In one of my earlier pieces, I described Prof. Shivanand Mankekar as a “genius” stock picker with a “concentrated portfolio”. In particular, I noted that the Prof’s game plan of buying a massive chunk of United Spirits’ stock (then worth Rs. 426 Cr), after the announcement of the (first) buy-back offer, was a “brilliant strategy” because it was based on the calculation that the offer would fail and that Diageo would be induced to offer another one at much higher rates.
Well, the Prof’s game plan did play out as expected. Diageo made another buy-back offer at a much higher price (Rs. 3,030) and the Prof either tendered his shares there or he sold it in the open market, netting gains of Rs. 150 crore.
Prof. Mankekar has deployed a part of those funds to buy two stocks in the July to September 2014 quarter. He bought 19,96,876 shares of Cox & Kings (worth Rs. 57.51 Cr at the CMP of Rs. 287) and 13,00,000 shares of SKS Microfinance (worth Rs. 42.25 Cr at the CMP of Rs. 325).
To understand what attracted Prof. Mankekar to SKS Microfinance, we have to turn to the brilliant analysis by Dipen Sheth of HDFC Securities. Dipen has given a few succinct reasons why SKS is a great buy at present:
(i) SKS has recovered from the horrifying period it went through in Andhra Pradesh;
(ii) It has high spreads, high return ratios and is adequately capitalized after raising Rs 450 crore;
(iii) It has the potential to grow its loan book at 30-40% for the next three-four years;
(iv) The AP losses provide a large tax shelter of several crores;
(v) It enjoys a “moat” because barring Bandhan, there is no other large player in the micro-finance sector with a pan India reach;
(vi) The market is highly under-penetrated (20-30%) and so there is huge scope.
A report in LiveMint “SKS Microfinance results show it is back in a sweet spot” corroborates this analysis.
Of course, the unsaid fear about SKS Microfinance is what happens if the Andhra Pradesh -like crises recurs.
Cox & Kings:
The fastest way to come to grips with Cox & Kings is to read the “re-initiating coverage” report by Motilal Oswal. The report give succinct reasons why Cox & Kings is an attractive purchase at present:
(i) Cox enjoys 30% market share in outbound travel market with 20-22% gross margins which is best in the industry;
(ii) The education segment is expected to grow at ~14% over FY15-17E driven by opening of new centres and improved capacity utilization;
(iii) The sale of the camping business and Free Cash Flow generation over the next two years will reduce debt-equity from 2.4x in FY14 to 1x in FY17E;
(iv) The valuations are reasonable. The stock trades at about 13.6x FY15E and 10.1x FY16E earnings.
There is also a nice report by Edelweiss which suggests that the global economic recovery coupled with the growth in international leisure augers well for Cox & Kings.
We must also bear in mind that the fact that Prem Watsa and Prof. Sanjay Bakshi have grabbed huge chunks of Thomas Cook suggests that the travel agency business is the sector to bet on at present.