Porinju Veliyath bets house on 3 stocks; feels they are undervalued even after a good run

Raymond, Tata Communications and Hindware Home Innovations have had a good run over the last year, but may have steam left as they are still undervalued according to value investor Porinju Veliyath. These three stocks account for 55 percent of Veliyath’s portfolio, the Kerala-based investor known for his small- and midcap bets, said in an interview to Moneycontrol. All these stocks have rallied anywhere between 60 and 80 percent over the last one year, with gains being maximum for Raymond and least for Hindware.

In Veliyath's portfolio management service (PMS), Raymond is currently the largest holding. He emphasised that he has been acquiring shares of the company at prices ranging from Rs 350 to Rs 400. As of now, he holds over 4 percent of Raymond in both the PMS and alternative investment fund (AIF). The stock is currently trading at over Rs 1,600 per share. Despite negative sentiment surrounding the promoters, Veliyath believes that Raymond is a well-established brand with valuable assets and a widespread presence.

Regarding Hindware Home Innovations, a company with a 67-year history, Veliyath described it as a prominent brand, possibly the leading brand in several verticals. However, he recently reduced his holdings in the company from nearly 16 percent to below 10 percent due to overexposure. He mentioned that these shares are held in individual portfolio accounts, making them challenging to track.

Tata Communication: A decadal compounder opportunity 

Tata Communications is the second largest holding in Veliyath's portfolio. He believes it presents a decadal compounder opportunity and is reasonably priced, offering a favourable risk-return trade. In a written communication to Moneycontrol, he suggested that the company is poised to grow its digital data revenues by around 18-20 percent compound annual growth rate over the next four to five years, with operating profit margins of 23-25 percent and a return on capital employed (ROCE) of over 25 percent.

Veliyath highlighted that Tata Communications has a substantial land bank of close to 750 acres, which could be worth around a third of its current market capitalisation. The company is positioning itself as a "CommTech" player in new hyperconnected digital ecosystems, differentiating itself from traditional telco players. Under the leadership of CEO Amur S Lakshminarayanan, who has a credible profile from Tata Consultancy Services, the company has achieved high ROCE, operating margins, and substantial debt reduction. It has also undertaken a complete overhaul of the culture and business model of the company, according to Veliyath.

New highs for small-cap and midcaps 

Veliyath expressed a highly optimistic outlook for small-cap and mid-cap companies in India over the next 5-10 years. He expects the broader indices to reach 50,000 to 1 lakh points by 2030 on conservative basis.

New-age companies versus old economy stocks 

In terms of investment preference, Veliyath favours old economy stocks over new-age companies. He appreciates the operating history and simplicity of business dynamics associated with old economy stocks. While acknowledging that he missed the opportunity to invest in Paytm at below Rs 500 levels, he has no regrets. He believes there are many other companies that are more understandable and worth evaluating, particularly asset-based old economy stocks that are being overlooked.