Prof Sanjay Bakshi’s mastery in stock investing theory cannot be disputed. He is a staunch believer in the theory that buying stocks with a “moat” or a competitive edge will benefit investors immensely in the long run even if they pay a hefty premium for such stocks.
Sadly, the Prof’s stock picks are not living up to the high expectations reposed in them. At least three of the Prof’s favourite stocks, Kitex Garments, Vaibhav Global and Ashiana Housing, are presently reeling under poor performance and are close to their 52-week lows.
Kitex Garments shocked everyone today by slumping 13% on the back of poor Q3FY16 results. The stock has lost 35% in just the last month. The stock touched an all-time high of Rs. 1070 on 6th July 2015. At the CMP of Rs. 473, there is a whopping loss of 56%.
It is notable that the Prof was uncharacteristically bullish about the prospects of Kitex Garments. In a note titled “The Importance of Unconventionality”, the Prof came out with all guns blazing in favour of Kitex Garments. He said:
“As gigantic customers like Carter’s, Toys “R” Us, Gerber, and The Children’s Place divert more of their sourcing requirements to Kitex, I expect the company’s revenues and earnings to grow manifold over the next decade.
Despite its tiny size, the company enjoys significant power over its much larger customers which is reflected in improvement in its profitability and working capital situation. EBITDA margins have improved from 16% in 2008 to 24% in FY14. Working capital turns have improved from 4x to 11x over the same period. In FY14, Kitex delivered a 60% pre-tax return on equity with no net debt.”
The Prof also made it clear that more bucks can be harvested from Kitex Garments and that he has no intention of cashing out: He wrote:
“As I write this, the current market price is Rs 492 per share. I have no target sell price, and I haven’t sold a single share. Moreover, I feel good that I invested in this pro-social, and yet highly profitable business – a combination I absolutely love.”
Unfortunately, the Prof did not voice any concerns or risk factors about the stock. Instead, he raised a rhetorical question in the note “What could prove me wrong in this investment?” which was supposed to be answered by his elite students in class and to which the members of the public would have no access.
It is notable that the Prof’s unbridled bullishness about Kitex Garments was/is in sharp contrast with the caution expressed by the analysts of valuepickr forum.
The valuepickr forum, co-founded by Donald Francis and Ayush Mittal, boasts of a large number of razor-sharp and knowledgeable members, each of whom keeps a red alert to ensure that junkyard stocks don’t slip through the tight cordon.
Donald Francis raised the pertinent question whether Kitex Garments was really that hot an investment opportunity given that “We have many businesses which are capable of growing 20-25% CAGR for next 3-5 years – where we do not have these issues – transparency, consistency and strong visibility for next 2-3 years.”
He also asked “What remains in the puzzle is how come Kitex is doing 20% EBITDA margins when the norm is 10%? is this sustainable? why?”
He also explained that “The key to proper in-depth research is not to take anything for granted. And to question anything that prima facie does not add up”
Other members shared similar concerns about Kitex Garments. krishere expressed his worry about Kitex’s “funny math”. He pointed out that the projections made by the MD didn’t quite add up.
krishere also voiced what he called are his “major five concerns” about Kitex.
Donald also issued a clear cut “warning to novice investors” that “What doesn’t add up – are big gaps between stated and what seems to be the current picture”.
Dhiraj Dave homed in on what he called “concerns about management conduct”, one of which had to do with a huge cash balance which was mysteriously not earning much interest.
The issue of the alleged cash balance in Kitex’s balance sheet came up for frequent discussion with several members exclaiming that it is “very odd” that the cash was being allegedly held abroad in apparent contravention of FEMA regulations. sumi00 called it “sort of stupid behaviour which led to blow up of many mid-caps’ balance sheets during the last crisis”. “They should have transferred to India and invested in mutual fund if they really want to get higher returns” he opined.
varadharajanr was also skeptical. He called it “illogical” that a company would keep Rs. 199 crore in an interest free deposit. “I feel something does not add up here” he added in an ominous tone.
PP1 was not at all impressed by Kitex Garments. “Some brokers, and others have been pumping up the stock, I suspect….” he said and later added bluntly “There is no moat here, I am afraid.”
varadharajanr pursued the issue of the cash balance like a blood hound “I have been only focussed on this over the last two days and I am convinced that the Rs. 200 Cr. cash raises several questions” he said and proceeded to raise several red flags. varadharajanr was bold enough to liken Kitek with the scam-tainted Satyam “the Rs. 200 Cr. cash is a “phantom” cookie jar. Seems like satyam redux – through a merger with KCL, (so like satyam maytas merger), wipe out the cash and keep the scheme going” he said. He added that he was “very very nervous” about Kitex Garments.
Ayush Mittal, the co-founder of the forum also sent out a clear warning: “given the points raised and short-comings in the company, this investment call can go wrong – so everyone please be careful and do your homework” he said.
vivekbothra also sounded a warning: “Caution here : Managment has not always walked the talk, you can go through last five years AR to verify that”.
