First of all, we must compliment Manish Bhandari for the consistent out-performance of Vallum Capital’s PMS. In FY 2015-16, the PMS (called Vallum India Discovery) has gained 26.7% which compares very favourably with the BSE Mid-Cap’s return of only 0.25%. Since inception (October 2011), the PMS has gained 40.6% CAGR while the BSE Mid-Cap is lagging far behind at only 13.2%.
The crown-jewel stock in the portfolio of the PMS is a textile stock which, according to Manish, benefitted enormously from demand by AirBnB. While Manish has not named the stock, I am almost certain that the reference is to Indo Count Industries which has given a mind-boggling return of 2,150% over the past 24 months.
In an earlier piece, we have decoded that the other stocks in the portfolio are Shilpa Medicare, PI Industries, Pennar Industries and KRBL.
It appears that the PMS is also invested in Srikalahasthi Pipes. There is a reference to a forcible sale of land by the distressed parent company to its subsidiary, which is not in the shareholders’ interests. This fits in with the proposed sale of land by Electrosteel Castings to Srikalahasthi Pipes which did not go down well with the market and sent the latter’s stock price tumbling.
Now, we have the pleasurable activity of guessing the names of the companies that Manish has added to the portfolio.
The first is a transformer company which is described by Manish as a “damsel in distress”. This appears to be a reference to Voltamp Transformer, which is backed by savvy investors like Nalanda Capital. The other company in the same space is Transformers and Rectifiers.
It is also stated that the PMS has made three investments in the chemicals sector, “one in fluorine chemistry, aspiring to be a leader in the world in its chosen field, the second in dyes and dyes intermediate business, and lastly in a company in amines business”.
The “fluorine” company appears to be Navin Fluorine, which is flying high at present with the backing of Ashish Kacholia and Rahul Saraogi. The “dye” company could be a reference to Kiri Industries or even Vidhi Dyes, both of which are doing well. The Company in the “amines” business is not known to me. Maybe the reference is to “Amines and Plasticizers”.
It may be recalled that a few days ago, we had seen the report from Dia Rekhi of ET on how ace investors are making a beeline for specialty chemical stocks in the expectation that the crackdown by China will drive demand towards India.
Incidentally, Shankar Sharma of First Global has corroborated this viewpoint by observing “As we have spoken also, the specialty chemicals space we have liked a lot. The beaten down infrastructure sector also we have liked a lot. We have seen it coming over the last two years that China because of the huge pollution problems has no option but to clamp down on chemicals. Globally, all chemical companies have problems on pollution. I think there is a G-20 meeting in August… So again, if you remember same thing happened in 2008 when China hosted the Olympics. They shut down industries to improve the air quality so that people from across the world do not see China as a polluting country. Exactly the same thing is now being done three-four months ahead of the G-20 summit. You are seeing plants get shut and chemical prices going up several times. I think it is a huge trade on a secular basis because India will be the beneficiary of production moving from China in the chemical space and that is a big macro shift which is happening already.”
Manish Bhandari has echoed the same sentiments by observing: “The sector is also playing on the transition of China from investment to consumption-led economy, upsurge in labor wages and the fight against air & water pollution. Curbing pollution is irreversible and the cost of conducting business has increased for chemical companies operating out of China.”
Manish also refers to an investment in an auto ancillary company making gear shifters and a variety of other products. This appears to be a reference to Lumax Auto Tech, which makes a variety of auto products including gear shift levers. Alternatively, the reference could be to Fiem Industries which is also well entrenched in the ancillary space and is known to be a quality stock.
Lastly, Manish refers to an investment in a “consumer electrical solution company with a formidable brand in domestic markets and has also achieved a leadership position in the export of its products”. I don’t know which Company is being referred to.
I think the important takeaway is the emphasis on the specialty chemicals sector. Almost all savvy investors are unanimous that the sector will see golden days ahead. We need to grab the best stocks in that sector while the prices are still low!