Rakesh Jhunjhunwala is a master contrarian stock picker. Unfortunately, his wizardry in stock picking is not appreciated by the hoi polloi and the reason for this is because the Badshah keeps a low profile and does not tom-tom his achievements.
Three recent examples of Rakesh Jhunjhunwala’s brilliant contrarian stock picks are Aurobindo Pharma, Dewan Housing and Spice Jet. At the time that the Badshah scooped up these stocks, they were languishing in the garbage dump and were available at throwaway valuations. Today, all three stocks are much coveted multibaggers and are on everyone’s buy list!
The Badshah has now turned his attention to the beaten down realty sector where stocks are available at throwaway valuations. He has bought a chunk of 50,00,000 shares of Indiabulls Real Estate in the period from July to September 2015.
To understand why Rakesh Jhunjhunwala preferred Indiabulls, we have to turn to the brilliant dissertation by Utpal Sheth a few days ago. Utpal Sheth explained that “return on capital employed and scalability are two big mantras for long-term valuation creation for the company and wealth creation for the investors”.
Indiabulls Real Estate scores well on these parameters especially having regard to the size of the opportunity that is available to it.
According to livemint, Indiabulls Real Estate is all set to launch three projects in Gurgaon, Thane and Alibaug this year.
ET reported that Indiabulls Real Estate is looking for a strategic partner for the London property it acquired last year. It is in talks with private equity firms, sovereign funds and family offices to sell a 40% stake in the project in the Mayfair locality of central London for around Rs 1,000 crore. The monetisation of London asset is aimed at debt reduction and achieving appropriate capital structure for this property, ET said.
So, the calculation by Rakesh Jhunjhunwala and Utpal Sheth appears to be that Indiabulls is ideally placed to give mega returns as and when the real estate market turns.
At this stage, we must note that several super-savvy investors are taking advantage of the crises in the real estate sector to tuck into quality stocks at distress valuations.
Ramesh Damani was among the first to send out the clarion call. He pointed out that if we want jumbo returns from our portfolio, we have to move away from the Pharma and IT stocks and buy realty stocks.
Prof Sanjay Bakshi, the authority on value investing, implemented this advice. His Valuequest India Moat Fund bought an additional 38,572 shares of Poddar Developers in the July – September 2015 quarter.
Nilesh Shah of Envision Capital revealed that he is bullish about the prospects of Kolte-Patil Developers. “The demand for realty cannot remain sluggish forever” he reminded us.
Porinju Veliyath went to the extent of recommending several quality realty stocks. He assured us that the realty stocks would heavily outperform the Nifty.
So, the chorus amongst the super-savvy investors is getting so loud that we cannot afford to ignore it any longer. The time has come for each of us to research the realty stocks and tuck into the ones that appeal to us in a slow and steady manner.
Thanks Arjun for this post. I think, real estate sector has not yet bottomed out as inventory in this sector is very high and is increasing. RJ might have bought Indiabulls real estate between Rs. 45 to Rs. 50.
Sushil
In my view Indiabulls scores fairly low on most return ratios. Return on Capital was around 10% in the latest year, not great. Average return on equity over the last 3 years is a paltry 3% and average return on equity over the last 5 Years is also terrible at 2.5%. Moreover Cash from Operating Activity is negative in 6 out of the last 8 years. The dividend payout is zero and the debt-to-equity is close to 1. So when you say “Indiabulls Real Estate scores well on these parameters”, I beg to differ. I would contend that Sobha Ltd scores better on all these parameters.
RJ too want to push the wall.?
How can unanimously formed opinion, by elite experts and their followers herd ,be called CONTRARY OPNION ? But this,bottming out of the Realty sector, is everybody’s view about the REALTY sector.Does the market has history of obliging the near unanimous expectations?Why do legends like David Dreman,Ken Fisher etc said something else. I dont’ know.
Another vital question is- Are all perils of of the Realty sector like balance sheet problems, surplus inventory problems,regulatory problems etc- because of which investors fled this sector- solved ? It appears most of the experts have taken a side job.
Please don’t tom-tom his picks more than you need to. He has been interested and invested in spice jet for at least last 5 years and how have been the returns?
I think, Reality as a space has lots of trouble and all these are valuation calls based on books. Get out there and see for yourself, why they actually need to fall. We have a govt. that wants land and raw material rates to fall, in aiding businesses and housing schemes. Why should they not btw. they are very high already. So wherw there is no value plz. stop taking valuation. kikikikikiki :3
Good post Arjun.
I do agree RJ’s stock picking has been great.
But is it right to say that he picks stocks when stocks are available at throw-away valuations, when IB Real estate is currently quoting at about 125 PE?
If he sees through ‘new opportunities’ or initiatives or ‘abnormal income’ which could re-rating his stocks, I think that is a different perspective. Please let me have your views.
Cheers.