Satpal Khattar’s latest portfolio
Normally, the visits of Billionaires to Dalal Street arouse great excitement amongst the local populace. Novices and punters line up on the street to greet the Billionaires as their cavalcade passes by.
Some Billionaires even stop by to sign autographs, pose for selfies and exchange high-fives with the novices.
However, Satpal Khattar keeps such a low profile that his visits to Dalal Street usually go unnoticed by the hoi polloi.
Nevertheless, given that Satpal Khattar has amassed a massive fortune for himself through brilliant stock picking, it is our bounden duty to keep tabs on his investing activities.
This is what the latest portfolio of Satpal Khattar looks like:
|Company||Nos (in Lakhs)||Rs Crore|
|R.P.P. Infra Projects||5||13|
|Net Worth of Satpal Khattar in Indian stocks||744
As one can see, Satpal Khattar is a staunch believer in the merits of a concentrated yet diversified portfolio.
His portfolio has only a handful of stocks comprising of companies from the finance, pharma, infra, textiles, technology etc.
However, only three stocks account for a whopping 79% of the portfolio value.
Further, IIFL Holdings, which is the crown jewel of the portfolio, accounts for nearly 50% of the value of the portfolio.
This is a textbook example of how a concentrated portfolio of high-conviction stocks should look like.
Aberration: No Agri stock in portfolio though all other ace investors have in their portfolios
It is indisputable that no portfolio is complete unless it has one or more agriculture stocks in it.
Kenneth Andrade was the first to send the clarion call that the agriculture sector would be a goldmine sector and that all investors should load their portfolios with agri stocks.
His words of wisdom are worth recalling:
“I think there is a very large opportunity in rural India. There are a lot of place in that economy. I think fertiliser is probably the largest consumed product out there. You have got agrochemicals at one end and you got seeds at the other end but more importantly 50% of the entire farmer’s expense goes into labour and if the stated intent by the government is to double the per capita of the farmer by 2022, you are going to see a lot of wage inflation down there.”
A similar sentiment has been expressed by Sunil Singhania, the visionary fund manager of Reliance Mutual Fund. His advice is as follows:
“Agri is a big theme. The government is focussed on increasing rural income and ensuring that there is more stability as far as agri income is concerned. We have a good forecast for monsoon and also there is clear focus from the government to increase our irrigation facilities so the vagaries of monsoons are behind us. All this would mean that rural income would rise and therefore all agri-based themes whether it is rural consumption or agrochemicals or fertilisers should start to see much more stability and growth as we move forward”.
All ace investors such as Dolly Khanna, Anil Kumar Goel, Porinju Veliyath, Shyam Sekhar, DD Sharma etc have acted on this advice and tucked into one or more agriculture stocks.
Nath Bio-Genes, latest stock pick of Satpal Khattar
To make good the glaring deficiency in his portfolio, Satpal Khattar rushed to Dalal Street on 12th September 2017. He first went to NSE where he bought 95,000 shares of Nath Bio-Genes at Rs. 406 each. He then went to the BSE and bought 105,000 shares at Rs. 407 each.
His total investment in Nath Bio-Genes is 2,00,000 shares which is worth about Rs. 8.14 crore.
Nath Bio-Genes is at the “cusp of unprecedented opportunities”
To our good fortune, Mudar Patherya has conducted a detailed analysis of Nath Bio-Genes in which he has given a convincing explanation why the stock is a must buy now.
His logic is as follows:
(i) The Government intends to double farm incomes by 2022. This creates unprecedented opportunity for Nath Bio-Genes;
(ii) Hybrid paddy seeds account for only five per cent of all the land under paddy in India, whereas the corresponding coverage is around 70 per cent in China — an index of the vast scope for hybrid seeds in one of the largest agrarian economies of the world.
(iii) The Indian seeds industry has experienced an inflection; the government indicated a maximum retail price for cotton seeds beyond which multinational companies would not be permitted to charge; it moderated the royalty outgo on cotton seeds from Rs 165 per packet of 50 grams to Rs 43; some prominent multinationals froze launches, which created an unprecedented opportunity for research-driven Indian seed companies.
(iv) Nath Bio-Genes appears to be one of them for good reasons.
(v) The company was selected by the Chinese government for a Bt cotton technology transfer in 2006, coupled with Bt technology sourcing from Monsanto, empowering its platform to generate unique cotton hybrids (more genes and traits) that deliver a combination of drought-tolerant, high-yield and ecologically-accommodative crops. While it would have been easy-marketing low-management seed products in well-irrigated regions, Nath marketed high-management products in vulnerable rain-fed areas, empowering marginalised farmers through champion NBC 1022 cotton seed products to counter droughts, pest attacks (sucking pests), spraying costs, labour intensity and low yields.
(vi) The company selected to focus on specific segments (vegetables, cereals, fibre and oilseeds and nutritional supplements), holding out the largest sustainable opportunity and on select geographies with compacted farm clusters and lower logistic costs.
(vii) The company claims to possess a portfolio of winning products — NBC 102 and 1022 in the area of cotton, Amrapali and Amoli in the okra space, with demonstrated disease resistance; NBC 1894 and 1831 in the tomato category — with demonstrated characteristics considerably superior to competition. The evidence has begun to translate into numbers. Seed returns declined from 39 per cent to 32 per cent in 2016-17; revenues strengthened 4.56 per cent, while profit after tax increased 15 per cent; long-term debt was a mere Rs 22.07 crore as of March 31, 2017.
