Sid Choraria’s name is not familiar to us though he is quite popular amongst “deep value” investors. He is an MBA from New York University’s Stern School of Business where Sid was part of the Michael Price Value Fund, a fund endowed by a gift by legendary global value investor, Michael Price. He is also a follower of Bruce Greenwald. Sid gained practical experience at Morgan Stanley, Merrill Lynch and Goldman Sachs. He now works for a value oriented hedge fund in Singapore.
In January 2014, Sid Choraria wrote a piece called “My Take On Tata Sponge” where he recommended a strong buy of Tata Sponge Iron.
At that time, Tata Sponge Iron was totally in the doldrums, with nobody willing to touch the stock with even a barge pole.
Sid’s analysis of the stock is worth reading for its simplicity and depth of coverage.
Sid pointed out that Tata Sponge Iron was a “significantly undervalued deep value stock trading at mouth-watering multiples”. He explained that at the then price of INR270, a company with a consistently profitable business (net profit positive every year for 20 years), returns on tangible capital employed in excess of 50%, prodigious free cash flow generator (FCF greater than company’s enterprise value) and value-oriented shareholders was available for “ridiculously low valuations”.
Sid Choraria also emphasized that Tata Sponge Iron has been debt-free for over five years with no dilution in the last 20 years. Also, its management (the Tata’s) is absolutely top quality in efficiency and integrity.
After a brilliant analysis of why investors were unfairly ignoring Tata Sponge Iron, Sid advised a strong buy with the promise that the stock offered a high margin of safety with a conservative upside potential of 50% – 150%.
Well, Sid’s analysis of the stock was perfect. Tata Sponge Iron reported excellent Q4 results and delirious investors, who had so far shunned the stock, thronged the counter, sending the stock price spiraling up and triggering the upper circuit.
At today’s CMP of Rs. 840, Sid Choraria and his followers are looking at a fabulous gain of 183% in just 6 months.
Now, it is probably too late for us to grab Tata Sponge but what we have to do is keep Sid Choraria in our radar and be alert to his future stock picks.