The specter of the huge cash caused so much concern that one intrepid member even called up the auditor to “dig more into the truth of the 200 crore cash“. Of course, the auditor assured him that everything was hunky-dory though he was described as being “very nervous”.
The cash issue raised its ugly head again during the Q2FY16 results. The management’s assertion that it was waiting for the rupee to touch Rs. 67 to a dollar was mocked and termed as a red flag. “Mgmt is crazy over the cash issue…I doubt the Corporate governance of the company” abhishek90 said while chiragjain1976 called it a “totally foolish thing to do”. richdreamz was also suspicious of the management’s reluctance to come clean on the issue of the cash balance.
The rumors that something is amiss with regard to the cash balance of Rs. 200 crore got some credence when Boby Michael, Kitek’s General Manager (Finance) and Chief Financial Officer resigned with “immediate effect” on 7th January 2016. Rajesh_R voiced the concern of everyone on the forum “CFO resignation effective immediately doesn’t seem right. Could this be more of a non-performance or personality clash or some financial mess up esp. related to 200 crores cash?” he pondered.
Meanwhile, before the management could offer any clarification on why the CFO resigned in the abrupt manner, the Q3FY16 results have been announced which caused the stock price to tank 13%.
Some members at the valuepickr forum were openly distraught at their loss while others kept a brave face. KS16 mourned the huge loss that he had suffered “All I can say is that from here, I will never take any concall update or guidance in face value. In India, anything goes and people can talk anything, pull wool over one’s eyes, wash their mouth and move on….” he wept.
The punters at MMB were equally distraught at the huge loss facing them.
“Mr jacob cannot be trusted anymore-period. We are taken for a ride.” “Unfortunately Mr Jacob talks too much. He claimed full year revenue is secured INR 600 cr . Now GOD knows what will happen. Q4 cannot be magical to have INR 250 cr rev. So the questioning is -Did he bull shit in CNBC after Q1 results” mossad demanded to know.
Man111 smelt a rat in Kitex Garments “Resignation of CFO and GM Finance smell foul in the company. Most important is the cash flow is very much interesting” he said.
Now, there is an important investing lesson embedded in the Kitex Garments episode. We have to see whether Prof Sanjay Bakshi unravels the lesson for us sooner or later!
Whlat is written by Prof Baksh that he preaches value investing,but most of time I see him as invester of Duds.Any body can go through my comments iñ various articles and stock talk to see that .More over many of so called experts have been in agreement or has been father of their Duds. Which can also been seen in various comments.Without naming any stock or experts,many of them suddenly start buying a dud claiming that they have found a gem.Public also followed without knowing that many of these Duds are rolling stone till yesterday,what value addition magic can expert put in old Duds which have been lying dorment .There is simple game played with permoters,buy dud cheap ,make a beautiful and sexy griwth story and dump it to inexperienced and those type investers who are in search of quick money.Stock market can not give quick money but serious long term play of aprox 20% return in Quality fundamentaly strong sector leaders with some growth and pricing power .To me many of the new magicians in Stock market are Father of Duds.
Latest magic sector found by Guru was real estate, a sector known for notorious for destroying and fooling investers directly in stock market and as well in real estate investment ,although as always all builders are not same and may be good ,but a diifcult game to find out among most.Kitex garment future performance has been questioned by me in various forms including stock talk.
I don’t think Prof Bakshi needs to be called as father or investor of duds. I been through several of his seminars, wont call him out part of traditional value investing club. He is entitled to his contrarian view while trying to define competitive advantage.
Saying this I do agree, even today I feel uncomfortable to some of stock pickings such as real estate, over hyped garments company. With such poor balance sheet management, little protection…i wasnt convinced how valuation can create a sustainable growth alone!
I did not said Prof as father of Duds and has great respect to our Prof Guru..But simply said that he advocated value investing, but stunnedto see him as invester of Duds.I may be wrong but sorry to say many of his recommendations made to believe me so.I shall be happy to be wrong and with Great respect to Prof saheb wish Good luck to investers in his recommendation.I wish Prof Saheb also look into some bigger Mid caps or large cap compnies with authentic managements and trust worthy numbers for benefit of investers like me.Any way sorry for harsh comments.
yes. bakshi is dk bose
Today it is Kitex. Tomorrow!!!! Ashapura intimate????
Ashapura plain operator driven, you can check their product reviews on sites like flipkart, Allison their own site the variety is very limited. So plain cook up company.
Mistakes keep us human…
every one has some failures in investing life.
BM faced it with Hawkins, now Prof facing it with Kitex and Vaibhav global. Damani with Gati,
One has to take all advise with pinch of salt, study your own, taken what ever is good for your financial health, leave out the rest.
Some ideas click, some don’t, its individuals study and opinion.
Investment is a journey , make profits , make mistakes but keep moving on..
