Peddar Road vs. Dharavi
Radhakishan Damani, who is famed as Rakesh Jhunjhunwala’s mentor, made Billions from the stock market by following the strict principle that one should invest only in quality stocks and not dabble with junkyards.
Radhakishan Damani revealed this investment credo when he was asked why he was buying truckloads of HDFC Bank instead of SBI, the PSU behemoth.
“Dharavi Dharavi hota hai, aur Peddar Road Peddar Road,” the Billionaire quipped in his typical rustic style, implying that junkyard stocks should never be compared with quality stocks.
We can see the wisdom in Radhakishan Damani’s views from the fact that while HDFC Bank has given incalculable multibagger gains over the decades, SBI is still reeling under the weight of its incalculable NPAs and has caused colossal losses to investors.
(Porinju Veliyath with 9x Billionaire Radhakishan Damani)
Forget blue-chips, buy stocks of “chor” promoters
Porinju is known to be a maverick, going against conventional wisdom.
In 2015, he shocked everyone by advocating that investors should abandon reputed and blue-chip stocks and instead scout for stocks of companies with unethical managements and dubious track records of corporate governance.
His precise words were as follows:
“It is a known fact that around 75 per cent of promoters of domestic-listed companies are not very ethical and honest. They do not take care of the minority shareholders’ interest. Also, they do not really create wealth for all shareholders. So, this is the major block for people to look at small cap and midcap companies and some of them find it very easy to buy the blue chips — the blue chips of today’s or yesterday’s. The year 2015 will be very different.”
“These may be small companies. They may look like penny stocks. The managements may not be right. They may not be paying dividends, but that is the space to be in. Most importantly, some of these stocks may not be liquid and some of them may be listed only on BSE. These are not the factors which should discourage individual investors from buying the stocks,” he advised.
At that time, Porinju’s advice had met with vehement criticism from the pundits of Dalal Street.
They accused him of leading novice investors astray with his radical ideas.
However, Porinju was not fazed.
He gave a number of examples to illustrate his point about how the so-called blue-chip stocks had delivered paltry returns while the so-called junkyard stocks have delivered multibagger gains.
When I accumulated 5% of Kitex @ Rs.5 to 8 and a significant stake in Cera @ ~75 (bonus) under PMS, many clients objected due to bad mngt!
— Porinju Veliyath (@porinju) January 5, 2015
He also explained that there is a world of a difference between a “good company” and a “good stock“, implying that even a “bad company” can be investment worthy if it has the necessary virtues.
A 'Good Company' need not be a 'Good Stock' and vice versa!
— Porinju Veliyath (@porinju) November 26, 2017
Prima facie there appears to be merit in Porinju’s theory because while so-called blue-chips run by so-called “intelligent fanatics” are barely eking out a living, their less fancied counterparts have delivered mutibagger gains.
Fortis Health Care: Latest “chor” stock
Porinju first recommended Fortis Healthcare in April 2016 on the logic that there is huge potential in the healthcare space.
His precise words were as follows:
“In the case of Fortis Healthcare which is a listed company in the healthcare space, there are some concerns about the management, among lot of investors but still I think these all companies can change for much better from the management perspective and from industry environment.
I find that around Rs 8000 crore market capitalisation, Fortis Healthcare can give a decent return. I am not talking as a multi-bagger kind of thing. It is a very large midcap, one of the leaders in India in a very important futuristic industry”.
Sadly, Fortis Healthcare has not lived up to expectations and has not delivered even a paisa of gain since then.
However, Porinju is not discouraged.
When the Supreme Court came down heavily on promoters Malvinder and Shivinder Singh and directed that their pledged shares be sold by the lenders to recover their dues, Porinju rejoiced that it would be the dawn of better days for Fortis.
— Porinju Veliyath (@porinju) February 9, 2018
“The rally in Fortis Healthcare shares after promoters Malvinder and Shivinder Singh resigned and Supreme Court allowed to sell pledged shares is the best example of corporate governance”, he said.
