Ramesh Damani
In a CNBC-TV18’s special show RD360- Money Making Maxims, Ramesh Damani, Member of BSE discusses the life and sayings of Benjamin Graham with two finest fundamental analysts and practitioners of Graham’s way of investing, Sanjoy Bhattacharya of a Fortuna Capital and Chetan Parikh of Jeetay Investments.
Here is the verbatim transcript of the interview. Also watch the accompanying video.
Q: Is Graham still religion in stock markets?
Bhattacharya: I wouldn’t say that infact I think now we come to the stage because of the tremendous success that Buffett has enjoyed and I think the fact that made people don’t entirely understand what he stands for of worshipping growth. They have worshipped the order of growth and clearly, Graham wasn’t a guy who said that infact the approaches are different. Buffett buys high quality businesses at a fair price and watches the business grow overtime. What Graham said was you have to focus on understanding the balance sheet, the nature of the business and understand what the business is intrinsically worth, what you are paying for it and if there is a big gap between the two and you are paying much for it then it is intrinsically worth than you go out and buy it.
Q: Let us take a look at the tenets of investing by Graham.The first one which I find very absorbing ‘obvious prospects for growth do not translate into obvious profits for investors’.
Bhattacharya: I learnt this the hard way in my life because this is the saga of Infosys which I have owned from many years. So if you own Infosys, let us say sometime around the turn of the decade when there was a huge amount of enthusiasm about the growth prospects for that company and how well it would do going forward, then you felt that this was the right place to be. All the growth that was expected came through, management delivered, the business had a tremendous time in terms of maintaining and extending its leadership, great quality balance sheet. Yet if someone had bought Infosys in the first quarter of 2000 and held it for eight years and another guy had gone to the post office and opened a post office savings deposit, guess who would have done better.
Q: Hard to believe but what is the lesson that you learnt from there?
Bhattacharya: The lesson is that the point at which you enter, you have to be very conscious of the price you pay for the growth that you are going to get and if you don’t relate the two. In other words the multiple that you are paying whether it is a cashflow multiple or an earnings multiple but the growth that you are going to get in the future that you expect to get then you can be in for a nasty surprise. If the entry price or the entry multiple is way too aggressive.
Q: It comes back to the same thing that it is margin of safety, the three most important words in investing, how does that protect you?
Parikh: Margin of safety is something like a bridge and this example is being given that you engineer a bridge, design it, so that it carries a far greater load than what it is designed for. Essentially margin of safety when you are buying something whichever way you define intrinsic value, if you think that it is worth something you can pay a lot less for it, you have built in a margin of safety. This is in case your calculation of intrinsic value is wrong, your expectations are wrong, they do not materialise. Secondly, it is a difference, it is a return that you will expect to get because only when you buy something at a discount, can you hope to make some sort of a return.
Bhattacharya: The margin of safety that comes about when you buy a stock is also very important at the behavioural level. So, we buy a stock at a particular price and then the market is like a rollercoaster, it goes up and down and most of us we make serious mistakes at those high and low points. What you can call grid and fear. You can be a guy who benefits from the compounding effect of owning a decent business by allowing yourself not to get rattled by greed and fear and you can only do that if you have bonded with the significant margin of safety.
Q: Give me an example from your investing career?
Bhattacharya: From my investing career, the one I bought and quite stupidly typical of me which I sold very early and I wish I hadn’t by which made this in spades is Asian Paints. That was the first investment I made in my life in 1983 and obviously it is fluke, neither good luck nor skill, nothing in this investment is attributable to skill, those are one of the finest investments I have made when I think back on it.
Q: Markets are understood backwards, they are lived forward but understood backwards. Explain the margin of safety in the point.
Bhattacharya: Asian Paints, when we bought it, was a company that had marketcap to sales of about 0.6 and it is a business where three things happened, margins expanded, sales growth took place and this was a company run by truly outstanding management not only at the top level but also in terms of the people down the line, they had tremendous bench strenght
Bhattacharya: I bought Asian Paints at a marketcap of under Rs 100 crore.
