Thread by @sahil_vi

Time for some anti-thesis pointers.

What is the seller thinking? What is their thesis? It always helps to keep track of what can go wrong with the company so that when it actually goes wrong, you can act on it and are not affected by the myriad biases that humans have.
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#idfcfirstb first, coz first is in the name.
1. Now that SA rates are not that high, casa growth can slow down. Could slow down to below 25% where bank is unable to maintain casa ratio while growing AUM at guided rate of 25%.

2. Too many landmines hidden in balance sheet. Wave 2 stress could be higher than guidance. If we annualize q1 numbers, stress in retail could be > 5% of book.
Infra book is landmine of its own. First DHFL, Reliance capital, now Vodafone Idea. Where does it stop? Maybe it doesnt

3. This is especially important for a bank because until their roe hits 20% their continued existence depends on ability to raise equity capital. If they can't raise equity capital (no trust in management by investors) then bank would not be able to grow due to CAR requirements

4. Their opex is far higher than hdfc bank, at a per bank branch basis. This can lead to terminal RoA being far lower than guidance meaning bank is not profitable and thus needs to keep raising equity capital to function.

#neuland labs 🌋🌋
1. Biz mix might not change in favor of cms. Even in latest 2 Q it is around 22% which is same as many years ago. No movement. What if the biz mix going down to 22% is permanent and not temporary or one off.

2. They are literally doing new chemistry wguch hasn't ever been done before. This makes NCE api scale up challenging. It is not a given. If neuland is inferior than their competitors in their scale up skills (more time taken, more capital taken) then eventually clients ..

Can migrate to competitors.
3. Unit 3 is a new manufacturing unit and does not have any usfda inspection approvals yet. While neuland has a great compliance track record, there is always a first time for everything. Given their scale, if 1 out if 3 units is disfunctional ...

It's very hard to maintain any respectable operating margins.
4. Gds segment is commodity. Commodity prices adverse movement can and will impact margins to some extent. You can't pass prices in commodity.

Racl geartech

1. Biggest anti-thesis pointer is their size itself. Yes, learning curve and client relationship is a competitive advantage. However, if mother-son sumi decides to set up a similar biz and hire all of racl employees at 2x the pay (coz they can afford to)

Then biz vanishes overnight. Do they have the scale to fend off competition if competition got serious? Maybe they dont.

2. Their clients are all high end 2W tractor and now 4W OEMs. Their sales could slow down, which leads to slowdown in racl's growth trajectory.

3. Their ev parts biz will be lower volume than ice since ev require lesser gears. Can lead to topline degrowth if clients move to ev too fast.

4. With a commodity upcycle, prices of steel will rise will will lead to rm price increase. Racl may not be able to pass all of it to customers resulting in reduced margins.

Vaibhav global
1. The biz was earlier limited to USA and UK. now they have expanded to Germany and will expand to Japan too. They might not understand these micromarkets as well as original market leading to lower growth or lower profitability.

2. Their post pandemic growth rate was powered to some extent by work from home and pandemic lockdowns. As world opens up, their growth rate could come down to pre pandemic 15% topline growth level leading to derating.

3. As budget pay (emi) constitutes 30% or so of sales now, there is credit risk involved. What if customers do not pay their emi ?

4. If the big dada of ecommerce Amazon takes notice of vgl, can always introduce their solimo knock offs and take away market share on basis of superior brand recognition and logistics advantage.

Saregama

1. Warner music group and universal music group could decide to focus on india. Due to lower cost of capital their expectations of returns are also lower can could lead to deterioration in roic/roce for the industry. Pricing wars.

2. United masters is looking to disrupt by enabling artists to retain ownership of their tracks. If big film producers decide to go with start ups like United masters then saregama could lose market share simply due to United masters willingness to do a different biz model

3. Carvaan is perceived by many as being an unnecessary product. Capital deployed in carvaan could lead to poor outcomes (no sales) leading to overall depressed roce/roic.

4. Right now streaming growth is driven by new to internet users and first time users. At some point, saregama (through streaming apps) will end up penetrating all of India. No more 20-25% growth after that.

Mastek
1. It is just another digital transformation player. They come dime a dozen. Reason mastek does well is that industry itself is growing at 20% globally. Any slowdown there is bound to affect mastek.

2. Huge dependence on UK public sector. Any fallout or change in policy there will have a direct and sudden impact on revenues with likely degrowth.

3. IT sector is seeing increased attrition including mastek. Could this result in margin compression ? And worse, if they don't pay up, could this result in lower growth ?

4. This biz generates huge cash piles. They need to be deployed back into biz through M&A. Only 30% of them succeed in general. Just coz evosys succeeded does not mean next one will too. The odds are against them when it comes to good capital allocation.

Laurus labs
1. Huge dependence on ARV APIs. It's not like world is sitting still for them to capture market. Yes, they cost leaders, but large competitor always has ability to sell below production cost just to capture market share (does anyone remember reliance jio ?)

