Rakesh Jhunjhunwala’s ways are inscrutable to the layman. Normally, the Badshah of Dalal Street prefers to steer clear of dubious management and prefers to invest his money in companies with top quality managements and pristine balance sheet.
However, this time the Badshah of Dalal Street has broken his own rule by investing through Rare Enterprises a sum of Rs 11.27 crores in purchase of 12.50 lakh shares of DB Realty at the price of Rs. 90.21 per share.
Rakesh Jhunjhunwala, in the past, has openly cautioned his disciples against investing in realty stocks. What he dislikes about the realty sector is the black/ unaccounted money sloshing there and the ‘opaque’ accounting norms followed by the listed companies. In fact, he has repeatedly said that if investors are bullish about realty, they are better off buying a flat or a plot of land rather than stocks of a realty company.
| DB Realty Key Financials | |||
|---|---|---|---|
| (Rs cr) | Jun 2012 | Jun 2011 | YOY |
| Operating Income | 84.92 | 221.50 | -61.66 |
| Total Expenses | 82.99 | 254.23 | -67.36 |
| Operating Profit | 1.93 | -32.73 | N.A |
| Other Income | 5.74 | 79.03 | -92.74 |
| PBDIT | 7.67 | 46.30 | -83.43 |
| PBT | 2.50 | 40.27 | -93.79 |
| Adjusted Net Profit | -2.07 | 41.14 | N.A |
Also, Rakesh Jhunjhunwala’s choice of DB Realty is puzzling. The realty sector has a number of reputed companies like Oberoi Realty & DLF which are quoting at reasonable valuations and which have enormous potential in the long-term.
DB Realty, on the other hand, is at the bottom of the barrel because its promoter Shahid Usman Balwa, Managing Director, is an accused in the 2G scam and has spent several months behind bars. The trial is still going on and if he is found guilty, he could be behind bars for a long, long time.
Who would want to risk serious money with a stock like that?
The only way to rationalize Rakesh Jhunjhunwala’s decision is that the purchase is an “experiment”, just to see what DB Realty is all about. The Badshah did that with SpiceJet when he bought 25 lakh shares at the price of Rs. 30.77. Soon, thereafter, he declared that he was disillusioned by the prospects of the Aviation sector and had sold off the shares. Also, the Badshah has announced that he doesn’t want to invest less than Rs. 50 crores in any stock because anything lesser than that will only be “petty cash” for him.
The amount invested in DB Realty (Rs. 11 crores) is way less than the threshold limit of Rs. 50 crores. This also suggests that the Badshah is only ‘playing around‘ with DB Realty and is not very serious about it.
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