Gains gushed in when Dolly Khanna & Mohnish Pabrai were jointly bullish on Rain Industries
In July and August 2017, I sounded the red alert that Dolly Khanna and Mohnish Pabrai are jointly bullish on Rain Industries and were gobbling the stock as if there was no tomorrow.
While Dolly maintained her customary studied silence, Mohnish had indicated that Rain has 4x multibagger potential.
“I put 20 million of Pabrai Funds into the Company (Rain Industries). It is now worth north of 50 million. I think we will probably get 100 million or even 200 million out of it,” Mohnish had said.
Taking a cue from Mohnish, I also became aggressively bullish.
“It is imperative that we do not let this golden opportunity slip out of our hands,” I had then said with supreme confidence.
I was perfectly justified because the stock surged like a supersonic rocket from Rs. 123 to Rs. 475 and posted massive gains of 286% in just six months.
Sadly, good things never last.
A number of issues such as Trump’s trade war, revival of competition from China, BSE’s ASM listing etc have taken their toll on the stock.
The stock is presently quoting at Rs. 195, down a whopping 59% from the ATH of Rs. 475.
Mohnish Pabrai increases stake in Rain Industries ….
In his latest interview to Nikunj Dalmia and Tanvir Gill, Mohnish candidly revealed that he is still very bullish about Rain Industries’ prospects and has increased his stake in the Company.
“We have a higher position in Rain today than we had three months ago … I wish I could buy more but there is a limit of 10%,” he had told the duo.
#ChaiWithPabrai | Have a higher position in Rain Industries today than 3 months ago; Wish I could buy more in Rain Industries but close to breaching limits, says @MohnishPabrai in an #Exclusive chat with @nikunjdalmia @tanvirgill2 pic.twitter.com/hHHccYi2s5
— ET NOW (@ETNOWlive) June 1, 2018
#MarketView | Ace Investor @MohnishPabrai on Rain Industries!#ChaiWithPabrai @WarrenBuffett @tanvirgill2 @nikunjdalmia pic.twitter.com/DsiCLZMmSV
— ET NOW (@ETNOWlive) June 1, 2018
The latest official disclosure at the BSE corroborates the veracity of Mohnish’s statement.
As of 31st March 2018, the holding of Mohnish’s assorted PMS Funds in Rain Industries totalled 2,90,12,715 shares.
This now stands at 3,28,84,427 as of 30th June 2018.
The aggregate holding of the Pabrai Funds is 9.77% of the total equity capital of Rain Industries.
… but Dolly Khanna slashes stake
The worrying aspect is that Dolly Khanna appears to have lost confidence in Rain Industries and has slashed her holding.
As of 31st March 2018, Dolly held 89,47,515 shares of Rain.
As of 30th June 2018, she holds only 86,52,410 shares.
This means that 295,105 shares were put on the guillotine by Dolly.
Is Dolly merely trimming her holding?
Some investors at MMB and at RJ Fan Club argued that not much can be read into Dolly’s trimming her holding.
“She is merely doing profit booking. This does not mean that Dolly has lost confidence in Rain Industries,” a wizened punter argued in a vehement manner.
There is merit in this theory because Dolly does have a penchant for tinkering with her portfolio. She sells even her high-conviction stock picks so as to allocate funds elsewhere.
However, we must also be aware of the fact that Dolly is a master of stealth and strategy. She keeps her cards close to her chest and never reveals her game plan.
There are umpteen examples of stocks like Hawkins Cooker, CERA, Avanti Feeds and Nandan Denim where Dolly jettisoned her vast holdings in such a stealthy manner that even her devoted fans did not notice it.
In the case of Hawkins Cooker, Dolly literally camped in Dalal Street and sold small bits and pieces on a daily basis so as not to alert anyone (see Dolly Khanna Escaped Carnage In Hawkins Cookers By Easing Herself Out Of Stock In Skilful Manner).
