By Suhani Adilabadkar
Rain Industries caught Dalal Street’s fancy when Dolly Khanna emerged as its major investor, with 1.27% stake in the March quarter filings of 2017. The stock rallied 4% by the end of the day, closing at Rs. 122. Rain Industries produces crucial raw materials, calcined petroleum coke & coal tar pitch essential for the manufacture of aluminium, graphite, carbon black, refractory and titanium dioxide. From then, it was a ride up the chart - this lesser known stock till 2017 has tripled in value. Rain industries Ltd is the biggest beneficiary of ace investor Dolly Khanna’s priced portfolio - she holds 2.66% of the stock as of March 2018 (over Rs. 304 crore).
- Dolly Khanna knows when to exit: smart at both sells and buys
- Brought attention to Rain Industries when the Khannas added it to their portfolio
- Falls in molasses price driving recent portfolio investments in alcohol stocks
- Has a well diversified portfolio, across metals, auto, agro, textiles & chemicals
- Cut investments in sugar as the industry took a beating among falling prices
Initial focus on small and midcaps
Chennai based, Khanna duo, Dolly Khanna and her husband Rajiv Khanna’s stock investments began with the sale of their Kwality Icecream business to Unilever. Though it started as a hobby, Dolly’s investments in various small and midcaps have turned into multibaggers over the years. The first one was Hawkins Cookers which is assumed they bought at around Rs. 150 and sold at around Rs. 4000. When market veterans were licking wounds inflicted by the later Hawkins Cookers debacle, Dolly Khanna had already exited with flying colors. There is a list of such stocks - Amara Raja Batteries, TTK Prestige, Cera Sanitaryware, RS Software which have been bought in and exited at the right time by the Khannas, delivering multifold returns.
Increasing investments in alcohol stocks
Rajiv Khanna had once compared stock investing with tennis played on different courts. What he implied was the significance of understanding the underlying market condition and acting accordingly, whether for the long or short term. This seems to be true with respect to recent additions to their portfolio, Radico Khaitan, Associated Alcohols and Som Distilleries, all liquor stocks. The underlying reason behind the choice of these stocks is the fall in molasses price which is a major raw material and constitutes 40-70% of sales for most of the top breweries in India. Molasses index has corrected 45% since the beginning of 2018. Thus the falling raw material cost has improved margins leading to steady rise of stock price over the previous few quarters. Radico Khaitan & Associated Alcohols have jumped three times and Som Distilleries has doubled over the last one year.
The Portfolio Balancing Act
Dolly Khanna’s portfolio is well diversified among metals, auto, agro, textiles & chemicals. The largest chunk of her portfolio belongs to Rain Industries, NOCIL, RSWM, Ruchira Papers , Srikalahasthi Pipes Ltd and Thirumalai Chemicals. Added to this list are the liquor stocks and textile stocks namely Trident, Nandan Denim, Nitin Spinners, and financial services names such as Emkay Global & Manappuram Finance.
The portfolio is further diversified by the likes of Nilkamal, Liberty shoes, Heritage Foods, Asian Granito to name a few. All these stocks are not heavyweights moving the BSE Sensex everyday but fundamentally strong companies.
The Art/Science of Investing
Major portfolio changes so far for Khanna have been with respect to the textile and sugar industry. Textile industry has been impacted by GST, lower duty drawback rates and falling exports. On the same lines, after two bullish years, sugar industry has been impacted by a bumper crop both in India and Brazil leading to lower sugar prices and poor margins for the industry. Dolly Khanna has thus been shrewdly reducing her shareholding in RSWM, Nitin Spinners and Dwarikesh Sugar.
Multibagger 3D Effect
There is a common thread running through the entire portfolio and that is the strong fundamentals of Khanna’s stock picks. Though sectors have been selected on the basis of market conditions which subsume the economic situation, both domestic and global, stocks exhibit strong financial fundamentals with stable ROE, high asset turnover ratios and very low debt which translates into multibaggers in the long run. So what appears to the investing community as a multibagger stock is actually the work of a keen eye, vigilant ear and a simple financial thought process.
Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog at oasisfundamentals.blogspot.in.
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