Baffling allergy towards banking and NBFC stocks
One aspect that has always perplexed me, whenever I gazed at Dolly Khanna’s portfolio of magnificent multibagger stocks, is the total absence of banking and NBFC stocks in it.
In her long and illustrious career, Dolly has studiously steered clear of stocks from the financial sector.
What is even more perplexing is that Dolly Khanna’s aversion towards bank and NBFC stocks is shared by other eminent gurus such as Ramesh Damani, Ashish Kacholia, Prof Sanjay Bakshi, etc.
Prof Sanjay Bakshi, the authority on value investing, has given a detailed explanation of the reasons for his aversion towards finance stocks. However, the reasoning is not very convincing.
Ramesh Damani shocked everyone by stating publicly that he “does not touch” banking stocks.
Vijay Kedia has also largely kept away from financial sector stocks though he has now changed his stand and recommended Karnataka Bank as his “best stock pick for 2017”.
Dolly Khanna makes amends by buying truckload of Manappuram Finance
Dolly has made amends for her previous abstinence from finance stocks by buying a massive chunk of Manappuram Finance.
As of 31st December 2016, she is the proud owner of 95,15,910 shares of Manappuram Finance. The investment is worth Rs. 70 crore at the CMP of Rs. 74.
Size of bet shows Dolly’s confidence in Manappuram Finance
Let’s take a quick look at Dolly Khanna’s latest portfolio:
|Latest Portfolio Of Dolly Khanna|
|Company||No of Shares (in Lakhs)||Rs Crore|
|Dwarikesh Sugar Industries||2.35||9|
|IFB Agro Industries||1.37||6|
|ADF Foods Industries||2.20||3|
|Emkay Global Financial Services||3.84||2|
A study of Dolly Khanna’s portfolio reveals that she likes to spread out her investments. She ensures that the funds are evenly spread out as far as possible.
The fact that Manappuram Finance has emerged as the single largest holding in the portfolio speaks volumes of Dolly’s confidence in the stock.
The stock has overnight become Dolly Khanna’s number one stock pick.
(Illustrious multibagger couple: Rajiv Khanna & Dolly Khanna)
Ashish Dhawan rakes in 400% gains in 12 months
Ashish Dhawan, the visionary founder of ChrysCapital, a PIPE fund, timed his purchase of Manappuram Finance perfectly.
He bought a massive chunk in September 2015 at the throwaway price of Rs. 20.20.
The stock touched a high of Rs. 107 on 26th October 2016 giving Ashish Dhawan mind-boggling multibagger gains of nearly 400%+ in just 12 months. Even as of date, gains of 270% are on the table.
However, it is notable that Ashish has been paring his holdings in Manappuram Finance significantly. He held 2,45,14,818 shares on 30th June 2016. This was reduced to 1,95,14,818 shares on 30th September 2016 and is further reduced to 1,68,60,947 shares as of 31st December 2016.
Prima facie, Ashish Dhawan’s sale of the stock appears to be motivated by his objective to invest in the education sector/ charity and may have nothing to do with the fundamentals of the stock.
(Rajiv Khanna reveals how he converted a small business into a conglomerate)
Favourite stock of Vinit Sambre’s DSP BlackRock Micro Cap Fund
The DSP BlackRock Micro Cap Fund holds 1,20,17,309 shares of Manappuram. The total holding by the DSP Blackrock Fund is 2,53,60,301 shares as of 31st December.
We have earlier studied the success formula adopted by Vinit Sambre to find multibagger stocks. He has the uncanny knack of homing in on winning stocks.
Stock laid down by the blow of demonetization
Manappuram Finance has been the worst affected by the demonetization move. It slumped from Rs. 103 on 8th November 2016 to a low of Rs. 60 on 26th December 2016, losing a whopping 41% in less than eight weeks.
|Repco Home Fin||722.25||502.70||-30.40|
|M & M Fin. Serv.||345.90||249.70||-27.81|
|Dewan Hsg. Fin.||313.75||236.00||-24.78|
(Chart by Business Standard)
It is notable that other NBFC stocks such as Bharat Financial (SKS), Repco, etc lost less value in comparison to Manappuram.
Impact on demonetization is exaggerated: V. P. Nandakumar
V. P. Nandakumar, the promoter cum MD and CEO, was at pains to emphasize that not only was Manappuram Finance not adversely affected by demonetization, but it would benefit by the shift from the unorganized sector to the organized sector.
Nandkumar’s theory that demonetization does not adversely affect gold finance companies is backed by an analysis conducted by experts.
“With the move towards cashless transactions, the unorganized sector tends to lose out, and to that extent, companies such as Manappuram stand to benefit,” Rati Pandit of Quantum Securities was quoted as saying.
