Prof. Shivanand Shankar Mankekar has always been a believer in the merits of a concentrated portfolio with only a few high conviction stocks in it. However, this time he has outdone himself with 70+% of his net worth in a single stock.
When you study the portfolio of Prof. Mankekar, his wife Laxmi Shivanand Mankekar, his son, Kedar Mankekar and company, Om Kedar Investments, three things become apparent. One, the Prof likes to takes concentrated bets on a few stocks. Two, the Prof is not looking for “cheap” stocks. He wants stocks that are proven out-performers and he is prepared to pay the full price for them. Three, the Prof likes to periodically shuffle his portfolio to weed out the non-performers.
Prof. Mankekar made his first big fortune in Pantaloon (now known as ‘Future Retail’), a company promoted by Kishore Biyani. In Biyani’s book “It happened in India” Prof. Mankekar talks about what fascinated him about Pantaloon. He says that when he went to see the ‘Big Bazaar’ mall in Bangalore, he was very excited and he rushed to the hotel, called the broker and asked him to buy 4% of the equity capital of Pantaloon. Interestingly, Prof. Mankekar says that “We didn’t do any of the typical things expected from finance professors, i.e. analyze the balance sheet or meet the management. The simple reason for this was that the Big Bazaar outlet spoke much more, it screamed out that here was a guy who really understood retailing the Indian way”.
Prof. Mankekar also recollects that when he met Kishore Biyani, he told him that Pantaloon would have a market capitalisation of Rs. 1 lakh crore in 13 years. Kishore Biyani did not believe this and laughed it off because Pantaloon’s market capitalisation then was barely Rs. 50 crore.
Prof. Mankekar’s prediction come partly true because Pantaloon Retail did become a blockbuster multibagger. While the Prof. bought the stock in 2002 at about Rs. 9 (adjusted for rights & bonus), the stock touched a peak of Rs. 800 in January 2008, giving an incredible return of nearly 90 times in just 6 years.
Wockhardt, Prof. Mankekar’s second mega stock pick, is a classic example of his brilliant stock picking ability. However, ironically, it also represents a classic example of how multi-bagger profits can slip out of your hands and remain on paper if you don’t encash them on time.
How the Prof homed in on Wockhardt out of the hundreds of pharma stocks in the universe is a big mystery. Nobody knows the answer but it must be the same intuition that was at work in Pantaloon.
Magically, soon after the Mankekars (actually Laxmi Mankekar) began aggressively buying Wockhardt stock (at the peak in June 2012, she held 22,00,063 shares, comprising 2.01% of the capital), it began its vertical climb. While Laxmi Mankekar bought the bulk of the stock in the September – December 2011 Quarter, when the price was about Rs. 240, the stock surged to an all-time high of Rs. 2,166 in March 2013. At the peak, Mankekar’s holding in Wockhardt was worth nearly Rs. 470 crore, nearly a ten-bagger.
Now, in hindsight, one can lament that the Mankekars should have booked some gains because when the fall came, it was swift and brutal. Over concerns raised due to the FDA warnings, Wockhardt’s stock price went into a free fall and plunged to a low of Rs. 340 in August 2013. Desperate investors wanting to bail out worsened the situation. The Mankekar’s were caught in the stampede and trampled upon. They sold off all their holdings by September 2013, without much to show for the brilliant stock picking and holding of 4 years.
The Wockhardt episode reveals a serious chink in Prof. Mankekar’s armour. How is it a visionary like him did not anticipate the FDA risk factor for Wockhardt when it is well known that this is the biggest risk factor for pharma companies? Also, was not the Prof over-confident in not booking some profits when the going was good? Surely, he should have sensed that such quick gains cannot be sustained and he should have encashed some of it.
However, the other aspect that the Wockhardt episode reveals is the absolute emotion-less approach that Prof. Mankekar has towards investments. After the debilitating loss in Wockhardt, a lesser person would have crumpled and sworn off concentrated bets.
Prof. Mankekar remained unmoved. He did not spend a moment ruing the lost opportunity in the Wockhardt debacle. Instead, he was busy scouting for the next stock in which he could make a concentrated bet.
And he found it in United Spirits.
Here again, the surprising aspect is the timing of Prof. Mankekar’s purchase. A lot of savvy investors had foreseen that due to Vijay Mallya’s profligacy and imminent bankruptcy, he would have to sell his stake in United Spirits sooner or later to Diageo or some other liquor behemoth and they had begun cornering the stock when it was at Rs. 600. For instance, S. P. Tulsian and N. Jayakumar of Prime Securities openly declared that they were heavily buying United Spirits’ stock in anticipation of a stake sale by Vijay Mallya. Even Rakesh Jhunjhunwala bought huge volumes of the stock at Rs. 900 levels.
Instead, Prof. Mankekar waited till 12th November 2012, a week after Diageo Plc had announced that it would buy 53.4 per cent stake in United Spirits at Rs. 1,440 each, for Rs 11,166.5 crore. The frenzy was at its’ peak at that time, with the stock having surged 35% in one trading session. Prof. Mankekar bought 1.45 lakh shares at about Rs. 1,540 each.
Now, this is surprising for two reasons. First, Prof. Mankekar would have had his eye on United Spirits for a long time and would have known that big-ticket investors were loading onto the stock. Why did he not buy the stock at that time? Secondly, his buying the stock immediately after the official announcement is odd because conventional wisdom tells you that you must wait for the frenzy to cool down before you buy the stock. Also, the stock was then quoting at a frightening P/E of 158 times its TTM EPS.
Of course, as it turned out, Prof. Mankekar was lucky to have grabbed the stock when he did because even when the frenzy cooled down, the stock never went back to the price of Rs. 1,540. He later bought his balance holding of 15 lakh shares by the June 2013 quarter, paying a much higher price than what he paid for his first purchase.
One way to rationalize Prof Mankekar’s buying decision is that he had anticipated that the open offer announced by Diageo to buy the stock at Rs. 1,440 would fail given the sharp run up in the price. As Diageo had indicated its keenness to take control over United Spirits, it was only a matter of time before Diageo announced a second open offer, at a much higher price.
If so, it was a brilliant strategy and it came true on 15th April 2014 when Diageo announced an open offer to buy a 26% stake in United Spirits at Rs. 3,030 each, for a total consideration of Rs. 11,448 crore ($1.9B). The price now offered by Diageo is more than twice the price that it offered in November 2012.
The result: At the CMP of Rs. 2,850, the Prof is looking at a gain of 85% over his initial purchase price. If the Prof does accept the open offer, he stands to make nearly a 100% gain. The Prof’s total investment in United Spirits today stands at a staggering Rs. 426 crore.
What we need to see is whether the Prof tenders any of his shares in the open offer or he prefers to hold them. United Spirit’s recent financial performance has not been very inspiring though given Diageo’s keenness to invest such substantial sums of money into the liquor business, it is clear that there is a very large scale opportunity in sight.
The other notable aspect is that though Prof. Mankekar has absolute conviction in United Spirits, he has diversified a bit. Let’s take a quick note of his other investments:
Latest Portfolio As Of April 2014 of Shivanand Mankekar, Laxmi Mankekar, Kedar Mankekar & Om Kedar Investments
|Stock||% holding||Nos of shares (lakhs)||Value (Rs. Cr)|
|Talwalkars Better value Fitness||6.01||15.74||26|