Market is overheated does not mean that value picks cannot be found
Vijay Kedia has sent the chilling warning that the stock markets are “overheated” and that a correction is imminent.
Mere khyal se general market overheated hai. Reaction aa sakta hai. https://t.co/Exoc91fW6r
— Vijay Kedia (@VijayKedia1) April 15, 2017
However, this does not mean that we should stop looking for value picks.
Vijay Kedia demonstrated this by increasing his stake in Karanataka Bank, a stock that has been described as a “sitting duck multibagger” by leading experts.
Vijay Kedia and the experts have provided a masterful explanation as to why Karnataka Bank, which is presently quoting at a throwaway valuation of less than 1x book value, stands a chance to be “the next RBL Bank” and shower mega gains on the lucky shareholders.
Vaibhav Global – Vijay Kedia’s latest stock pick
Vijay Kedia has given yet another example of his stock picking mastery by buying a chunk of 345,000 shares of Vaibhav Global.
The investment is worth Rs. 15.35 crore at the CMP of Rs. 445.
Vijay Kedia’s latest portfolio
This is an opportune moment to cast a glance at Vijay Kedia’s latest portfolio of glittering multibagger stocks.
|Vijay Kishanlal Kedia’s portfolio and holdings as of 31st March 2017|
|Stock||CMP (Rs)||Nos of shares held||Networth (Rs Cr)|
|Sudarshan Chemical Industries Limited||367.40||2,555,317||93.88|
|The Karnataka Bank Limited||154.95||5,660,703||87.71|
|Repro India Limited||413.15||753,928||31.15|
|Vaibhav Global Limited||450.00||345,000||15.52|
|ABC BEARINGS LTD.||182.00||549,000||9.99|
|Aries Agro Limited||164.85||598,091||9.86|
|Apcotex Industries Limited||372.60||231,814||8.64|
|PANASONIC ENERGY INDIA COMPANY LTD.||283.00||93,004||2.63|
|STEWARTS & LLOYDS OF INDIA LTD.||23.60||142,014||0.33|
|Vijay Kedia’s Net Worth as of 31st March 2017||290.72|
Why is Vaibhav Global a good buy?
The best way to understand the nuances of Vaibhav Global’s business model is to read the detailed teaching note penned by Prof Sanjay Bakshi, the authority on value investing, titled “62 Bagger And Counting: An E-commerce Business That Actually Makes MONEY But Almost Didn’t”.
After a detailed examination of the prospects of Vaibhav Global from a “psychology lens” and a “finance lens”, Prof Sanjay Bakshi has concluded that the Company’s business model does have “beautiful applications of some of the most powerful principles of psychology” and illustrates Warren Buffett’s example of a “Low Cost Moat”.
“VGL’s moat comes from its low cost advantage which is very hard to replicate,” the Prof concluded.
Why did Vaibhav Global fail?
Prof Sanjay Bakshi noted that the stock had not performed as well as he expected and proceeded to explain the reasons thereof:
(Image Credit: forum.valuepickr.com)
He pointed out that the “irrational” behaviour of the competitors had wrecked havoc with the dynamics of the Industry.
This aspect is further explained by the experts at valuepickr forum in the following manner:
“Now there are many reasons why profits hv fallen and why they shud look up
1. The competitor started offering EMI as well as returns on delivery as convenience to lure customers away from Vaibhav. Initially Vaibhav dismissed these as gimmicks but soon realised that it will need to match these offers which it did but that led to increased working capital therefore increasing costs at the time of slowing sales thereby squeezing margins/profits
2. The competitor offered better web interface offering ease of use to customers. To match this Vaibhav had to invest in new technology and this took more time than planned leading to project cost overruns and lower sales again squeezing profits
3. The company had planned investments in new SEZ at Jaipur which it went ahead with and even though it was completed ahead of schedule it led to some addl expenses as well as higher depreciation, again hurting PAT
4. The company also invested more in its senior management team as it needed more web sales savvy and experienced people and also as some senior people left (which might hv been viewed negatively by mkt) so this meant increased variable expenses again squeezing margins
5. It also invested more in buying additional coverage for this tv channels in US giving it additional viewership but this also led to more addl expenses which are fixed in nature”.
After providing a masterful explanation of the reasons for Vaibhav Global’s downfall, the expert rightly observed that “at this price or at around 260-270 it looks like a good bet ie you won’t lose much but can gain big”.
This prediction has turned out to be prophetic because the stock has surged like a rocket to the CMP of Rs. 445, putting solid gains on the table.
Vaibhav Global 20% circuit today …
We bought in portfolios around 275
— Vivek Pandey (@IVivekPandey) February 8, 2017
(LIVE stream of the Liquidation Channel (Vaibhav Global’s channel)
Vaibhav Global is at an inflection point: Nirmal Bang
Runjhun Jain and Sunil Jain of Nirmal Bang are strong believers in the prospects of Vaibhav Global. They were early identifiers of the multibagger potential of the stock and have been regularly recommending a buy of the stock.
In their latest report, the duo has opined that Vaibhav Global is showing “early signs of recovery” and that it is at an “inflection point”. The duo has recommended a hold on the following rationale:
“Vaibhav Global Ltd (VGL) shows early signs of recovery in Q2FY17 which got further reiterated in Q3FY17 results wherein the company showed volume growth in both TV as well as Web sales. As we have keep highlighting that the company’s business model involves high fixed cost (cost of channel, employees, inventory etc) hence the leverage of higher growth directly translates to EBITDA level which is evident from the improvement seen in margins during current quarter. EBITDA margins for Q3FY17 improved to 8.6% vs 4.6%/6.5% in Q2FY17/Q3FY16, despite steady gross margins. Net sales grew by 14.7% to Rs 406 cr from Rs 354 cr in Q3FY16. The company has undertaken various steps like including introduction of Budget pay (EMI), allowed return of goods, launch of mobile app, to streamline its business and to become a level field player with the competition. We believe the company has now completed its transition phase and poised for healthy volume growth and strong margins. Management has maintained its low double digit volume growth for Q4FY17 as well which we believe will directly translate to profitability.
Valuations and Recommendations
We continue to like the asset light business model of VGL and we believe that company has reached an inflection point. We expect the company to report muted volumes in FY17 however show improvement from FY18. Due to fixed cost heavy business model, we expect EBITDA margins to increase higher. Our first target of Rs 353 (given in 26 Dec 16 company update) has been achieved. VGL is trading at a PE of 12.8x on our FY19E earnings which we believe gives an attractive opportunity. We recommend HOLD on the stock with a target price of Rs 553 (15x FY19E).”
It appears that Vijay Kedia may have brought good luck to Vaibhav Global and that the original thesis formulated by Prof Sanjay Bakshi that the stock will give mega multibagger gains may now come true!