Latest portfolio of Prof Sanjay Bakshi’s Valuequest India Moat Fund
First, as per hallowed tradition, we have to peep into the latest portfolio of Prof Sanjay Bakshi’s Valuequest India Moat Fund to check whether the multibaggers therein are hale and hearty.
|Company||No of Shares (in Lakhs)||Rs Crore||YoY Gain (%)|
|Ambika Cotton Mills||2.21||31||68|
|Accelya Kale Solutions||3.69||51||14|
|CCL Products India||18.79||52||8|
|Poddar Housing and Development||1.20||12||(1)|
|Simple average return||15|
(Note: The Prof is also known to have deep conviction in Vaibhav Global and Ashiana Housing. However, the number of shares held, if any, in these companies is not known)
As one can see, out of the seven stocks in the portfolio, two stocks, namely, Ambika Cotton and TVS Srichakra, have put in a spirited performance and notched up hefty gains of 68% and 54% respectively.
However, the other five stocks have disappointed by reporting a sub-par performance.
The simple average return of the said seven stocks amounts to 15%.
This has underperformed the YoY return of 17.70% given by the Nifty.
It is also an under-performance in relation to the return of 23.30% given by the S&P BSE Mid-Cap and the return of 31.70% given by the BSE Small-Cap Index in the same period.
Kitex Garments, high conviction pick, loses 57% in 24 months
Kitex Garments, which is Prof Sanjay Bakshi’s high conviction stock pick, appears to be the culprit for the under-performance of the portfolio.
The Prof has been aggressively buying the stock on every dip.
The surprising aspect is that the Prof has not been daunted by the concerns that have been expressed in knowledgeable circles, including the valuepickr forum.
The Prof first revealed his fascination for Kitex Garments in a “teaching note” titled “The Importance of Unconventionality”.
He emphasized that Kitex has a number of virtues such as marquee customers, pricing power, high EBITDA margins, high RoE, debt-free etc.
He concluded with the following words:
“As I write this, the current market price is Rs 492* per share. I have no target sell price, and I haven’t sold a single share. Moreover, I feel good that I invested in this pro-social, and yet highly profitable business – a combination I absolutely love.”
|Holding of Valuequest India Moat Fund in Kitex Garments|
|Quarter ended||Nos of shares|
As one can see, the Valuequest India Moat Fund launched a no-holds-barred buying action and nearly doubled the holding in a period of less than 12 months.
In fact, the Fund also did an aggressive bulk deal purchase on 2nd November 2016 when it bought 265,500 shares at Rs. 316 each (adjusted for bonus).
VALUEQUEST INDIA MOAT FUND LIMITED Buys 2.65 lk shares at `443.1/sh@Sanjay__Bakshi
— Varinder Bansal (@varinder_bansal) November 3, 2016
Unfortunately, the timing was not auspicious because the stock is down 21% since then.
Kitex Garments is a “hidden gem” quoting at “compelling valuations” with likely “re-rating”: Sanjoy Bhattacharyya
Sanjoy Bhattacharyya, the doyen amongst value investors, is a strong believer in the prospects of Kitex Garments. His Ocean Dial Gateway To India Fund has issued a detailed note in which the investment rationale is explained in the following cogent words:
(i) Scorching track record of growth over the past ten years with 35% operating margins and 25% ROCE and net cash;
(ii) Business model has strong pricing power and deters competition with high barriers and high switching costs;
(iii) Infant wear business is recession proof as doting parents are not cost conscious;
(iv) High quality production and safety standards;
(v) Good employee relationships and productivity;
(vi) Revenue has grown at a CAGR of 17% in the past 10 years. Management is confident of growth at 20% CAGR due to expansion of client base and increase of market share in USA and Europe;
(vii) Risks of high client concentration are being addressed;
(viii) Risk of conflict with family owned concern is addressed by ensuring full transparency and appointing Ernst & Young as consultants.
Ocean Dial’s ICGQ Limited buys big chunk of Kitex Garments
Ocean Dial Gateway to India Fund has a mutual fund called India Capital Growth Fund (ICGF).
ICGF has a subsidiary in Mauritius named ICGQ Ltd.
The said ICGQ Ltd holds 7,00,000 shares of Kitex as of 30th June 2017.
Kitex Garments is a ‘house of cards’ whose crash is imminent: Expert
The baffling aspect is that while the two eminent value investing dons have expressed unbridled confidence in Kitex Garments, other experts have trashed the Company by calling it a ‘house of cards’.
Kitex Garments – A house of cards whose crash should not come us a surprise https://t.co/Ly3hycHSRH
— Amit Mantri (@amitmantri) July 31, 2017
Amit Mantri of 2Point2 Capital has written a piece called ‘The curious case of Kitex Garments’ in which he has highlighted several alleged irregularities in the operations of the Company.
