Mohnish Pabrai’s talks discussed at Dalal Street’s Chai ki Tapris
“Mohnishbhai ne bola hai ke Rain Industries mein 400% gain hai,” Jigneshbhai said, as he sauntered to meet his fellow punters at Shyam’s Tea Stall, the nerve center of Dalal Street.
Jigneshbhai had to contort his face while talking to prevent the gutka juice dribbling from his mouth.
Mukeshbhai stared at him unblinkingly.
“Logic kya hai?” he asked, with the air of an intellectual, even as he expertly tore open a sachet of Kamala Pasand and tossed its contents into his mouth.
The question stumped Jigneshbhai. It never occurred to him to inquire into the logic for buying a stock.
He spat out the gutka and took a sip of the kadak chai, his brow furrowed with deep thought. He was determined not to let Mukeshbhai get the upper hand.
“Yeh Dolly Khanna ka stock hai,” he blurted out, knowing that the logic is irrefutable.
Now, it was the turn of Mukeshbhai to be on the back foot. He gracefully conceded defeat.
“Phir kya problem hai? Stock daba ke lene padega,” he replied with a toothy smile, even as the other punters gave Jignesh a pat on the back for his brilliant stock picking abilities.
(Punters at Dalal Street debating stocks)
Balancing act between intellectuals and punters
At this stage, we have to compliment Mohnish Pabrai for tailoring his talks such that it is not only the high-brow intellectuals who find merit in it but even the punters at the bottom of the food chain find it worthwhile to listen.
Mohnish cleverly mixes up his talk with references to Charlie Munger and Warren Buffett (which the intellectuals adore) with practical examples of multibagger stocks that he has personally snared (which the novices find irresistible).
Mohnish also smuggles in stock recommendations in a subtle manner in his talks.
We saw a stellar example of this in Mohnish’s talk at the Google HQ. He revealed that he has bought a massive chunk of a specialty chemical company which will prosper from the unending demand for automobile tires. This created great excitement amongst the novices. The stock was later discovered to be Oriental Carbon and Chemicals, a high quality small-cap stock which is destined to be a multibagger.
We will make upto $200 Million gain from Rain Industries
“I put 20 million of Pabrai Funds into the Company (Rain Industries). It is now worth north of 50 million. I think we will probably get 100 million or even 200 million out of it,” Mohnish said (@ 53) in his characteristic drawl.
Mohnish was addressing a room full of bright-eyed students of the UCI Paul Merage School of Business in the University of California.
As expected, the students had done their homework thoroughly. They grilled Mohnish on a number of complex investing theories. Mohnish answered all questions with his typical aplomb.
From our perspective, it is obvious that if Rain Industries surges from 50 million to 100 million, we are talking of a 100% gain. If it surges to 200 million, there will be 4x gains waiting on the table for us to feast on.
In the past, Mohnish has talked extensively about Rain Industries. He never fails to heap rich praise on Parry Pascricha for giving him the stock idea.
Dolly Khanna has bought a truckload of Rain Industries
In an earlier piece, I have drawn attention to the fact that Dolly Khanna has bought a massive chunk of 42,68,092 shares of Rain Industries as of 30th June 2017.
I have also referred to the investors’ presentation which sets out details of the various expansion plans and their stage of completion.
There is also an analysis by Darshan Mehta of Bloomberg (then with ETNow) where the salient features of the Company are explained in a succinct manner.
IDBI Capital has conducted an expert analysis of the stock and recommended a buy.
Blockbuster Q1FY18 / Q2CY17 results
Rain Industries has justified the confidence reposed in it by Mohnish Pabrai and Dolly Khanna by reporting blockbuster Q1FY18 / Q2CY17 results.
The revenue from operations surged to Rs. 2716 crore while the adjusted EBITDA surged to Rs. 468 crore.
The Net Profit After Tax was Rs. 152 crore while the Earnings Per Share stood at Rs. 4.5.
It is commendable that the performance was sustained in spite of depreciation of the USD and Euro against the Indian Rupee.
