Mudar Patherya Recommends Blue-Chip MNC “Classic Turnaround Story” Stock

SPML Infra – 42% gain in less than 30 days

SPML Infra was Mudar Patherya’s last recommendation. He described the infrastructure sector as a “remarkable contrarian play” and opined that SPML Infra (which is engaged in water related infrastructure projects) is the “one company I would put my money”.

Mudar’s timing was simply awesome because the stock has surged like a rocket from Rs. 126 on 26th June to the CMP of Rs. 180, putting massive gains of 42% into the pockets of its lucky shareholders, in less than 30 days.

Anirudh Damani buys massive chunk of 4,16,879 shares of SPML Infra

At this stage, we have to compliment the punters at MMB for their 24×7 vigilance on the stock market.

The punters maintain a hawk eye on their favourite stocks and are quick to report the latest going-ons.

They flashed the red alert that one Anirudh Damani has emerged out of nowhere with a massive chunk of 4,16,879 shares of SPML Infra in his portfolio.

The investment is worth Rs. 7.50 crore at the CMP of Rs. 180.

My research shows that Anirudh Damani is a partner in Artha India Ventures, which is described as an “angel investor”.

Anirudh’s father is Ashok Damani who is said to “hold trading rights on major stock exchanges in the country and runs a few proprietary trading books”.

It is not known whether Anirudh is related to either Radhakishan or Ramesh Damani.

Prima facie, Anirudh Damani appears to know what he is doing and so we will have to keep a hawk eye on him as well on SPML Infra.

Yuken India, “classic turnaround story”

Mudar’s latest recommendation is Yuken India Ltd, a MNC in which Yuken Kogyo Co, the Japanese behemoth, holds 40% of the equity.

The Company is a micro-cap with a market capitalisation of only Rs. 563 crore. It is engaged in the manufacture of pumps.

Apparently, the Company uses “hydraulics technology” to manufacture “mission-critical” pumps, valves, castings and cylinders. These are sold individually and collectively through power pack solutions, addressing the processing requirement in machine tools, steel mills, power projects, plastics and mobile application industries.

Foundry business, the millstone around Yuken’s neck

Several years ago, Yuken India committed the buffoonery of investing in a “foundry” to manufacture castings.

For various reasons, the foundry turned out to be a bottomless pit and guzzled down all the profits that the Company was making from the pumps business.

Fortunately, better sense has prevailed upon the Company that there is no point in throwing good money after bad and that it is better to junk the foundry business and salvage what is left of it.

The Company has entered into a slump-sale agreement with Grotex Enterprises to sell the foundries business with effect from 1st October 2016.

Sale of prime land in Whitefield, Bengaluru

The foundry was located in 6 acres of prime land in Whitefield, an elite area of Bengaluru, which is home to several IT firms, commercial and residential buildings.

The Company has entered into a joint development agreement with Brigade Enterprises, a reputed developer, to develop the land and share the revenue from its proceeds. The project will take 3 to 4 years to be completed after sanction of the plans by the municipal authorities.

Turnaround story

Mudar has explained that there are three aspects which make Yuken India an exciting turnaround story:

(i) First, the sale of the foundry will save losses of nearly 6 crore a year;

(ii) Second, the sale of the land will generate about Rs. 160 crore across three years;

(iii) Third, the core business of manufacturing pumps will do well. As the economy grows, Yuken will at least quadruple annual revenue to ~800 crore on an equity of ~3 crore, with tonnes of cash on its books.

Mudar also points out that Yuken India has also been cash-positive even in the most challenging market cycles of the past few years.

So, the huge inflow of Rs. 160 crore that it will get from the sale of the land may be used by it for a buyback or a special dividend.

In either event, the stock is likely to take off like a rocket, he opines.

What about the dreaded ‘BSE Group ST’

At this stage, we have to note that Yuken India has been condemned by the mandarins of BSE to the dreaded ‘Group ST’.

A stock which is punished with the “Group ST” rating is subject to several disabilities such as

(a) Imposition of weekly, monthly price bands in addition to existing daily, quarterly, yearly price bands;

(b) Imposition of very high transaction charges;

(c) Placing / continuing securities in trade to trade category;

(d) Requirement of depositing additional amount as Surveillance Deposit, which shall be retained for an extended period.

Prima facie, it appears that the mandarins of BSE have done this because Yuken India’s stock price has surged from a low of Rs. 300 to the CMP of Rs. 1877, putting massive YoY gains of 481% on the table.

The steep surge appears to have triggered alarm bells that there is some sort of manipulation going on in the stock.

Of course, the mandarins have not appreciated that there are bona fide commercial reasons for the surge as have been outlined by Mudar Patherya.

Group ST ranking is a blessing in disguise?

Prima facie, the condemnation of Yuken India to the Group ST category may be a blessing in disguise because it discourages deep pocketed investors from barging in and mopping up all the shares.

On the other hand, novice investors buying small bits and pieces will be able to smuggle into the stock unnoticed because their actions will not trigger any alerts in the BSE HQ.

After the cooling period is over, Yuken India will be released from the shackles of Group ST and will hopefully resume its upward trajectory!