Dear Investor,
Below is a chart depicting our returns viz BSE 500:
In this monthly update we plan to highlight the performance of our portfolio companies in FY 22. Key observations are:
Our portfolio companies demonstrated a median YOY sales and earnings growth of 23% and 15% respectively. The earnings growth was lower than the sales growth due to the impact of rise in raw material prices when compared to the last year.
Despite lockdowns our portfolio companies have grown at a 3-year sales (FY 22/FY 19) and earnings CAGR of 13% and 23% respectively.
Our portfolio companies have used this period to become more capital efficient. Their median ROE for FY 22 (18.5%) was higher than their 3-year average ROE of 17.4%.
The cash flow from ops (ex-Banking companies), has dipped YOY, due to the high raw material prices. Companies have stocked extra inventory and/or have paid higher advances to their vendors to secure supply. Our portfolio companies are still able to convert ~ 80% of their PAT into Cash flows. This ratio was >1x for the previous years.
There is negligible leverage on the books of our portfolio companies. Their median Debt to Equity ratio is 0.1x.
We continue to stay bullish on our portfolio companies and plan to deploy your capital at a steady pace.
The median PE multiple of our portfolio companies is 19.5 viz PE multiple of 23x for the BSE 500 index. Refer below.
Our portfolio has seen a drawdown of 10-15% (across portfolios) compared to a drawdown of 14-15% for the BSE Midcap and BSE Small cap index. The drawdown for the BSE SENSEX has been ~ 10% during this period. Considering we run a much more concentrated portfolio, we believe the that the strong results of our portfolio companies give us a good footing in these volatile times.
The below scatter plot depicts, our portfolio’s PE multiple to its YOY earnings growth. As discussed in our earlier communications as well, we try to enter a company at lower than a PE of 20x (non-FMCG) and 30x for FMCG (consumer facing) companies. This gives us enough headroom for multiple expansion when a company demonstrates better than expected results. We are also in the process of exiting companies where the risk/reward between growth and valuation is not in our favor (eg: NAZARA Games exited from the portfolio).
Investment Thesis of Mrs. Bector Foods.
Lastly, we presented one of our portfolio companies (Mrs. Bector Foods) at an Investor forum. Below is the link to our thesis.
Link: https://www.youtube.com/watch?v=_SrNsU8SbTQ
Thanks
Prescient Capital