Radhakishan Damani Teams Up With Prof. Shivanand Mankekar To Put A Contrarian Buy On Small-Cap Turnaround Stock (60% Upside Left)

HCL Infosystems has been a gross under-performer. You can gauge the extent of under-performance from the fact that despite today’s surge of 20%, the stock is still down 35% on a YOY basis.

However, while novice investors have turned their nose on the stock, the under-performance has met with interest from several savvy investors.

Shiv Nadar, the billionaire promoter of HCL Infosystems, has himself been aggressively buying the stock. In Feb and March 2014, his investment firm, Vama Sundari Investments, bought nearly 10,38,848 shares from the market, sending the stock price surging nearly 100%.

This aggressive buying by Shiv Nadar of his own company’s stock sparked off rumors that a merger between HCL Infosystems and its bigger sibling, HCL Technologies, was/is on the cards.

The rumors attracted the attention of Prof. Shivanand Mankekar, the genius stock picker. In the March 2014 quarter, Prof. Shivanand Mankekar and Laxmi Shivanand Mankekar scooped up 22,30,000 shares each in HCL Infosystems.

However, when the reported merger did not materialize and HCL Infosystems’ results went from bad to worse, the punters lost interest and the stock price remained sluggish.

Today, Radhakishan Damani paid a surprise visit to the counter. His investment arm, Derive Investments, bought 28,56,747 shares on the NSE at Rs. 48.90 each and 11,63,680 shares on the BSE at Rs. 49.85 each. By the end of the day, Radhakishan Damani had pocketed 40,20,427 shares by shelling out about Rs. 19 crore.

It is interesting to note that Radhakishan Damani’s holding in HCL Info is now nearly neck to neck with the holding of 44,60,000 shares by Laxmi and Shivanand Mankekar.

To understand what has attracted these two legends to HCL Infosystems and whether there is any scope for us to dive in we have to turn to the brilliant initiating coverage report by Ventura Securities. The report points out that HCL Infosystems is a “turnaround” story in view of the “major restructuring exercise” being undertaken. The report promises that the “gloomy days” for HCL Info will end by end-FY15. It is stated:

“A major restructuring exercise underway at HCL Infosystems (HCLI) leads us to believe that gloomy days for HCLI could conclude by end-FY15. The transition from a loss-making manufacturing business to an asset-light services and distribution business will help the company arrest its revenue and profitability slide. We believe HCLI’s fortunes could turnaround with a 6% CAGR in revenues from FY14E-FY16 and lead to an estimated net profit of Rs. 201 crore in FY16E.”

The report gives five cogent reasons for the optimism about HCL Info.

The best part is that the report projects a target price of Rs. 83 (9.2x FY16 earnings) for the stock. So, even if you take the CMP of Rs. 51.75 (after today’s spurt of 20%), there are still potential gains of 60% to be made from the stock.

Now, whether HCL Infosystems is able to turnaround in the manner projected by Ventura and bring cheer to the two veteran investors requires to be keenly watched!