Knowledge Center

Are you an investor by choice?

"Know what you own, and know why you own it." – Peter Lynch

To state a real-life example of how we at Care PMS followed this let us go through our journey of investment in one our portfolio companies ‘Thirumalai Chemicals Limited’.

What did we know when we decided to own it?

  • Changes were being done at the top-level management to improve inventory and supply chain management and increase efficiency
  • The second largest manufacturer of PA (Phthalic anhydride) in India with strong entry barriers due to the difficult nature of the business and being capital intensive
  • Robust growth prospects in end-user industries like Paints, PVC, plastics, construction, transportation etc. for PA (Phthalic anhydride) and Food & Pharma for MA (Maleic anhydride).
  • Subsidiary performance impacted due to shut-down and floods in Malaysia due to which they incurred a one-off loss. Volatile crude oil prices impacted performance further; this pushed the stock price down to attractive valuations
  • Debt reducing from `270 cr in 2013 to `118 cr as of 2015. Also, good dividend payout policy (dividend of `4 in a year of loss as it was an exceptional year)

The important question here is what made us hold on to this investment despite the volatility in stock price?

 What happened in FY15-16 (see Chart 2) that lead the price to move up by 2.5x i.e., from about `10 to `25?

Below table answers the above question.









o   Revenue fell in line with crude oil price

o   Margins improved due to better controls and improved subsidiary performance

o   Debt reduction due to free cash generation
















Dividend (in `)






What made us still hold on to this investment through FY16-17?

As you can see in (Chart 3) that while the stock moved up from `25 to `80; in the interim, it saw fall from `90 to `60 in just one month from Oct’16 to Dec’16

We continued holding our investment by choice. The basis was some facts as below:

  • EBIDTA margins increased significantly to high double-digit during FY17
  • Further, its subsidiary had shown signs of a turnaround (based on Q1’18 results)
  • With performance stabilizing and good free cash generation (more than `100 cr), the company started focusing on growth (Refurbishment of old PA plants and nearly doubling specialty business capacity

What happened in FY17-18 that further boosted our confidence?

During FY17-18 the stock price of Thirumalai Chemicals moves from `100 to over `200 per share. While we did some profit booking as we have an individual stock limit with respect to weight that a stock can have each portfolio. We continued to hold and even bought the stock in new portfolios above `200.

The basis of our action are below facts:

  • Sales for FY18 grew due to higher volumes of domestic operations as well as its subsidiary
  • EBIDTA margins improved from 14.50% in FY17 to 22.16% in FY18











Operating Profit





Net Profit





  • Despite doubling the food ingredients capacity, they could not suffice the demand
  • Went in for expansion of PA capacity by 50% with a new plant at Dahej (huge logistics benefit due to location advantage) due to strong demand scenario
  • Also, the subsidiary has plans for increasing capacity by ~50% to cater to new industry
  • The company focused on re-organization and generation of sustained profits in the last 5 years. Focus now will be on growth, value-addition and market position for the next decade
  • Favorable risk-reward ratio

 Today, while the stock has corrected from over `200 levels to `140 levels. We continue to hold Thirumalai Chemicals Limited in all individual portfolio of our clients. We are an investor in Thirumalai Chemical by choice.

Key learnings that we want draw from the above case are:

As market moves like a pendulum from extreme pessimism to extreme optimism, at every stage of investor’s behavioral aspect plays an important role.

The question that needs to be answered here is what behavior indicates that (1) you are an investor by choice; or (2) you are an investor by chance


Investor by choice

Investor by chance


He holds the investment because he has understood the business, product, financials, and comfortable with the management

He holds the business because either he is deep red or huge profits and is more optimistic of price rise

Price Anxiety

He is not bothered about monthly or yearly volatility in prices

He gets high anxiety with volatility in CMP (current market price) of his investments


He keeps his eyes on earnings and keeps comparing it with his expectations (Caveat here important point is also that he may go wrong and there is no harm in booking losses in the market. More damage can be made if you are holding bad companies at bad valuation)

He monitors price almost on a daily basis and in extreme cases in on hourly basis (this may trigger unwarranted exit from the investment as for this kind of investor price plays vital role in investment, he may not be even concerned about the fundamentals of the company)

The above analogy is not limited to investment in equity of companies -- the same applies also when you invest through a mutual fund or PMS.

If your confidence in the fund manager moves up and down with short-term movements in the market value of your portfolio then your investment or selection of fund manager may have been influenced and it happened by chance and not choice.

So, what is the remedy?

The remedy is quite simple if you are holding your position by chance – simply check the basics. Check the reasons for your decision, check the fundamentals of your investment.

Similarly, when you invest in equities via a fund manager check basic understanding of the fund manager.

We rest our case here.

Stock analysis by our veteran researchers