Shankar Sharma’s investment technique led him to mega multibaggers like Apple, Amazon and IndusInd Bank
“We were the first in the Industry to have identified IndusInd Bank at the price of Rs. 46, the market capitalisation then was Rs. 1400 crore,” Shankar said in his deep baritone even as the distinguished audience at the Morningstar Conference let out an audible gasp.
The audience, which included eminent luminaries like Raamdeo Agrawal, had good reason to be impressed with Shankar’s stock picking skills because IndusInd Bank has since surged from Rs. 1400 crore to an eye-popping Rs. 1,00,000 crore, creating incalculable wealth for investors.
IndusInd Bank is not a flash-in-the-pan stock pick for Shankar Sharma.
He told the distinguished audience that he had recommended a “strong buy” of Amazon.com Inc in February 2001 when it was languishing at a throwaway price of $15.
Similarly, Apple Inc, was Shankar’s chosen stock when it was available at a throwaway valuation of $6.7B (net of cash $3B).
Both stocks have since surged to unbelievable heights. Amazon Inc has a market capitalisation of $462B while Apple Inc has a market capitalisation of $840B.
The notable aspect is that all three stocks, IndusInd Bank, Amazon and Apple, had been written off by market pundits as junkyard stocks at the time that Shankar homed in on them.
Template for picking mega multibagger stocks
There was pin-drop silence in the auditorium as Shankar revealed the secret template which led to the three mega-bagger stocks.
(i) Find stocks that are languishing at multi-year lows;
(ii) The stock must not be profitable but must be making losses;
(iii) The stock must occupy a low weight in its sector. It must not be the sector leader or be a part of the Index by any stretch of imagination;
(iv) The stock must not be well covered and if it is, the consensus opinion should be negative;
(v) There must be the expectation of a tiny “spark” which will ignite the stock and send it rocketing into orbit.
Low risk, high reward stocks
While novice investors scratched their heads wondering at the wisdom of buying loss making companies, the elite audience immediately realized that Shankar’s formula is a “low risk – high reward” one.
The reason for the “low risk” is because such stocks have no expectations embedded in them.
The fact that the stock is quoting at multi-year lows means that investors have abandoned the stock and given up on it.
Accordingly, there is no possibility of a further downside, making the stocks literally “risk free”.
The reason for the “high return” is because even a tiny “spark” hinting at a turnaround can catapult the stock and send it rocketing into the stratosphere.
Shankar explained that the spark in the case of Apple was the announcement of the ‘IPod’ device. The change in management was the spark in the case of IndusInd Bank while the internet boom was the spark in the case of Amazon Inc.
HFCL, Shankar Sharma’s latest stock pick
Varinder Bansal, the ace investigative journalist with CNBC TV18, keeps his ears close to the ground.
We got a glimpse of his alertness a few days ago when he spotted a group of ace investors covertly making their way towards a high quality micro-cap NBFC stock.
Thanks to the early alarm sounded by Varinder, novice investors were also able to rush in and pocket some of the stock before the aces grabbed all of them.
Shankar’s attempt to sneak into Himachal Futuristic Communications Ltd (HFCL) was similarly revealed by Varinder Bansal.
Shankar Sharma & others investors buy stake in HFCL via warrantshttps://t.co/WZOrKW6jlL
— Varinder Bansal (@varinder_bansal) August 28, 2017
A study of the data flagged by Varinder shows that Shankar Sharma will be the proud owner of 0.78% equity upon the conversion of the warrants into shares.
Some other luminaries named Debashish Poddar, Ayush Poddar and Mansi Poddar are also amongst the lucky recipients.
The notable aspect is that two promoter entities named MN Venture and NextWave Communications have tucked into an aggregate of 36.26% of the equity.
The confidence of the promoters is the best indication of the fact that HPCL is on the path of prosperity.
|HIMACHAL FUTURISTIC COMMUNICATIONS LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||2,212|
|EPS – TTM||(Rs)||[*S]||0.83|
|LATEST DIVIDEND DATE||–|
|BOOK VALUE / SHARE||(Rs)||[*S]||8.42|
[*C] Consolidated [*S] Standalone
|HIMACHAL FUTURISTIC COMMUNICATIONS LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||JUN 2017||JUN 2016||% CHG|
Revulsion of investors with Shankar’s stock pick proves efficacy of template
Predictably, investors are not impressed with Shankar’s choice of stock:
Kya din a Gaye
— Raunak (@RaunakBhaiya) August 28, 2017
Tainted company and tainted buyers…….
