After Renuka Ramnath, Brahmal Vasudevan’s Creador Pockets 400% + Gains From Blue-Chip NBFC Stock

In my piece of 2nd October 2014, I rightly stated that if one is looking for a “rock-solid stock to give steady gains” one has to consider Cholamandalam Finance, the blue-chip NBFC of the highly respected Murugappa group.

I was perfectly justified because since then, Chola has given a hefty return of 85%. The best part is that these gains have come with virtually no risk to the capital.

Of course, my confidence in Cholamandalam stemmed from the fact that Renuka Ramnath of Multiples and Brahmal Vasudevan of Creador, two of the finest investing minds, had entrusted large parts of their capital to the stock.

Both stalwarts invested Rs. 106 crore each in Chola in February 2012 at the throwaway price of Rs. 160 per share.

Renuka Ramnath sold her holding on 14th January 2015 at Rs. 495 per share, netting magnificent gains of 209%.

Ramnath made it clear that she had reluctantly sold Chola. She paid her tribute to the stock in the following words:

“fantastic story of how the new management completely turned around the company and brought them back inline with their core business and brought in a lot of discipline around lending and collections which has resulted in a phenomenal return for us”.

(Source: Business Standard)

Brahmal Vasudevan’s Creador is now taking the same route. Yesterday, Creador sold 17,60,000 shares at Rs. 875 each, netting a gain of 447%.

Creador held 42,27,727 shares of Chola as 31st March 2016. This means that the Fund still has 24,67,727 shares worth Rs. 218 crore.

It is notable that Akash Prakash’s Amansa Capital holds 58,00,000 shares of Chola worth Rs. 513 crore.

All experts are unanimous in the view that though Chola is presently quoting at premium valuations of 4.27x FY16 PBV, it is still a great investment given its blue-chip credentials and dominance in the CV and SMC sectors.

Dipen Sheth of HDFC Sec articulated this well:

“Cholamandalam is not cheap. They are 3.2-3.3x on FY18 adjusted book value. But, this is a top class small town lending franchise.

I think small and medium enterprise (SME) India is going to go somewhere, whether it is individual vehicle owners, whether it is small businessmen in the next two district capital towns or district capitals and so on. 20-25 percent growth for this company, asset growth is a given here on. And for that kind of growth potential, they are again very lovely users of technology. So, the scale up is going to happen with a less than commensurate rise in costs and a falling of stress.”

Motilal Oswal is also bullish about Chola’s prospects. It has recommended a buy on the basis that “Diversification of loan book towards home loans, normalization of credit costs and reduction of GNPAs / provisioning from the current cyclical peaks should transform the business to 3.0% ROA from current ROA of 2.3% in coming years. Improvement in ROA should translate into a rerating opportunity for the business. We raise our earnings estimates for FY17/18 by 9% and also raise our target P/B multiple to 3.0x (in line with Sundaram Finance; earlier 2.3x) and arrive at a target of INR 1,000 (earlier INR 700).”

Similar sentiments have been expressed by Emkay, KR Choksey and Religare.

So, if you are looking for an ideal buy-n-forget blue-chip mid-cap stock which will slowly but surely compound gains, you have to consider Chola!