Q: In which year was that?
Bhattacharya: 1983.
Q: What is the marketcap now?
Bhattacharya: The marketcap now is Rs 25,000 crore roughly.
Q: You have any example of margin of safety?
Parikh: It is more like a Graham sort of example but it is Auto Corp Goa which shares I still own but I am not advocating purchase at this price. Auto Corp Goa is a company in which it is basically a telco associate. It was a company which when we started looking at it, at one point of time we bought it at a little higher price but at one point of time, it was available at near cash in the balance sheet. The market capitalisation of the company in March 2009 was Rs 64 crore, a very little debt, the cash on the balance sheet was Rs 60 crore so it was not any committed cash. The capex had been completed, they had increased, they had doubled the size of the buses and the enabling environment was improving. The only thing that had happened was that the export demand for buses had fallen down, they had some labour issues, raw material cost had gone up and so for two three quarters, there were some issue but you were getting a company which had a turnover of about Rs 400 crore. The Tatas had invested in the company, there was a rights issue in March 2007 at Rs 475 per share, you were getting this share at about Rs 100-105 per share.
So if you didn’t have to do any elaborate calculation, you are getting the business for free.
Q: Someone told me that it is like buying a wallet for Rs 50 with Rs 100 note in it.
Parikh: The only difference here is anything that you buy at 50 paise to the rupee which is that it comes with one string attached and the string is that you do not have control over the assets, cashflows, dividends that is not in your hand, that is the only thing that is not in your hands.
Q: According to Buffett, Graham wished everyday to do something foolish, something creative and generous. According to Buffett, Graham excelled at the last. You are a big follower of Grahamism, let me read out one of his most famous dohas to you and tell me what you think about it .‘An investment operation is one which upon thorough analysis promises safety of principle and a satisfactory return, operations not meeting that requirement are speculative’.
Parikh: Investment operation. So he is not talking of one investment, he is talking of an operation which means he is talking in a portfolio context from a diversified viewpoint.
Secondly, thorough analysis to my mind means think like part owner of a business, think of it like being a part owner of a business.
Safety of principle is basically you have to distinguish between temporary losses and permanent losses of capital. Permanent losses of capital can come when you overpay, when the business fundamentals deteriorate or you are forced to sell at an inopportune time.
Secondly, Graham rules out exceptional cases – absolutely calamities causes for losses so he is willing that part of it. He got wiped out because he also had margin. So, he is totally against leverage. He learnt from that. The only thing that can kill you in this game is to buy poor quality businesses or buy with margin, there is no other way that you cannot get - that was the first edition of security analysis.
Finally, satisfactory returns come to that behavioural aspect. Satisfactory return according to him was a return in which an investor was prepared, however low, which will satisfy him. Now, if you are in a bull market, you may start out as a value investor, you may end up as a speculator because you start getting greedy.
Q: You always talk of behavioural things to me and this is another way of Grahamism which I have learned a lot in life to analyse my mistakes and read it out to you. The chief losses to investors come from the purchase of low quality securities at times of favourable business conditions?
Bhattacharya: Because you are in a bull market what happens is you are overwhelmed by greed. So capital preservation as a priority begins to slip down the scale because money making is easy because everyone is making money infact at that point in the market cycle.
If you are not doing better than the next guy, it is a huge blow in your ego so you have to be doing better and how do you do better at that stage by basically letting a bunch of tenets that determine thorough analysis dropped by the wayside.
Q: Give me an example in Indian markets when that has happened?
Bhattacharya: So I think a classic example of this in Indian markets was between 1997 and 1998 till early 2000 when the TMT was combination of bunch of things. The other thing that happens about the saying that you read out for us is that it is much easier to buy poor quality securities in a bull market because they are the only ones that remain.
