Kenneth Andrade, the former fund manager with IDFC Mutual Fund, was awarded the sobriquet “Mid-Cap Mogul” by his legion of fans owing to his mastery in being able to identify micro and small cap stocks which are on a rapid growth trajectory.
Kenneth is credited with being among the first to identify the potential of stocks like Page Industries, Blue Dart, Asian Paints, Kaveri Seeds etc, when they were still in their infancy. Each of these stocks went on to become a super-duper multi-bagger and converted IDFC MF into a force to reckon with.
In an earlier interview, Kenneth Andrade has explained the systematic process that he uses to identify potential winning stocks. He also shared his checklist for evaluating stocks. He also candidly admitted that he had made several mistakes and lost money by buying dud stocks like Innovative Industries.
In his new avatar as a private investor, Kenneth has made his debut by buying 59,058 shares of Alphageo India Ltd, a micro-cap with a market capitalisation of Rs. 323 crore. Kenneth’s investment is worth Rs. 3.40 crore at the CMP of Rs. 574.
|Alphageo (India) Ltd – Financial Results|
|Particulars (Rs. cr)||Dec 2015||Dec 2014||% Chg|
Alphageo is the largest and the first private sector company to enter the field of seismic data acquisition. The seismic data is vital for purposes of oil exploration. It is promoted by Dinesh Alla, a BITS Pilani post-graduate with wide experience in the field of seismic survey.
Interestingly, Alphageo was once the favourite stock of Rakesh Jhunjhunwala, the Badshah of Dalal Street. As of March 2013, the Badshah held 125,000 shares of Alphageo though he started paring his stake soon thereafter. Presently, he does not appear to hold any shares.
Bang Securities Pvt Ltd, the investment arm of the Nirmal Bang promoters, was another major shareholder of Alphageo, holding 68,721 shares as of 30th June 2015. They also appear to have exited the stock.
Prima facie, the reason Rakesh Jhunjhunwala and Bang Securities exited Alphageo is because its fortune is directly linked with the oil exploration industry. As crude oil prices are at record lows, the exploration activity is also at a virtual standstill, which means that there is not much demand for seismic surveys.
One can judge the extent of woes of the oil exploration sector from the fact that Cairn India Ltd announced yesterday that it has slashed its capex in FY 2016-17 by one-third. Cairn referred to “record low oil prices” as the reason for the “substantial cut in capex”.
Rakesh Jhunjhunwala has made it quite clear that he is “very bearish on oil prices” and that “crude oil prices are not going anywhere in the next 3 to 5 years”.
However, Kenneth Andrade appears to have a contrary viewpoint. He probably believes that the fortunes of the oil and gas industry will change in the foreseeable future.
Some experts believe that the present low price level of crude oil is unsustainable and that this is an ideal opportunity to buy stocks in the sector.
Arvind Sanger of Geosphere Capital is a big bull of the sector. “I am a heavily bullish on the oil and gas sector right now. This is a once-in-15-years opportunity to buy oil and gas companies at time when oil and gas prices are at such a depressed level. They are completely unsustainable” he opined.
The Motley Fool also recommended a buy of three NYSE listed oil stocks on the basis that “historically, some of the best times to buy are when, as the saying goes, there is blood in the streets”.
The same view has been expressed by another learned author in TheStreet.com. “If you’ve been waiting to buy oil stocks for the coming up cycle, now’s the time to start” he opined, giving cogent reasons in support.
However, an expert at 24/7WallSt issued the “dire warning” that “layoffs will only get worse in 2016. Many oil companies are on the verge of bankruptcy, and many more bankruptcies in the sector almost certainly are coming in 2016 and perhaps beyond. Another risk is that the capital markets are largely closed to oil companies at this time”.
One point worth noting is that in his illustrious career as a fund manager, Kenneth has not displayed the characteristics of a contrarian investor. Instead, he has preferred to stay on the beaten path by buying quality stocks with high RoE, deep moat, low debt, impeccable management etc. So, why he has suddenly turned contrarian is not clear.
The other point worth noting is that the substantial sum of money invested by Kenneth in Alphageo suggests that he has taken a rather concentrated bet on the stock. This appears unusual because one would expect an erstwhile mutual fund manager, accustomed to buying a large number of shares for the fund, to have a diversified portfolio. Of course, it is quite possible that Kenneth’s personal fortune is so vast that the amount invested in Alphageo is not significant.
Hopefully, as time goes by, we will get a better idea of the other investments made by Kenneth Andrade and then we will be able to judge whether he has indeed turned into a contrarian and a concentrated portfolio investor!