24×7 vigil of Dolly Khanna’s portfolio
It is well known that all of the stocks in Dolly Khanna’s portfolio are subject to 24×7 vigil by her devoted army of fans and followers.
Apart from the punters at Dalal Street and MMB, the elite members of RJ Fan Club personally monitor the stocks in the portfolio.
Even the slightest movement in terms of purchases and sales of the stocks triggers off multiple alarms.
This is what Dolly Khanna’s latest portfolio of multibagger stocks looks like:
|Company||No of Shares (in Lakhs)||Rs Crore|
|Dhampur Sugar Mills||7.86||20|
|Asian Granito India||3.18||14|
|IFB Agro Industries||1.46||6|
|ADF Foods Industries||2.22||5|
|Nahar Industrial Enterprises||4.16||4|
|Dwarikesh Sugar Industries||2.74||2|
Quinag buys Manappuram Finance
On Monday, 21st August 2017, Quinag Acquisition (FPI) Ltd, an elite FII, bought a massive chunk of Manappuram Finance.
Manappuram Finance is Dolly Khanna’s number one stock pick. It is the crown jewel in her portfolio.
Probably, in an attempt to evade undue attention, the suits of Quinag spread out simultaneously to the BSE as well as the NSE.
They bought 285,50,000 shares from the NSE at Rs. 93.05 per share and 151,00,000 shares from the BSE at Rs. 94.73 per share.
By the EOD, Quinag Acquisition had scooped up a massive 5.18% stake in Manappuram Finance by investing Rs. 143 crore.
Ayesha Faridi, the charming editor of ETNow, was among the first to spot them. She immediately sounded the alarm:
Manappuram Finance: Quinag Acqusitions bought 4.4 crore shares in Co
— Ayesha Faridi (@AyeshaFaridi1) August 22, 2017
Sonam Mehta of CNBC Awaaz also exhibited exemplary vigilance in reporting the matter:
Manappuram Finance Ltd – FUND ACTION
QUINAG ACQUISITION (FPI) LTD buys 4 cr 36 lk shares @ Rs 93.05/-
— SONAM MEHTA (@sonamcnbcawaaz) August 22, 2017
Who is Quinag Acquisition (FPI) Ltd?
I tapped into my network of informers to determine the credentials of Quinag Acquisition (FPI) Ltd.
The records show that Quinag is a FII registered in Mauritius. It appears to have made its debut in India by buying Manappuram Finance.
According to sources, Quinag Acquisition (FPI) Ltd is an offspring of CIM Fund, the well known FII with an AUM of $19.7 Billion.
This was corroborated by Ashutosh Joshi of Bloomberg.
Quinag Acquisition, not much known FPI, buys 5% stake in Manappuram Finance for 4b rupees. Public info is its related to CIM Fund, Mauritius
— Ashutosh Joshi (@ashutoshasj) August 21, 2017
Why is Manappuram Finance a good buy now?
There are a number of research reports available which have conducted a threadbare analysis of Manappuram Finance.
The latest reports are by Edelweiss and Nirmal Bang, both of whom have painted a rosy picture about the stock after the Q1FY18 results.
Edelweiss’ logic for recommending a buy is quite convincing:
“RoA and RoE for the quarter remain a highly creditable 4.2% and 18.2% despite transient concerns
MFL Q1FY18 NII and Other Income grew 20% and 221% yoy to INR 575 cr and INR 24 cr, respectively. Operating Expenses grew at a faster pace than Total Income at 29% yoy to INR 284 cr. Provisions (excluding Tax) grew much faster at 408% yoy to INR 81 cr. Consequently, Consolidated PAT de-grew -3% to INR 155 cr.
Group AUM growth was sluggish at 3% yoy, with AUM growing to INR 13380 cr. While slow AUM growth and flattish to negative PAT growth were disappointing from a headline perspective, MFL still delivered superlative RoA and RoE of 4.2% and 18.2% for Q1FY18. We also note that the gearing for MFL is quite low and MFL can potentially expand RoE for the same RoA without unduly affecting risk profile.
Higher Provisions largely due to provisioning on MFI book but the worst is over for Asirvad Microfinance
Non-tax Provisions on MFI book were INR 72 cr as GNPA Ratio of MFI book rose to 6.9%. Internal provisioning norms for Asirvad Microfinance are much stricter than RBI requirements and this led to INR 34 cr provisions higher than mandated by RBI. The worst is over for MFI business with collection efficiency for disbursals post December close to 100%. Disbursal have picked up significantly from July month. However, there may be some residual provisions on MFI book going forward but these are not likely to be as material as in Q1FY18.
Group AUM growth held back at 3% yoy by Gold Loan AUM de-growth but recovery ahead for Gold Loans
Group AUM grew 3% yoy to INR 13380 cr due to Gold Loan book (80% of Q1FY18 Group AUM) de-growing -5% yoy. Since the customer set for MFL is at the bottom of the pyramid, Demonetisation and drought conditions in South India have led to some customers not being able to recover and ultimately, this led to high incidence of auctions in Q1FY18 at INR 531 cr. MFL had not opted for RBI dispensation for NPA recognition earlier. Importantly, management sounded confident about Gold Loan business from Q2FY18 onwards. Furthermore, new business lines grew 59% yoy and now form 20% of Group AUM. The prior guidance for new business lines forming 25% of Group AUM by the end of FY18 remains intact.
