Has Rakesh Jhunjhunwala changed his view on real estate?

Moneycontrol Bureau

Shares of DB Realty continued to rise on Friday, rising over 3% to Rs 115, as investors sought to piggy back market guru Rakesh Jhunjhunwala’s decision to back the stock. Last Friday, the bulge bracket investor purchased 12.5 lakh shares of DB Realty at Rs 90.21 in an open market transaction. The stock has already risen around 27% from the price that Jhunjhunwala picked it up for.

His decision to invest in DB Realty has surprised those who track his moves closely, given Jhunjhunwala’s long standing aversion to the real estate sector in general.

Till less than two years back, Jhunjhunwala was an avowed real estate bear and saw no reason to change his view despite the periodic rallies in the stocks. In fact, he went as far as to say that he would not invest in real companies. The presence of black money and opaque accounting norms are believed to be the two main factors for his dislike of the sector.

The choice of DB Realty, of all real estate companies, has raised eyebrows also because of the ongoing legal proceedings against promoter Shahid Balwa and another key executive of the group in the 2G spectrum scam. Balwa was jailed for 9 months last year and released on bail in November. As a fall out, approvals for key projects of the company were delayed, hurting revenues and triggering a steep fall in the stock.

According to an analysis by the Business Standard, DB Realty's market capitalization of around Rs 2800 crore is almost the same as the inventory held by the company on its books. This makes the stock a good bargain, though there is no saying if the promoters will be able to extricate themselves from the legal issues they are currently mired in.

It is too early to say if Jhunjhunwala may have changed his views on the real sector as a whole, but in this interview to Punita Sinha of Pacific Paradigm Advisors on ET NOW on October 1, he appears to be giving the logic for the investment, though he has not mentioned the stock specifically.

Excerpts from the interview:

Punita Kumar Sinha: Can you talk a little bit about what new ideas do you see? What are you working on?

Rakesh Jhunjhunwala: We are not doing deep research and I decide in half an hour. I bought a real estate stock in the last 2 days. I decided in half an hour. We saw the entire presentation. I am not going to do some deep delving. Keep it for 3-6, 9 months.

Punita Kumar Sinha: You do not buy real estate but you are happy to buy real estate stocks?

Rakesh Jhunjhunwala: Why not? Most liquid.

Punita Kumar Sinha: And what is making you like the real estate stock?

Rakesh Jhunjhunwala: The share valuations. Valuations are not more than 33% of a real value.

Punita Kumar Sinha: So you are looking at the NAV...

Rakesh Jhunjhunwala: I am looking at the stability; that debt is reasonable, there is rental income, there is no hurry to sell. So the basic structure is okay.