Timely warning on Yes Bank saves investors from colossal losses …
Yes Bank is presently an untouchable pariah stock, guilty of reducing its investors into penury.
However, at one time in the past, it was a hot favourite amongst the intellectuals and punters of Dalal Street.
In fact, in March 2017, investors had lined up obediently to eagerly subscribe to its $500-600 billion QIP issue.
“You can buy a whole Karnataka Bank or a Lakshmi Vilas or a Karur Vysya Bank for money raised by Yes Bank,” Sanjay Dutt had then warned, implying that the QIP was hopelessly overpriced.
He explained that Yes Bank had somehow created a perception in the minds of investors that it is/ was doing something different from what the other Banks were doing, which justified the excessive premium it was charging.
“One has to retain sanity at all times,” he stated, implying that investors were not thinking straight in their obsession for Yes Bank.
No doubt, the warning has proved prophetic considering the colossal loss of market capitalisation that Yes Bank has witnessed in the recent past.
… though other goof ups caused mega losses
Unfortunately, despite his old-school training into the principles of value investing, Sanjay Dutt also got carried away with the heat of the Bull market.
He recommended junk stocks like Reliance Capital.
“Reliance Capital is something I have been very bullish right from Rs 350-400 levels. It has already touched Rs 600, but it has phenomenal potential,” he advised.
Reliance Capital has now sunk without a trace.
Phenomenal learning from the loss
In his latest interview, Sanjay Dutt did not shy away from admitting his mistakes.
“What do you make of your experience with the ADA companies? Would you call that a misjudgement, a learning,” Nikunj Dalmia asked in a pertinent manner.
“Phenomenal learning!,” Sanjay Dutt replied.
He revealed that he has lost a lot of money from the mis-adventure of investing in junkyard stocks.
“I have lost more than I could ever think of in life in those companies … none of us ever thought groups like ADA, Zee, Essar would go through what they are going through,” he stated.
He pointed out that these losses are learning experiences.
“We ourselves are opening our eyes as to what we need to do before we need to invest. I am sure these lessons are going to remain for a long time and of course quite a few will be wiped out, quite a few will start rebuilding our lives, like we all are trying to do now,” he stated.
“It is a very important lesson that we learnt for corporate India as well as for investors like us who got lost in those go-go momentum where everything was good and a growth of 6%-7% was taken for granted,” he added.
PSU stocks are safe and can give 2x to 5x returns
Sanjay Dutt advised that the time is ripe for us to dive into PSU stocks given their beggarly valuations and growth potential.
He assured that these stocks have the potential to enrich us with multibagger gains in the foreseeable future.
“PSU is one place where you can safely bet for some 2x to 5x ideas over the next five or eight years. There is going to be a lot of big stuff there whether is going to be restructuring, management changes, governance issues, strategic divestments, a lot of focus is going to come in there. No PSU is going to get money being poured into it just for nothing. They have all started becoming accountable,” he stated.
It is worth noting that the same advice has been offered to us by other luminaries as well.
Ramesh Damani, for instance, has come out very strongly in support of PSU stocks.
“It is hard to see such large sectors going at such astonishing valuations, where they have order book visibility of 10 years … You have single digit PEs and yields of 5-6% … you cannot ignore stocks that are trading at such throw-away valuations …. The dividend itself will make up for the holding cost,” he has advised.
Similar advice has been offered by Sanjiv Bhasin, the veteran investor.
“PSU stocks are available for a song and if you really do get this strategic disinvestment in Concor and BPCL, it will set the cat amongst the pigeons …. I would definitely recommend to investors, keep your SIP in CPSE ETF. As an instrument, it will do wonders … The whole basket is looking extremely value accretive given dividend yields and given the decimation of market cap,” the veteran has opined.
How can a stainless steel company with 60% market share be worth only $2 billion?
Sanjay Dutt recommended that we buy Jindal Stainless and Jindal Stainless Hisar, powerhouse manufacturers of stainless steel.
He advised that these stocks have “tremendous potential“.
He pointed out that the combined enterprise value of both companies is not even worth $2 billion though between them, they control 50-60% of the stainless steel industry in the country.
He also pointed out that stainless steel is being used in railways, defence, production, in construction and everywhere else.
“What you are trying to tell me is that the entire 50% or 60% of the Indian organised stainless steel market is just worth $2 billion and I can buy a player in $2 billion or $2.5 billion in value?,” he asked in an incredulous tone.
“So, three-five years down the line, something is going to definitely change for this company,” he opined.
— CNBC-TV18 (@CNBCTV18Live) March 4, 2019
Entire power grid of country available for only $4 billion!
Sanjay Dutt also pinpointed Power Grid as an example of a monopoly stock available at throwaway valuations.
He explained that Power Grid controls 1.7 lakh km of power lines across the country and all industries, whether solar, thermal or nuclear, are dependent on the Company for transmitting power across the country.
“The entire enterprise value of the company would just be about $4 billion! So are you telling me the largest power consumer country over the next few years which is going to be India, you can own the entire grid for about $4-5 billion? No way. This is going to change,” he exclaimed.
Buy timeless companies and brands
“There are certain timeless companies and brands in the country which are not going to shut down. They are going to survive cycles and I am going to bet on these,” Sanjay Dutt stated.
He cited examples of Dabur and Exide as companies with “timeless brands“.
“These are all quality names, these do not have questionable promoters and neither are they highly leveraged companies. These are very manageable leverage or in fact zero leverage with marquee managements, marquee brands and promoters,” he stated.