I strongly believe that any investment we make has to be for the long term and if the story doesn’t appeal for long term its not worth betting our hard earned money on it…This is because my experience tells me that once we enter such mispriced bets with a short term appreciation in mind and if the factors we bet on doesn’t turn out as expected then our capital remains stagnant, if not depreciate, for quite a long period of time… Capital preservation has to be the first goal followed by its appreciation…
Now, on the second point that discovered stocks don’t offer much scope for appreciation, its not true in entirety because a good long term story passes through many phases with discovery being only the start of first phase and story will appreciate continuously for many years in a phased manner untill it gives way to me-first craze…There are many examples of it like Titan, Page (have passed through this phase) and even our PI Industries (which is in a discovery phase)…
In current markets many mispriced bets which even have long-term story and visibility to it are available… The first one is Pi Industries, which now is not a mispriced bet but has a strong visibility of growth and can therefore offer decent safe appreciation with strong capital preservation certainity…
Second one which might slightly suit this discussion as far as mispricing and undervaluation goes but is still having long term growth story attached to it is Jubilant Industries… Well established brands under its kitty like Jivanjor (Pidilite’s only formidable peer), Ramban (4th Largest in India) and a world leadership position in Food Polymer segment, being 3rd largest supplier in the world of SPVA, Jubilant Industries is a grossly undervalued story…
I will not discuss much here as already in Not-so-Hidden-Gems section I have discussed many things regarding this company as also in my research note I have given a SOTP valuation based on which current core businesses, even at a significant discount to its peers, deserves a valuation of 259.3 cr. vis-a-vis current mcap of 145 cr. which offers a decent safety to our capital as also offers a great scope of capital appreciation…
The reason for such undervaluation, as derived by me based on the discussion with many knowledgable analysts whom I interact with are :
(1) Listing history of just 7-8 months with many funds holding it because of its demerger from parent company compelled to exit it because of their funds criteria for mid-cap stocks…
(2) Limited past financial track-record as the company will have first full independent operational fiscal as FY12…
(3) Lack of knowledge amongst financial fraternity members regarding each operational segment of the company like Consumer Products, Food Polymer, Latex and SSP…
(4) Uncertainity regarding Retail division merger asto how much accumulated losses will be transferred, how much debt will be transferred, future course of action, etc.
Now, this is what I call the real opportunity of mispriced bet… as because of totally non-operational issues, a company from a strong group is grossly undervalued on the bourses… Its only misperceptions which are letting it remain undervalued and once such misperceptions get cleared or addresed, it will appreciate and achive its deserved valuation in no time…
Now, the question arises as to what is the certainity that the misperceptions that financial fraternity members have will get cleared sooner rather than later and our capital will not remain stagnant for a long while… The certainity lies in the fact that if the company doesn’t get deserved valuation then its the promoters themselves which will loose more than the minority shareholders…will refrain from discussing further here.
To sum up, as per me Jubilant Industries is a perfect undiscovered mispriced bet but with a long term investment view in mind which offers a great amount of safety to our capital preservation motto with a high certainity of significant appreciation of our capital…
Rgds.