Basant Maheshwari, our friendly neighborhood stock wizard, waxed eloquent a few days ago on how slow-and-steady stocks, if held for a lifetime, compound your wealth and build it into a massive fortune with minimal risk.
Basant explained that in order to become wealthy, one needn’t be hyperactive and be constantly scrounging in the bushes for ‘hidden gems’. Instead, latching onto a top-quality stock and staying with it through thick and thin is probably more rewarding in the long run.
If you are a conservative investor, Basant’s words of wisdom would have a rung a bell with you.
Cholamandalam Investment & Finance Co, promoted by the venerable Murugappa group, fits into that category of a rock-solid slow-and-steady blue-chip stock.
The surprising aspect is that despite its image as a staid, conservative and sluggish stock, Cholamandalam has attracted attention from a large number of super-savvy investors and they have reaped a rich reward from the stock.
In an interesting coincidence, both Renuka & Brahmal invested in Cholamandalam at the same time. Both invested Rs. 106 crore each in Chola in February 2012 at Rs. 160 per share.
The investment in Chola has worked out very well for the duo because at the CMP of Rs. 479, the stock has given them an absolute return of nearly 200%.
Some other heavy-weight & super-savvy investors in Chola are Westbridge Capital (aka Jwalamukhi Holdings) and Amansa Capital, both of whom enjoy a formidable reputation for picking winning stocks.
If you are wondering whether you have missed the bus, the answer is that you still have a chance. Motilal Oswal has issued an “Initiating Coverage” report on 30th September 2014 in which, after explaining all the merits of Cholamandalam, a clear-cut Buy advice has been given. The report explains that Chola’s business is expected to increase to ~2.5% ROA from current ROAs of ~1.8% and that the improvement in ROAs will translate into “significant re-rating opportunity” for the business in a 2-3 year time horizon.
Edelweiss had earlier (April 2014) recommended a buy when the price was Rs. 290. The report explained that Chola is expected to grow the bottom-line at a CAGR of 28% over FY14-16E. It was emphasized that Chola would be able to “sustain growth in excess of 20% and RoAE of ~18% in coming years on the back of strong growth (5 year PAT CAGR of 40%), strong business model and efficient operation”.
Though Edelweiss’ target price of Rs. 378 has come and gone, Edelweiss has still recommended a buy in their latest “Mid-cap Marvels” report of 1st October 2014. In that they state that Chola is “currently trading at attractive valuation of 2.1x FY16E book value”.
So, if you are looking for a stock to put large chunks of money into, without having to worry about mundane issues, Cholamandalam will fit the bill nicely.