Holding company stocks will give 100% gain: Porinju Veliyath
Old-timers will recollect that in January 2017, Porinju Veliyath had recommended that we buy the stocks of holding companies.
His theory was simple, namely, that these stocks are quoting at a steep discount in relation to their intrinsic value and this discount is not sustainable for long.
Even a small narrowing of the discount from 75% to 50% will result in a doubling of their valuations, he explained.
I see few solid holding companies with over 75% discount. They will double in 2017 as the discount would narrow down to 50%, explore!
— Porinju Veliyath (@porinju) January 26, 2017
However, the pundits of Dalal Street were not convinced with Porinju’s theory because it was too simple to be taken seriously.
“Holding companies mein koi dum nahin hai. Is se accha hai ke operational companies ke stock kharid lo,” Madan Kaka, a distinguished silver member at MMB said, echoing the sentiments of the other punters.
To everyone’s disbelief, the stocks of holding companies surged like supersonic rockets.
Within just 6 months, their valuations more than doubled.
Naturally, Porinju claimed credit for his brilliant recommendation.
“Value Investing is all about “Buying Rupee worth of assets by paying few Paise”,” he said, give a real-life example of how enormous gains can be raked in from value investing.
Value Investing is all about "Buying Rupee worth of assets by paying few Paise" – they doubled in 6 months! https://t.co/caVcRQkHsB
— Porinju Veliyath (@porinju) June 20, 2017
Holding Cos. was my big theme for 2017:
Forbes 1400 ➡️ 5000
BBTC 500 ➡️ 1600
Bengal & Assam 1000 ➡️ 2750
Vardhman, Dhunseri, Summit, STEL, BF, Zuari, Nahar, Kalyani, Pilani etc – all gained between 131% to 261%. Currently holding only Bengal & Assam. https://t.co/caVcRQkHsB
— Porinju Veliyath (@porinju) December 28, 2017
Holding companies are still undervalued and value buys: Experts
The surprising aspect is that though nearly 24 months have elapsed since Porinju Veliyath’s recommendation, the stocks of holding companies are still quoting at massive discount to their intrinsic valuations and are great buys.
This revelation has been made by Rajesh Mascarenhas of ET Bureau after consulting leading experts like Ambareesh Baliga and G Chokkalingam.
Ambareesh Baliga opined that holding companies are like close-ended mutual funds and there is no logic for them to trade at such a huge discount.
This was endorsed by G Chokkalingam.
“Generally holding companies trade at 40-50 per cent discount, but currently discounts have widened dramatically,” the veteran investor said.
|Stocks||CMP (Rs)||Market Cap (Rs Cr)||% Discount*|
|Nalwa Sons Investments||1,077.00||553.16||-76.76|
|Bombay Burmah Trading||1,411.00||9,844.82||-68.91|
|Tata Investment Corp||701.60||3,865.43||-44.70|
|Balmer Lawrie Investments||409.40||908.75||-36.89|
|Bengal & Assam Co||1788.95||1553.44||-29.71|
* to quoted investment value
Which are the best holding companies stocks to buy?
Ambareesh Baliga and G Chokkalingam recommended the usual suspects like Williamson Magor, Kalyani Investment, Nalwa Sons Investments, Rajapalayam Mills, Pilani Investments, Maharashtra Scooters and Bombay Burmah Trading as being the best holding company stocks to buy.
It was stated that these stocks are trading at 70-80 per cent discount to their respective portfolios.
If the current value of their unquoted investments is taken into account, the discount in some of the companies would widen further.
Bajaj Holdings came in for special praise because of its fail-safe blue-chip status.
It holds 31.54 per cent in Bajaj Auto and 39.29 per cent stake in Bajaj Finserv.
Bajaj Holdings also has an investment portfolio with a market value of nearly Rs 7,000 crore in other equity and fixed income securities.
Its dividend payout ratio is quite generous at 14 per cent for FY18.
If the discounted value shrinks from current 50 per cent to 40 per cent in the near term, the stock would surge 20 per cent, Ambareesh Baliga opined.
Bombay Burmah Trading Corporation alias BBTC also received a clean chit from the two experts.
BBTC owns 50 per cent in Britannia and is presently trading at a discount of nearly 70 per cent to its investment value.
BBTC also owns 2,822 hectares of tea estates in south India and eight coffee estates in Karnataka.
