Rakesh Jhunjhunwala Portfolio Stocks Are Good Buy Now

rakesh jhunjhunwala portfolio

Rakesh Jhunjhunwala’s latest portfolio and holdings have been carefully studied by us.

Some of the best stocks in the portfolio which are still good for a buy are the blue-chip stocks like Titan, Lupin, Crisil and Escorts.

These stocks constitute a big part of Rakesh Jhunjhunwala’s net worth of Rs. 10,700 crore.

Best stocks to buy from Rakesh Jhunjhunwala’s portfolio holdings

There are three stocks in Rakesh Jhunjhunwala’s portfolio that are a very good buy at present.

The stocks are blue chips and have the potential to give huge gains without much risk to the capital.

Aurobindo Pharma – Buy for target price of Rs. 900 (52% gain)

Rakesh Jhunjhunwala holds 6,350,000 shares of Aurobindo Pharma as of 31st March 2017. The investment is worth Rs. 400 crore.

Motilal Oswal has recommended a buy of Aurobindo Pharma for a target price of Rs. 900:

Positives outweigh risks – time to accumulate

USFDA inspections not a cause of concern:

Aurobindo Pharma’s (ARBP) Unit 3 (oral solids; ~USD200m sales) and Unit 4 (injectables; ~USD100m of sales) facilities received six and seven observations, respectively, following the USFDA inspection in April 2017. Unit 3 observations are already out – there are no data integrity issues, with all the observations being procedural in nature. Unit 4 was previously inspected in September 2016 and received EIR in February this year. The inspection was triggered as ARBP added a new block in the facility. According to the company, all the observations at Unit 4 are procedural (letter should be out in coming few days).

Commissioning of key plants to drive volume growth in FY18/19E:

Over next 6-9 months, three key formulation plants are getting commissioned, including Vizag (dedicated supply to EU started in March 17), Unit XVI (antibiotic injectable plant to supply products in the US) and Naidupet (oral solids plant to supply to the US). Commissioning of the Vizag plant will have a two-pronged impact: 1) Capacity at Unit VII and Unit III will get released (which are primarily used for supply to the US, and are running at capacity utilization of ~80%). 2) European business margin should expand (to ~7-8% in FY18E from ~5% currently) as the company plans to manufacture 50% of products sold in EU at this plant. The Naidupet plant will get commissioned by mid-FY18E, and will be one of the largest formulations plants for ARBP (with capacity of 7-8b tablets).

Strong earnings growth trajectory and improving cash flow to drive valuations:

At its CMP, Aurobindo Pharma trades at <15x FY17E, which is at >25% discount to its peers. The valuation gap is expected to narrow on account of the company’s increasing profitability, strong earnings growth trajectory (17% CAGR until FY19E) and improving free cash flow. Aurobindo Pharma remains one of our top picks in the sector, with a target price of INR900 @ 18x 1HFY19E PER (v/s INR915 @ 18x 1HFY19E earlier).




Dewan Housing Finance Ltd – Buy for target price of Rs. 578 (32% gain)

Rakesh Jhunjhunwala holds 10,000,000 shares of Dewan Housing Finance Ltd (DHFL). The investment is worth Rs. 415 crore.

HDFC Securities have recommended a buy of DHFL for the target price of Rs. 578:

DHFL, with its expertise in lending to the lower/middle income group in Tier II and Tier III cities while maintaining strong asset quality would be a key beneficiary of the government’s thrust on promoting affordable housing. Management’s commitment to lower funding cost along with a higher proportion of non-housing loans should result in net interest margin expansion for the company.

DHFL trades at a significant discount (as per street estimates) to other HFC like Indiabulls Housing Finance (quoting at 2.6x FY19E ABV) and Canfin Home Finance (quoting at 4.7x FY19E ABV) and given the strong growth trajectory this gap is likely to come down. The company has sold its stake in life insurance business resulting in a 33% jump in its networth. While monetization of stake in other associate companies could result in significant value unlocking we have valued the company on a standalone basis and have not attributed any value to the subsidiaries/associates.

We feel investors could buy the stock at the CMP and add on declines to Rs. 392-400 band (~1.3x FY19E ABV) for sequential targets of Rs. 516 (1.7x FY19E ABV) and Rs. 578 (1.9x FY19E ABV) in 2-3 quarters.

Investment Rationale

Strong results despite lower disbursements in Q4/H2FY17

DHFL reported a PAT of Rs 2218 cr in Q4FY17 which included exceptional profit of Rs 1969 cr from sale of its 50% stake in DHFL Pramerica Life Insurance (DPLI) to its wholly owned subsidiary. Excluding the exceptional gains PAT grew by 31% yoy to Rs 249 cr. Net interest income grew by 10% yoy as interest expenses grew faster than interest income resulting in 3 bps compression in NIMs to 3.04%. Disbursements continued to be impacted by the demonetization as the growth remained at a subdued 11% yoy (H2FY17 growth ~11%) as compared to 29% growth in H1FY17. AUM was up 20% yoy to Rs 83560 cr driven by higher growth in non-home loans which now constitute 34.2% of AUMs against 31.1% at the end of Q3FY17. Asset quality was stable with GNPAs at 0.94%. The company utilized gains from non-interest income to make prudent provisions.

