Rakesh Jhunjhunwala’s stock portfolio and best buys

Rakesh Jhunjhunwala is our favourite stock-picker for obvious reasons. His spectacular success in the stock market is not just good luck or coincidence. Behind that genial and easy-going attitude is a razor-sharp mind with the ability to process vast streams of stock-market related information in a jiffy. Apart from his uncanny ability to analyze data, he seems to intuitively know which shares are best buys and most likely to turn into multi-baggers. He has a discerning eye which can see in a stock what other investors cannot see.

How does Rakesh Jhunjhunwala make his investment decisions? How does he know which share is the best buy? What are the techniques that he uses when he decides to buy a share? These are questions that every investor would love to find an answer to!

Let’s try and find an answer to these questions relating to Rakesh Jhunjhunwala’s investments by putting his stock portfolio through the scanner. Rakesh Jhunjhunwala’s share portfolio deserves to be studied in great detail because it only by that process that one will know what prompted him to make the investments that he did. Let’s look at his top three picks.

Titan Industries:

Titan Industries is the crown jewel in Rakesh Jhunjhunwala’s portfolio. As of 30th June 2010, he held an astonishing 38,10,149 shares of Titan Industries (8% of Titan’s capital) worth an incredible Rs. 1,154 crores at today’s CMP of Rs. 3,029.

It is easy to see why Rakesh Jhunjhunwala is in love with Titan Industries. It has been growing furiously over the past several years with 3 Year CAGR Sales of 30.79% and 3 Year CAGR Profit of 33.07%. It is almost debt-free.

Titan Industries reported superb results in the June 2010 Quarter. Its’ net profit spurted 76.54% to Rs 81.28 crore in the quarter ended June 2010 as against Rs 46.04 crore during the previous quarter ended June 2009. Its’ Sales rose 41.91% to Rs 1252.76 crore in the quarter ended June 2010 as against Rs 882.80 crore during the previous quarter ended June 2009.

The best part is that the growth story in Titan Industries is far from over. Its’ Managing Director Bhaskar Bhatt announced that Titan Industries is investing Rs 170 crore to open 150 new stores across various formats by the end of FY 2011.

Titan Industries sells watches, eyewear and jewellery under different brands such as Titan, Sonata, Xylys, Fastrack, Titan Eye+ and Tanishq. It has already opened about 40 new stores across India. It has over 560 retail stores across a carpet area of over 7,09,000 sq ft. Titan Industries has over 300 exclusive ‘World of Titan’ showrooms and over 740 after-sales-service centers. It has also over 110 Tanishq boutiques and Zoya stores, over 25 Gold Plus stores and over 85 Titan Eye+ stores. It has two exclusive design studios for watches and jewellery.

So Titan Industries is one stock that one can never sell even though it is quoting at a frightening PE.

Crisil:

Rakesh Jhunjhunwala describes the business of Crisil as a “Halwa” business i.e. an easy business which requires no marketing efforts and where customers have no option but to come to you. There can’t be a better business to be in he says. Rakesh Jhunjhunwala holds 550,000 shares of Crisil as of June 2010 (7.61 of Crisil’s capital) worth Rs. 304.86 crores. Again it is easy to see why the master investor likes Crisil. Crisil is in a duopoly in the business of giving credit ratings and reports. Every corporate which needs a rating has necessarily to come to Crisil for this purpose resulting in an assured source of income for it, while its expenditure remains constant. Crisil has also been growing at an impressive pace. Its’ 3 Year CAGR Sales was 23.20% while its 3 Year CAGR Profit was 38.33%. The Return on Assets was 38.92% while its Return on Equity was an impressive 40.63%.

In the Quarter ended June 2010, Crisil’s sales grew 14% to Rs. 124.30 crores though its’ net profit declined 12.15% to Rs 31.32 crores as against Rs 35.65 crores during the previous quarter ended June 2009. The decline in Net Profit was, however, not on account of operational reasons.

Rallis India:

Rakesh Jhunjhunwala holds 11,19,882 shares of Rallis India, a Tata group company engaged in crop protection, amounting to 5% of its capital. This holding is worth Rs. 168.65 crores at the CMP of Rs. 1,506.

Rallis India also has a superb track record with a 3 Year CAGR Profit of 158%, a negligible debt-equity ratio (0.12) and a Return on Equity of 28.93%.

Rallis India also reported good Q1 FY 2011 results. Its’ Net sales grew by 20 per cent to Rs 196 crore in the first quarter as against Rs 163 crore in the same period last fiscal. Its’ sales in the Quarter were Rs. 210 crores. This is the first time that Rallis India’s sales have crossed the Rs 200-crores mark. Its’ Net Profit spurted 58 per cent to Rs 14.8 crores in the quarter ended June 2010 as compared to a net profit of Rs 9.4 crores in the same quarter in FY 2010.

Rallis India’s domestic business grew in an impressive way, driven by the success of new products in recent years including new products – Ralligold and Taarak – introduced during the year. Its’ Global business also improved reflecting positive global trends. Its’ new project at Dahej is at an advanced stage of completion and will be commissioned during the current quarter.

So what are the take-aways from Rakesh Jhunjhunwala‘s three mega stock picks? It is difficult to see anything in common in the three stocks except that:

(a) The companies are virtually debt-free companies;

(b) The companies are generating huge cash profits are enjoy high ROEs;

(c) The companies have excellent pro-active management;

(d) The companies are engaged in excellent businesses.

So that seems to be the formula for Rakesh Jhunjhunwala‘s spectacular success. Focus on the business more than on anything else. The management, the means of funding, the product, the opportunities in the market place and the competition. If you are right about the business, nothing else matters is the message that one gets.

Of course, these things are always easier said than done! The ways of the maestro are not discernable to the ordinary and it is only a fool who will try to second-guess a master investor like Rakesh Jhunjhunwala

So what has Rakesh Jhunjhunwala been buying lately in the stock market for his investment portfolio. He bought shares of VIP Industries and it quintupled in one year! His latest investment is in the shares of Visaka Industries, a pint-sized company where he has made a teeny-weeny investment of a couple of crores. However, though the amount invested is just petty-cash or loose-change by Rakesh Jhunjhunwala‘s standards, it is not to be laughed at because all of his multi-bagger investments started off as small & token investments. Somewhere down the road, the concoction of luck, rapid expansion of business, high profits, re-rating etc work their magic and you could be staring at the next multi-bagger.