Assuming industry average of 49 per cent discount to the market value of investments it holds in Britannia and Bombay Dyeing, BBTC would be valued at Rs 2,700 in the next 2-3 years, G Chokkalingam opined.
It is worth recalling that BBTC has also been recommended to us by Sunil Singhania.
Good to see investment holding cos still getting noticed. Covered Summit Sec at 150 cr m-cap and lot of people told me that no value in holding cos – but fundamentals always win. No surprise why @SunilBSinghania sir pick was BBTC at @SohnConf. Best way to play Britannia https://t.co/QAEdaShxaF
— Varinder Bansal (@varinder_bansal) June 12, 2018
Which are the other holding companies’ stocks worth buying?
In addition to the stocks cherry-picked by Ambareesh Baliga and G Chokkalingam, there are a number of other holding companies’ stocks that deserve a place in our portfolios.
(i) Godrej Industries
Godrej Industries qualifies because it has an operational business in specialty chemicals coupled with investments in Godrej Properties (Realty), Godrej Consumer (FMCG) and Godrej Agrovet (Agriculture).
This means that by investing in Godrej Industries, we will have an investment in diversified industries, each of whom is a powerhouse in its own right.
There is a masterful explanation of Godrej Industries’ fundamentals by Zee Business.
#2QWithCNBCTV18 | Adi Godrej, Chairman of Godrej Industries says election years have been good for the co in the past & expect 2019 to be a good year for the company@PriyaSheth7 pic.twitter.com/HC3iHX5RxV
— CNBC-TV18 News (@CNBCTV18News) November 13, 2018
(2) Summit Securities
Summit Securities is the holding company of the Harsh Goenka group with a stake in powerhouses like KEC International, Zensar, Ceat, RPG Life Sciences etc.
According to my rough and ready calculations, the portfolio of Summit Securities is as follows:
|Stock||CMP||Nos of shares||Value (Rs)||% of portfolio|
|RPG Life Sciences||248.65||17,92,398||44,56,79,763||4.17%|
|TOTAL NET WORTH||1069,47,74,858||100.00%|
However, according to Nigel D’Souza, the discount widens further if one looks at the consolidated holdings.
Today on #midcapmania we explain to u 'SUMMIT SECURITIES'
Which is the holding co of the Harsh Goenka cos
Holding in various listed entities=4500cr
Has 40.83% in Spencer & Co ltd as well (not Spencer's Retail) https://t.co/ESNhYNRZlm
— Nigel D'Souza (@Nigel__DSouza) June 11, 2018
Summit also has another 100% subsidiary named Instant Holdings Ltd.
hope this helps u
Instant Holdings Limited is a 100% subsidiary of Summit Securities
— Nigel D'Souza (@Nigel__DSouza) July 30, 2018
— CNBC-TV18 (@CNBCTV18Live) June 11, 2018
Stel Holdings is also a powerhouse from the Harsh Goenka group with the following investments:
|Stock Name||CMP (Rs)||Nos of shares||Value of portfolio||% of Portfolio|
|KEC International Ltd||279.25||46,85,880||130,85,31,990||26.55%|
|RPG Life Sciences Ltd||248.65||5,02,550||12,49,59,058||2.54%|
|Phillips Carbon Black Ltd||213.15||90,383||1,92,65,136||0.39%|
|TOTAL NET WORTH||492,89,28,578||100.00%|
Stel Holdings comes highly recommended by Prakash Diwan.
#GetRichOnCNBCTV18 | @P_diwan's pick on Sep 3 was STEL Holdings with a target price of Rs 144. The stock gained almost 14% today even though overall it was a weak session @Nigel__DSouza pic.twitter.com/OKQthuu5xc
— CNBC-TV18 News (@CNBCTV18News) September 4, 2018
BNK Capital Markets
BNK Capital Markets was discovered by Nigel D’Souza and highlighted because it has massive stakes in CESC, Saregama and Philip Carbon.
Rane Holdings is the parent company of three powerhouses named Rane Madras Limited (RML), Rane Engine Valve (RELV) and Rane Brake Limited (RBL).
Collectively, the three operational companies cover a wide spectrum of the automobile industry such as steering wheels, seat belts, airbags, brakes etc.
The entire merits of Rane Holdings have been explained in a cogent manner by Darshan Mehta.
Prima facie, the steep discount in valuations coupled with high dividend payout and strong operational performance makes holding company stocks ideal investment opportunities for novice investors!