Rain Industries also has a strong cash balance of Rs. 850 crore to fund Capex projects and meet debt obligations in the near-term.
| Consolidated Financial Performance | in Millions | |||
| Particulars | Q2 2017 | Q1 2017 | Q2 2016 | CY 2016 |
| Net Revenue | 27,071 | 25,226 | 25,535 | 94,378 |
| Other Operating Revenue | 95 | 123 | 126 | 567 |
| Revenue from Operations | 27,166 | 25,349 | 25,661 | 94,945 |
| Adjusted EBITDA | 4,678 | 4,414 | 4,747 | 16,367 |
| Adjusted EBITDA Margin | 17.2% | 17.4% | 18.5% | 17.2% |
| Profit Before Tax and Exceptional Items | 2,375 | 1,717 | 2,341 | 5,021 |
| Exceptional Items | – | 670 | – | 262 |
| Profit Before Tax | 2,375 | 1,047 | 2,341 | 4,759 |
| Tax Expense | 819 | 400 | 961 | 1,792 |
| Share of Profit of Associates and Minority Interest | (41) | (55) | (29) | (58) |
| Net Profit | 1,515 | 592 | 1,351 | 2,909 |
| Adjusted Net Profit | 1,515 | 1,028 | 1,267 | 3,457 |
| Adjusted Earnings Per Share ( Rs ) * | 4.5 | 3.1 | 3.8 | 10.3 |
*Quarterly EPS are not annualized
The Company has also released an updated investors’ presentation which provides the latest information about the ongoing expansion plans.
Conclusion
It is rare to find a stock in which two eminent investors of the caliber of Dolly Khanna and Mohnish Pabrai have confidence.
It is even rarer for investors of the stature of Mohnish Pabrai to advice us that the stock has 2x/ 4x multibagger potential.
Prima facie, it appears that this is a golden opportunity for us. We have to mull over the situation seriously and take the appropriate decision!
Mohinish Bought Rain @35 levels , and already gained 4X of his invested capital , why are you saying 2-4 times from here ? Big investors wants to dump their piece !!
How do u know his buying price. I think they add more if a stock performs well. I am sure he hasn’t added all his money at 35 Rs i might be wrong. But i feel Rain Industries has already run alot, must correct below 90 Rs for new buying.
Put some efforts to dig data , you will find out.
A difficult one, given, it’s commodities play with loads of debt.
With the uptick in Aluminium prices and strong demand for cement, Rain Industries can do well.
June 2017 to June 2016 comparison doesn’t look like any block buster.
Just because Mohnish bought it is blockbuster.
Same Mohnish bought South indian bank earlier and stock went nowhere for many years.
I have loaded up on Rain Industries. The valuation is a sin. Himadri their peer trades at 2x sales with sales of 1,500cr whereas Rain is a much bigger company with many more ancillary products apart from CPC and CTC and does around 10,000cr worth of sales and is valued only at 4,500cr mkt. cap. Even Himadri has got debt. Rain has got fat margins and wonderful cash flows. With a history of retiring debt. Strong mgmt. and Global Leader! Within the next few years they will file for an IPO in the US markets and proceeds will be used to wipe out debt. Current expansion is completely funded through internal accruals. That goes to show the fundamental strength of Rain industries. Rain is atleast a 15-20k cr market cap company from here in the next 3 years. Within the next one year huge re-rating will occur. Only downside of the entire business is the debt level which is being comfortably serviced. Aluminium is the metal of the future. They do not want to list yet because they want push valuation of the company up by showing strong earnings. Promoter has been increasing holdings steadily. If they can even halve their debt levels, imagine where they can go from here. With their moat and leadership position, mgmt. They should be trading atleast 1x sales in the short run. They should show 100% from cmp in the next one year period. Post that it all depends on debt reduction. They are still expanding through internal accruals inspite of debt burden. As they boost earnings and decrease finance cost, restruction due on jan 18. Go in for a US IPO they will wipe out atleast half their debt if not more. Alternatively they can issue convertible debt through restructuring to their creditors. Promoter currently holds 48%. And that is a lot for a company the size of rain. Even diluted 10% will lead to huge debt reduction.
After reading the erudite comments of 7cr, I feel fully convinced to buy more of Rain Ind