Ace journalists expose doings of ace investors
On Thursday, 10th August 2017, when the stock markets were crashing like a ton of bricks and novice investors were cowering in fear, a group of ace investors stealthily made their way to the counter of CSL Finance, a micro-cap, with the objective of pocketing large chunks of the stock.
For obvious reasons, the aces were keen not to attract attention and were flying under the radar.
They would have succeeded in their game plan had it not been for the vigilance of Varinder Bansal of CNBC TV18 and Darshan Mehta of Bloomberg, both of whom have a distinguished track record for ferreting out top secret news.
It may be recalled that Varinder Bansal has reaped rich praise from the intelligentsia for busting the infamous ‘Rakesh Jhunjhunwala Surana Solar scam’ in which a namesake of the Badshah of Dalal Street bought a chunk of the junkyard stock and misled novices into believing that the stock had multibagger potential.
While other members of the press were going gaga over the stock, Varinder Bansal smelt a rat and had the presence of mind to call the Badshah on his personal hotline to confirm that there was indeed a potential scam.
Varinder also revealed top secrets of how Kimi Katkar, the yesteryear Bollywood sex siren, snared a magnificent 32-bagger stock. It was an inspiring story for all of Kimi Katkar’s devoted fans, of whom there are plenty.
In the case of CSL Finance, Varinder’s eagle eye spotted the ace investors circling around the micro-cap. He sounded the timely alarm even though it was quite late in the night.
Kothari’s, Bhansali, Madhu, Deepak Parekh Family, Ajay Relan & other HNIs invest in CSL FINANCEhttps://t.co/HYkh18BBJG
— Varinder Bansal (@varinder_bansal) August 10, 2017
Darshan Mehta picked up on the story and provided valuable inputs as to the modus operandi of the ace investors.
CSL Finance Draws Marquee Investors Including A Bhanshali, Kela And Parekhhttps://t.co/ZctKETJ8Zr
— Darshan Mehta (@darshanvmehta1) August 11, 2017
|CSL Finance Ltd – Key Fundamentals|
|Market Cap||(Rs cr)||236|
|EPS – TTM||(Rs)||[*S]||35.08|
|Latest Dividend Date||–|
|Book Value / Share||(Rs)||[*S]||244.06|
[*C] Consolidated [*S] Standalone
(Source: Business Standard)
Who are the ace investors aggressively buying CSL Finance?
Immediately on receiving the tip-off, I dug into the official records to check the identity of the ace investors.
There are 24 entities, some of whom will be allotted 12,47,000 shares while the others will be allotted 1,50,000 fully convertible warrants.
The shares and warrants will be allotted at the price of Rs. 390 each.
The list is as follows:
|a) Equity Shares|
|Name of proposed allottee||Nos of equity shares|
|2||Aadi Financial Advisors LLP||3,85,000|
|9||Pankaj J Mehta Investment Pvt. Ltd||13,000|
|10||Geecee Investments Ltd||35,000|
|11||Raj Vinay Ajmera||10,000|
|20||Subodh Narain Agarwal||5000|
|b) Fully Convertible Warrants|
|S. No.||Fully Convertible Warrants||No. of warrants|
|2||Sweta R. Kumar||16000|
As one can see, the list is a who’s who of the Country’s top investors.
Kothari Ventures is the investment arm of Rohit Kothari, the founder member of Antique Stock Broking. He is described as a “Finance Professional with very deep and extensive experience in Buy side / wealth management and connectivity with various corporates / foreign investors”.
Aadi Financial Advisors LLP is the investment arm of Vallabh Bhanshali/ Akash Bhanshali of ENAM Fame.
Vallabh Bhanshali is well known for his visionary outlook. He has inspired us on several occasions to look at the big picture and not bogged down over petty issues.
Madhuri Kela, the better half of Madhusudan Kela, and Ajay Relan, need no introduction to us, given that we have benefitted immensely from their multibagger stock tips in the past.
The other names in the list are not familiar. However, there is no doubt that they are also illustrious and deep pocketed visionaries.
What is so special about CSL Finance?
Prima facie, the ace investors appear to have been attracted to CSL Finance owing to the huge scope for growth in the NBFC sector and the ability of the Company to scale up its operations.
Scaling up of business operations planned
The latest investors’ update reveals the growth plans:
“CSL Finance Limited, incorporated in December L992, is a non-deposit taking NBFC based out of Delhi. CSL Finance Ltd is engaged in providing mezzanine funding to small and medium-sized borrowers in real estate development and education sector for meeting their short-term funding requirements for projects which are in the last stage of completion The company operates out of Delhi and the loan portfolio of Rs 107.47 Cr as on December 31, 2016, is concentrated in the Delhi-NCR region.
