5 Prospective Rakesh Jhunjhunwala Picks

By Sundaramurthy Vadivelu

Rakesh Jhunjhunwala

Rakesh Jhunjhunwala – or RJ, is a name that every active Indian

investor knows. Almost every Indian business magazine, newspaper,
web site and blog has discussed him. He is a value investor. He
attempts to spot those stocks with good business fundamentals, scope
for growth, management credibility, proven results and low risk.

The India Street published his portfolio “Rakesh Jhunjhunwala

Holdings” few weeks ago. One interesting point to note in his portfolio
is that there is not a single stock that belongs to the Sensex or Nifty.
This clearly means that he doesn’t want a large cap stock in his
portfolio (at least for the time being).

The Rakesh Jhunjhunwala Approach to Investing

His approach to stock picking is somewhat similar to Warren Buffet –
buying an undervalued stock when the crowd is least interested. This
is one of the reasons RJ is known as the “Warren Buffet of India”.

For example, during the technology stocks boom in 2000, Rakesh

Jhunjhunwala stayed away from those stocks. Instead, he was buying
some humble public sector stocks. Bharat Earth Movers Limited
(BEML), in which he holds 1.47% stake, had appreciated nearly 64
times between January 2001 and April 2006. So, RJ had a vision and
his judgement was perfect in this case.

The India Street attempts to find 5 top stock picks which RJ might be
interested in investing. All the companies discussed here belong to the
BSE Midcap index. These companies had performed reasonably well in
the stock market in the past; but of late, these are not the hottest
stocks. But fundamentally the stocks are good; we won’t be surprised
if these companies bounce back strongly.
Incidentally, these stocks have fallen more than 45% from their all time
highs. So, we can consider these as ‘value’ stocks.

Traded names that pass the Rakesh Jhunjhunwala test:

Company / Scrip Industry EPS Stock Price*
Arvind Mills (BSE:500101) Textiles 5.54 52.20
Cambridge Solutions (532616) BPO Services 6.26 113.45
Engineers India (532178) Engineering Services 25.84 456.95
GTL Limited (500160) Telecom 6.44 237.95
Orchid Chemicals and
Chemicals/Pharma 14.70 216.85
Pharmaceuticals
*As of Sept 14, 2007

Arvind Mills Limited:

Arvind Mills belongs to the Lalbhai group and it is one of the popular
textile stocks that the market is not quite interested. The company’s
chairman Arvind N. Lalbhai has been associated with the company for
over 60 years. Arvind Mills produces fabrics such as denim, shirtings,
khakhi, knitwear etc. as well as garments including those for export.
The denim manufacturing capacity alone is 110 million metre per year.

The company has declared consistent net profits over the last 3
financial years at around Rs.120 crore. Its EPS stands at 5.54 and has
a book value of 62.87. The long term debt equity ratio is 0.48. The
operating profit margin is 17.42%.

But the stock price has fallen to 48.05 last month, from a high of
142.30 in May 2005. In other words, it has already lost more than 66%
in value.

One notable textile stock that has been on the uptrend since May 2005
is S.Kumars Nationwide Limited. But Arvind Mills is a neglected star
these days.

Cambridge Solutions Limited:

The company was formerly known as Scandent Solutions Limited. It

has two divisions viz. IT (banking, financial services and insurance) and
BPO (nsurance and risk management, finance and accounting,
banking, mortgage and healthcare services). The services includes
business consulting, application maintenance support and application
implementation service. Cambridge solutions is headed by Christopher
A. Sinclair (Executive Chairman & CEO).

In the last financial year it declared a net profit of Rs.65.7 crores at an

EPS of 6.26.
In the stock market though, it is an unwanted commodity. From 329.80
in August 2005 it has fallen to 114.75 last month (more than 65%
erosion in value).

In contrast, the stock prices of NIIT Tech, another company in the same
sector, went up nearly 4 times between June 2005 and May 2007.

Engineers India Limited:

Engineers India Limited (EIL) provides engineering and related

technical services for petroleum refineries and other industrial projects.
It also executes turnkey projects from concept to commissioning.

EIL’s activities are now diversified into oil and gas processing,
petrochemicals, fertilizers, power, metallurgy, offshore structures and
platforms, ports and terminals, airports, highways and bridges and
non-conventional/renewable energy sources. EIL is headed by Mukesh
Rohatgi, Chairman & Managing Director. Government of India holds
90% stake in this company.

In the last five financial years, the company has shown consistent
increase in net profits. In 2006 – 07 it declared a net profit of Rs.145
crores at an EPS of 25.84.
The operating profit margin was 26.70% as of March 2006.

The stock’s highest ever monthly close was 858.85 in March 2006.
Last month, it closed at 450.35 (a loss of 48%). The stock looks
interesting at the current price levels.

GTL Limited:

GTL is a leading network services company, offering services and

solutions to address the entire network life cycle requirements of
telecom carriers and technology providers. GTL has executed projects
in over 25 countries, has built over 35 cellular networks, installed and
commissioned over 20000 cell sites, connecting over 20 million
subscribers and has set up over 500 corporate networks. Manoj G
Tirodkar is the Chairman and Managing Director of the company.

The company declared a net profit of Rs.67.4 crores for the period
between July 2006 – March 2007. The operating profit margin was
16.39% as of March 2007 and long term debt equity ratio was 0.51.
Latest available EPS is 6.44 and book value is 106.40.
The stock’s highest ever close at NSE was 3310.85 on March 8, 2000.
Last month it closed at 229.90 (a loss of 93% from highest close).

Orchid Chemicals and Pharmaceuticals Limited:

Orchid Chemicals is a globally recognized, integrated pharmaceutical

company with core competencies in the development and manufacture
of active pharmaceutical ingredients (APIs) and finished dosage forms
as well as in drug discovery. Orchid has two manufacturing sites for
APIs (at Alathur near Chennai and at Aurangabad, near Mumbai) and
three manufacturing sites for dosage forms (at Irungattukottai and
Alathur in Chennai), besides two R&D centres (at Sholinganallur and
Irungattukottai).

Orchid is headed by R Narayanan (Chairman) and K Raghavendra Rao

(Managing Director).
The company’s net profits for 2006 – 07 was Rs.96.6 crores (at an EPS
of 14.7), more than 3 times from 2003 – 04 (Rs.31 crores).

On March 31, 2006 the stock closed at 371.35 while last month it
closed at 203.85 (loss of 45%).

Conclusion:

All the five stocks discussed above have lost reasonably from their
highest close values. They are fundamentally good too. If
Jhunjhunwala is currently not considering these stocks as investments,
he probably should. Regardless, we feel these stocks are
fundamentally attractive for a long term investment.

Sundaramurthy Vadivelu

LABELS: RAKESH JHUNJHUNWALA PICKS, ARVIND MILL, CAMBRIDGE

SOLUTIONS, ENGINEERS INDIA, GTL, ORCHID CHEMICALS

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