Although I am no fan of BM.But he atleast discuss quality names,but recommending even at any cost is his fault.
Dear Harshad, Damani I remember invested in Gati below 30. So even now he is king.
The much given propaganda for kitex, page, ashiana, dewan housing, gati, vaibahv, even Kavery seeds and TCI are part of some conspiracy, as it seems. Airline is in a bubble already. What is the real differnece between porinju and bakshi now ? both same ?
I still believe in housing finiance compnies including Dewan housing,I am in agreement with rest of your views.
Hey, Guys, i am a big fan of Prof. S Bakshi . This donot mean that you should invest in all what he says. You cannot invest on borrowed conviction. So my policy is to invest in companies i really love eg. i invested in Thomas cook was a good one made a profit of 100k, Yes i made a test run in Kitex @ 650 Rs made a loss of 4k. So it goes on. Now i think you should not invest in Kitex till it reach 300 Rs or else you will see money vanishing in front of your eyes which is very painful. Also the issue of corporate governance is not a good one for any stock also the resignation of GM Finance and CFO.
In actual you should not invest with borrowed conviction. No coming to Sanjay he has some very good picks too. ie. Thomas Cook, Eicher Motors, Symphony, Astral Poly, Kewal Kiran etc etc..
Wait for symphony to burst, also vaibhav gems is third rate company, the business model is to fool customers but in market like US they may not go Scott free. Compared to these two kitex is ok
So what do the two gents Donald Francis and Ayush Mittal recommending or are they just crusaders of investor protection?
2 cids of bombay stock exchange….
So, Guys it is ultimately The Game of Luck??? or what?
Ultimately it is not an intellectual excercise – be street smart. You will be privy only to second third hand information which may actually be bogus.
In 2014 they had 98 crores in current account, and in 2015 they had 199.39 crores in current account. Would`nt it be sensible to park it in liquid funds or fixed deposits and get some good interest income. Something is not right..Also their low dividend payout ratio is also a question mark.
Prof himself knows most of his stocks go up because of his marketing and not by their own fundamentals, in his fanatic write up where he mixed his picks with eicher, this strategy is clearly evident.
He has given great lessons and some solid picks, but to me below are the dangerous ones – in descending order
Vaibhav gem – business model based on deceiving customers, not easy to get away in a regulated market like US
Symphony – misguided product and selling a wrong product to people who are right on cash, I don’t believe their margins when the market is flooded with Chinese products and they do the same. It should be low commodity business.
Kitex – they should be commodity business, better than textiles but can’t command branded’s margin. They might have cooked up like satyam but atleast they have some business
Value pickr is great site but each and every stock is a big NO …operator driven….satyam kind of promoter…..too many warnings…so quit going there long time ago….
Thats why betting on stocks like gm breweries….
i dont understand how someone like prof bakshi buys stocks like kitex, vaibhav, ashiana, poddar etc. moat ?. really?
only relaxo footwear seems to have some sort of a moat.
I have been a follower of Prof Bakshi and like his way of moat investing…however in the last bull run i was aghast to see how he was picking up stocks with little to no margin of safety. Also, the moat was getting invisible by the day. Knew this day was not far…one got to change investing strategy with the changes in market. I think the failure happens there once you are successful in a certain strategy. Another stalwart Basant Maheswari too facing similar issues i guess.
Only when the tide goes out you know who is swimming naked….
Much ado about nothing.
How many picks has Porinju the lawyer turned bull got wrong?
Stock picking is an imperfect science, and it has hits and misses
Street hustlers of the kind that populate Dalaal Street and join the multibagger chorus on blogs will always feel threatened by an academic like Sanjay Bakshi
His scientific methods put a light to the fraud that is most “analyst” advice
writing constantly negative about indian stock promoters will only create more of that, by naming every promoter as RAMALINGA we are only attracting that into our life, plus chasing away FII’s who are already cautious on INDIA, for once can we create a positive blog, the whole world is reading….
Scientists and academics are great investors?? Newton lost his underwear investing and it wasnt Kitex. FYI Warren Buffet has not been able to find a single Indian company worth investing in – event though he sent his sidekick Jain here. (hint governance issues)
Good luck on your faith in Indian promoters.
Arjun, it will be really useful if you can ask prof bakshi to share his views on Kitex. I agree that there is no obligation for him to do it but it will be really nice if he can address some of the concerns raised by his followers. The crack in Kitex price is worrying even long term shareholders.
I have tried to follow prof a few times but never could. By the time he makes his picks public, price has already gone up and as soon as his pick is out, all his followers jump onto the stock making it further pricier. I wonder how would prof have performed without his band of loyal followers.
moats are good for drowning.
you are right. a deep and wide moat around a stock only means you are trapped in that stock and can not escape. like the punters in kitex are finding out. the generals have left the city leaving behind the common people to be slaughtered.
Another 10% fall in prices today. What to expect tomorrow.