One of the red flags is said to be the “unbelievably profitable commodity business”.
Another is the mystery of the “zero-interest earning cash and high cost debt,” which implies that there is some sort of accounting jugglery going on.
Yet another red flag is the so-called “missing TUFS subsidy”, which is alleged to have disappeared without a trace.
There are several other alleged red flags highlighted in the report.
A similar sentiment has been expressed by other knowledgeable investors. The stock has been contemptuously described as a “snake oil story”:
This is with the cash on book in forex snake oil story still having believers. God knows when that cult will collapse.
— varadharajan (@varadhar1) August 1, 2017
Will Kitex Garments be “next Page Industries” or “next Satyam”?
It is hard to believe that in April 2015, Kitex Garments was being described as the “next Page Industries” that every investor must have in his or her portfolio.
Presently, the poor financial results being reported by the Company coupled with the allegations levelled by knowledgeable experts has sparked fear in the minds of investors that instead of being the “next Page Industries”, the stock may end up as the “next Satyam”.
Dismal Earnings; Q1 PAT Skids 15.1% YoY
Q1 Revenue Rises 9% YoY
— avanne dubash (@avannedubash) July 31, 2017
Can we expect Kitex Garments in '#UnderTheLens. '
Cashflow, Cash in books, Merger postponed, sudden huge capex all have some ?
— Nirmal Sasidharan (@nirmalsashi) July 31, 2017
Somehow people have forgotten Kitex Garments, the much hyped stock, currently abandoned. Let it touch sub-200 level too!
— Joy Mukherjee?? (@joymukherje) July 16, 2017
Kitex Garments – Pump and Dump
— Arjun Balakrishnan (@arjuna49) June 4, 2017
Common sense was raising Few red flags ..kitex Garments
— dp gandhi (@gandhidpg1) May 2, 2017
Happend with Kitex Garments with no growth for 1 year.
— Pratik Sharma (@Pratiks0509) May 21, 2017
#kitex garments – Pathetic set of numbers. Wonder why is Sanjay bakshi still holding on to it. He has to jump out of the ship soon.
— Lalit (@lalitinvestor) May 2, 2017
Kitex Garments – Fooling some of the people all of the timehttps://t.co/RBVkAfwDFS
— Amit Mantri (@amitmantri) May 2, 2017
Kitex mgt attributes postponement of orders due to US elections! Any link between kids garments and US elections?
— Jagdesh (@cjrsaaketa) November 3, 2016
— Siddhartha Bhaiya (@sidd1307) November 1, 2016
Porinju Veliyath warned in July 2015 that Kitex Garments was a “fancy stock” and was overpriced
It is well known that Porinju Veliyath has an allergy towards Kitex Garments. He periodically refers to it as an example of “fancy vs. value” and of how buying such stocks is injurious to the investor’s financial well-being.
In an interview of January 2016, Porinju drew a masterful distinction between Kitex Garments and Vardhman Textiles and pointed out that while Kitex was being chased despite exorbitant valuations, Vardhman was being ignored despite throwaway valuations.
It is a matter of record that while Vardhman Textiles is up 44% since then, Kitex is down 52%.
So, maybe Porinju knows what he is talking about!
— Porinju Veliyath (@porinju) January 27, 2016
Fancy Vs Value – Vardhman up 112% while Kitex is down 47% since then:https://t.co/pvlDzXIZ9p
— Porinju Veliyath (@porinju) May 2, 2017
NewGen Investors feel safe to buy Kitex at 4200 Cr; they have 20 reasons not to look at Gokaldas Exports at 200 Cr, due to current problems!
— Porinju Veliyath (@porinju) July 22, 2015
Not to get excited with correction in Sun Pharma, Page, Kitex etc..
These fancied stocks discounts the earnings of next many years already!
— Porinju Veliyath (@porinju) July 21, 2015
Porinju also has an allergy towards Page Industries on the basis that it is “over-priced”.
Page is over-priced unless govt makes it compulsory to wear 2 underwears, like superman 🙂 https://t.co/OVTovP99Lq
— Porinju Veliyath (@porinju) August 14, 2015
— Shyam Sekhar (@shyamsek) August 14, 2015
This has also turned out to be prophetic because Page Industries has underperformed the Index by giving a return of 21% over 12 months and 15% over 24 months.
It is obvious that the conflict of opinion amongst the experts as to the fate of Kitex Garments means that novice investors have to steer clear of it. There are plenty of other fish in the pond and it is better for us to be safe rather than sorry!