(viii) The company launched cotton seed products in the Philippines, which comprised fusion gene and hybrids. This should generate international sales starting 2018.
(ix) The company is focused on GMS-induced reduction in cotton seed production costs, coupled with a substantial prospective increase in cotton seed sales — an attractive volume-value play. The company (with associated companies) was awarded 100 acres to develop a mega food park where it owns 20 per cent equity; this business is expected to generate revenues starting 2018.
(xi) The company is packing all its ammunition for 2018 kharif, which should be a breakout in its existence.
Quadrupling of revenues in five years
At the end of the analysis, Mudar has opined that Nath Bio-Genes could quadruple revenues to Rs 1,000 crore in five years (estimated) around existing or superior margins, enhancing respect and stakeholder value.
It is obvious that if there is a quadrupling of revenue in five years, the stock will be at least a 4x multibagger in the same period.
|NATH BIO-GENES (INDIA) LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||643|
|EPS – TTM||(Rs)||[*S]||12.43|
|LATEST DIVIDEND DATE||–|
|BOOK VALUE / SHARE||(Rs)||[*S]||85.97|
[*C] Consolidated [*S] Standalone
|NATH BIO-GENES (INDIA) LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2017||JUN 2016||% CHG|
The hybrid seed market in the country is valued at $1.5 billion
P. B Jayakumar of Business Today has conducted a detailed study of the genetic seeds industry in India and of Nath Bio’s role in it.
He has estimated the hybrid seed market in the country to be valued at a whopping $1.5 billion and noted that Nath is growing at 10% CAGR.
He has also revealed that Nath has “altered the genetic code of tomato” through its product ‘Abhiman – 1222’ and produced tomatoes which are famous for their size, shape and sturdiness.
Similarly, Nath Bio’s Bajra crop seed called “Eknath -301 Gold” is resistant to the “Downey Mildew pest attacks”. It offers better protection bristles against bird damage.
It is obvious that the genetic seeds offer better productivity and that there will be no dearth of demand for such seeds.
Investors’ presentation explains strategy
The investors’ presentation provides a wealth of information relating to the seeds produced by the Company and the future game plan.
Apparently, Nath Bio has seeds for several several crops such as mustard, bajra, paddy, maize, cotton, okra, tomato, gourds, chilli etc. It also has products for crop nutrition.
The salient features of the Company are systematically spelt out in the following words:
•Present in Cotton. But not dependent on it
•Robust offering in important field crops
•Driving Vegetables, Fruits & Crop Nutrition portfolio
COMMERCIALLY DESIRABLE ATTRIBUTES
•Better genetics for consistent performance
•USP for every product. Aiming for better farm economics
•Adapted to local markets conditions (agro-climatics, pests/diseases)
•Continual evaluation of beneficial traits/genes
•Indigenous offering in Cotton: Fusion I & II
•Focus on: Rain-fed ecosystem, Irrigated/High mgmt. varieties
TOP CLASS INFRASTRUCTURE
•Quality beyond standards. ISTA compliant
•Company managed R&D farms. Dedicated stations. Seasonal stations
• Tie-ups with institutions of repute in agronomy/research
DISTRIBUTION: SECOND TO NONE
•Robust presence in key markets
•Distributed production/growing setup
•Long-standing relationships with growers
BEST IN CLASS FARMER SUPPORT
•Full-fledged promotional support
•Dedicated outreach to growers through relationship approach
•Helping farmers earn both bountiful crop and enhanced revenues
•Realistic inventory management
•R&D expenditure expensed off. Negligible intangibles on books
TOPLINE IS IMPORTANT. MARGINS MORE
•Give more value (Hybrids with USPs) to farmer. Get more value in business
•Focus on addressable, high-value market gaps in key crops
•Extensive presence in Vegetables. Blockbuster Crop Nutrition product
PRIMED FOR SCALE UP
•High operating leverage. Growth not contingent to capex
•Asset light trajectory. Can rope in contract growers/processors
•Exports as an avenue to expansion
The future outlook as well as the financial performance is also clearly spelt out.
Nath Bio is targeting growth of 25-30%
In the wake of Satpal Khattar’s purchase of Nath Bio-Genes, Ajaya Sharma of ET Now contacted the management and asked them about the future prospects.
He reported that the management is targeting 25-30% YoY growth in revenues and profits. The management has also foreseen that there will be margin expansion on the back of improved product mix.
Satpal Khattar picks stake in Nath Bio – catch the mgmt on ET NOW in next 5 mins !!
— Ajaya Sharma (@Ajaya_buddy) October 17, 2017
Nath Bio Mgmt: Tgting 25-30% YoY growth in revs & profits. see mgn expansion, on back of improved product mix. https://t.co/iYVNF7EfdI
— Ajaya Sharma (@Ajaya_buddy) October 17, 2017
It is obvious that if the management is able to deliver what it has promised, the stock will surge like a rocket.
There is no doubt that the genetic seeds industry offers a gigantic and unprecedented opportunity in an agrarian economy like ours. Nath Bio-Genes is still a micro-cap with a market capitalisation of only Rs. 650 crore. If things fall into place, the stock could soon surge to be a small-cap and then a mid-cap, showering mega multibagger gains on Satpal Khattar and the other lucky investors!