So, in a misplaced sense of what Graham teaches us, they are the only one that remain relatively cheap and you must remember that in a bull market everyone is indulging in looking at things not on an absolute basis but on a relative basis. So they say, I cannot be buying Nestle, it is at 35 times earnings but why don’t I buy XYZ company which makes confectionary and this is a 12th time, it is in the same business as Nestle. The truth is the name be in the same business but Nestle’s standing in that business and the confectionary company’s standing in that business are like night and day, they are poles apart.
Q: I read a letter after the technology burst in 2000 where some guy said that the technology stocks will go down 50% and from that price it will go down another 50%, from that price it will go down another 50% and infinite term. I experienced that and the stock went down from 4,000 to 2,000 to 1,000 to 500 to 250.
Parikh: We are not that bad 1,000 cut.
Q: And you always think okay it is down 50%, how much more can go down, okay down 70% and how much more can go down and you cannot do absolute values to this, it goes up in smoke. I think that happens in every bull market whether it was the real estate bull market in 2007, whether technology bull market in 2000 or it was the Nifty-50 in America in the 1970s.
Parikh: But just as a couple of things I wanted to add to what Bhattacharya said which is that again in these sort of stocks they are prone to a lot of accounting manipulations. So typically in a bull market, you find a lot of accounting shenanigans taking place because people have to justify the valuations and the antidotes to buying such stuff because they look cheap. When you look at the company’s valuation history, you will find probably that it is good.
Q: Let me ask you something that is so profound because it is amazing that during 1930 and it still resonates with all of us, I would read it out to you and then I would like your comment on that, it says, ‘You are neither right, nor wrong because the crowd agrees with you, you are right because your data and reasoning are right, it is the fundamental role of an analyst to figure out from data’, explain to me how you use this maxim.
Bhattacharya: Infact before I get down doing that, this is how any serious money is ever made if you are a value investor because in effect what Graham is saying here is you have to be contrarion, you have to listen to what people are saying and understand from it but in the end, not get led by where the herd is going.
There was a time I think I would say about a year ago when people said that the best franchises come by buying typically multinational companies or home grown companies which have the same characteristics as multinational companies which is extensive distribution, advertising, strong brand recall and so on and so forth.
I was looking at a company called Tide Water Oil, which makes the lubricant called Veedol, it is a PSU and totally unloved and totally unrecognized and a lot of people wouldn’t even know what Tide Water Oil did. On any metric, this company was stunningly cheap, it had tremendous earning power, so I sat down and I asked myself, what do I need to do to figure this out.
I did three to four things, I went and spoke to bunch of mechanics on my next trip to Calcutta because I knew that that was where they sell the most and I found that mechanics and people in petrol pumps thought that this was a very good brand and lots of people wanted to use it and it is a bit cheaper than what Castrol sold, had an ability to maintain growth.
Second, I looked at the balance sheet and I was stunned by what I saw. Absolutely pristine balance sheet, very limited debt, wonderful control over inventory, over debtors all the right things, it happened to coincide with the time when crude prices had come down from three digits to about USD 45-50 per barrel and the inputs for lubes are the raw material, the directly related to crude prices.
So, I was buying it at a time when crude prices come to about USD 55. I said it is unbelievable but I am buying this business at 6-7 times current year’s earnings, earnings are going to grow, margins are going to expand and the franchise is reasonably good and none knows about it.
Q: None wanted to listen to you.
Bhattacharya: Yes, everyone said I should be buying Castrol, they said I am doing exactly the wrong thing.
Q: Give us one quick example where you stood out against the crowd and you turned out to be right?
Parikh: I didn’t know whether I was doing a very smart thing but I was selling off HUL. I sold it off HUL in 2000-2001 but what I bought with it, a little bit of it, not the entire HUL’s position was a company known as Elecon Engineering and I just did – it was very quick and dirty numbers. The size of the company at that time if I recollect was about Rs 120-130 crore, it had made a cash profit but a small loss but the depreciation was very high.
