Porinju Veliyath, the founder and CEO of Equity Intelligence, has sounded a cautionary note for value investors eyeing Samvat 2080. Despite favourable macroeconomic factors and a positive global geopolitical scenario, Veliyath emphasises the current high valuations in Indian equities, urging a prudent approach. He advises against the excitement of stock picking during this period, especially in the short term.
In an exclusive conversation with Moneycontrol’s Nickey Mirchandani, Veliyath highlights the importance of avoiding the lure of popular themes, such as defence, and stresses the need to prioritise valuations. Illustrating his point, he shared his experience of purchasing Mazagaon Dock Shipbuilders at Rs 180, only to witness the stock surge to Rs 1,800. But he issues a cautionary note to investors, urging them to exercise their judgement, especially when dealing with defence-related stocks, whether they be HAL or other shipyard entities.
As Diwali approaches, Veliyath recommends a sober approach, considering valuations for the months ahead. Interestingly, Veliyath identifies Godrej Industries and Piramal Pharma as his top bets for this Diwali, showcasing his strategic stock preferences amid the cautionary sentiment.
Check out special Diwali picks and investment ideas
Godrej Industries:
The renowned investor has been buying Godrej Industries during market weakness, emphasising the lack of urgency for investors. The company predominantly holds Godrej Properties, Godrej Consumer and Godrej Agrovet, with substantial holding value, and trades at significant market discounts of 60-90 percent. Veliyath anticipates a reduction in this gap, highlighting the Securities and Exchange Board of India’s consideration of delisting options for listed holding companies.
Porinju sees Godrej Industries, which has underperformed for the past seven to eight years, as a potential investment due to its non-fancy status. He views the stock as a safe bet since the group is known for ethical practices and consideration for minority shareholders. With a current market cap of around Rs 20,000 crore, the investor suggests patience, awaiting potential corrections for a more favourable entry point for this one. Reports suggest a split of the Rs 1.76-lakh-crore conglomerate is in the offing. A family council is believed to be discussing the terms of the division.
Piramal Pharma:
Porinju feels Piramal Pharma, demerged from Piramal Enterprises, could be the next multi-bagger opportunity. He also expresses confidence in the promoter despite recent perception issues. Acknowledging ethical concerns raised by some investors, the investor highlighted Piramal Pharma as a substantial business generating Rs 7,000-8,000 crore in revenue, with the potential to double it in the next few years. Following a recent rights issue that reduced debt by Rs 1, 000 crore, the company's market capitalisation stands at around R 12,000-13,000 crore, approximately twice its sales.
The investor sees a significant opportunity for Piramal Pharma to enhance margins from 12-13 percent to over 20 percent.
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What is Porinju buying / selling?
Veliyath said his investment firm had completely exited Shalimar Paints, which once comprised nearly 10 percent of the assets in its Portfolio Management Service (PMS). The company's small market cap and history of mismanagement led to a relatively unfulfilling investment, highlighted the ace investor.
Shalimar, one of the oldest paint companies in Asia, faced challenges, including changes in promoters and management, which impacted its performance, he added.
Veliyath also pointed out the significant capex in the sector by major players like Asian Paints, Jindals, and the entrance of the Aditya Birla Group. Such substantial investments by industry giants also made him uncertain about the future of smaller players like Shalimar. Veliyath is neutral on the paint industry, neither bullish nor bearish.
About his recent additions, Gati and Kerala Ayurveda, Veliyath said Gati is a well known logistics firm in which his PMS holds a significant position.
In contrast, the other company is a penny stock, considered a riskier investment. Veliyath personally holds approximately 5-6 percent of the stock in his portfolio, as he was impressed by Mr Ramesh Vangal, the chairman, after attending the company's AGM.
Despite its small market cap, which has grown from Rs 120 crore to around 200 crore, and a turnover of approximately Rs 100 crore, the penny stock represents a long-term investment for Veliyath. This company operates in the niche space of ayurveda products, distinguishing itself from herbal products offered by major brands like Himalaya and Dabur. Ayurveda, with its focus on wellness and preventive health measures, is gaining traction globally, presenting both opportunities and challenges for companies in this sector.
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