Is Radhakishan Damani “smelling” an oncoming Bull market?
All inhabitants of Dalal Street are duty bound to keep their eyes and ears open to what Radhakishan Damani is up to.
This is because the reclusive 9x Billionaire is blessed with an intuition which enables him to “smell” oncoming Bull markets.
This secret was revealed to us by none other than Ramesh Damani, an astute investor in his own right (see Radhakishan Damani Can ‘Smell’ The Stock Market. He Is The Steve Jobs Of India: Ramesh Damani).
“He will smell a bear and bull market and tell you within a day, not even a month … He picked stocks like HDFC Bank when it was at Rs 40. He picked Nestle when it was at Rs 300,” Ramesh Damani pointed out.
“RK Damani is the greatest speculator and investor of our generation,” he added, making it clear that under no circumstances can we ignore him.
#BQBlueExclusive | Ramesh Damani talks about the other Damani he admires, at #BQEdge – the on-ground initiative of BloombergQuint.
Read more: https://t.co/yN3SRic7J8 pic.twitter.com/KWox2GMpgM
— BloombergQuint (@BloombergQuint) March 31, 2019
Foods & Inns – proxy for consumption theme
Foods & Inns, a little known and nondescript small-cap stock is Radhakishan Damani’s first stock pick.
His investment arm named ‘Derive Investments‘ bought 7.92 lakh shares at Rs. 184 each.
FOODS & INNS LTD
Investor Radhakishan Damani's DERIVE INVESTMENTS BUYS 7.92 Lakh Shares @ Rs 184
Is A Manufacturer and Exporter of a range of processed Tropical fruits pulps, purees and vegetables
FY'18 Revenues @ Rs 337 Cr; PAT 3.4 Cr@CNBC_Awaaz #AwaazMarket
— Ashish Verma (@AshVerma111) April 12, 2019
Prima facie, the logic for buying Foods & Inns is quite sound.
The Company is a ‘B2B‘ supplier. It buys raw vegetables and fruits from farmers and processes them into food items like pickles, jam, ketchup etc.
The processed foods are then sold to MNC Companies (presumably like Nestle, HUL etc) which sell them to consumers as branded products.
The biggest advantage of being a B2B player is that Foods & Inns has assured customer demand from the MNCs.
At the same time, it is spared of the competitive slug fest that B2C brands are forced to indulge in.
According to the latest Annual Report, the processed food market, currently valued at USD 322 billion in 2016, is expected to grow to US $543 billion by 2020 at a Compound Annual Growth Rate (CAGR) of 14.6 per cent.
For the next 5 years the food industry is expected to grow to US $958 billion by 2025, at a CAGR of 12 per cent to account for increasing saturation of the market.
Ameya Dhupelia, the CFO, revealed that Foods & Inns has a strangle hold over 25% of the market share for processed foods.
What is it about the business of Foods and Inns that's caught the attention of marquee investor Radhakishan Damani. @_nirajshah https://t.co/SvlfiHun65
— Devina Khanna (@khanna_devina) April 12, 2019
What about Freshtrop Fruits, ADF Foods & Palash Securities?
According to the punters at MMB, a micro-cap (Rs. 195 crore) company named ‘Freshtrop Fruits‘ is Foods & Inns’ arch rival.
It is also engaged in processing fruits etc and selling the residue to brands.
Assuming that the size of the processed foods industry will grow to US $543 billion over the next few years, Freshtrop Fruits is also a multibagger candidate, according to the wisdom of the punters.
ADF Foods (Rs. 490 crore) has also been flagged as a worthy investment candidate to ride piggyback on the prosperity of the food processing sector.
Old timers may recollect that ADF Foods was the hot favourite of Dolly Khanna, Porinju Veliyath and Lashit Sanghavi.
The trio raked in massive multibagger gains from the small-cap stock (see Dolly Khanna, Porinju Veliyath & Lashit Sanghvi Feast On Micro-Cap With Multibagger Potential).
A nano-cap (Rs. 41 crore) named ‘Palash Securities‘ is also said to be engaged in the business of canning processed foods though not much is known about it given its puny size.
Product range of Allahabad canning . Fully owned subsidiary of Palash securities pic.twitter.com/Mt6N6s3Sm8
— sridhar subramanian (@sridhsatwi) August 25, 2017
Porinju Veliyath had a stake in Palash Securities in the past.
