In a chat with stock wizards Ramesh Damani & N Jayakumar, Rakesh Jhunjhunwala, the Badshah of Dalal Street, offered some unconventional wisdom.
He pointed out that sometimes markets give an once-in-a-lifetime opportunity where we spot a stock with good fundamental quoting at “ridiculous” valuations.
At times like that, we must not dither. Instead, we must grab the stock and buy truckloads of it.
The Badshah cited two examples to make his point. The first is Dewan Housing. When he spotted it (in October 2013), the stock was languishing at Rs. 105 even though its book value was Rs. 230. It was dirt cheap at a P/E of 4x. It offered a 6% dividend yield and was consistently growing at 20% for the last ten years. For some unknown reason, Dewan Housing had been discarded by the market.
The Badshah took one look at the stock and he knew he had found a gold mine.
In a flash, he pounced on the stock and grabbed a massive chunk of 25 lakh shares. Later, as his confidence in the stock grew, Rakesh Jhunjhunwala bought more and more. Today, he holds 49,22,000 shares of Dewan Housing worth about Rs. 246 crore.
The second example cited by Rakesh Jhunjhunwala is Lupin. When he saw that Ranbaxy had earned Rs 250 crore in a single product, he knew that Pharma stocks are a gold mine. He homed in on Lupin because it manufactured “injectable Cephalospor” in the only approved FDA plant in Asia. It was the single filer for a product having a size of USD 360 million. Lupin’s market cap then was only Rs 200 crore.
Today, Lupin’s market cap is – hold your breath – Rs. 84,392 crore. Rakesh Jhunjhunwala holds 71,53,310 shares worth Rs. 1343 crore.
“Such ridiculous valuations!!! … What is there to think? So those kind of situations are like invest now, investigate later” the Badshah exclaimed.