Nalanda Capital’s portfolio reads like a who’s-who list of multibagger stocks. Mindtree, Page Industries, Havells, Berger Paints, AIA Engineering, Supreme Industries, Cera Sanitaryware, the list goes on and on.
The other noteworthy aspect is that Nalanda’s stock wizards put in a great deal of due diligence before they invest any of its precious money in a stock. So, you can be sure that when you buy one of their picks, you are not getting saddled with a junkyard stock.
Nalanda already holds a massive chunk of 948,356 shares (5.64%) of Lovable Lingerie which it bought at the time of Lovable’s IPO in March 2011. The investment is worth Rs. 28.45 crore at the CMP of Rs. 300.
Nalanda probably thought Lovable Lingerie would replicate the phenomenal success of its bigger peer, Page Industries. While Page has given incredible (15x) multibagger returns to Nalanda, Lovable Lingerie has given a paltry return of 22% since its IPO. On a YOY basis, Lovable Lingerie has lost 15% while Page Industries is up 60%.
Now the reasons for Lovable Lingerie’s woes are that the sales growth has not picked up as anticipated owing to weak consumer sentiment. The operating margins have also been under pressure owing to a hike in the raw material prices.
However, the positives are that (i) Lovable has several well-known brands such as ‘Lovable’, ‘Daisy Dee’ and ‘College Style’, (ii) the prices of cotton (raw material) are seeing a dip, (iii) Lovable is considering entering the men’s segment through acquisition of an existing brand and (d) the valuations at 20x FY15E EPS is at a 15% discount to Page Industries’ P/E.
On 15.01.2014, Nalanda bought another chunk of 3,16,536 shares (3.73%) at Rs. 299 per share for a total consideration of about Rs. 10 crore.
Anyway, now the difficult decision is about what we should do. Speaking for myself, I already have a nice chunk of Page Industries and Cera Sanitaryware in my portfolio. I also have a nice little holding in other top quality mid-cap stocks like Amara Raja, Bajaj Finance, Kajaria Ceramics, Hawkins Cookers etc. So, I am going to give Lovable Lingerie a miss and invest incremental funds into my existing holdings. After all, as some great man once said, it is better to ride a winning horse than to look for more horses to tame.