The market capitalsation of that company was at Rs 10 was Rs 5.75 crore. If you did a net-net which was to look at the net working capital, subtract out the debt, the marketcap was less than that which essentially meant that you were getting investments of about Rs 12-13 per share which included things like Elecon they are not going to sell that but HDFC and also the plant for free.
It was at the time when recovery was likely to happen nobody knew when it was going to happen, the management didn’t talk but if you looked at the size, Rs 5 crore and Rs 5.75 crore versus Rs 120-130 crore under depressed conditions, just a size, it seems to make sense.
Now I got out of it when it was – I made 10-12-15 times my money. I can assure you that I got out probably on the first or the second floor of a 25 stored building which has now got additional FSI. I am not suggesting Elecon be bought right now.
Bhattacharya: One which I think all of us will relate to, PSU banks five years ago. They had nothing going for them infact it is still conventional wisdom to say that the PSU banks are the laggards, they are poorly managed, they have serious structural problem and if India is a growth story, you should be buying very high quality franchises at five times book. I think it just shows that we don’t learn because if people are very upbeat in the Indian economy, I think in the margin the change that has taken place in PSU banks over the last five years has been dramatic.
There is lot more good news for these banks and the way they are priced right now and the role that they will continue to play in a growing economy. This is about being a proxy on economic growth, any bank is a proxy on economic growth. I think the PSU banks are a standout opportunity for people to persuade themselves that you don’t need the acceptance and recognition of others to tell you that you have got it right, you have got to look at what you are getting, what you are paying for what you are getting and whether that is taxed up.
Q: The classic intellectual idiom for that was you got more money in dividends from Bank of India than you got in deposit to the bank; that was a screaming buy.
Bhattacharya: There was a stunning one which happened in two banks, Andhra Bank and Syndicate Bank in 2002 when I used to be in HDFC and I happened to buy both of them. Last year’s dividend was more than my purchase price.
Parikh: Essentially if you have a company with a very good ROIC record and if it goes to temporary problems, not structural problems but temporary problems, usually that provides a very good buy.
Q: Back up the truck and load up the shares.
Bhattacharya: Absolutely right.
Parikh: You just see the stock being snapped maybe 60-70% in a matter of a year.
Here is the verbatim transcript of the interview. Also watch the accompanying video.
Q: Is Graham still religion in stock markets?
Bhattacharya: I wouldn’t say that infact I think now we come to the stage because of the tremendous success that Buffett has enjoyed and I think the fact that made people don’t entirely understand what he stands for of worshipping growth. They have worshipped the order of growth and clearly, Graham wasn’t a guy who said that infact the approaches are different. Buffett buys high quality businesses at a fair price and watches the business grow overtime. What Graham said was you have to focus on understanding the balance sheet, the nature of the business and understand what the business is intrinsically worth, what you are paying for it and if there is a big gap between the two and you are paying much for it then it is intrinsically worth than you go out and buy it.
Q: Let us take a look at the tenets of investing by Graham.The first one which I find very absorbing ‘obvious prospects for growth do not translate into obvious profits for investors’.
Bhattacharya: I learnt this the hard way in my life because this is the saga of Infosys which I have owned from many years. So if you own Infosys, let us say sometime around the turn of the decade when there was a huge amount of enthusiasm about the growth prospects for that company and how well it would do going forward, then you felt that this was the right place to be. All the growth that was expected came through, management delivered, the business had a tremendous time in terms of maintaining and extending its leadership, great quality balance sheet. Yet if someone had bought Infosys in the first quarter of 2000 and held it for eight years and another guy had gone to the post office and opened a post office savings deposit, guess who would have done better.
Q: Hard to believe but what is the lesson that you learnt from there?
Bhattacharya: The lesson is that the point at which you enter, you have to be very conscious of the price you pay for the growth that you are going to get and if you don’t relate the two. In other words the multiple that you are paying whether it is a cashflow multiple or an earnings multiple but the growth that you are going to get in the future that you expect to get then you can be in for a nasty surprise. If the entry price or the entry multiple is way too aggressive.
