Ajay Piramal is the “Warren Buffett of India”: Mohnish Pabrai
Mohnish Pabrai, the internationally renowned investor, has conferred the prestigious title of “Warren Buffett of India” upon Billionaire Ajay Piramal.
This was done in recognition of the Billionaire’s brilliant investing acumen and awesome deal making abilities.
“He is pro shareholder, he is focussed on maximisation of shareholder returns while following the highest ethics. To see that in India is fantastic. It is wonderful,” Mohnish said, the admiration for Ajay Piramal clearly evident from his tone.
Like Warren Buffett, Ajay Piramal has also created enormous wealth for shareholders in his companies.
Piramal Enterprises, the flagship company, has been conferred the coveted title of “Berkshire Hathaway of India”.
From this, it is obvious that we have to listen attentively to Ajay Piramal’s sayings and obediently obey his directives.
Mohnish Pabrai clones Ajay Piramal’s stock pick and rakes in fortune
Since time immemorial, Mohnish has been counseling novice investors across the World to clone the stock picks of illustrious investors instead of venturing out on their own.
Mohnish has followed his own advice by buying a massive chunk of Sunteck Realty, a mid-cap stock, in which the Ajay Piramal holds 39,01,701 shares, comprising 2.76% of the equity, as of 31st October 2017.
The notable aspect is that Mohnish’s holding of 121,87,985 shares in Sunteck Realty far exceeds that of the Billionaire.
Mohnish has been richly rewarded for his confidence in Sunteck Realty because the stock is up an eye-popping 269% over 12 months.
Mohnish has recommended as a Diwali Gift that we also buy the stock (along with two other high-quality stocks).
Shriram Transport Finance, Ajay Piramal’s favourite NBFC stock
“I saw the business model. I have to say that I was surprised. It was unique. It had been generating profits from day one,” Ajay Piramal gushed in admiration at the achievements of Shriram Transport Finance.
R Thyagarajan, the visionary founder of the Blue-chip NBFC, reciprocated.
“You will be lucky to have Piramal as a partner,” the veteran said.
As of 30th September 2017, Piramal Enterprises holds 2,26,00,000 shares of Shriram Transport comprising 9.96% of its equity capital.
The investment is worth Rs. 3184 crore at the CMP of Rs. 1400.
(Ajay Piramal in the distinguished company of R. Thyagarajan, the founder of STFC)
Shriram Transport Finance is entering a sweet phase of business cycle & will flourish: IIFL
IIFL has recommended a buy of Shriram Transport Finance on the following logic:
“Set to flourish in a favourable cycle
Shriram Transport Finance (STFC) is entering a sweet phase of business cycle, which would be marked by steady asset growth recovery, robust growth in pre‐provisioning operating profit, and significant earnings jump, thereby collectively lifting valuations towards cyclical peaks. We believe the franchise’s unique and tough‐to replicate positioning helped it achieve healthy profitability despite multiple upheavals of past four years including cyclical headwinds, stringent regulation in the form of NPL and capital norms, and the burden of absorbing the loss‐making equipment finance business.
In its core customer segment of owner‐driver and SRTOs and vehicle vintage of 5‐10 years, STFC is a dominant organized player in used CV financing. The company has built a highly localized business over past three decades with unmatched skills in customer acquisition and credit assessment, vehicle valuation and disposal, and customer engagement & collections. Human capital is STFC’s greatest strength with high employee loyalty and stickiness pervading all levels of the organization.
In a scenario of hardening rates, STFC would be amongst the few NBFCs to witness reduced borrowing cost in ensuing quarters. Not having borrowed aggressively at the shorter end of yield curve unlike other NBFCs during the past couple of years, it should be able to maintain its desired lending spread. Seminal reduction in cost/income ratio since FY15, despite adverse operating conditions, reflects pure efficiency gains; most notable being the significant increase in clients handled per field officer. STFC’s substantial provisioning buffer will ensure smooth transition to 90dpd NPL recognition in Q4 FY18. A steady recovery in all‐round economic activity and consumption should drive improvement in vehicle utilization over FY18‐20, thereby causing credit cost to moderate meaningfully from current peak levels.”
As regards the RoA, RoE and valuations, the following is stated:
“Whenever a business cycle turns for the better, a well‐positioned player like STFC is bound to record sharp upswings in profitability and earnings. In our estimate, STFC’s RoA and RoE would expand by 110 bps and 700 bps respectively over FY17‐20. Profit would grow 2.4x in the same span. A steep valuation re‐rating is hence highly plausible over the coming 12‐15 months. The stock currently trades at a modest valuation of 2.1x P/ABV and 10.4x P/E on FY20 estimates.”
Shriram Transport Finance is on the cusp of a strong earnings trajectory: Motilal Oswal
Motilal Oswal has given cogent reasons in support of the proposition why STFC is on the cusp of a strong earnings trajectory. The reasons are as follows:
“We believe that Shriram Transport Finance (SHTF) is on the cusp of a strong earnings trajectory. Company-specific drivers (reduction in credit cost, C/I ratio), along with a recovery in the CV market, should lead to 30 %+ earnings growth over FY17-20.
– Also, we reiterate our stance that SHTF will be a big beneficiary of CoF reduction due to a large share of high-cost legacy borrowings. Thus, contrary to investor fears of a margin contraction due to rapid migration toward lower-vintage vehicle financing,margins should actually remain steady or even improve, in our view.
– Asset quality has been stable on an apples-to-apples basis. Over the past several quarters, the GNPL ratio has ranged from 4-4.5 % on a 180-dpd basis – similar to the levels seen in FY16 before the NPL migration. However, a key point here is that the NPL provision buffer has almost doubled from INR20b in 3QFY16 (prior to NPL migration) to INR35b (ex-CE provisions) in 2QFY18. Despite the NPL migration, SHTF has stuck with a PCR policy of 70 %+, which impacted its earnings, in our view.
– SHTF’s return ratios are just off cyclical lows, with decadal high credit cost and NPLs. However, the elevated credit costs for the company over the past two years are just statutory and not economic – i.e. write-offs (as % of AUM) have been stable. Credit costs have been high only in order to maintain PCR and not because of high net credit losses. We believe that the worst of asset quality troubles is behind and that the company should witness improving return ratios due to lower credit costs.
– Additionally, we believe that margin compression fears are overplayed, with the company yet to reap benefits in its cost of funds (CoF).
– We expect RoA/RoE of 3%/17% in FY19 and similar return ratios in the subsequent years.
– With RoA of 3%, SHTF will be at the upper end of the RoA range of our NBFC universe.
– However, its relatively slow AUM growth may limit the multiple that investors will pay for the stock, in our view. We use an RI model, with Rf of 7%, CoE of 14% and a terminal growth rate of 5%, to arrive at a target price of INR1,500 (2.1x Sep’19E BVPS). Buy.”
Shriram Transport is my best pick for 2018: Gautam Duggad
It may be recalled that a few days ago, sixteen eminent stock wizards had gathered at the Outlook Business HQ to recommend sixteen multibagger stocks for us.
Gautam Duggad of MOSL was one of them.
He has recommended STFC on the basis that the worst of the asset quality woes are behind the Company and that it will henceforth witness improving return ratios on lower credit costs.
He has also predicted that STFC is likely to witness 30% profit CAGR over FY17-20 and that has enough scope to be re-rated.
Conclusion
It appears that the “Warren Buffett of India” has once again snared a magnificent winning stock. We will have to congratulate the savvy Billionaire when the multibagger gains gush into his portfolio!
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