Porinju Veliyath’s investment philosophy and stock picks always evoke curiosity, comment and criticism. His game plan of buying stocks which are backed by promoters of “low quality” (his words), which have a dubious track record of corporate governance and are suffering from poor operating performance flies in the face of conventional logic that one must only buy “high quality” companies, even if there is a premium to be paid for that.
Porinju’s latest stock pick, Jubilant Industries, is in the same mould. It has suffered heavy losses in the past few quarters including Q4FY15 and a recovery seems nowhere in sight.
Now, in a chat with NDTV, Porinju has now revealed his rationale behind buying Jubilant Industries.
Porinju explained that Jubilant’s core business of manufacturing polymers is an “excellent” one and is worth nearly Rs. 500 crore on a standalone basis. However, the recently acquired retail business is the sole reason for the Company’s woes. The retail business is guzzling cash and spewing out heavy losses. It is a mill stone around Jubilant’s neck and will drag the Company into insolvency sooner or later.
Porinju theorized that as per his common sense approach, the management of Jubilant would not allow the Company to sink like this. They would take the call to either shut down the retail business or sell it for whatever they can get.
When that event happens and Jubilant gets rid of the retail business, it will surge and could give multi-bagger gains, Porinju reasoned.
Porinju disclosed that he has bought the stock for his personal portfolio and not for the PMS, implying that the stock is a “high risk, high reward” sort of stock.
Porinju also candidly admitted that he loves “gambling once in a while” and that he is “taking a chance” that the management will act in a rational manner to save Jubilant Industries.
Now, whether Jubilant Industries lives upto Porinju’s lofty expectations and whether he will in fact get the multibagger gains that he is fantasizing about requires to be seen.