2. Investors might be discounting laurus bio growth too soon. It has taken each and every bio cdmo player in India at least 1 decade to start doing new biological entity cdmo (syngene, stelis). Even when laurus bio grows, it'll be in the lower value products.

3. They want nce cdmo to be 20-25% of topline. However capex guidance is far lower to support that growth. This mismatch could result in materially lower cdmo contribution 2-3 years from now, than guided by co or expected by investors.

4. Debt is almost always an anti thesis pointer. We cant predict future or even future problems with 100% probability. If laurus cannot generate the profits (for some unforseen reason), same debt can wipe out half the equity base.

Angel one
1. This one is almost too easy. Their growth rate is far lower than zerodha and groww. Zerodha and groww could end up cornering the market share and not everyone needs a third demat account. They also have a superior product to angel.

2. Angel growth is dependent on what broader markets are doing. If broader markets correct, so will angel. Their revenues are cyclical depending on stock market levels when looking at it short term

3. They are getting an AMC license. But who isn't ? Even zerodha is. All brokers understand need to diversify revenue stream. It is not immediately clear that in the amc space they will have any competitive advantages.

4. They operate in a regulated industry. If the regulator (sebi) decides to bring any adverse regulations, then it can impact their growth or margins or both. Easiest example is sebi margin funding rule which has impacted revenues in short term at least.

Pix transmission
1. Entire investment thesis is built on india (& global) capex cycle revival. If india and/or global capex cycle does not revive then pix revenues would also tend to stagnate.

2. Pix is in a competitive industry. Only way to differentiate is to make products better quality. But if you make it very good quality, that eats away your own future revenues. This is the conundrum of how good you should make your products.

3. Competitors like gates are already dominating NA market. If they set up plants In india and become cost competitive, it might become hard for pix due to the perceived higher quality of an American v-belt maker.

4. Pix does not disclose any investor presentation or conduct conference calls. This information assymetry is itsf an anti thesis pointer because of investors inability to really understand what is happening inside the biz. Makes it difficult to increase conviction

Dynemic products
1. Ditto as pix last one. No concalls, no investor presentation. Poor disclosures make it hard to build conviction. Investor does not know what is going on inside the co.

2. They are in an industry which is sunset industry: artificial coloring for foods. They also refuse to enter natural colors. Then must necessarily mean some upper bound on valuations and opportunity size which will shrink eventually.

3. Vidhi is running behind dynemic in terms of capex cycle but once they finish (in 3 years or so) dynemic will face higher competition. Stock wont wait for supply to increase before correcting valuations

4. Dynemic is primarily a chemical producer and so all risks associated with chemical producers (eg: non compliance with environment regulations) apply. This is amply clear in how long it takes these color producers to get EC for their capexes.

Kilpest/3B black bio

1. Valuations are biggest risk here. Non covid revenues are not even 40cr and co was at 500cr mcap. Despite high PBT margins, valuations were running ahead of fundamentals.

2. They compete with global giants like Thermofisher. They have a brand competitive advantage and it will take time and effort and capital for 3BBB to overcome that brand advantage & cement their own position in molecular diagnostics supply chain

3. Covid did expand molecular diagnostics front ends (labs). Remains to be seen how many of these will continue to function post covid and how many close down. If customers are not ready to pay for molecular diagnostics, the disruption could be premature & fissile out

4. For a 40cr topline co to decide how to deploy 120cr of cash is a huge responsibility. The odds are against them doing a good capital allocation. Most M&A fail. Poor capital allocation is a real risk here.

Rajshree polypack
1. They make plastic packaging. Any government regulation disrupts industry dynamics. Might not necessarily result in lower earnings power, but can lead to short term pain/loss of revenues as clients decide how to comply with regulation.

2. At this scale, their ability to scale up is also itself an anti thesis factor. Lindy effect cuts both ways. For a small co, odds are against them scaling up.

3. The industry does not really have high barriers to entry. Yes, rajshree has managed to penetrate FMCG client supply chains, but so can any serious competitor with enough capital.

4. Their previous capex cycle has taken very long to play out. 3 years. Granted some of that was due to covid, but capex execution is a real risk here, for any future capex. Can result in revenue being fairly lumpy and many flat years.

Sastasundar

1. Pharmeasy, Tatas (1mg), reliance (netmeds) all the big cos operate in this industry. Odds are against them being able to bleed as long as these relatively larger scale, higher capacity to suffer competitors.

2. Sastasundar profitability could be more delayed if they decide to hyperscale to pan india by raising capital. This means larger periods of waiting for eventual profitability for the investor.

3. Their ability to raise capital is limited. Any investor has to be willing to take on the might of Amazon, Tatas, Reliance and pharmeasy (Tiger). If they are unable to raise capital, they'll be unable to scale up and thus unable to break even.

4. Even if they break even, their competitors could outspend them on advertising, marketing, discounts and thus capture larger market share.

End of thread.

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It goes without saying, i am invested in all these companies. This is literally my portfolio so i am biased.

Do not take anything i say as buy or sell advice.

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