Yesterday, I reported that Kitex Garments, a stock that was so far lauded for its so-called “impenetrable moat”, high standards of corporate governance, brand image, etc, etc had collapsed like a ton of bricks over concerns of its growth prospects and valuations.
Today, Kitex lost another big chunk of its value, leading investors to question how some highly esteemed value investors had expressed unbridled optimism about its prospects despite so many tell-tale warning signs (which were highlighted in the valuepickr forum).
While the purists (investors who believe in investing only in “high quality” stocks no matter what the valuations) were wailing inconsolably over their huge loss, Porinju Veliyath was grinning from ear to ear, like a Cheshire cat.
Porinju has good reason to be pleased because his sustained campaign against the purists for advocating the purchase of so-called high-quality stocks without regard to their valuations is reaping rich dividends.
Porinju had once mocked investors in Page Industries (when it was quoting at an eye-popping P/E of 100x) by saying that the Government would have to make it compulsory for citizens to wear “two underwears” if Page Industries was to continue to thrive at its exorbitant valuations.
Page is over-priced unless govt makes it compulsory to wear 2 underwears, like superman 🙂 https://t.co/OVTovP99Lq
— Porinju Veliyath (@porinju) August 14, 2015
Some other high priced stocks that have been on Porinju’s hit list include Ashiana Housing, Symphony, Eicher Motors, Kaveri Seed, Bata India and Kitex Garments.
Sad that amateurs are chasing success stories at wrong prices; I have been warning about Page, Kitex, Ashiana, Atul Auto, Symphony, KSCL etc
— Porinju Veliyath (@porinju) August 17, 2015
With the stocks steadily losing ground, Porinju was emboldened to launch personal attacks on the Gurus who dish out advice to buy high priced stocks. Porinju contemptuously called these Gurus “big people, fancied guys” and slammed them for leading naïve investors into the “biggest trap”. Porinju diplomatically did not name the Gurus.
Today, Porinju rubbed salt into the wounds of the purists by digging out an old interview in which he had cautioned investors from investing in Kitex Garments (then quoting at Rs. 800) and instead to invest in Vardhaman Textiles (then quoting at Rs. 600). Kitex is down 45% while Vardhaman is up 25% Porinju gleefully announced, much to the delight of his vast fan club.
— Porinju Veliyath (@porinju) January 27, 2016
“Fancy vs. Value” Porinju proclaimed, plunging his sword deep into the bosom of the purists.
The purists got yet another jolt because Ambareesh Baliga has condemned Kitex Garments and recommended that investors dump the stock for whatever they can salvage. Ambareesh Baliga also revealed that even he had recommended that Kitex be sold when it was at Rs. 1,000 on the basis that the valuations were exorbitant and unsustainable.
GEPL also advised investors to dump the stock and head for the exit door on the ground that “management integrity is in question“. It set out its key concerns as follows:
(i) Despite Dollar at record high levels of Rs 68 company is not able to post a topline growth. Repeatedly they had said and stick to their guidance of 10 to 15% sales growth since last two con calls.
(ii) No repayment of Debt despite having cash balance of Rs 240 cr plus. Management had said in earlier con calls they will re deem their dollar denominated investments and clear debts since dollar was at record high levels.
(iii) No update on the Merger with the unlisted entity. Nor any update on the listing of the unlisted entity.
(iv) CFO resignation with immediate effect. Company said since he got better opportunity so he resigned immediately.
(v) No update on the con call for Q3FY16 results. MD is in USA and will be back on 6th Feb and no one else wants to comment on the results. No surety whether there will be con call after his arrival as well.
GEPL also pointed out that while Kitex has corrected from Rs. 1050 levels all the way to 450 levels, more downside is expected because some companies like Eros International, Kaveri Seeds, Tree House, Amtek group etc have corrected more than 60 to 90% when management integrity is in question. It warned that Kitex may correct another 30 % to 50% from current levels because of all the concerns.
Now, the ball is in the court of the purists to come up with an effective rejoinder to Porinju’s attack and salvage their reputation.