Fall in Cost of Borrowings a strong kicker for NII growth and expected to fall further going forward
Cost of Borrowings (COB) for MFL fell 97 bps yoy to 9.4% and is expected to fall further going forward. Incremental COB at 8.3% provides an indication in this regard. Furthermore, MFL has received a Long Term Credit Rating upgrade from Brickworks to AA Stable and this provides incremental fillip to COB drawdown. Furthermore, MFL’s customer set is not interest rate sensitive and there is no need for MFL to pass on COB benefit to customers, which supports the maintainence of NIM above c.15% going forward.
Valuation and Rating: Maintain ‘BUY’ with Price Target of INR 118
At the current price of INR 86, MFL trades at a P/B of 1.3x FY19E consolidated book. We maintain ‘BUY’ Rating with Price Target of INR 118, at which the stock will trade at 1.8x FY19 consolidated book.”
Nirmal Bang is equally persuasive in its buy recommendation:
“Valuation and outlook: With the worst-case scenario behind, regulatory environment turning favourable and stable gold prices, MFL is targeting healthy growth going forward. However, increase in loan delinquency post demonetisation needs to be managed well. MFL’s de-risking strategy has helped it to keep credit costs at a low level. Diversification into other segments will enable faster utilisation of excess capital on its balance sheet and avoid any undesirable treatment from the regulator for being a single-product company. Tier I capital of 22% ensures unhindered growth and there is no need to raise capital for the next two years. MFL has the potential to deliver RoA of ~4% and RoE of ~20% on a consistent basis, in our opinion.”
Trident Ltd is at the “onset of a high growth cycle” & also a must buy
Trident Ltd, which is Dolly Khanna’s third high-conviction stock pick, also has no dearth of admirers.
Motilal Oswal is the latest to join the list of admirers.
Niket Shah of Motilal Oswal has penned a detailed initiating coverage report on Trident Ltd in which he has explained all the nuances and explained why the stock is at the “onset of a high growth cycle” and must be given mandatory pride of place in all portfolios.
The bottomline is as follows:
“TRID appears to be at the onset of a high growth cycle, driven by:
1. Growth in bed linen segment: The company is expected to turn EBITDA profitable in the recently ventured bed linen segment by 3QFY18 as utilization touches 40%. In the first year of operations, bed linen witnessed utilization of 29%, which is expected to increase to 60% in FY20. Also, the segment’s share in overall revenue is expected to increase from 4% in FY17 to 9% in FY20.
2. Higher utilization in bath linen: TRID used to run at high utilization of 74% in the towel segment in FY13. However, utilization declined thereafter as the company almost doubled its capacity in the segment from 42MT in FY13 to 90MT in FY15 to make itself future-ready. Going forward, the company is expected to witness higher utilization (65% in FY20E v/s 50% in FY17), which would not require further addition of spindles as yarn capacity would be utilized in-house.
3. TRID’s rising share in global market: The share of Indian companies in the global textile market is on the rise as the country is becoming highly competitive in terms of raw material cost, labor cost and level of automation, leading to improved quality. TRID has been proactive in capitalizing on this opportunity, leading to an increase in the company’s share in global towel exports to the US (from 10% in CY14 to 13% in CY16). Also, the company’s share in Indian towel exports to the US has also increased from 28% in CY14 to 32% in CY16.
4. Paper biz margin driven by branded copier paper: TRID has consistently increased its share of copier paper over the years. Copier paper contributed 45% of the company’s overall Paper sales volume in FY13, which increased to 60% in FY17. Since, copier paper commands high margins, we expect Paper business margin to expand 340bp to 38% in FY20.
We believe TRID is set to benefit from multiple factors, including industry growth and expanding share of bed linen/copier paper. Hence, we estimate 9% sales CAGR and 24% PAT CAGR over FY17-20, with improving RoCE and RoE (from 7.5% and 13% in FY17 to 13% and 17.1% in FY20, respectively). IND AS adjustment recognized on fair valuation of PPE to the tune of INR7,582m has resulted in a depressed return ratios, with RoE and RoCE standing at 18.3% and 8.6% in FY17 pre-adjustment v/s 13% and 7.5% in FY17 post-adjustment. Consequently, pre-adjusted RoE and RoCE is expected to increase to 21.4% and 15.1% in FY20E respectively. We value TRID at 11x FY19E EPS, arriving at a TP of INR114, implying 39% upside. We initiate coverage with Buy.”
A similar sentiment has been expressed by Edelweiss and IDBI Capital.
Edelweiss has projected a generous target price of Rs. 118 for Trident Ltd, which implies that hefty gains are in the offing.
It goes without saying that no fan of Dolly Khanna can remain without having Manappuram Finance and Trident Ltd in his or her portfolio. Those who have not yet given the two stocks pride of place should do so without any further delay.