Radhakishan Damani storms into Fortis Healthcare
Radhakishan Damani has been watching the proceedings at Fortis Healthcare with acute interest.
When the stock price tumbled like a ton of bricks in the wake of the recent controversies, he decided to make his move.
On 19th February 2018, he bought 26,58,843 shares of Fortis at Rs. 144.50 each in the name of Derive Investments, his investing arm.
Nickey of Bloomberg Quint announced this news.
RK Damani’s Derive Investments bought 26.58lk shares at Rs 144.5 each
The investor has bought 0.5% stake in the co for Rs 38.40 crore
Pledge Of 13.26 Cr fortis shares or 25.58% invoked On Feb 15, 16
Promoters' Stake Post Invocation Stands At 8.85% Vs 34.43%
— nickey (@OnlyNickey) February 20, 2018
Why is Fortis Healthcare an attractive buy?
Darshan Mehta of Bloomberg Quint has collated the research reports of leading analysts like Goldman Sachs, Nomura, Edelweiss, etc on why Fortis Healthcare is a good buy now.
(Image credit: Bloomberg Quint)
Essentially, everyone is banking on the fact that Fortis makes for a good takeover candidate given the well established nature of its business.
In fact, behemoths like TPG Axon, General Atlantic, IHH, VPS Healthcare and Manipal Health are already eyeing Fortis and looking for an opportunity to take it over.
Shyam Srinivasan of Goldman Sachs has opined that there is up to 30 percent probability that the company could be acquired given the recent decision of the Supreme Court in favour of the lenders.
Another attractive aspect of Fortis Healthcare is the proposed demerger of SRL Labs, the money churning diagnostic business.
Here, there is no dearth of deep pocketed suitors like Dr. Lal Pathlabs Ltd and Thyrocare Technologies Ltd who will be willing to pay a king’s ransom to acquire their arch rival.
It is obvious that if either the takeover and/ or the demerger occurs, the sky is the limit for the stock.
However, Ira Dugal, the illustrious editor of Bloomberg Quint, was not impressed by the analysts’ recommendations.
I cannot understand how anyone can make that call given that two quarters of financials haven't been reported. Guess analysts never learn…. https://t.co/eLL67dXj6f
— Ira Dugal (@dugalira) February 21, 2018
Prima facie, it appears that Ira Dugal has approached the issue from an academic perspective.
The quarterly results will not have much bearing if there is to be a takeover of the Company by behemoths.
In that situation, the behemoths will fight tooth and nail in an attempt to outbid each other with no regard for the non-availability of quarterly results.
This will lead to mega gains for investors.
Is Fortis Healthcare “the next Satyam“?
ingovern, a research agency, has issued a report claiming that certain transactions entered into by Fortis with regard to alleged deployment of funds is not in compliance with the law and could be fraudulent. It has warned that this could lead it to become “the next Satyam“.
InGovern has published a note titled "Fortis Healthcare – Repeat of Satyam? Download the note from here: https://t.co/nS8Z6FYDwQ
— InGovern Research (@InGovern) February 21, 2018
Is Radhakishan Damani’s investment only a “tracking position”?
It may be recalled that in February 2015, Rakesh Jhunjhunwala had bought a tiny chunk of 34,85,075 shares of Fortis Healthcare at Rs. 119 each, by investing a paltry amount of Rs. 41 crore.
I had rightly observed at that time that the investment appears to be a “tracking position”.
Prima facie, the same thing can be said about Radhakishan Damani because the sum of Rs. 38 crore invested by him in Fortis is not equal to loose change given his net worth of $ 9x Billion (Rs. 58,500 crore).
It is obvious that this arena is not for novice investors. There are too many imponderables which are beyond our comprehension. Further, even Radhakishan Damani’s investment is a token one which suggests that he is merely testing the waters and is not convinced about the investment worthiness of the stock. We should, however, carefully monitor the situation and take a decision once there is clarity!