Q: It comes back to the same thing that it is margin of safety, the three most important words in investing, how does that protect you?
Parikh: Margin of safety is something like a bridge and this example is being given that you engineer a bridge, design it, so that it carries a far greater load than what it is designed for. Essentially margin of safety when you are buying something whichever way you define intrinsic value, if you think that it is worth something you can pay a lot less for it, you have built in a margin of safety. This is in case your calculation of intrinsic value is wrong, your expectations are wrong, they do not materialise. Secondly, it is a difference, it is a return that you will expect to get because only when you buy something at a discount, can you hope to make some sort of a return.
Bhattacharya: The margin of safety that comes about when you buy a stock is also very important at the behavioural level. So, we buy a stock at a particular price and then the market is like a rollercoaster, it goes up and down and most of us we make serious mistakes at those high and low points. What you can call grid and fear. You can be a guy who benefits from the compounding effect of owning a decent business by allowing yourself not to get rattled by greed and fear and you can only do that if you have bonded with the significant margin of safety.
Q: Give me an example from your investing career?
Bhattacharya: From my investing career, the one I bought and quite stupidly typical of me which I sold very early and I wish I hadn’t by which made this in spades is Asian Paints. That was the first investment I made in my life in 1983 and obviously it is fluke, neither good luck nor skill, nothing in this investment is attributable to skill, those are one of the finest investments I have made when I think back on it.
Q: Markets are understood backwards, they are lived forward but understood backwards. Explain the margin of safety in the point.
Bhattacharya: Asian Paints, when we bought it, was a company that had marketcap to sales of about 0.6 and it is a business where three things happened, margins expanded, sales growth took place and this was a company run by truly outstanding management not only at the top level but also in terms of the people down the line, they had tremendous bench strenght
Bhattacharya: I bought Asian Paints at a marketcap of under Rs 100 crore.
Q: In which year was that?
Bhattacharya: 1983.
Q: What is the marketcap now?
Bhattacharya: The marketcap now is Rs 25,000 crore roughly.
Q: You have any example of margin of safety?
Parikh: It is more like a Graham sort of example but it is Auto Corp Goa which shares I still own but I am not advocating purchase at this price. Auto Corp Goa is a company in which it is basically a telco associate. It was a company which when we started looking at it, at one point of time we bought it at a little higher price but at one point of time, it was available at near cash in the balance sheet. The market capitalisation of the company in March 2009 was Rs 64 crore, a very little debt, the cash on the balance sheet was Rs 60 crore so it was not any committed cash. The capex had been completed, they had increased, they had doubled the size of the buses and the enabling environment was improving. The only thing that had happened was that the export demand for buses had fallen down, they had some labour issues, raw material cost had gone up and so for two three quarters, there were some issue but you were getting a company which had a turnover of about Rs 400 crore. The Tatas had invested in the company, there was a rights issue in March 2007 at Rs 475 per share, you were getting this share at about Rs 100-105 per share.
So if you didn’t have to do any elaborate calculation, you are getting the business for free.
Q: Someone told me that it is like buying a wallet for Rs 50 with Rs 100 note in it.
Parikh: The only difference here is anything that you buy at 50 paise to the rupee which is that it comes with one string attached and the string is that you do not have control over the assets, cashflows, dividends that is not in your hand, that is the only thing that is not in your hands.
Q: According to Buffett, Graham wished everyday to do something foolish, something creative and generous. According to Buffett, Graham excelled at the last. You are a big follower of Grahamism, let me read out one of his most famous dohas to you and tell me what you think about it .‘An investment operation is one which upon thorough analysis promises safety of principle and a satisfactory return, operations not meeting that requirement are speculative’.
Parikh: Investment operation. So he is not talking of one investment, he is talking of an operation which means he is talking in a portfolio context from a diversified viewpoint.
Secondly, thorough analysis to my mind means think like part owner of a business, think of it like being a part owner of a business.
