Billionaire Ajay Piramal, the Contrarian Investor, Is Sending A Clear Message To Us With His Stock Picks

If you study Ajay Piramal’s life history, you will find a pattern in it. He is a contrarian investor with the ability of being able to identify investment opportunities ahead of the curve.

The first indication of this came in the late 1980s when Ajay Piramal decided to invest in the pharmaceutical sector and bought Nicholas Labs. At that time, the decision appeared bizarre because the pharma sector was totally out of favour. MNCs were getting out of the business in droves. Also, while other pharma companies were focusing on generic drugs, Ajay Piramal decided to go the other way with formulations.

In 2010, when Abbott swooped up the formulations business for a mind-boggling USD 3.72 billion, one knew that Ajay Piramal’s contrarian approach has paid rich dividends. This transaction propelled Ajay Piramal firmly into Billionaire category.

What Ajay Piramal did with those billions further enforced his credibility as a savvy investor.

In yet another contrarian move, Ajay Piramal invested Rs 5,864 crore in Vodafone India in 2012. The move was contrarian because the telecom sector was/is struggling owing to intense competition from aggressive & heavy-weight rivals like Bharti Airtel, Idea Cellular etc and the ARPUs were/are plunging. Also, Vodafone itself was/is in serious trouble over the $12 billion tax demand.

However, in a brilliant strategic move that is reminiscent with what Warren Buffett did when he bailed out Goldman Sachs in the 2008 crises, Ajay Piramal bargained with Vodafone that he would be entitled to exit at the higher of the IPO price, if any, or with a return of 19% CAGR. This way, Ajay Piramal ensured that his investment risk was minimal.

In April 2014, Ajay Piramal pocketed a 52% gain over his Vodafone investment when he exited for a consideration of Rs 8,900 crore.

As any accomplished investor will tell you, a 52% return over a period of two years for such a big-ticket investment is incredible by any standards, especially given that the telecom stocks have not given their investors any returns.

Now, what we need to pay attention to is Ajay Piramal’s future game plan because there is much to learn from this.

In February 2012, Ajay Piramal bought a 10% stake in Shriram Transport Finance for Rs 1,652 crore.

The question is: Why Shriram Transport Finance out of the whole universe of banking & financial stocks?

The answer is that Shriram Transport Finance is a powerhouse stock on all standards. It specializes in funding the purchase of new & second-hand commercial vehicles (trucks). It has a somewhat unique business model which gives it an edge and moat over its competitors. The company is very profitable though the hostile macro-economic environment caused by the slowdown and the high interest rates has taken a toll over the company. Also, there has been disappointment over the non-allocation of a banking license. This is reflected in the valuations of the stock at 2 times book and 12 times EPS.

Frankly, it doesn’t need someone of the genius quotient of Ajay Piramal to tell you that the time is most opportune to buy Shriram Transport Finance. You can put large amounts of money to work in such stocks, without having to look over your shoulder for lurking dangers. The downside is limited while the upside is huge.

Ajay Piramal’s confidence in the Shriram group is also reflected by his recent decision to invest Rs. 2,000 crore to acquire a 20% stake in Shriram Capital, the holding company.

This is also a brilliant strategic move because the investment in Shriram Capital gives Ajay Piramal a stake in four distinct businesses – Truck Finance (25% in Shriram Transport), Consumer & Gold loans (30% in Shriram City Union), Mutual Fund (100% in Shriram Asset Management) and Life Insurance (100% each in Shriram Life Insurance & Shriram General Insurance).

In an interview, Ajay Piramal made it clear that he was fascinated by the Shriram Group. The group is uniquely positioned today, with a leadership position in their businesses, a moat which competitors cannot easily replicate, and with a long history of giving very good returns to shareholders, he said.

The other important point that we need to pay attention to is that Ajay Piramal is clearly indicating his preference for the beaten down financial and infra sector as opposed to the booming pharma sector. In fact, Ajay Piramal also has a NBFC which is involved in funding realty and infra companies. The NBFC has a loan book of Rs 1,000 crore. It has made investments in Navayuga Road Projects and Green Infra.