Kenneth Andrade of IDFC Mutual Fund is a very savvy investor known for his multibagger stock picks. He is conservative in his approach and only buys stocks that are run by top quality management.
However, his stock pick of Innoventive Industries has proved to be a huge flop. On 10th January 2013 IDFC Small & Midcap Equity Fund bought a massive chunk of 25,85,621 shares of Innoventive Industries at a price of Rs. 135 each. At that time, Innoventive Industries was already feeling the adverse effects of the slowdown in the auto industry. Its Q4FY13 and FY13 results were below expectations as weak demand led to lower sales across product segments. The consolidated revenues in Q4FY13 declined 12% YOY and the adjusted net profit declined 20%.
Despite the apparent weakness in the fundamentals, the stock price was close to its’ 52 week high. Kenneth Andrade was not daunted and he got IDFC Small & Midcap Equity Fund to buy 25,85,621 shares at Rs. 135 each. In addition, IDFC Sterling Equity Fund holds another lot of 12,84,447 shares of Innoventive Industries which were bought earlier in point of time.
The total holding of IDFC Mutual Fund in Innoventive Industries is now 38,70,068 shares.
Sadly for the investors, Innoventive Industries has been on a relentless fall. On Wednesday, 14th August 2013, it touched an all-time low of 23, leading to losses of 83% amounting to Rs. 43.34 crore for IDFC Mutual Fund.
On a YOY basis, the stock has lost 80%, the bulk of which has happened in the last three months.
The slow down in the auto industry is responsible for the debacle in the stock price. Innoventive Industries generates about 35-40 percent of its sales from the domestic auto sector. Numerous OEMs have announced production cuts owing to weak demand for Innoventive’s products. Bajaj Auto is one of Innoventive’s big customers (20% of the revenues). The strike at Bajaj Auto Ltd’s plant has impacted Innoventive. In the June 2013 quarter Innoventive Industries reported a standalone sales turnover of Rs 153.74 crore and a net loss of Rs 41.39 crore. This compares poorly with the June 2012 quarter where the standalone sales turnover was Rs 135.61 crore and net profit was Rs 12.15 crore.
However, this is where an opportunity emerges for a patient investor who has the temperament to buy the stock and sit quietly. There is no doubting the management and technical quality of Innoventive Industries. The valuations are not at all compelling. As and when the fortunes of the auto Industry change, Innoventive Industries will spurt and give multibaggers returns to its shareholders.
As on 30th june 2013 their holding is reduce to 1284447 only. In fact on 31st march only it had came down to 1579775 & it seems that they are only selling ,further will know more by sept end share holding declaration.