— Minal B (@Minaltalk) August 28, 2017
I too got the same feeling. And if he is the same then it's time we stop following Mr. Sharma too.
— PranavGulabani (@pranavgulabani) August 28, 2017
However, MMB punters are divided in their opinion about HFCL:
“Logo ke shares khaa pikar hazam kar ke chal raha hai. Jaldi neeche nahi aane wala. Lambi race ka ghoda lag raha hai is baar. Pehle ekdum badta tha fir usi speed se wapis. Is baar araam se maal hazam kar ke chal raha hai. Target 30 till Diwali,” newkid123, a Silver Member at MMB opined.
Another named ‘dreame’ was somewhat cryptic in his analysis:
“yeh logo ke shares kha raha Hai aur bhi khayega kyonki logo ko 19.25 Tak ka hi target dikh Raha Hai yeh teen baar kar Chuka Hai aur bhi Tang karega aur jab chalega to sabko loss hi hoga….. jis dil mein basa Tha pyar tera us dil ko kabhi ka chhod Diya Hai chhod Diya…..”
Prima facie, the revulsion of the novices with respect to HFCL proves that it is a ‘risk-free’ stock because there are no expectations from it and there is consequently no risk of a disappointment.
What about HFCL’s involvement with alleged operator Ketan Parekh?
The reason for the novices’ revulsion with HFCL is because of its past track record.
In 1999-2001, the promoters of the Company were suspected of colluding with Ketan Parekh, the dreaded alleged operator, and indulging in “circular trading” so as to rig the stock price of HFCL.
This nefarious collusion between the promoters and Ketan Parekh caused colossal losses to novice investors who had piled on to the stock in the expectation of multibagger gains.
Fortunately, the sleuths of SEBI cracked down on the circular trading and brought Ketan Parekh and HFCL to book.
HFCL paid a fine of Rs. 10 crore to SEBI to atone for its sins and promised to turn a new leaf.
HFCL’s scorching growth rate makes it one of the fastest growing companies
It is unbelievable but true that HFCL has grown its 4-year revenue at a CAGR of 77.2% while the PAT has grown at a CAGR of 79.6% in the same period.
This scorching growth rate has made HFCL the 3rd fastest growing companies in the Rs. 1,000 – 4,999 crore (revenue) category as per Business World’s rankings.
BW has pointed out that the annual revenue has surged from Rs 261 crore in FY 2012 to Rs 2,570 crore with net profit of Rs 119 crore in FY 2016.
HFCL is thriving due to the demand for telecom infrastructure. The telecom products revenue has grown 15 times while the turnkey contract revenue has grown by nine times in the last four years.
HFCL also has dedicated business divisions for Railways and Defence in 2016, which will also thrive as the demand from these sectors grow.
The electronic security and surveillance, an important feature for smart cities, offers another area of significant growth for HFCL. To make use of this opportunity, the company has raised their stake in Polixel Security Systems to 94 per cent. This entity provides integrated security and surveillance solutions/systems including CCTVs, traffic management and enforcement, access control, fire alarm and intelligent building management.
Order book gives revenue visibility
HFCL’s participation in four sizeable tenders aggregating to about Rs 5,000 crore in 2015 and 2016 has culminated in awarding of one advance order of Rs 1,245 crore and emergence as the lowest bidder in another tender of about Rs 2,500 crore.
New optical fiber manufacturing facility to be set up
HFCL is setting up an optical fiber manufacturing facility as a backward integration of optical fiber cable manufacturing at Hyderabad having a capacity of approximately six million fiber kilometre per annum.
The estimated project cost is Rs 225 crore. The same is proposed to be funded by way of debt, internal accruals, fresh funding, etc. The facility is likely to be operational in eighteen months’ time.
It goes without saying that Shankar Sharma’s stock picks and recommendations are not for the faint-hearted. One needs nerves of steel to buy and hold such stocks. Of course, the few who are able to muster the courage may take home massive riches because fortune is supposed to favour the brave!