Rahul Saraogi’s investing philosophy is best described by the prospectus of his fund, Atyant Capital. In that he states that the objective is “to generate compounded returns over a long-term horizon (3-5+ years) by investing in undervalued, publicly traded Indian equities”. He has also described in detail what the investment process is (how the ideas are generated and evaluated), what are the filters applied (corporate governance, business fundamentals, forensic analysis etc) and how the same is executed.
Navin Fluorine is a good example of this investing technique. The stock is up 191% on a YOY basis and 613% over two years. According to HDFC Sec, the “game is yet to begin” for Navin Fluorine despite the explosive gains of the past.
Ponni Sugars (Erode) is Rahul Saraogi’s latest stock pick. Yesterday, 9th November 2015, Atyant Capital bought 299,352 shares at Rs. 200 each, laying out an investment of Rs. 5.98 crore.
Why Rahul Saraogi chose Ponni Sugar of all the sugar and commodity stocks is not clear. The company is in the doldrums. The Chairman’s speech paints a tale of woe of how a glut in the market has sent sugar prices plummeting. The Chairman also laments that the lenders don’t want to touch a sugar company with a “10-foot barge pole” owing to the problems in the sector.
The Q2FY16 results were also poor as you can see from the chart below.
| Ponni Sugars (Erode) Ltd – Quarterly Financial Results | |||
| Particulars (Rs cr) | Sep 2015 | Sep 2014 | % Chg |
| Net Sales | 55.8 | 67.73 | -17.61 |
| Other Income | 0.74 | 0.82 | -9.76 |
| Total Income | 56.54 | 68.55 | -17.52 |
| Total Expenses | 52.6 | 61.09 | -13.9 |
| Operating Profit | 3.94 | 7.46 | -47.18 |
| Net Profit | 0.13 | 3.18 | -95.91 |
| Equity Capital | 101.19 | 8.6 | – |
However, the interesting point is that despite all its woes, Ponni Sugars (Erode) has given a return of 36% YOY and a three month return of 26%. This is quite commendable when you bear in mind that all of its peers such as EID Parry, Bajaj Hindustan, Balrampur Chini, Bannari Amman and Shree Renuka Sugars have posted a loss on a YoY basis.
Rahul Saraogi appears to have a fascination for the sugar sector and is familiar with all of its strengths and weaknesses. In the prospectus, he talks of EID Parry as one of the fund’s success stories. He calls it a “good business run by a good management team at a good price” with a “significant margin of safety”. He also says there is “Optimal risk versus reward and one of the best equity investment opportunities available”. “The stock looks grossly undervalued” he adds.
Since the date of the prospectus (12.08.2013), EID Parry is up 56%. This is not bad for a 27 month investment.
Ponni Sugar appears to have the same, if not better, attributes as EID Parry. This would explain why it has outperformed its peers. If the problems of the sugar sector are sorted out as hoped for by the Chairman of the Company, Ponni Sugars has the potential to spurt and become the next feather in Atyant Capital’s portfolio, together with Navin Fluorine!
Amateur investors please READ THIS! I cannot by any means ever understand some investment principles of so called professional investors. Look for a PE that is not been hit for 6 sixes in an over already. Don’t buy a stock whose profit and sales both showcase a patterned rise. This displays a good batting and bowling team. Cash from operations must always be higher than net profit. This shows a great coach. Roe must be worth your while,otherwise every-time you win a match, the rewards are notning. So if you like cricket, then look for a team India(3 years ago) not a team Bangladesh, hoping for them to become a team India. If you do t agree, then meet me down there.