Basant Maheshwari gave a talk in connection with his debut book “The Thoughtful Investor”. I have already reviewed the book here and identified its salient points.
What is more important is that Basant Maheshwari was asked a pointed question on what stocks one should buy keeping in mind the reforms process to be implemented by Narendra Modi.
Basant was of the opinion that the result of NaMo was that there would be huge rural spending and massive urbanization with a number of Tier 2 and Tier 3 cities coming up.
“Semi urban and rural India is where the big money is now” Basant said. “Look at products and services that are under-penetrated in these sections of the Indian economy”, he added.
Basant took a cue from Narendra Modi’s slogan “Pehle Sauchhalya Phir Devalaya” (first toilets and then temples) to home in on Cera as a major beneficiary of NaMonomics.
Cera has a market cap of only Rs. 1200 crore and it is operating with dominance in a country with 120 crore population where 50% don’t have a toilet means. Cera has incredible scalable opportunity, Basant said.
Basant cautioned that the fact that Cera has shot up in the recent past and hit the UC should not deter you from investing in it. “You have to look at the long-term scalable opportunity” he said with a sparkle in his eyes. (See also Is Cera still a good stock to buy?)
(Basant talks about rural India’s prosperity, Cera etc at 1.23.30 onwards)
Kajaria Ceramics/ Symphony Coolers:
Kajaria, the manufacturer of ceramic tiles, is on the same lines as Cera. It will be a massive beneficiary of the urbanization boom with new housing complexes, malls etc and it has a market cap of only Rs. 1,000 crore, he said.
Basant made a reference to Symphony Coolers in the same spirit.
Gruh Finance/ Repco Home Finance:
“Rural low ticket mortgage is going to be huge” Basant said. He pointed out that Maharashtra, Gujarat & Tamil Nadu constitute more than 50% of India’s mortgage market and that if an investor had Gruh Finance and Repco Home in his portfolio, he had that market covered.
Both stocks have an inherent strength and a “moat” because they deal with small ticket borrowers who have the earning power but without the documentation to support it. Banks are not interested in such customers even though they present a huge potential.
Basant also pointed out that because the loans are given against immovable properties (which are appreciating assets), the risk of a NPA is low. “It is a challenge to lose money by lending against the security of a house” Basant said.
The market cap of these stocks at Rs. 2000 to Rs. 6000 crore is also low. There is a huge opportunity and it is a 20 year story Basant emphasized.
Basant also drew inspiration from Fannie Mae & Freddie Mac, the US based mortgage companies, which have a $57 Billion capitalisation.
In contrast to their USA counterparts which face stiff competition from Banks, Gruh & Repco have a “free ride” Basant said with great confidence in his voice.
Speaking for myself, I think there is great merit in Basant’s advice. It is logical and makes a lot of sense. I already have Cera, Kajaria & Repco Home in my portfolio. I intend to keep adding to them in a slow and steady manner.