Gaurav Dua of Sharekhan echoed this sentiment:
“.. the corporatised jewellers will stand to gain, as their sales are not as cash-centric as the unorganized sector or family-owned businesses,” he opined.
V. P. Nandkumar increases stake in Manappuram Finance
V. P. Nandkumar has put his money where his mouth is. To prove his point that the stock price has been unfairly beaten down, he has bought 2.52 lakh shares on 17th November and 1.63 lakh shares on 20th December. Nandakumar’s personal holding stands at about 28.21% while the promoter holding stands at 34.45% as of 31st December 2016.
Buy recommendation of Nirmal Bang (Target price: Rs. 145)
Nirmal Bang has recommended a buy on the logic that “With likely strong growth in AUM, stable margins, contained credit costs and operating as well as financial leverage to kick in, we expect RoA/RoE to improve further by 90bps/840bps to strong levels of 3.8%/21.6%, respectively in FY19E”.
Nirmal Bang has foreseen a target price of Rs. 145 for the stock, which is a whopping upside of 147%.
Buy recommendation of K. R. Choksey (Target price: Rs. 130)
KR Choksey is gung ho about Manappuram Finance and has recommended a buy with a target price of Rs. 130:
“With a huge beat on PAT at INR 1924 mn (sturdy 20% sequential growth), Manappuram Finance (MGFL) recorded an all-round performance for Q2FY17. Product diversification strategy and rising gold loan volumes (gold holdings up 15% Y-o-Y; leveraging the on-line gold loan product) coupled with improved gold loan quality hinging upon reduction in auction losses and greater thrust on collections emerging from rapidly improving microfinance segment have boosted the earnings for the quarter. Strong loan book traction (clocking 11% Q-o-Q, 40% Y-o-Y growth) and best-in-class asset quality (gross NPAs at 0.9% at 90 dpd).
Therefore, with legacy issues behind and regulatory environment turning favorable in turn aiding traction in gold portfolio, MGFL’s strategy of foraying into higher yielding non-gold products such as microfinance and home finance will form the key levers to growth sustainability ahead. With structural growth story in place and operating leverage flowing through, MGFL stands geared to build a scalable and profitable model. Capital sufficiency (Tier 1 at 21.4%, CAR at 21.8%) with lower gearing levels (leaves ample scope for increase and in turn fuel growth), rating upgrades from agencies and healthy return profile further reinforces our confidence in the company prompting us to MAINTAIN BUY.”
Buy recommendation of Motilal Oswal (Target Price: Rs. 114)
Motilal Oswal has given convincing reasons in support of its buy recommendation. It says:
“Manappuram is today geared up to tap financing opportunities across the spectrum and has realigned its business model to derisk it from volatility in gold prices as well as to sustainably grow its AUM at over 20% in coming years. This shall be achieved by: (i) Focusing more
on shorter term products (3 months) which eliminates the risk of any steep fall gold prices impacting the company; (ii) Adopted push approach instead of pull earlier by reaching out to customers through enhanced marketing and branch activation efforts and linked employee incentives to sourcing business, timely recovery and default rates; (iii) Foray into synergistic non-gold businesses -Microfinance, Home Loans and CV Loans (to form 25% of AUm by FY18 from 12% in FY16. Company aspires to reduce its good AUM to less than 50% of the total AUM by focusing on growing its Microfinance AUM to 20% of total and Home Loans AUM to 30% of total in the long run.”
Buy recommendation of Axis Securities (Target price: Rs. 102)
Axis Securities’ buy recommendation is based on this logic:
“MGFL believes that the de-monetization scheme will lead Unorganized gold loans to shift towards the organized segment. Also, 2/3rd of customers have already moved to online gold product facility making the demonetization impact negligible. The impact of demonetization is expected to be visible in Q3 FY17 for at least for 10-12 days which should impact both disbursals (although 50% are disbursed through NEFT/online) as well as collections. We thus expect 3Q to be a soft quarter, however long term prospects remains intact. We value MGFL at FY18E P/BV multiple of 2.5x to arrive at target price of Rs.102 and continue to have BUY rating.”
Soft Q3FY17 results expected?
The question as to whether demonetization will adversely affect the Q3FY17 results of Bank and NBFCs is not clear.
IndusInd Bank reported robust Q3FY17 results which suggested that demonetization has had no impact.
IndusInd Bank’s 3QFY17 PAT grew 29% YoY (5% beat) to INR7.5b, led by strong core operating profitability (4% beat). The asset quality remained stable QoQ, with GNPA at 94bp and PCR at 59%.
Whether Manappuram Finance will also show robust Q3FY17 results or whether it will show soft results requires to be seen.
It is very clear that Dolly Khanna has chosen her stock well. We have to congratulate her for yet another winning multibagger stock pick!