Discount of holding Cos will narrow from 75% to 50% in 2017
Porinju made the bold prediction on 26th January 2017 that the discount at which select holding companies are quoting will narrow from 75% to 50%.
I see few solid holding companies with over 75% discount. They will double in 2017 as the discount would narrow down to 50%, explore!
— Porinju Veliyath (@porinju) January 26, 2017
Now, it is obvious that a narrowing of the discount from 75% to 50% means that the stock price has to rise by 100%.
Porinju was also good enough to name four holding companies in his interview. These are Bombay Burmah Trading Corporation (BBTC), Bengal and Assam Company, Vindhya Telelink and Kalyani Investment Company.
His precise words were as follows:
“I feel in the year 2017, some holding companies will go up by 100 percent because of the deep discounts they are trading at. Some of them are from good corporate houses and in many cases the companies which they are holding, those companies are also on a high growth path and they are doing well. I have talked about Bombay Burmah Trading Corporation (BBTC), Bengal and Assam Company, Vindhya Telelink, Kalyani Investment Company etc. So investors can look at these companies and sometime when market goes into panic and such companies are trading at 70-80 percent or 90 percent discount to the net asset value (NAV), it will be a good opportunity. Those discounts are going to shrink and reward investors in this year.”
State of affairs of holding cos six months later
Let’s take a look at the six-month performance of the holding company stocks:
|Name||Stocks held in||Price on 27.01.2017||CMP (Rs)||Gain (%)|
|Florence Investech||JK Lakshmi Cement, JK Tyre, JK Paper, Bengal & Assam, Umang Dairies||670||1502||124|
|Rane Holdings||Rane Madras, Rane Brake Linings, Rane Engine Valve||770||1674||117|
|Rajapalayam Mills||Ramco Cements, Ramco Industries||629||1009||60|
|Bombay Burmah Trading Corporation (BBTC)||Britannia,||565||880||56|
|Summit Securities||Ceat, KEC Intl, Zensar||419||650||55|
|Godrej Industries||Godrej Agrovet, Astec Lifescieces||431||628||45|
|Bengal and Assam Company||JK Lakshmi, JK Tyre||1179||1708||45|
|Kalyani Investment||Bharat Forge, BF Utilities||1324||1832||39|
|Williamson Magor||Everready Industries, McLeod Russel, McNally Bharat Engg, Kilburn Engg||58||77||34|
|Tata Investment Corp||All Tata Cos + Blue Chips from all sectors||576||723||26|
|STEL Holdings||CESC, Philip Carbon, RPG Life Sciences, Saregama||65||77||20|
|Ramco Industries||Ramco Systems, The Ramco Cements, Rajapalayam Mills||202||239||18|
|BF Investment||Kalyani Steels, Bharat Forge, BF Utilities, Hikal, Automotive Axles||151||179||18|
|Vindhya Telelink||Birla Corp, Birla Cable, Universal Cable||680||781||16|
|Maharashtra Scooters||Bajaj Auto, Bajaj Finservce, Bajaj Finance||1665||1891||13|
|Nalwa Sons Investment||JSW Steel, Jindal Saw, Jindal Energy||791||890||12|
|Bajaj Holdings||Bajaj Auto, Bajaj Finserv||1930||2114||10|
|Alembic Ltd||Alembic Pharma||36||38||6|
|Balmer Lawrie Investment||Balmer Lawrie||414||400||(3)|
|McDowell Holding||United Breweries, Mangalore Chem||44||38||(12)|
As one can see, the six-month performance of the holding companies is quite impressive.
The four stocks named by Porinju have delivered gains ranging from 16% to 56%.
Two holding companies, namely, Florence Investech and Rane Holdings, have delivered gains in excess of 100% in the six month period.
Three stocks have delivered gains between 50% and 100% while four companies have delivered gains between 30% and 50%.
Understandably, Porinju claimed due credit for the spectacular performance of the holding companies:
Value Investing is all about "Buying Rupee worth of assets by paying few Paise" – they doubled in 6 months! https://t.co/caVcRQkHsB
— Porinju Veliyath (@porinju) June 20, 2017
BF Investment is still quoting at a discount of 80% to the NAV?
