Daljeet Kohli’s Prophecy About Ajanta Pharma Comes True. What Will Be The Fate Of Kajaria Ceramics?

Daljeet Kohli is credited with spotting the incredible opportunity that Ajanta Pharma presented. I covered this in detail in my piece “Daljeet Kohli Gets A 10-Bagger From Ajanta Pharma & Still Recommends A Buy”. Over a period of three years, Daljeet & Bhagwan patiently guided clueless investors to a fabulous 10-bagger in the stock. In the short period that has elapsed since I wrote the piece, Ajanta has surged about 60%.

However, when reckless euphoria gripped investors and Ajanta Pharma surged to a peak of Rs. 1798, Daljeet began to get jittery. He sent out periodical cautionary warnings that the stock was over-priced and that it would correct. He set out a price target of Rs. 1,385 for the stock.

In his latest note, Daljeet sounded very grim:

“Valuation: At CMP of Rs 1,740, the stock is trading at P/E multiple of 22.5x of FY15E & 18.8x of FY16E. We have HOLD rating on the stock with the target price of Rs 1,385.”

I followed Daljeet’s advice and put my SIP on hold.

Today, that prophecy came true. Ajanta Pharma’s Q1FY15 results were quite encouraging on a YOY basis because the revenue from operations grew 32% at Rs. 287 cr. As against Rs. 218 cr in Q1FY14. The PAT grew a whopping 80% at Rs. 59 cr against Rs. 33 cr in Q1FY14. However, the strain of the valuations could be seen and investors let go of the stock, sending it reeling down nearly 10%.

Of course, Daljeet has repeatedly assured that Ajanta Pharma is a great long-term story and so it is only a question of waiting for the price to come down to the target price before we start nibbling at it again. Even if the price does not slump, it might undergo a time-correction to enable the earnings to catch up with the valuations.

It should be noted that even in Alembic Pharma, another of Daljeet’s success stories, Daljeet is not very gung-ho because the valuations have run ahead of the fundamentals. Daljeet has advised as follows:

“At CMP of Rs 340 the stock is trading at 20.6x FY15E & 16.8x FY16E earnings estimates. We continue to value the stock at 17x FY16E PER inline with its peers like IPCA to arrive at target price of Rs 345. Since the CMP is near the estimated fair value we maintain HOLD rating. We remain impressed with management’s resolve to stick to high margin niche products. Therefore remain positively biased. Post September quarter results when the base effect will show up in numbers we expect the stock to give us an opportunity to buy at lower levels. We will wait for better entry point.”

Now, the biggest concern is that Daljeet has issued a sell call in Kajaria Ceramics. Kajaria has been on fire in the recent past with a 174% YOY gain. He has issued this ominous warning:

“At CMP of Rs 626, the stock trades at PE of 35.4x and 23.4x its FY15E and FY16E earnings of Rs 17.7 and Rs 26.8 per share. We are positive on the long term prospects of the company given its leadership position and its thrust to maintain this position. However, we remain cautious on the aggressive expansion plans, higher ad spends and teething issues in the new segments (sanitaryware and faucets). We maintain our SELL rating on the stock as valuations appear rich at current levels. We arrive at a revised target price of Rs 482 per share by maintaining our target multiple of 18x on revised FY16E earnings estimate of Rs 26.8 per share.”

Daljeet’s target price for Kajaria Ceramics is a whopping 25% down from the CMP!

I have a nice little chunk of Kajaria Ceramics in my portfolio. It makes for a very pretty sight with all that lush greenery. I am in a quandary about what to do. I don’t want to dump a winning stock which is riding high on NAMO but at the same time you can’t really ignore Daljeet’s advice. Any ideas?