I sold Karnataka Bank to buy Everest Industries
First, we have to compliment Vijay Kedia for his brilliant timing.
When he realized that Karnataka Bank, once the crown jewel of his portfolio, was sinking like a stone under the weight of its NPAs, he dumped it like a hot potato.
The proceeds were invested into Everest Industries.
The strategy and timing was brilliant because, on a YoY basis, Karnataka Bank has lost 14% while Everest Industries is up a fabulous 112%.
This is a textbook example of “cutting the weeds and watering the flowers”.
Vijay Kedia has also recommended as a “Diwali Gift” that we also buy Everest Industries.
He also provided a succinct presentation to enable us to understand the investment rationale of Everest Industries.
Disruption will lead to multibagger gains
Vijay Kedia is a strong believer in the theory that anything that can be disrupted will be disrupted and the survivors will take home the loot.
Next Big thing and theme is "Disruption". Anything which can be disrupted will be disrupted.
Let's find such story.
— Vijay Kedia (@VijayKedia1) December 8, 2015
@Mayank50feather yes. Rapples also but mainly one book factory is very big disruption from Repro.
— Vijay Kedia (@VijayKedia1) December 10, 2015
On this logic, Vijay Kedia holds a mammoth quantity of 7,38,928 shares of Repro India Ltd stock.
The investment is worth Rs. 45 crore at the CMP of Rs. 608.
Repro is also doing well with a 24-month gain of 55% and a 12-month gain of 46%.
KPIT Technologies, latest stock pick of Vijay Kedia
In his latest interview, Vijay Kedia has revealed (@31.30) that his latest stock pick is KPIT Technologies (wrongly referred to as KPIT Systems).
Unfortunately, he did not reveal any details of the quantity of stock that he has bought.
He did, however, reveal that he bought the stock a year ago.
This means that he is sitting on a hefty gain of 67%.
— BloombergQuint (@BloombergQuint) March 26, 2018
KPIT Technologies is Ashish Kacholia’s fav stock
Ashish Kacholia bought a chunk of 29,00,000 shares of KPIT Technologies on 26th July 2017 at Rs. 120.23 per share.
The investment has worked out well. At the CMP of Rs. 220, hefty gains of 83% are on the table.
Ashish Kacholia’s holding in KPIT Technologies as of 31st December 2017 stands at 35,25,000 shares.
The investment is worth Rs. 78 crore at the CMP of Rs. 220.
KPIT Technologies is undergoing value unlocking
According to research reports by Axis Securities and HDFC Securities, KPIT Technologies is undergoing a demerger which will result in “value unlocking”.
The demerger process has been described as “complex” by the experts which obviously means that it is beyond our comprehension.
The analysis is as follows:
“Value unlocking through complex demerger
Board of Directors of KPIT Tech has approved a composite scheme for (a) amalgamation of Birlasoft (India) with KPIT (“proposed merger”); and (b) demerger of engineering business of KPIT into KPIT Engineering Ltd (KEL), and remaining KPIT-Birlasoft (IT Services business).
Value neutral merger despite strong growth of Birlasoft:
Shareholders of Birlasoft will receive 22 equity shares of the combined KPIT-Birlasoft for every 9 equity shares of Birlasoft. Both the demerged (KEL and KPIT-Birlasoft) entities would be listed on the exchange and shareholding would be replicated.
The existing promoters of the company (KPIT – KEL; Birlasoft – KPIT-Birlasoft) propose to acquire sole control and shareholding subject to compliance with SEBI Regulations 2011.”
What about Majesco?
At this stage, we have to ask the pertinent question that if Vijay Kedia’s is backing KPIT Technologies as a “disrupter”, is not Majesco an equally good or better bet?
Majesco is also Ashish Kacholia’s favourite stock. He holds 2,75,000 shares as of 31st December 2017 which represents an investment value of Rs. 14 crore.
According to a research report from ICICI-Direct, Majesco has a partnership with IBM, the blue-chip tech behemoth, and is shifting to a “cloud based model” which will allow it to reap benefits.
The logic is as follows:
“Transition towards cloud & IBM partnership bodes well; reiterate BUY…
Majesco reported a strong Q2FY18 after four consecutive quarters of revenue decline.
Transition towards cloud driven model with ~80% deals on cloud in the potential deal pipeline positions the company strategically well.
Moreover, the IBM partnership is promising to be a significant deal for Majesco in the cloud space and provides good revenue visibility for the coming years.
Consequently, we expect Majesco’s rupee revenue to grow at CAGR of 6.9% in FY17-19E.
We value Majesco US (Majesco India holds 70% stake) at 4x EV/sales, which is at ~50% discount to global peers such as Guidewire to account for modest growth/margin profile.
After considering a holding company discount of 30%, Majesco’s 70% stake in Majesco works out to Rs. 725/share providing significant upside from current levels. Hence, we maintain our BUY rating.”
Similar rationale is echoed in the research report by HDFC Securities about Majesco:
“The IBM alliance is strategically very crucial for Majesco, and can drive significant growth ahead. The total opportunity size of the partnership is ~USD 300-400mn over a five-year period.
We maintain our positive stance on Majesco based on (1) Rising adoption of third-party software by US P&C insurance majors, (2) IBM partnership benefits, (3) Improving deal wins within Tier-1, and (4) ramp-up in cloud subscription revenues (~10% of rev currently with higher margins). We maintain BUY with a TP of Rs 645 (upside of 28%) based on EV/rev multiple of 2.0x (~70% discount to Guidewire).”
So far, we have turned a blind eye to Info-tech stocks in the misconception that the sector has no multibagger prospects.
However, in the light of Vijay Kedia’s assertion that certain info-tech companies will disrupt and lead to multibagger gains, we will have to reevaluate the sector ASAP and tuck into the best stocks!