My strategy now-a-days is all about the next 5%. It helps me invest better and keep calm, says Mr. Rajiv Khanna. #LetsTalkMidCap
— Kotak Securities Ltd (@kotaksecurities) December 11, 2017
BNP Paribas Arbitrage & other Mutual Funds also slash holdings
BNP Paribas Arbitrage Mutual Fund has been itching to get rid of its holding of 36,20,164 shares in Rain Industries.
In May 2018, it had unceremoniously dumped a chunk of 18,90,000 shares on the unsuspecting public.
BULK DEAL
Rain Industries
BNP Paribas Arbitrage sold 18.90lk shares (0.6%) at Rs 277.43 each— Avinash Gorakshakar (@AvinashGoraksha) May 11, 2018
The balance may also have been sold in the interregnum because their name no longer appears in the list of major shareholders.
The other Mutual Funds have also slashed their holding from 13,60,811 shares in March 2018 to 10,04,719 shares in June 2018.
However, not much can be read into the Mutual Funds’ activities because they have been on a selling spree even before the stock became a mega multibagger and have lost out on phenomenal gains (see Mutual Funds Defy Dolly Khanna & Mohnish Pabrai & Lose Multibagger Gains In Folly).
Are Rain Industries’ business plans still robust?
This is an important aspect on which there is some ambiguity.
According to the latest investors’ presentation and seminar, competitors like Rusal, Norsk Hydro ASA and some Chinese companies are expected to increase production shortly.
“Geopolitical Updates:
• In March 2018, US imposed 10% tariff aluminium imports with exemption for Canada & Mexico.
• In January 2018, India implemented the increase of import duty from 2.575% (incl. 3% cess) to 11% (incl. 10% surcharge) on petroleum coke with immediate effect.
• US sanctions on Rusal, a 6% supplier of global aluminium. US Treasury Department extended the deadline for unwinding business with Rusal from June to October and pointed out a path of sanction relief. Rusal may restructure its assets in near future to overcome the implications.
• Under judicial orders after allegations of a toxic leak, 50% capacity shutdown made by Alunorte refinery, the world’s largest refinery in northern
Brazil owned by Norway’s Norsk Hydro ASA. Alunorte refinery may return to full production over next six months.
• Amidst curtailments on environmental protection lines, production increased in China by 13% during CY17.
• As a part of ongoing efforts to move smelting capacity to more remote areas to reduce environmental impact on large population, the China’s Shanxi Province offered incentives for smelters willing to transfer smelting capacity to the north-eastern province. Availing this, a smelter has commenced construction of 500,000 tons p.a. smelting capacity in CY17”
There is also an impending nationwide ban on the use of pet coke by various industries.
To curb pollution, govt considering nationwide ban on use of pet cokehttps://t.co/qUFIMmTAvc pic.twitter.com/RN2nYTuMgZ
— Hindustan Times (@htTweets) April 10, 2018
How these events will affect the fortunes of Rain Industries is not known at present.
Conclusion
In hindsight, we ought to have cashed in on the bonanza when the stock was coasting at the ATH. At the CMP, not much gains are there. It is better if we hold on and give Mohnish and Dolly company. Who knows, Rain’s glory days may return and we may be able to bask in even more riches than before!
There was a time when IT was booming and many companies would be born almost overnight from a particular state which also had Satyam as one amongst them. Then IT took a knock with 9/11 on WTC and many a skeleton tumbled out from that place. Hopefully the story is not repeating again!
So, be slow in choosing a friend, still slower in changing a friend!
“If you invested Rs. 1L in co. X in 1992..it would have Rs. 28 crores today. However after it went to Rs. 12 crores, it went down to Rs. 3 crores. WHAT YOU DID ON THAT DAY decided whether you got 3 crores or 28 crores after 5 years….”
Read this tweet somewhere today.
Sometimes even most successful investors can be wrong. I doubt Rain really holds anything significant now, i see no upside in it.