Mohnish Pabrai’s India Portfolio Sparkles With Multibagger Gains
First, we have to compliment Mohnish Pabrai for his stellar selection of stocks.
Rain Industries – 218% YoY gain
Rain Industries, his earlier stock pick, has been surging like a rocket.
I have been regularly and diligently drawing attention to various research reports which confirmed that Rain Industries does have multibagger potential.
The first was a report by Parry Pasricha when the stock was languishing at Rs. 34. Parry Pasricha assured that the stock has a target price of Rs. 177 which meant a 4.9x gain.
The latest was a research report by IDBI Capital which assured that Rain Industries has a target price of Rs. 82, which was an upside of 51% from the then CMP of Rs. 53.
Today, Rain Industries stands tall at Rs. 104. The stock has given a return of 218% on a YoY basis. The return over the past three months is 93%.
This gives us an idea of Mohnish Pabrai’s stock picking prowess and sense of timing.
As of 31st March 2017, Mohnish Pabrai’s funds called Pabrai Investment Fund 3 Ltd and The Pabrai Investment Fund II LP collectively hold 290,12,715 shares of Rain Industries worth Rs. 302 crore at the CMP of Rs. 104.
Balaji Amines – 107% YoY gain
Balaji Amines is a recent addition to Mohnish Pabrai’s portfolio. He bought 607,204 shares in the period from June to September 2016.
Mohnish has reason to cheer because Balaji Amines has shown what it is capable of by delivering 365% gain over 24 months and 107% gain over 12 months.
The stock has the backing of noted value investors Shyam Sekhar and Porinju Veliyath which means that one can confidently say that more hefty gains are expected from it.
It is worth recalling that Porinju had recommended an investment in Balaji Amines when it was available at the throwaway valuation of Rs. 86. At the CMP of Rs. 384, mind-boggling gains of 375% are on the table.
Kolte-Patil Developers – Mohnish Pabrai’s latest stock pick
As of 31st March 2017, The Pabrai Investment Fund II holds 10,85,653 shares of Kolte-Patil Developers.
Kolte-Patil is a small-cap with a market capitalisation of only Rs. 1368 crore. It is engaged in developing mid-end residential real estate properties. Its operations are concentrated in Pune though it is also making a foray into Bangalore and Mumbai in a small way.
The first notable aspect of Kolte-Patil is that the promoters hold 74.54% of the equity which reflects their high level of confidence.
The second is that Goldman Sachs India Ltd holds 5.25% of the equity. One Rameshkumar Goenka holds 1.07% of the equity. This implies that the floating stock for sundry shareholders is limited.
|KOLTE PATIL DEVELOPERS LTD – KEY FUNDAMENTALS|
|MARKET CAP||(Rs CR)||1,369|
|EPS – TTM||(Rs)||[*S]||5.55|
|LATEST DIVIDEND DATE||08 SEP 2016|
|BOOK VALUE / SHARE||(Rs)||[*S]||106.76|
[*C] Consolidated [*S] Standalone
|KOLTE PATIL DEVELOPERS LTD – FINANCIAL RESULTS|
|PARTICULARS (Rs CR)||DEC 2016||DEC 2015||% CHG|
Mudar Patherya lauded Kolte-Patil’s business strategy
At the height of the real estate slowdown, Kolte-Patil organized a ‘NestFest’ in which it offered booking of apartments at 5% cash down payment. The event was a huge success. Mudar was so impressed that he advised that “business schools should send their aspiring graduates to write case studies about“. He also did a lot of number crunching to explain why Kolte-Patil is graduating from a local Pune player into one of national ranking.
“I would buy the KPDL stock with the expectation of making so much money that one day I would be able to buy its 24K apartment,” Mudar added with a flourish.
Time is ripe to buy realty stocks?
Realty stocks have been out of favour amongst investors for a variety of reasons including the crack down on black money.
However, the signs are that the sector has bottomed out and is on the verge of a take-off.
In fact, since the demonetization lows of December 2016, the Nifty Realty index has given a return of 35% as against the 15% return given by the Nifty itself.
