PMS firm Marcellus has exited from the shares of Sterling Tools recently. The stock has risen just 14 per cent in last 1 year, sharply under-performing the BSE Smallcap index.
The sale proceeds from these exits have been re-invested in the other portfolio stocks basis position sizing frameworks, Marcellus said in its latest newsletter on 'Little Champs' strategy. The Little Champs portfolio went live in August 2019.
Sterling Tools is engaged in the manufacturing of high-tensile (HT) cold forged fasteners mainly for automobiles.
"The key reason for exit from Sterling Tools is deterioration in its accounting score under the Marcellus’ proprietary forensic accounting model triggered by below par scores on the following ratios: (i) growth in auditor’s remuneration relative to the revenues; (ii) contingent liabilities as % of networth; (iii) miscellaneous expenses as % of total revenues; and (iv) yield on cash and cash equivalents," the PMS firm, started by Saurabh Mukherjea.
The key objective of Little Champs Portfolio is to own a portfolio of about 15-20 sector leading franchises with a stellar track record of capital allocation, clean accounts & corporate governance and at the same time high growth potential.
"While we intend to fill our portfolio with winners, we want to be sure of staying away from dubious names where we are not convinced about the cleanliness of accounts or the integrity of the promoters (even though business potential may sound promising) as the fruits of company’s performance may not get shared with minority shareholders. We intend to keep the portfolio churn low (not more than 25-30% per annum) to reap the benefits of compounding as well as minimize trading costs," said Marcellus.