Avendus Capital was set up in 2010 by Manoj Thakur, an alumnus of IIT and a MBA. Unlike regular PE funds which invest in unlisted equities, Avendus Capital invests in listed stocks. The difference between a mutual fund and Avendus Capital PE Fund is that while the former would hold a host of 40-50 stocks, the Fund’s portfolio does not exceed 10 stocks. Also, the fact that Avendus is meant for HNIs with a minimum commitment of Rs. 1 crore means that there is some interaction between the fund manager and the investor.
Manoj Thakur has a long track-record of finding winning stocks. He mastered the tricks of the trade while he was fund manager with the $250 billion Canadian Pension fund and was responsible for spotting the opportunity in UTV and Entertainment Networks India Ltd (ENIL, the owners of Radio Mirchi).
In his present avatar as CEO of Avendus Capital, Manoj Thakur has a clearly defined investment philosophy. Research the universe of stocks thoroughly to find winners but narrow your selection to a handful of stocks in which you have absolute conviction.
Manoj Thakur’s investment strategy is somewhat similar to that of Sardar Biglari who also believes that “Analysis that is a mile wide and an inch deep is fool’s gold”. The distinction between the two stalwarts is that while Sardar is an activist investor looking for distressed companies that he can take over and turnaround, Manoj is content to be a passive investor.
However, the prudent aspect is that Avendus Capital does not lose sight of the fact that it is dealing with small and mid-cap stocks which are highly volatile. So, as a measure of risk management, the Fund ensures that the allocation to a single stock does not ordinarily exceed 10%.
Forbes has an interesting write up on Manoj Thakur which details his research and stock picking skills. For instance, when Manoj homed in on V-Guard in 2011 as a potential investment candidate, he not only went to Kochi to personally meet Mithun Chittilappilly, V-Guard’s MD, but also conducted thorough scuttlebutt to ensure that what was apparent was also real. When he was convinced, he invested a large sum in V-Guard. The result: The investment is now nearly a three-bagger and is still looking good.
V-Guard is not an isolated instance. Some other winning stocks in Avendus Capital’s portfolio are Bajaj Corp, Zydus Pharma, Kajaria Ceramics and Magma Fincorp.
In a recent interview to CNBC-TV18, Shrikant Bandaru, Fund Manager with Avendus Capital, reiterated that the Fund’s USP was its ability to consistently find high quality companies with great prospects. The companies are put through a detailed due diligence process which examines their business prospects and management capability. Thereafter, only the best of them are selected & bought, with a holding period of 4-5 years.
|Latest Portfolio of Avendus Fund II|
|Bajaj Corp||25.05||Consumer Defensive|
|Kajaria Ceramics||12.89||Building Products|
|Magma Fincorp||10.07||Financial Services|
|Zydus Wellness||8.43||Consumer Defensive|
|Action Construction||2.25||Capital Goods|
What you can see from the portfolio is that the top 3 companies constitute more than 50% of the corpus and also that there is a huge amount of cash. Shrikant clarified that this was an aberration caused by a few recent stock exits. He pointed out that as a policy, the allocation to a particular stock does not exceed 10% and also that the Fund is always fully invested in stocks.
Shrikant made two other interesting points. First, he said that the Fund is moving away from consumer defensives (e.g. Bajaj Corp) and getting into ‘consumer discretionary’ (e.g. automobiles & durables) & ‘financial services’ stocks because the latter would benefit from an upturn in the economy. He added that there are also good prospects for the building product segement such as sanitaryware, ceramics, paints etc and capital goods. He also indicated a preference for NBFCs with an exposure to commercial vehicles (perhaps, such as Shriram Transport).
The other interesting point that he made was that though small and mid-cap stocks have run up quite a bit, they are still quoting at a value lower than what they were in late 2007/ early 2008. The valuations are still attractive and there is scope for appreciation of 40-50% in specific stocks in the short to medium term, Shrikant added with confidence in his voice.