Safety of principle is basically you have to distinguish between temporary losses and permanent losses of capital. Permanent losses of capital can come when you overpay, when the business fundamentals deteriorate or you are forced to sell at an inopportune time.
Secondly, Graham rules out exceptional cases – absolutely calamities causes for losses so he is willing that part of it. He got wiped out because he also had margin. So, he is totally against leverage. He learnt from that. The only thing that can kill you in this game is to buy poor quality businesses or buy with margin, there is no other way that you cannot get - that was the first edition of security analysis.
Finally, satisfactory returns come to that behavioural aspect. Satisfactory return according to him was a return in which an investor was prepared, however low, which will satisfy him. Now, if you are in a bull market, you may start out as a value investor, you may end up as a speculator because you start getting greedy.
Q: You always talk of behavioural things to me and this is another way of Grahamism which I have learned a lot in life to analyse my mistakes and read it out to you. The chief losses to investors come from the purchase of low quality securities at times of favourable business conditions?
Bhattacharya: Because you are in a bull market what happens is you are overwhelmed by greed. So capital preservation as a priority begins to slip down the scale because money making is easy because everyone is making money infact at that point in the market cycle.
If you are not doing better than the next guy, it is a huge blow in your ego so you have to be doing better and how do you do better at that stage by basically letting a bunch of tenets that determine thorough analysis dropped by the wayside.
Q: Give me an example in Indian markets when that has happened?
Bhattacharya: So I think a classic example of this in Indian markets was between 1997 and 1998 till early 2000 when the TMT was combination of bunch of things. The other thing that happens about the saying that you read out for us is that it is much easier to buy poor quality securities in a bull market because they are the only ones that remain.
So, in a misplaced sense of what Graham teaches us, they are the only one that remain relatively cheap and you must remember that in a bull market everyone is indulging in looking at things not on an absolute basis but on a relative basis. So they say, I cannot be buying Nestle, it is at 35 times earnings but why don’t I buy XYZ company which makes confectionary and this is a 12th time, it is in the same business as Nestle. The truth is the name be in the same business but Nestle’s standing in that business and the confectionary company’s standing in that business are like night and day, they are poles apart.
Q: I read a letter after the technology burst in 2000 where some guy said that the technology stocks will go down 50% and from that price it will go down another 50%, from that price it will go down another 50% and infinite term. I experienced that and the stock went down from 4,000 to 2,000 to 1,000 to 500 to 250.
Parikh: We are not that bad 1,000 cut.
Q: And you always think okay it is down 50%, how much more can go down, okay down 70% and how much more can go down and you cannot do absolute values to this, it goes up in smoke. I think that happens in every bull market whether it was the real estate bull market in 2007, whether technology bull market in 2000 or it was the Nifty-50 in America in the 1970s.
Parikh: But just as a couple of things I wanted to add to what Bhattacharya said which is that again in these sort of stocks they are prone to a lot of accounting manipulations. So typically in a bull market, you find a lot of accounting shenanigans taking place because people have to justify the valuations and the antidotes to buying such stuff because they look cheap. When you look at the company’s valuation history, you will find probably that it is good.
Q: Let me ask you something that is so profound because it is amazing that during 1930 and it still resonates with all of us, I would read it out to you and then I would like your comment on that, it says, ‘You are neither right, nor wrong because the crowd agrees with you, you are right because your data and reasoning are right, it is the fundamental role of an analyst to figure out from data’, explain to me how you use this maxim.
Bhattacharya: Infact before I get down doing that, this is how any serious money is ever made if you are a value investor because in effect what Graham is saying here is you have to be contrarion, you have to listen to what people are saying and understand from it but in the end, not get led by where the herd is going.
There was a time I think I would say about a year ago when people said that the best franchises come by buying typically multinational companies or home grown companies which have the same characteristics as multinational companies which is extensive distribution, advertising, strong brand recall and so on and so forth.