Kolte-Patil is itself one of the major gainers with a return of nearly 100% since the demonetization low.
|J Kumar Infra||260.40||4.22||37.34|
|Kolte Patil Dev.||160.00||1.65||96.92|
|S&P BSE Realty||1593.03||0.95||30.17|
|LTP: Last traded price on BSE in Rs at 02:10 pm|
|* change over previous day|
|# change over December 26, 2016|
(Source: Business Standard)
Who would have thought it possible? Realty stocks surged up to 85% this year https://t.co/5IBIAoJxd1
— Anuj Puri (@TheAnujPuri) April 8, 2017
The recent decision of the RBI to permit banks to invest in Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs) has sparked life into these stocks.
IRB surges as RBI allows banks to invest in INVITS…Realty stocks surge on REITS
— Darshan Mehta (@darshanetnow) April 6, 2017
The conferring by the Union Budget 2017 of the status of ‘infrastructure’ to affordable housing has also attracted big-ticket investors to take a closer look.
According to JP Morgan, earnings growth has started to revive selectively across names and should revive in a broad-based manner in the residential business by FY18.
A similar sentiment has been expressed by other experts as well.
Ajay Jaiswal of Stewart & Mackertich pointed out that the government’s thrust on low-cost housing, infrastructure status to affordable housing and high growth visibility have improved sentiment.
Leading experts opined that the real estate sector will draw more investment from non-resident Indians (NRIs) in both short term as well as long term. Bangalore is expected to be the most favoured property investment destination for NRIs, followed by Ahmedabad, Pune, Chennai, Goa, Delhi and Dehradun.
Ashish Chugh of Hidden Gems recommends Realty stocks
Ashish Chugh of Hidden Gems is well known for his astute investing skills and ability to home in on micro-cap multibagger stocks.
In his latest interview, he advised investors to buy realty stocks on the logic that the sector is safe from Chinese incursions and also has growth and value to offer.
He recommended Ajmera Realty as being investment worthy.
It is notable that Ashish Chugh had first recommended Ajmera Realty in November 2015 when the stock was Rs. 129. At the CMP of Rs. 214, hefty gains of 66% are on the table.
Ajmera Realty is also a favourite of Porinju Veliyath. His Equity Intelligence PMS bought 200,000 shares on 26th November 2015 at Rs. 140. The present holding is not known.
What about Ashiana Housing and Poddar Housing?
If one is scouting for stocks in the affordable housing sector, Ashiana Housing and Poddar Housing are candidates which deserve consideration.
Valuequest India Moat Fund Limited, the investment arm of Prof Sanjay Bakshi, the authority on value investing, has a strangle hold in both stocks.
Ashiana Housing is also a favourite amongst eminent investors like Ashish Kacholia, Brahmal Vasudevan’s Idria, Jwalamukhi Investments, DSP Blackrock Micro Cap Fund etc.
This implies that the stock is safe as a house from the investment point of view.
What about Housing Finance Stocks?
It is elementary that if the realty sector is to take off, the housing finance stocks have to also tag along.
A number of eminent stock wizards such as Rakesh Jhunjhunwala, Dolly Khanna, Vijay Kedia and Basant Maheshwari have declared confidence that housing finance stocks are “blind buys” given their surging growth rate and low NPAs.
In my view, 'Housing Finance' sector could be the next market leader.
— Vijay Kedia (@VijayKedia1) January 30, 2017
While Rakesh Jhunjhunwala is backing DHFL, Vijay Kedia has put his money on LIC Housing Finance. Dolly Khanna has reposed trust in Manappuram Finance.
Basant Maheshwari has proclaimed that he is “super bullish” about PNB Housing and Can Fin Homes on the logic that both are growing at a scorching pace of 30-40% YoY and have a long runway ahead of them.
Can Kolte-Patil give 5x multibagger gain
Mohnish Pabrai and Guy Spier have made it amply clear that they are not interested in buying any stock which has less than 5x multibagger potential.
Prima facie, given that Kolte-Patil is still a small cap with a market capitalisation of only Rs. 1300 crore and given the size of the affordable housing market in India, and given the quality of its management, the possibility of 5x multibagger gains in the next couple of years is very realistic indeed!