Porinju Veliyath latest stock recommendation Tata Chemicals has to be paid attention to.
It is known that Porinju buys stocks which are at inflection point. He prefers stocks of companies which are quoting at a discount because of the perception of the public that the stock is of low quality.
Investment strategy of Porinju
In a talk with Sonia Shenoy of CNBC-TV18, Porinju Veliyath revealed his investment strategy. He said that he likes to buy stocks which are ignored by the market and which are available at low valuations.
Porinju stated that in such stocks the ‘margin of safety’ is high and investors can also make heavy gains.
Stocks held in portfolio
Both stocks are a good example of value investing. The stocks are from sectors that are ignored by the market.
Kalyani Steels is from the steel sector which is not in demand presently because of China supply reasons.
Jubilant Life Sciences is also not in demand because the Pharma sector is under FDA pressure. Also Jubilant Life Sciences has problems of high debt in books.
Porinju Veliyath bought both stocks for his portfolio at very cheap valuations. He paid a very low price for the stocks because they were not in demand because of wrong perception of the public in the stocks.
Presently, both stocks Kalyani Steels and Jubilant Life Sciences are multibaggers in Porinju Veliyath portfolio.
This shows how buying such stocks and holding them in portfolio can be a very beneficial investment strategy.
Latest Recommendation Tata Chemicals
Porinju Veliyath latest recommendation is Tata Chemicals. Porinju stated that Tata Chemicals is at an inflection point at present and valuations are very cheap.
The reason for Porinju Veliyath’s bullishness for Tata Chemicals is because the domestic business reported strong performance EBIDTA growth of 19%yoy to Rs 3.5bn.
The chemical segment of Tata Chemicals also reported highest ever EBIT margins of 29% driven by lower fuel cost.
The EBIT of Tata Chemicals’ domestic fertiliser business stood at Rs 473mn. The margins were 6%. These margins were also better than estimates.
The results of Tata Chemicals’ US subsidiary showed EBIDTA of Rs 1.55bn. This was because there was a maintenance shut down of the Plant. The PAT was Rs 420mn.
As regards the Europe operations, they were satisfactory.
The Africa plant of Tata Chemicals saw lower operations due to quality control issues.
The consolidated EBITDA of Tata Chemicals increased by 15% yoy to Rs 6.1bn. The margins expanded to 340bps. The other income stood at Rs 446mn. This was higher due to consideration of payment received by Rallis for sale of land in Turbhe. The PAT was Rs 2.8bn.
Tata Chemicals is expected to be able to sustain margins and profitability in the future.
The performance in the coming quarters is expected to be healthy. All the three business segments – chemicals, farm, and consumer are likely to post improved performance.
The growth in farm business of Tata Chemicals (fertiliser, and other agri-inputs) is dependent on the monsoon. As the monsoon is expected to be above normal, the production will be high.
The demand for soda ash will be stable. The low energy cost will increase earnings growth in the soda ash segment domestically and globally.
Restructuring of business by Tata Chemicals
The sale of the fertilizer business is strategic. A successful strategic divestment of fertilizer business would help Tata Chemicals to concentrate on higher‐growth opportunities, pare down debt, help re‐invest capital in core activities leading to higher longer term growth and create value for the stakeholders. The recent restructuring will reverse earnings to the mean over the next two years. There will be improved cashflows, limited capex and fall in debt. The dividends will rise further. The resultant higher returns will result in a re-rating.
Porinju Veliyath recommended Tata Chemicals without a target price.