I was looking at a company called Tide Water Oil, which makes the lubricant called Veedol, it is a PSU and totally unloved and totally unrecognized and a lot of people wouldn’t even know what Tide Water Oil did. On any metric, this company was stunningly cheap, it had tremendous earning power, so I sat down and I asked myself, what do I need to do to figure this out.
I did three to four things, I went and spoke to bunch of mechanics on my next trip to Calcutta because I knew that that was where they sell the most and I found that mechanics and people in petrol pumps thought that this was a very good brand and lots of people wanted to use it and it is a bit cheaper than what Castrol sold, had an ability to maintain growth.
Second, I looked at the balance sheet and I was stunned by what I saw. Absolutely pristine balance sheet, very limited debt, wonderful control over inventory, over debtors all the right things, it happened to coincide with the time when crude prices had come down from three digits to about USD 45-50 per barrel and the inputs for lubes are the raw material, the directly related to crude prices.
So, I was buying it at a time when crude prices come to about USD 55. I said it is unbelievable but I am buying this business at 6-7 times current year’s earnings, earnings are going to grow, margins are going to expand and the franchise is reasonably good and none knows about it.
Q: None wanted to listen to you.
Bhattacharya: Yes, everyone said I should be buying Castrol, they said I am doing exactly the wrong thing.
Q: Give us one quick example where you stood out against the crowd and you turned out to be right?
Parikh: I didn’t know whether I was doing a very smart thing but I was selling off HUL. I sold it off HUL in 2000-2001 but what I bought with it, a little bit of it, not the entire HUL’s position was a company known as Elecon Engineering and I just did – it was very quick and dirty numbers. The size of the company at that time if I recollect was about Rs 120-130 crore, it had made a cash profit but a small loss but the depreciation was very high.
The market capitalsation of that company was at Rs 10 was Rs 5.75 crore. If you did a net-net which was to look at the net working capital, subtract out the debt, the marketcap was less than that which essentially meant that you were getting investments of about Rs 12-13 per share which included things like Elecon they are not going to sell that but HDFC and also the plant for free.
It was at the time when recovery was likely to happen nobody knew when it was going to happen, the management didn’t talk but if you looked at the size, Rs 5 crore and Rs 5.75 crore versus Rs 120-130 crore under depressed conditions, just a size, it seems to make sense.
Now I got out of it when it was – I made 10-12-15 times my money. I can assure you that I got out probably on the first or the second floor of a 25 stored building which has now got additional FSI. I am not suggesting Elecon be bought right now.
Bhattacharya: One which I think all of us will relate to, PSU banks five years ago. They had nothing going for them infact it is still conventional wisdom to say that the PSU banks are the laggards, they are poorly managed, they have serious structural problem and if India is a growth story, you should be buying very high quality franchises at five times book. I think it just shows that we don’t learn because if people are very upbeat in the Indian economy, I think in the margin the change that has taken place in PSU banks over the last five years has been dramatic.
There is lot more good news for these banks and the way they are priced right now and the role that they will continue to play in a growing economy. This is about being a proxy on economic growth, any bank is a proxy on economic growth. I think the PSU banks are a standout opportunity for people to persuade themselves that you don’t need the acceptance and recognition of others to tell you that you have got it right, you have got to look at what you are getting, what you are paying for what you are getting and whether that is taxed up.
Q: The classic intellectual idiom for that was you got more money in dividends from Bank of India than you got in deposit to the bank; that was a screaming buy.
Bhattacharya: There was a stunning one which happened in two banks, Andhra Bank and Syndicate Bank in 2002 when I used to be in HDFC and I happened to buy both of them. Last year’s dividend was more than my purchase price.
Parikh: Essentially if you have a company with a very good ROIC record and if it goes to temporary problems, not structural problems but temporary problems, usually that provides a very good buy.
Q: Back up the truck and load up the shares.
Bhattacharya: Absolutely right.
Parikh: You just see the stock being snapped maybe 60-70% in a matter of a year.
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