BREAKING: Porinju Veliyath name is to be seen in Palash Securities ltd with 1,00,949 i.e 1.01% as per latest Share holding pattern @porinju
— Chowkidar Rohan Gala (@RohanG90) October 18, 2017
Basmati stocks like KRBL, Daawat (LT Foods) & Kohinoor Foods will surge after Iran sanctions are lifted?
It is obvious that if Radhakishan Damani is right in his theory about the prospects for processed foods, basmati producers like KRBL, Daawat (LT Foods) & Kohinoor Foods will also rake in mega bucks.
We saw a few days ago that Manish Bhandari Of Vallum Capital has come out with all guns blazing in support of KRBL, the basmati producer.
Manish Bhandari’s logic is that the business model of buying raw basmati from farmers at rock-bottom prices and selling it as a branded product at exorbitant premium will send the cash registers ringing.
In fact, this is why Dolly Khanna and Porinju Veliyath had tucked into LT Foods alias Daawat.
Unfortunately, the sanctions imposed by President Donald Trump against Iran have torpedoed the fortunes of the basmati companies.
Out of 4 million tonnes of basmati rice exported, more than 1 million tonnes is to Iran and the same is now paralyzed.
This was revealed by the top brass of Kohinoor Foods.
#CNBCTV18Exclusive | Kohinoor Foods tell @Manisha3005 that 25% of India Basmati exports are to Iran, with waivers on trade with Iran ending, it is very concerning pic.twitter.com/P67ttDmRD3
— CNBC-TV18 (@CNBCTV18Live) April 24, 2019
#OnCNBCTV18 | #GurnamArora, Joint MD, #KohinoorFoods says 25% of India #basmati exports are to #Iran, with waivers on trade with Iran ending, trade is very concerned; Of the total 4 m tonnes basmati #rice exported, more than 1 m tonne is to Iran #commodities @Manisha3005 pic.twitter.com/2MooaUZH33
— CNBC-TV18 News (@CNBCTV18News) April 24, 2019
This implies that we have to keep an eye on the USA-Iran relations.
If there is a thaw and the sanctions are lifted/ relaxed, the basmati stocks may resume their upward trajectory and we should be ready to ride them.
Metropolis Healthcare – Debt free + 17% Revenue Growth
Radhakishan Damani has also taken a fancy for Metropolis Healthcare, the newly listed diagnostic company.
The Billionaire’s Bright Star Investments bought a chunk of 7 lakh shares at Rs. 948.39 each.
Metropolis Healthcare Ltd
BRIGHT STAR INVESTMENTS PRIVATE LIMITED buys 7 lk shares @ Rs 948.39/- (Radhakishan Damani)
SMALLER CAP WORLD FUND INC buys 6.86 lk shares @ Rs 957.67/-@CNBC_Awaaz #AwaazMarkets— Varun Dubey (@VarundubeyCNBC) April 16, 2019
It is notable that Bright Star Investments has a number of mega multibaggers in its portfolio such as Avenue Supermarts, VST Industries, 3M India, Sundaram Finance, Blue Dart.
Metropolis Healthcare
Bright star investments buy 7 lk shrs at `948.39
ALERT – Family Office/Trading Entity of Radhakishan DamaniBright Star Investments
Total Market Value $2bn
Holdings (% Port)
Avenue Supermarts 83.6
VST Ind 9.1
3M India 2.7
Sundaram Finance 2.5
Blue Dart 1.7— Jayesh Khilnani (@jayeshkhilnani) April 16, 2019
To understand the prospects of Metropolis Healthcare, we have to turn to Ameera Shah, the boss lady of the Company.
Ameera Shah has summed up all the salient points in a succinct manner.
Metropolis Healthcare IPO opens on April 3. Company's Managing Director @AmeeraShah talks to CNBC-TV18 about the funding situation & requirement of capex plans pic.twitter.com/IxQSeSAGH1
— CNBC-TV18 (@CNBCTV18Live) March 29, 2019
However, some experts have opined that the stock is ‘expensive” at the current valuations.
Metropolis Healthcare Ltd IPO: The company has increased its revenue at a decent pace of 16% in the past three years. However, its valuations seem quite expensive, @CliffordAlvares @PallaviPengonda https://t.co/ykrVN7fxTj pic.twitter.com/7uZoxOPto7
— Mint Mark to Market (@livemint_m2m) April 1, 2019
#MetropolisHealthcare IPO is quite overvalued. Leaves little on the table for investors.
