If you study the investment modus operandi of all successful investors, you will find that they follow the salutary practice of investing in stocks where the downside risk is low and the upside potential is high.
This practice is immortalized in Mohnish Prabrai’s classic battle-cry “Heads I Win, Tails I Don’t Lose Much”.
Alphageo, Kenneth Andrade’s last stock pick, is a textbook example of this. The stock was in the doldrums when Kenneth bought a stake. However, the fortunes of the Company changed overnight in a dramatic manner and Kenneth’s portfolio is now bursting at the seams with overflowing gains.
Coromandel International, the stock recommended by Kenneth at the recently concluded Sohn India Conference, is of the same mould.
Though Coromandel is backed by the venerable Murugappa group and has the credentials of a blue chip stock, it is not fancied by investors at present.
The reason for investors’ apathy is because fertilizers are such a sensitive subject for the Nation and the farmers that the Government has to closely monitor all activities therein and keep a tight leash on the pricing so as to avoid undue profiteering by the manufacturers of fertilizers.
|COROMANDEL INTERNATIONAL LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs. CR)||7,150|
|EPS – TTM||(Rs.)||[*C]||11.81|
|LATEST DIVIDEND DATE||16 JUL 2015|
|BOOK VALUE / SHARE||(Rs.)||[*C]||83.24|
[*C] Consolidated [*S] Standalone
One can gauge the extent of investor apathy from the fact that though Coromandel reported robust Q4FY16 numbers with a 35% increase in consolidated net profit, the stock didn’t budge at all.
|COROMANDEL INTERNATIONAL LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs. CR)||MAR 2016||MAR 2015||% CHG|
(Source: Business Standard)
In fact, over the past five years (1st June 2011) the stock has lost nearly 25%. Even over the past three years and one year, the stock has under-performed the Nifty and sorely disappointed investors.
Now, this is where the golden opportunity to make a killing arises for the intrepid investor who has the foresight and is willing to go against the consensus.
NAMO has pledged to do away with the age-old concept of subsidizing fertilizers and instead to introduce the concept of “direct benefit transfer” to the needy. This has already been successfully done for LPG and will now be extended to fertilizers.
Arun Jaitley solemnly announced this in the Union Budget 2016:
“…We have already introduced a direct benefit transfer (DBT) in LPG. Based on this successful experience, we proposed to introduce DBT on pilot basis for fertilizer in few districts in the country with a view to improving quality of service delivery to the farmers”.
Jaitley also stated that the government will conduct a pilot project in 20 districts for direct transfer of subsidy on phosphoric and potassic fertilisers to the farmers.
Now, this move by the Government will spell a bonanza for Coromandel International and other fertilizer companies.
The Indian Farmers Fertilisers Cooperative Limited (IFFCO) welcomed the government’s move and said it will go a long way in improving the financial and operational sentiments of the ailing fertilizer industry.
“Direct benefit of transfer in fertilizers and incremental increase of the price of urea are the need of the hour if we need to save the industry from collapsing” IIFCO said.
Kenneth obviously believes that this move will provide the much needed trigger to catapult Coromandel into multi-bagger territory.
“The fertilizer subsidy regime is going away and the Direct Benefit Transfer scheme will put $11.5 Billion straight in the hands of farmers. This should augur well for makers of complex fertilizers like Coromandel International” Kenneth said in his typical soft-spoken voice.
Now, we have to wait and watch how long it takes NAMO and Jaitley to walk the talk and free the fertilizer industry from the shackles of subsidy. Then, we will have another opportunity to compliment Kenneth Andrade on the mega gains that will gush into his portfolio!