Mastery in picking stocks which are at an “inflection point”
It is well known that Porinju is a master of timing. He has developed the knack of identifying the precise moment when stocks are at an “inflection point”. Buying stocks at this point ensures that Porinju does not expose himself to too much risk. On the other hand, he faces the delightful prospect of pocketing multibagger gains from such stocks when they rocket into the stratosphere.
Biocon and Jubilant Life Sciences are two recent examples where Porinju gave a glimpse of his superb sense of timing. Both stocks were languishing when Porinju recommended them. They thereafter shot into space and gave multibagger gains to their delighted investors.
Three stock recommendations of “low quality companies” quoting at rock-bottom valuations
In March 2015, Porinju recommended three stocks. These stocks are Balaji Amines, Vadilal Industries and DCM.
|Stock||Price on 20.03.2015 (Rs)||CMP (Rs)||Gains (%)|
The astonishing part is that in just 18 months since Porinju’s recommendation, all three stocks have delivered hefty gains. Balaji Amines has stunned with gains of nearly 300%. The average return of the three stocks is itself a magnificent 164%.
Good Q3 nos. from Balaji Amines in difficult biz environment! Further growth triggers ahead; holding personally & in PMS. Be price sensitive
— Porinju Veliyath (@porinju) February 1, 2016
Portfolio of such companies will outperform any Page Industries, Sun Pharma
Porinju emphasized that the stocks recommended by him are not “high quality companies” and that there is nothing great or exemplary about their management. However, if investors make a portfolio of ten or twelve such companies, they will outperform any Nifty, Sensex, Page Industries or Sensex Porinju assured in a confident tone.
This appears to have come true at least as things stand at present.
Why Value Investing has nothing to do with Stock markets:
Nifty 8571 – 20 March
Balaji Amines 82
— Porinju Veliyath (@porinju) May 29, 2015
Mohnish Pabrai buys Balaji Amines
Mohnish Pabrai, the legendary value investor, acting through his fund ‘The Pabrai Investment Fund IV LP’, has bought 6,07,204 shares of Balaji Amines as of 30th September 2016. The investment is worth Rs. 20 crore at the CMP of Rs. 328.
Mohnish Pabrai’s vote of confidence to Balaji Amines is of great significance because he only buys stocks where the downside risk is low and upside potential is enormous.
Balaji Amines is a play on “specialty chemicals” and the “hospitality industry”
HDFC Sec has provided a succinct description of Balaji Amines. It is a KPR group company and is a leading manufacturer of aliphatic amines in India in terms of volume and value in its class.
Balaji Amines has specialised in manufacturing methylamines, ethylamines, derivatives of specialty chemicals and natural product and its business is broadly classified into three segments – Amines, Specialty Chemicals and Derivatives.
The Company has also recently set up a hotel in Solapur, a business district. The hotel is called “Balaji Sarovar Premiere”.
HDFC Sec recommended a buy in December 2015 on the basis that the stock has the following triggers:
(a) Dominant in methylamines and no major threat of competitive intensity;
(b) Strong clientele;
(c) Past expansion creates an opportunity for future;
(d) Backward integration offers scope for better capacity utilisation (vs peers) and higher value addition.
HDFC Sec also opined that the strong brand equity, high entry barriers, highly innovative and R&D-based chemical business and sound management will enable Balaji Amines to report good growth in top and bottom line going forward.
Buy recommendation of Nirmal Bang
Runjhun Jain of Nirmal Bang has issued an initiating coverage report on Balaji Amines which provides all information relating to the Company. The report recommends a buy on the following logic:
“For FY16-18E we expect the company’s sales to grow by 20.3% and PAT by 33.3% (as interest cost if likely to come down and with no more capex lined up depreciation is likely to be stable at current levels). We have forecasted stable EBITDA margins. BAL is leading amine player and enjoys handsome market share in its basket of products. It is consistent dividend paying company and is poised for good growth and is available at attractive valuations. We believe there is scope of rerating of the stock given the improvement in ROCE and ROE with positive free cash flow. We have assigned multiple of 13x for FY17E earnings, giving a price target of Rs 310. We are initiating coverage on Balaji Amines Limited with a BUY rating for price target of Rs 310, an upside of 42%.”
Shyam Sekhar is also confident about Balaji Amines
Shyam Sekhar, the noted value investor, appears to be bullish about Balaji Amines. He held 259,649 shares as of 01.04.2015 but sold off a chunk of 76,088 shares. As of 31st March 2016, Shyam Sekhar held 183,561 shares. The present holding is not known.
Some other investors named Vijaya S and Koushik S, who appear to be members of Shyam Sekhar’s family, collectively hold another lot of 208,000 shares in Balaji Amines as of 31st March 2016. Their present holding is not known.
Bullish prospects for the future
Ram Reddy, the MD of Balaji Amines, has come on record that the company will sustain 20 percent margins in FY17. He also pointed out that the Company has capex plans worth Rs 30-40 crore to set up a Morpholine unit with an installed capacity of 10000 million tonne per annum (MTPA).
It is ironical that when Porinju recommended Balaji Amines at the throwaway price of Rs. 86, we paid no attention to it. Today, after a price appreciation of 300%, we are poring over the fine print only because Mohnish Pabrai has bought the stock. If we had paid close attention to Porinju’s stock recommendations and acted on them, today we would also be basking in great riches!