As wannabe savvy investors, it is not enough for us to listen to the wisdom spouted by the great investment gurus and to nod our heads sagely. Instead, we have to be proactive in finding stock opportunities that fit in with the wisdom imparted to us.
Yesterday, we saw the brilliant exposition by Howard Marks, one of the foremost gurus on value investing, on the difference between stocks carrying a “fundamental risk” and those carrying an “investment risk”. Marks explained that even a quality stock quoting at exorbitant valuations carries a high “investment risk” even though the fundamental risk is low. He emphasized that stocks quoting at a low valuation in relation to their intrinsic value make the ideal investment because both risks, at the fundamental as well as the investment level, are low.
The bombed-out realty sector is a good example to test the veracity of Howard Marks’ theory because the expectations from the sector are minimal at present and the intrinsic value is high.
Delta Corp is another example which will enable us to test the theory.
Delta Corp is one of Rakesh Jhunjhunwala’s favourite stocks. He (along with Rekha Jhunjhunwala) holds a massive truckload of 1.80 crore shares of Delta Corp as of 30.06.2015.
However, the investment legend has reason to be disappointed with Delta Corp because since he first bought the stock in August 2011, the stock is down nearly 28%. Even on a YOY basis, the stock is down 23%.
What ails the Company is that several regulatory approvals required for expanding the gaming business have not come through so far.
Kalpraj Dharamshi, the veteran value investor, holds 15,70,000 shares of Delta Corp as of 31.03.2015. His holding as of 01.04.2012 was 16,25,000 shares.
In his latest interview with Ramesh Damani for the “Wizards of Dalal Street” episode, Kalpraj Dharamshi waxed lyrical about the prospects for Delta Corp. He called it a “pioneer, with no competition“. He said he has “high hopes” from the company. He explained that a few things have to fall into place, such as the grant of the regulatory approvals, the reduction of debt and the disposal of a few non-core assets for the company to take off like a rocket.
If the approvals come through, the topline from Goa and Daman would be Rs 300 crore each, Dharamshi said. He added that the business makes “40-45 percent gross margin” and much of this would be reflected in the bottom line owing to the asset-light sort of business. “I see a bright future for Delta Corp” the veteran value investor emphasized.
It is worth noting that Niraj Dalal of 3A Capital Advisors had expressed the same sentiments about Delta Corp in January 2015. Niraj Dalal emphasized that the gambling business (such as in Macau, Las Vagas etc) is a multi-billion dollar opportunity with huge margins. The business is a money-spinner. Niraj Dalal was also confident that the regulatory approval would certainly come through given that the State of Goa is heavily dependent on gambling revenues.
Now, if Delta Corp does spurt out mega gains for Rakesh Jhunjhunwala, Kalpraj Dharamshi and Niraj Dalal, we can pat ourselves on the back for having mastered the lesson imparted by Howard Marks.