Federal Bank – Buy for target price of Rs. 125 (17% gain)

Rakesh Jhunjhunwala holds 39,331,060 shares of Federal Bank. The investment is worth Rs. 365 crore.

Sharekhan has recommended a buy of Federal Bank for a target price of Rs. 125:

Business momentum continues: Federal Bank has posted robust results for Q4FY2017 on the back of strong business traction and an improved asset quality, which was a significant achievement considering the continued challenges confronted by some of its comparable peers. At Rs842 crore, Net Interest Income (NII) grew at a better-than-expected rate of 22.8% YoY (6.4% QoQ), mainly due to the 10BPS QoQ expansion in Net Interest Margin (NIM) to 3.42% (Cost of Funds corrected sharply compared to Yields on Advances). Advances increased to Rs74,591 crore, up 26% YoY on the back of a strong growth in Wholesale Credit (41% of Advances, up 34.7% YoY) and Retail Advances (excluding Agri, 30% of Advances, up 29.6% YoY). Although the credit growth was significantly ahead of the industry average, it was largely owing to Federal Bank’s relatively smaller size. Therefore, the faster credit growth for Federal Bank in Q4FY2017 should not be read as an aggressive growth pursuit by the bank. We believe that the evenly balanced business mix of Federal Bank is positive and all its segments demonstrated balanced growth during Q4FY2017.

Valuation and outlook: We believe that Federal Bank has delivered a sturdy performance for Q4FY2017 considering that it was a very challenging period for the banking system, coming on the back of the demonetisation shock and the Reserve Bank of India-induced NPA recognition efforts. We feel that the asset quality outlook remains bright for Federal Bank, and as the overall demand improves in the Indian economy, credit off-take (aided by low interest rates) would continue to be conducive for well-managed players like Federal Bank. We maintain our ‘Buy’ rating on the stock with a revised price target of Rs125.

The Mandhana Retail Ventures Ltd – Buy for a target price of Rs. 360 (109% gain)

Rakesh Jhunjhunwala holds 28,13,274 of The Mandhana Retail Ventures Ltd. Ramesh Damani holds 2,27,987 shares.

NVS Wealth Managers have recommended a buy for a target price of Rs. 360:

The Mandhana Retail Ventures Ltd (TMRVL), under young and dynamic leadership of Mr. Manish Mandhana, has signed a global exclusive Trademark Licence Agreement with Bollywood Superstar Salman Khan’s Being Human Foundation to design, manufacture, retail and distribute men’s wear, women’s wear, childeren’s wear and accessories under “Being Human” trademark until March 2020.

– In December, 2010 Mandhana Industries ltd (MIL) had entered into global Licence Agreement with “Being Human- The Salman Khan Foundation” to use the Trademark and Brand logo of “Being Human” for all clothes range/ Clothing line.

– However, with a view to unlock the value of the Retail and Branded business, MIL demerged the Being Human Retail Division to TMRVL in which Shareholders of Mandhana received 2 equity shares of TMRVL for every 3 equity shares held in the Company.

– TMRVL currently distributes Being Human clothing through 537 retail selling points. The company’s distribution network comprises of 28 company owned exclusive brand outlets, 29 franchisee owned exclusive brand outlets including 4 overseas stores, 253 point of sale in shop-in-shops forming part of the large format stores and multi-brand outlets, 12 distribution partners catering to 220 retailers and 7 online e-commerce selling points.

– TMRVL posted an excellent H1FY17 financial performance with revenues growng by 22% to Rs. 117 Crs. (Rs. 96 Crs), EBITDA increased by a whopping 65% to Rs. 30 Crs (Rs. 18 Crs), and PAT increased by a whopping 100% to Rs. 18 Crs (Rs. 9Crs). For full year FY16 the company had revenues of Rs. 218 Crs, EBITDA of Rs. 40Crs and PAT of Rs. 21 Crs on a equity capital of Rs. 22 Crs.

– TMRVL is trading at a modest PE of 9.9x its FY17E EPS of Rs.17.5 and with retail story ready to bloom with a strong growth in topline and the margins, is offering attractive investment opportunity with a price target of Rs. 300 in medium to long term perspective. The branded and retail business along with the huge brand value of India’s biggest superstar Salman Khan should add a strong value for the investors and shareholders.

Rakesh Jhunjhunwala’s portfolio has many such multibagger stocks in it. There is no need for us to go searching for other stocks to buy. We can buy the stocks which are already in the portfolio.




Leave a Comment

Your email address will not be published. Required fields are marked *