First, a quick note on the performance of the PPFAS Mutual Fund. In the period from 28.05.2013 (inception) to 07.04.2014, the fund has given an absolute return of 20.9%. This compares favourably with its peers like the IDFC Premier Equity Fund which gave a return of 19.7%, the IDFC Sterling Equity Fund which gave a return of 12.5%, and the SBI Emerging Business Fund which gave a return of (only) 4.4%. The HDFC Mid-Cap Opportunities Fund was, however, ahead with a 26.6% return in the same period.
So, one can say with some confidence that the PPFAS Mutual Fund has been able to hold its ground so far. This is due to a few stellar stock picks like Selan Exploration (which has given 79% in the past 3 months). The three major stocks in the portfolio, namely, ICRA, Axis Bank and Noida Toll Bridge, have contributed their bit to the prosperity of the portfolio. The AUM is also holding steady around the Rs. 350 crore mark. The foreign stocks (about 22% of the portfolio) appear to be a drag if one goes by the performance of IBM, Nestle SA & BAT which have given mildly negative to flat returns on a YOY basis.
A study of the latest portfolio reveals that PPFAS has invested in two new stocks. The first is MT Educare Ltd, in which about Rs. 2.15 crore has been invested in buying about 2.50 lakh shares. The second is The Ramco Cements, in which about Rs. 1.29 crore has been invested in buying about 60,000 shares.
Both stocks are relatively low weightage, with MT Educare being 0.61% of the AUM and Ramco being 0.37% of the AUM.
Now, the question is what it is about MT Educare and The Ramco Cements that has caught Parag Parikh’s eye.
MT Educare is a small cap stock with a market cap of only Rs. 350 crore. It runs the well known “Mahesh Tutorials”. It has been shunned by investors and has underperformed the Index. On a YOY basis, the stock has given only a 6% return. In the past 3 months, the return is virtually flat. In fact, even since the IPO in March 2012, the stock has been flat.
Investors appear to be cold-shouldering the stock owing to its’ Mumbai-centric existence and high dependence on a high-cost geography. Also, the fact that the Government may regulate coaching classes in the near future is also probably making investors wary. There is also intense competition in the coaching class sector with listed (e.g. Career Point) and several unlisted players. According to articles in Business Outlook and Forbes, the business is dependent on highly paid & qualified teachers and scaling up is difficult.
The notable aspect is that Prof. Shivanand Mankekar and Laxmi Shivanand Mankekar are early investors in the stock, with a holding of nearly 5%. However, they haven’t had much to rejoice about in terms of returns from the stock.
The Ramco Cements (earlier known as Madras Cements) is in the same mould as MT Educare. It has also been shunned by investors with a YOY return of (9%). The 3 month return is, however, a respectable 20% owing to a buy call by CLSA which sent the stock soaring. The Ramco Cements’ quarterly results were sluggish and nothing to write home about. The cement industry is also intensely competitive with aggressive big-ticket players like ACC, Shree Cements, Ambuja Cements, J. K. Cements etc jostling for space. Cement is a commodity and it is difficult to have any pricing power in this Industry, as far as my rudimentary knowledge goes. The BusinessLine has a good analysis of the stock and has opined that the stock has potential for patient investors.
At the end of the day, it appears that Parag Parikh has remained true to his reputation as a value investor by picking stocks that are out of favour and quoting at low valuations. Whether there will be a catalyst in the foreseeable future that will shake these stocks out of their slumber remains to be seen.