The company has changed its name from Consolidated Securities Limited to CSL Finance Limited to better reflect the domain of its business operations.
The company has taken a strategic decision to focus on its core lending business and has discontinued its capital market activities and other non cere activities. This quarter is the first quarter where the P&L statement reflects its core lending business.
The total Revenue for Q3 of FY2016-l7, i.e. as on 31.12.20l6 is Rs.7.07 cr, Profit before Tax Rs.6.08 Cr, Profit after Tax Rs.3.98 Cr, total AUM is 107.47 Cr and Book Value is Rs.240.
The company has recently got a BBB rating from CARE Ratings. The company will aim to use the ratings to reduce its cost of debt in the coming quarters. It proposes to enter into SME lending in Tier II & III cities with focus on relatively stable sectors tike education, medical and retail traders. The company is in the process of building teams and processes for the same and aims to commence lending in the new segments in fourth quarter.
The company’s merger with its holding company CSL Holdings Private Limited is on track and should materialise in the next few months. There will be no additional issue of shares and the merger is being done to simplify the shareholding structure.
IMPACT OF DEMONETISATION
Post November 8, 2016, the management team of CSL Finance Limited was initially apprehensive around the impact of demonetization on its loan portfolio. The good news is that there have been no defaults on its mid-sized corporate loans. In fact over 29% of the loans were prepaid by its borrowers who decided to reduce borrowings in an uncertain environment. This has allowed the company to continue evaluate loan proposals and give out fresh disbursements. We may see gross IRR of 18-20% from existing 20-22% on our mid-sized corporate loan segment in the next financial year. Our cost of borrowing on our existing facility has come down by 250 BPS.
The company looks forward to the coming year to gradually scale up its business operations and seeks continued support from its valued shareholders.”
Huge opportunities will enable growth of lending book by 25-30%
The Annual Report for FY 2015-16 reveals that the Company intends to grow at 25-30%:
“We are enthused by the opportunities emerging for the NBFCs in India, given the huge focus of the government to provide financial services to the unbanked segment of the population. The rapidly falling costs of transactions and increased usage of technology is driving huge innovation and rapid emergence of new business models. Going by the media reports, India has become a fertile ground for hundreds of Fintech companies which are trying new business models. Over the last year we have tied up with 2 fintech companies to help them validate their business models. We are working closely them to help them rapidly deploy their offering in the market and tap new customer segments.
We aim to further grow our lending book by 25-30% in the coming financial year and are looking at other lending segments where we can grow meaningfully.”
Frugal salaries of top brass of CSL Finance
Rohit Gupta, the Managing Director of the Company, is a Chartered Accountant with 20 years of diverse experience in the field of Merchant Banking, Corporate Finance, Restructuring, Project Finance and Stock Markets.
In FY 2015-16, Rohit Gupta was paid an annual salary of Rs. 84 lakh which is quite reasonable by today’s standards.
Akash Gupta, the Company Secretary, was paid an annual salary of Rs. 10.90 lakh in FY 2015-16.
This implies that the Company runs a tight ship and keeps costs under control.
High shareholding of promoters
As of 30th June 2017, the promoters have a stranglehold over 74.79% of the equity capital.
Three large investors, being S Sangeetha, Rajasthan Global Securities and PTG Consultants, are sitting pretty over 3.8% of the equity.
This implies that the floating stock is scarce and the Company will enjoy ‘scarcity premium’.
Micro-cap NBFC stocks can be next Bajaj Finance?
Micro-cap NBFC stocks have become hot favourites amongst the ace investors.
Centrum Capital, which is managed by Jaspal Bindra, the former Standard Chartered Bank head honcho, has been attracting heavy duty investor attention in the recent past.
There was an aggressive bulk deal a few days ago. However, the names of the investors has not been revealed.
BLOCK DEAL : Over 80 Lk Shrs Trade In Multiple Blocks Centrum Capital Price:46.95 Change: -2.75 Percent Change: -5.53%
— ET NOW (@ETNOWlive) August 7, 2017
It is, however, known that S Naren’s ICICI Mutual Fund, bought a big chunk of 21,00,000 shares of Centrum Capital on 9th August at Rs. 51 each.
Inditrade Capital, a micro-cap (Rs. 180 crore), which is run by Sudip Bandyopadhyay, has also been flying high after Shilpa Porinju Veliyath bought a chunk of 142,000 shares on 14th June 2017 at Rs. 45.74 per share.
Prima facie, we need to join these visionaries and tuck into the micro-cap NBFC stocks because if even one of these stocks becomes the “next Bajaj Finance”, we can hang up our boots and retire in riches!