In a bullish market small listing pop possible
Moreover all a secondary sale of equity, nothing goes to the company. Only to promoters and PE seeking an exit.— sandip sabharwal (@sandipsabharwal) April 3, 2019
Saurabh Mukherjea has recommended Dr Lal Pathlabs
Metropolis Healthcare’s arch rivals are Thyrocare and Dr Lal Pathlabs.
In the latest Outlook Business, Saurabh Mukherjea has recommended an investment in Dr Lal Pathlabs.
The logic is as follows:
“At the heart of Dr Lal’s ability of building its competitive
advantages around the retail network of labs and collection centres, lies the firm’s deep focus on only pathology in its offering unlike most competitors who do a combination of pathology and radiology.
Besides, the company follows a high degree of capital allocation discipline, despite a highly cash-generative business model, that has led to the accumulation of over ~6 billion of surplus cash on its balance sheet.
Proof of Dr Lal’s competitive advantages lies in the fact that the firm’s operating margin has been stable at 25-27% for three years despite no price hikes.
Post tax return on capital employed has also been stable over this period at around 350%.”
Saurabh has also emphasized that Dr Lal Pathlabs enjoys a post-tax return on capital employed at 35% and is growing its earnings at 20% CAGR.
We can assume that the same or similar logic applies to Metropolis Healthcare as well and that is why Radhakishan Damani grabbed it for his own portfolio.
Embassy Office Parks REIT
I have already pointed out that Radhakishan Damani has added Embassy Office Parks REIT into his portfolio (see Radhakishan Damani’s Latest Stock Pick Will Deliver Steady Returns & Delight Investors: Experts).
Veteran Investor and Entrepreneur RK Damani invests Rs 160 crores in Embassy Office Parks REIT Anchor Book @BloombergQuint @_nirajshah pic.twitter.com/I7ZOWC4Ogs
— Yatin Mota (@YatinMota) March 16, 2019
The salient points on what a “REIT” is and whether it has multibagger prospects have been cogently explained by Nagpal Manoj, an expert on the subject:
1. When you buy a REIT, you become a unitholder in the REIT
2. REIT will be listed for trading. Post listing, You can sell/buy on the exchange (NSE)
3. Globally REITs trade at a discount to underlying
4. Embassy Office Parks owns commercial real estate (and some hotels)
(2/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
8. When you buy the REIT, effectively u become a part owner of these buildings
9. The value of this commercial real estate is around 31500 cr (independent valuation done by the co)
10. The IPO will sell it to you at a 20% discount! Why? (Just goodwill to you?)
(4/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
14. So if we buy the Embassy Park REIT, we get
(a) Part ownership of this commercial real estate
(b) Already pre-leased to big cos
(c) Effectively we get rental yield from these cos
(d) Capital appr, if listed price reflects this
With me till here?
(6/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
16. Before you invest in this REIT, you need to test this hypothesis and see if this is indeed the case
17. Also measure the risks to this hypothesis and then take a call
18. Rental yields in Bangalore have been increasing but other markets are flattish for last 5-6 yrs
(8/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
22. Let's assume that the projected rent increases by the co will hold in the future (in the past they have missed estimates sometimes)
23. If that holds, then the Net discounted Cash flow will give a pre-tax yield of 7.5%-8.5% in the future before interest costs
(10/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
29. So effectively, your net yield post of all expenses and all interest costs (assuming that the company projections hold) will be a bit lower between 6%-6.5%
30. We are still pre-tax here
31. This is just an estimate, you need to build your own estimate to decide
(12/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
35. For the sake of being conservative, build the downside case in your mode. This may give you around 5% yield
36. On an optimistic side, if rentals increase more than expected, then you can be closer to 8%+ yields
37. So it's evenly placed there.
Do ur own calculations
(14/n)— Nagpal Manoj (@NagpalManoj) March 19, 2019
41. Take taxes also into consideration. REITs are almost a pass thru though some additional tax leakage will be there
And then take your decision to invest in the REIT
None of the above tweets are any kind of advise. Just my thoughts as some wanted to hear them
**End**
(16/16)— Nagpal Manoj (@NagpalManoj) March 19, 2019
The bottom line of the analysis appears to be that REITS are ideal investment opportunities for mature investors seeking “rental yields” of up to 8% but that multibagger gains are unlikely to come gushing out of such stocks.
Presumably, Radhakishan Damani added Embassy Office Parks REIT to his portfolio so as to attain stability and protect himself from the vagaries of the other stocks!
You forgot one gem “Tasty Bite Eatables Ltd”.