We recommended Sanghi Cement at Rs. 17 on 10-May-2014, just before elections results were going to be announced. It was extremely cheap at that price and both fundamental and behavioral dynamics, were quite supportive for an investment. Our investment thesis was based on:

1. Improving macros

2. Massive debt reduction plans

3. Healthy cash flow generation

4. Increase in stake by promoters

5. Extremely cheap valuations (2 times cash flow)

Today, the stock has hit an upper circuit of Rs. 63 and has given returns of 270% (3.7 times). We recommend partial profit booking on Sanghi Cement at CMP of Rs. 63 and to ride the trend on the remaining part. We would at an appropriate time suggest to book profits for the remaining part.

Why has there been such a phenomenal interest in Sanghi Industries? 

After the promoter has completed all his buying from the open market, the promoter has suddenly started to speak on TV, and with investor & analyst community. The company has suddenly begun to share its vision, mission and future plans. The plans talk about expansion at the existing location that will help improve the product mix and potential benefits flowing from saving of logistics costs.

The lessons to be learned from the above episode are: 

• Buying only with perfect information has a tremendous cost attached. In this case, the information came to people after the price was already at Rs. 50-60 range.
   
• Most people will ignore value stocks till the time others don’t recognize the value. We think this is a futile exercise, if the only activity is that of guessing what the smart investors will buy.

Share On