In the most recent episode of CNBC-TV18‘s Unplugged, Anuj Singhal caught up with ace investor Porinju Veliyath, MD and Portfolio Manager of Equity Intelligence India who not only discussed his best picks but also his strategies behind them.
In the most recent episode of CNBC-TV18’s Unplugged, Anuj Singhal caught up with ace investor Porinju Veliyath, MD and Portfolio Manager of Equity Intelligence India who not only discussed his best picks but also his strategies behind them.
Common sense approach and wisdom are the main ingredients in stock picking, believes Veliyath. Most of his best picks have been on basic arithmetic and common sense. In this regard, he spoke about his entry and exit from stocks like Force Motors and Biocon.
“Most of my great picks have been because of inflexion point of that company or industry in particular,” Veliyath told Singhal in a free-wheeling chat.
Abundance of opportunities is available in the Indian market when you pick on basis of numbers, he says.
However, he also believes that price of a stock changes the perception on company’s management. This is not fundamentally correct, but happens.
One of his recent picks includes Jubilant Life Sciences. While the stock is not fancy, its boosts of good revenue and low debt as well as dynamic management, he says.
Below is the verbatim transcript of Porinju Veliyath’s interview to Anuj Singhal on CNBC-TV18.
Q: Tell us about your Force Motors stock pick?
A: I started picking a stock Force Motors, and it was a very interesting thing. It used to be Rs 425. This is Firodia promoter company and Bajaj were the partners. Bajaj had a holding of around 23 percent. They started selling and the company’s fundamentals have been on increase so there were some confusion and some people were doubting the integrity of the promoters because they bought an aircraft for Rs 160-170 crore with the shareholder wealth and they gave charity of Rs 25 crore which is much more than the dividends they paid -- this is three years ago I am talking about. So, I remember people were all selling off and Bajaj started selling so in such a way nobody was comfortable buying it in that kind of a situation.
However, when I analysed it, I had that knowledge of the relationship or the enmity between Firodia’s and Bajaj since last few decades. So, I took it in a different angle. This can be inflexion point for the company. I always remember most of my great picks have been because of inflexion point of the company or industry in particular.
Q: But identifying inflexion point is the most important point.
A: More than number crunching I would say the common sense approach and the wisdom that is the most important ingredients in stock picking. I remember the stock in another one and a half years, it went to Rs 3,500. There was no change in the fundamentals of the company, the perception changed. Once the stock price goes up, in India typically the promoter becomes very high quality. There are lot of examples but it is not fair to talk about any managements personally.
However, there are many companies, when the stock price is low it quoted 3-4 PE, generally the investors feel management is not good and the same stock if it goes up 10-20 times they will think this is very classy management. The price makes the perception on the management change which is not fundamentally correct but it happens.
Q: But at the end of the day you got to make money.
A: Yes, so that is why when you identify an inflexion point of a company or an industry and when things are not in fancy and you pick stocks comfortably with basic airthmatic and common sense, I think it is abundance of opportunities in Indian market.
Q: Is the move over in Force Motors?
A: We sold it. Just after 14-15 months most of our clients made long-term capital gains so it was well priced.
Q: What is the second strategy that you employ in equity markets, in stocks, picking stocks?
A: As I told you when you talk about a well known stock, I don’t know, there are hundreds of aspects of that company that comes to my mind because of the experience perhaps. I am there for 26 years in the market.
Q: What made you pick Biocon, just giving you an example?
A: Biocon it was basically that I came to Mumbai for CNBC interview. A friend of mine was talking to me and he had a friend who was a pharmaceutical distributor. So, generally we were discussing about few pharmaceutical companies including Sun Pharmaceutical and all, Jubilant Life Sciences. We were discussing a few stocks in general. He was talking some good comments about this and immediately what went into my head is that this lady, a lot of market people had started talking not good about Kiran Mazumdar because of the stock price movement.
Companies like Sun Pharmaceutical, they way it has gone 10 times where this has just doubled if you see which has just covered not even market performance. However, at the same time when you look at what the company has been doing and what the management has been talking about, some thing’s are happening, there are many things in the pipeline, they are setting up a new plant and the numbers are not bad already if you see. People are living in that perception so it was difficult for them to accept. There are still some large brokerage analysts working bearish about Biocon, talking about Rs 450.
A: I just read the report, they are giving a logic but the logic is wrong; that is the problem. Just because there is logic you cannot say it is correct. The logic should be good logic. So there the spirit of equities and the so called common sense elements, the wisdom, many such ingredients are missing in that report. That is why they come to a conclusion that Biocon will go to Rs 440-450 kind of levels.
Q: But you are holding on?
A: We exited very recently Biocon and we have moved into Jubilant Life Sciences sometime back. That stock is not in fancy today and it is almost a USD 1 billion company. 55 percent of that is very high quality pharmaceutical business and I found they are very strong in the nuclear medicines kind of aspects which is very niche business in which they are becoming global leaders in some of the signals.
Already it is a very large company, if you see the revenue, it is nearing a USD 1 billion and its market cap is below USD 1 billion. They have got around Rs 4,000 crore debt. So Rs 9,000 crore enterprise value you are getting a USD 1 billion company and with a growth, the management is presenting to investors, their presentations and all if you go through there is something coming up. There are many things in the pipeline so there is a growth ahead and they can easily deleverage.
Once they bring down the debt, naturally they are already, every year they are bringing down Rs 300-400 crore of debt. So, there is a visibility then what you have to mix with that is common sense more than number crunching. The management, I feel they are very dynamic people, they are doing a good job and it is a global company.
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First Published on Aug 17, 2016 12:41 pm