST Tillers	1%	-1%		0	-3%	Margin situation has improved compared to last quarter.  While profits for the quarter was almost flat, on year on year basis the net profit was down by 3%.  With India facing elections in the coming years and banks having bad assets not sure what could be impact.  Continue to hold until clarity emerges on the impact
Wim Plast	7%	21%		0	24%	While the growth remained flat, they maintained margins.  This is almost like poor mans supreme industries. Hold as of now.