Varinder Bansal of CNBCTV18 has conducted an in-depth study into the affairs of BF Investment, the holding company of the blue-chip Kalyani group.
Varinder has pointed out that while the market value of the investments held by BF Investment presently stands at a whopping Rs. 3,500 crore, the market capitalisation is at a throwaway price of Rs. 700 crore.
The discount at which BF Investment is quoting is a whopping 80%, Varinder exclaimed, implying that this is neither justified nor sustainable.
Prima facie, BF Investment appears to be a great investment opportunity because the discount of 80% between the NAV and the market capitalisation is unlikely to increase further. This means that our capital is safe and sound.
On the other hand, if the discount narrows to even, say, 70%, there will be a 50% increase in the stock price.
Bf investment ltd# interesting co. Market cap 600 Cr; market value of long term investments (quoted) – 2000 cr + other investments
— Bharat khiani (@khiani_bharat) May 23, 2017
Godrej Industries will shower “value unlocking” gains?
Again, we have to turn to the path-breaking research conducted by Varinder Bansal.
He has been repeatedly drawing attention to the fact that the impending IPO of Godrej Agrovet will result in “value unlocking” for Godrej Industries as it holds 61% in the former.
Value unlocking to begin soon for Godrej Industries
Adi Godrej confirms to @CNBCTV18Live that "Looking at listing of Godrej Agrovet"
— Varinder Bansal (@varinder_bansal) February 21, 2017
Godrej Ind holds 61% stake in Godrej Agrovet https://t.co/GMr5blItIW
— Varinder Bansal (@varinder_bansal) February 21, 2017
Varinder reeled out impressive facts and figures to explain why Godrej Industries is an excellent opportunity, both from the perspective of the holding company discount narrowing and also on its own merits.
Godrej Industries has given 35% CAGR return over several years: Adi Godrej
Adi Godrej, the Billionaire Chairman of Godrej Industries, pointed out that the Company has richly rewarded shareholders with a CAGR return of 35%.
He also emphasized that the valuation of the company is much lower than its “sum of parts”, implying that there is adequate margin of safety for us to tuck into the stock.
Prima facie, Godrej Industries appears to be a great investment opportunity. Its blue-chip quality coupled with the 35% CAGR return ensures that our capital is safe and sound. At the same time, if the holding company discount narrows and/or if there is “value unlocking”, we could be in for a massive bonanza.
Why is Billionaire Nusli Wadia buying BBTC? Will be there also be “value unlocking”?
Billionaire Nusli Wadia normally does not come to Dalal Street. He prefers to do all his buying through his myriad investment companies.
Yet, on 14th June 2017, he braved the heat and dust to come to Dalal Street to buy a chunk of 705,000 shares of Bombay Burmah Trading Corporation (BBTC) at Rs. 877 per share.
Prima facie, it appears that Nusli Wadia is sending us the subtle message that BBTC is a good buy in view of the impending IPO of Go Air which will result in value unlocking.
According to Varinder Bansal, BBTC is also quoting at a steep discount in comparison to the market values of Britannia and Bombay Dyeing.
BBTC (M-cap 2925 cr)
Holds 50.75% stake (direct + indirect) in Britannia valued at 18000 cr
Also owns 14.35% stake in Bombay Dyeing
— Varinder Bansal (@varinder_bansal) August 8, 2016
BBTC covered on "Did You Know" when its m-cap was 1000 cr and now 5600 cr…..https://t.co/Xa3Qqpc8og
— Varinder Bansal (@varinder_bansal) March 6, 2017
BBTC is a simple and safe bet: Porinju
In May 2015, Porinju described BBTC as a “simple and safe” bet on the basis of the steep discount that it was then quoting at.
He was right because BBTC is up 110% since then.
Prima facie, it appears that Porinju is justified in his assertion that holding companies make for a sensible investment. If we home in on the stocks where there is impending “value unlocking” such as Godrej Industries and BBTC, it is probable that we will take home massive riches as and when the value unlocking does happen!