Prof Sanjay Bakshi, the authority on value investing, and Ashish Kacholia, the whiz-kid investor, have different temperaments and philosophies when it comes to investments. When the Prof is attracted to a stock, he launches into a laborious and meticulous inquiry into innumerable aspects of the stock’s past, present and future. Also, the Prof is a stickler for quality and will never compromise on that score. Further, the Prof buys for keeps and is not inclined to churn his portfolio on a regular basis.
Ashish Kacholia, on the other hand, offers greater weight to his instincts about what the potential of the stock is likely to be. Also, Kacholia has no qualms in buying semi-junkyard/ low quality stocks if he is convinced that mega gains can be harvested from the stock. Kacholia is also not wedded to any stock. He can hop in and hop out of a stock at short notice.
The remarkable aspect is that despite the obvious differences in their investment philosophies, both stalwarts have homed in on the same stocks.
Two known examples of this are Ashiana Housing and Kitex Garments. While Ashish Kacholia held 344,553 shares of Ashiana Housing as of 31.03.2015, Prof Sanjay Bakshi’s India Moat Fund held 174,925 shares. Similarly, in Kitex Garments, Ashish Kacholia held 475,000 shares as of 31.03.2015. The holding of the Prof or of the Moat Fund is not known though the Prof has disclosed that he does hold a sizeable chunk in Kitex.
Accelya Kale Solutions is the third stock that has attracted both stock wizards. As of 01.07.2014, Ashish Kacholia held (in the name of Sushmita Ashish Kacholia) 70,187 shares of Accelya while the Prof Sanjay Bakshi’s Valuequest India Moat Fund held 27,500 shares.
However, while on 08.05.2015, Ashish Kacholia dumped his entire holding in one abrupt move, the Prof was seen at the Accelya counter on nine occasions during the FY 2014-15, tucking into large chunks of the stock.
|Accelya Kale stock bought by Prof. Sanjay Bakshi’s Valuequest India Moat Fund|
|Op Bal on 01.07.2014||27,500|
|Closing balance on 30.06.2015||115,928|
The Prof’s aggressive buying resulted in a quadrupling of the Moat Fund’s holding in Accelya. The holding is worth Rs. 11.20 crore at the CMP of Rs. 966 per share.
One interesting aside that we need to probe someday is whether there is any connection between the Prof’s ValueQuest Moat Fund and Eicher Goodearth Pvt ltd, the investment arm of Eicher Motors Ltd. Eicher Goodearth appears to tailing the Prof and mirroring his purchases. We saw both parties acting together in Ambika Cotton and we can see them in Accelya Kale as well. Eicher Goodearth increased its holding in Accelya Kale from 24,511 shares to 46,600 shares. Eicher also holds shares in Ashiana Housing Ltd, another of the Prof’s favourite stocks.
The best way to come to grips about Accelya Kale Solutions is to read the detailed research report dated 1st March 2015 by Arunmozhi Gopalan (Query: Is he the same Arunmozhi Gopalan referred to in the SEBI report banning HBJ Capital?). In the report, Arunmozhi has conducted a masterful analysis of Accelya Kale. He argues convincingly that Accelya Kale has a “niche focus on the airline industry”, “unique business model”, “very wide moats” and that “it stands apart from the Indian IT pack with its 44% EBIT margins, 80% ROE, 90%+ FCFE conversion and 85% dividend payout ratio”. At the end of a detailed analysis, Arunmozhi advises that Accelya Kale is an “extremely high quality business worth buying into at a reasonable valuation“.
ICICI Securities also recommended a buy on the basis that Accelya Kale is “well positioned to capture the rising outsourcing opportunity in the airline IT space, helped by its global parent, the Accelya group”. It also emphasized that “AKL’s strong financial performance (21% PAT CAGR during FY10-15), healthy balance sheet metrics (zero debt, asset-light), attractive dividend payout (~80%) and its unique value proposition make it an attractive investment story”.
The same view was expressed in an earlier “conviction idea” report by Capstocks. Capstocks advised that Accelya’s “decent business outlook, promoter’s commitment, hefty dividend pay out and reasonable valuations” made it a good bet.
However, the fact is that the “niche” focus of Accelya can be both a boon and a bane. As it is solely/ largely dependent on the airline industry, its fortunes are directly dependent on the fortunes of the airline industry and the traffic carried by them. Issues like a terrorist attack (e.g. 9/11), outbreak of an epidemic (e.g. SARS), surging air ticket prices due to surging fuel prices etc, etc can impact the company as much as it can impact the airline.
Also, the question of “growth” in such a business can come in only when new airlines start business or if the existing customer airlines experience a surge in traffic or if one can negotiate better margins from them. Per contra, if an existing airline shuts shop or moves on to a rival solutions provider, it can impact Accelya’s prospects.
Also, because the customer base is limited, the presence of an aggressive rival who resorts to undercutting can spell havoc for Accelya’s fortunes.
The financials of the past few quarters indicate that Accelya Kale’s revenues have been rather flat. The bottomline has been fluctuating up and down, probably due to the fluctuations in the currency.
|FIGURES IN RS CRORE||JUN-2015||MAR-2015||DEC-2014||SEP-2014||JUN-2014|
The reason for Ashish Kacholia’s disillusionment with Accelya Kale becomes clear when you listen to the interview of Vipul Jain, MD. Vipul Jain candidly admitted (@8.30) that because Accelya Kale is in a niche sector, one should not expect “high growth” but has to be content with “steady earnings” like an annuity.
That must have been a deal breaker for Ashish Kacholia because he loves high growth companies where the top-line and bottom line surge year after year. You can see that in his high-conviction stock picks like Pokarna, Welspun Syntex, Ashiana Housing, Kitex Garments, Shreyas Shipping, GATI etc.
So, to an untrained eye, Accelya Kale may be equated with Noida Toll Bridge, an “annuity” model in which you are reasonable assured of a steady stream of income without any dramatic fluctuations. Whether you want to invest in a “low risk” stock like that or you prefer a “high growth – high risk” stock depends on your own investment preferences.