We had bought APL Apollo at Rs 1,269 a share, in Oct 2018, and today the price is Rs 1,258 a share, however after the stock split of 5 for 1. At an unadjusted price of Rs 6,300, the stock has been a 5-bagger for us in 2.5 years.

We had hoped annual volumes to move closer to 2mn from 1.1mn, EBTIDA per ton to move from Rs 3,000 to over Rs 4,000, and net profit to move from 150 Cr towards Rs 450 Cr. Luckily the thesis played out perfectly and the market cap moved from Rs 3,000 Cr to over Rs 15,000 Cr. What’s heartening is that the majority contribution to the 5x move in the stock price is via earnings growth (based on recent quarter's trajectory & management guidance), rather than re-rating of price-earning multiple.

The execution continues to be remarkable and the management commentary on further volume growth as well as EBITDA/ton has moved up considerably from the earlier target. With the real estate and infrastructure cycle turning positive, the pitch can be more accommodative too. However, at the current market cap of Rs 15,700 Cr, a lot of the positives already seem to be priced in. Considering the risk-reward, we are fully exiting APL Apollo.

Every cycle we will have few such outliers which will not only make up for positions where the thesis does not play out but considerably lift the overall performance of the portfolio. This cycle has the likes of APL Apollo (5x in 2.5 years) and Suven Pharma (4x in 1 year), the previous cycle had Tasty Bite Eatables (9x in 2.5 years). That’s the nature of the game - lose some, win big. It is important to be at peace with losing positions realizing the winning ones will more than make up for the losses. No matter how much we try, unfortunately, there is no way we can fully avoid losing positions as it’s all too dynamic.

One cannot, with any certainty, identify at the beginning which positions are going to be an outlier and which ones will be duds. Otherwise, we can simply avoid buying duds to load up more outliers, isn’t it? Honestly, it is all clear only in hindsight. When we buy into a business we see that an opportunity exists today, but will it continue to exist? Will management continue to have a sound strategy to exploit it? Will execution fall in place? Or some well-funded startup disrupt the industry and affect its terminal value? Can regulations turn hostile? Can there be a governance issue/employee fraud or some other negative event that can affect the fundamental performance/intrinsic value of the business leading to a fall in the stock price? All of this is too dynamic and keeps evolving. Besides hard work, foresight, understanding of accounting & economics, temperament, and a whole host of other skill set required to be a decent business analyst/investor, we cannot deny that there is also an element of luck/chance which decides whether we will ultimately make money in a position. We could have been shaken out of this position when there were doubts on promoter integrity regarding Tricoat Transaction (which they eventually fixed), or when it wasn't reporting any growth, or when COVID struck and the outlook turned so negative. Fortunately, we kept faith and foresight to focus on the long-term fundamental value of the business, rather than short-term disruptions and could ride the story to our satisfaction. We are okay giving up the remaining upside, if any, from here on and prefer to lock this notional gain as real gain.