I don't regret selling ITC and buying Titan: Saurabh Mukherjea of Marcellus PMS Fund

Discussion in 'Must-Read Interviews, Articles & News Items' started by Arjun, Jul 17, 2022.

  1. Arjun

    Arjun Chief Executive Officer (CEO) Staff Member

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    One of the biggest grievances of new investors is that the stock price moves in the opposite direction after they take the trade i.e. the stock price plunges after they buy the stock and surges after they sell the stock.

    However, one consolation is that even pro investors have the same experience.

    Saurabh Mukherjea of Marcellus PMS Fund recently fell victim to this syndrome. He sold ITC Ltd and bought Titan in its place.

    Unfortunately, the trade was very badly timed because while ITC surged up nearly 33%, Titan plunged nearly 15%.

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    However, Saurabh is not fazed by the fiasco.

    Share price action has no bearing on what we do. Whether it is ITC, Titan, the share price tells you nothing about the company. If the share price has gone up, you should not be happy. If the share price has gone down, you should not be depressed,” he stated in an interview to ET.

    He equated random movements in stock prices to the erratic movements of a drunk person. “If he turns left, it does not mean his house is on the left. If he turns right, it does not mean he is looking for a taxi on the right. He is just a drunk man swaying his way through the night. Our focus is on accounts, capital allocation and the franchise.

    Saurabh explained that he had rejected ITC because it does not have the wherewithal to compound at 20 per cent, which is the minimum criteria stipulated for investment by the Marcellus PMS Fund.

    ITC’s franchise in cigarettes remains as dominant as it was 20 years ago. They are a powerhouse franchise in cigarettes, one of the greatest free cash flow generators ever in Indian history but the capital allocation of that free cash flow is not the greatest,” he elaborated.

    Saurabh heaped rich praise on Titan which has been a multibagger in the past. “Titan’s competitive advantages are unparalleled. Free cash flows have grown for Titan at 30 per cent over the last 20 years. It has become almost impossible for the local jeweller to compete with Titan,” he gushed.

    It should be noted that Saurabh Mukherjea has been opposed to ITC in the past as well. In an earlier interview to ET, he had stated that investors are buying ITC only because of its defensive characteristics and not for its merits. "ITC's recent outperformance is because people are afraid of the War, FED etc & out of sheer fright, they are latching on to defensive stocks like ITC. Though it is a cash machine, it has no avenues to reinvest the cash & grow the business at 20-25%," he had said.

    However, other experts do not share Saurabh's views on ITC.

    Religare described ITC as a "high conviction idea" and recommended a buy for a target price of Rs. 332. "ITC is one of the private sector companies which have been consistently rewarding shareholders by paying dividends. In the last 5 years, the company has paid an average of 83% as dividend payout. Going ahead as well, the company announced that it is expected to maintain its dividend payout ratio on similar lines i.e. ~80-85%," the research report advises.

    Edelweiss has recommended a buy of ITC for the target price of Rs. 450 on the logic that the company's earnings CAGR will grow at 12 per cent in FY22–24E against a mere 7 per cent in the last five years.

    Anil Singhvi, the charismatic editor of ZEE Business described ITC as "a Blue-Chip powerhouse that one should not even think of selling. It is a must-keep in the portfolio owing to its growth prospects coupled with high dividend yield".

     
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