Dolly Khanna a.k.a Rajiv Khanna never ceases to amazes us. How she manages to ferret out winning stocks with such consummate ease will remain one of the enduring mysteries of life.
Dai-Ichi Karkaria is a micro-cap with a market capitalisation of Rs. 152 crore. It is engaged in the manufacture of specialty chemicals, surfactants and specialty polymers which are used in various industries like paints & pigments, adhesives etc.
Dolly has bought 78,221 shares of Dai-Ichi in the March 2015 quarter. Her investment is worth Rs. 1.60 crore at the CMP of Rs. 204.
Dai-Ichi’s salient points have been nicely summarized by GEPL in their research report of September 2014. They have given five reasons why Dai-Ichi is a good buy:
(i) Strong demand expected for specialty chemicals;
(ii) High margins of 10% and high ROE of 18%;
(iii) Debt-free balance sheet and very efficient working capital cycle;
(iv) JV with Nalco Champion, the World leader in oil field chemicals;
(v) Reasonable valuations. When GEPL issued the report, Dai-Ichi was quoting at 6.7x FY14 EPS. Today, it is quoting at 10.48x TTM EPS of Rs. 19.51. While the stock is not as cheap as it used to be, it is not frighteningly expensive either, especially given the prevailing bull market.
Dolly’s other stock pick shatters the myth that she is wary of investing in banks and Pharma companies owing to their vulnerability to regulatory issues.
Venus Remedies is also a micro-cap with a market capitalisation of Rs. 192 crore. It is engaged in manufacture of various products across therapeutic segments including oncology, anti-infective, neurology, cardiology, orthopedic, pediatrics etc.
Dolly has bought 117,865 shares of Venus Remedies in the March 2015 quarter. The investment is worth Rs. 1,98 crore at the CMP of Rs. 168.
Venus Remedies is a bit of an aberration because on a YOY basis, it has given a negative return of nearly 50%. Even the six month return is a loss of 37%.
The reason this happened was because there was great hype created over the launch of a product called ‘Trois’ (a pain killer) in the Singapore market. However, the Company was heavily indebted and delayed repayment of loans. This led to CRISIL downgrading the rating. One thing led to another and the stock price plunged, resulting in heavy losses to its shareholders.
Dolly Khanna’s calculation appears to be that the worst is priced in and that Venus is finally beginning to get its act together. The fact that Venus Remedies is quoting at a P/E of 5.23 is an indication that it has bottomed out.
Dolly’s logic appears to make sense. While all other Pharma companies are presently quoting at stratospheric valuations, Venus Remedies is available at a rock bottom valuation. This means that there are no expectations and the downside is limited. On the other hand, if there is a whiff of good news (such as the launch of a new drug etc), Venus can be expected to go surging up.
So, Dolly Khanna has really acted as a value investor in buying Venus Remedies!