»5 Minute Wrap Up by Equitymaster

On This Day - 1 JUNE 2018
This is How You Can Avoid Investing in Stocks Like Manpasand Beverages

Kunal Thanvi, Research analyst

Last Thursday, I recommended a retail stock that I believe has 68% upside. Sarvajeet and I were tracking it for more than a year.

While we really liked the business, there were some grey areas that didn't give us comfort.

We investigated for more than a year, before we recommended the stock to Smart Money Secrets subscribers.

The stock has corrected about 25% this year.

In most of the cases, if you investigate a stock for one year - you could miss out on a sharp up move.

But we were lucky because the opposite happened. The stock went down and we could recommend it with a decent margin of safety.

Now I understand that next time...it could be different. A long investigation like this could mean that we miss out on a good opportunity.

But, let me be honest with you.

I will follow this course as editor of Smart Money Secrets.

--- Advertisement ---
SMART MONEY ALERT: One Of India's Top Investing Guru Just Bought This…

One of India's Top Investing Gurus, whom we follow under Smart Money Secrets, has just bought a stock that has been on our radar for many months now…

Yes, it is a solid business with great money-making potential which you could consider adding to your portfolio right away. So, don't wait…

Click here to know how you can a get a detailed report on this lucrative opportunity, along with 30 Day Unrestricted Access to our ONLY guru based stock recommendation service, by paying Just Rs 99.

Hurry…Invitation available only for a few days. Click here for full details…

In cases, where I find grey areas, I'll keep hunting for more evidence, until I'm satisfied.

You see it's better to stay away from some stocks rather than be fooled by fancy claims of the management.

The last two-three years have been nothing less than a bubble in the Indian markets. Companies with shady managements, un-accounted balance sheets have seen their stock prices going up.

But thankfully, 2018 has taken some of these companies down by a thunder.

It started with PNB, Vakrangee and PC Jewelers.

Now the market has recognised the true worth of Manpasand Beverages.

Recently, the auditors of Manpasand Beverages resigned. The company had tried to fool them.

This is the auditor's resignation letter...

The Company Tried Fooling Its Auditors!

No wonder, the stock is making new lows, with lower circuits, since then.

Along with retail investors many super investors are not able to exit this falling knife.

Before buying this company, any investor could have done a basic investigation. He would have seen many red flags. (This gentleman did excellent work in raising these red flags)

Manpasand Beverages is a Baroda based company claiming it to be market leader in fruit drinks. It claimed that it is gaining market share from big brands like Frooti, Real, Slice, and Tropicana.

That was a big lie.

Investors should have investigated a few things...

  1. The distribution channels of the company (Frooti took 30 years to make such a robust distribution channel) as it claimed to have a strong reach in semi-urban states.
  2. Significantly low management salaries (Incentives did not align).
  3. Market share - Visits to few retail outlets in the areas Manpasand claims biggest market share would have revealed the truth (Less than 10% of retail outlets agreed with the management's claims).
  4. A related party 'Hansraj Agro' that was in a similar business.

Well, these are very basic questions that need to be asked while evaluating a company. It is now clear that most investors did not. Such investors fall victim to managements who fool shareholders by simply lying to their faces.

In this case, reported numbers (which are also questionable), made investors believe in the managements big claims. The same happened in case of Vakrangee too.

Like I said, a few super investors were also fooled.

This is precisely the reason we take our time (more than a year in the case of our last recommendation) to pick the best stocks for our subscribers.

Chart of the Day

Talking about doing a basic investigation before investing in a stock, it's interesting that some big investors and funds failed to do this in case of Manpasand Beverages.

They got carried away by the growth in sales and profits (which itself was questionable). In just a matter of few years, the company claimed to take market share away from big giants like Frooti, Slice, Maaza etc.

Ever since we launched Smart Money Secrets, we have been talking about how dangerous it is to blindly follow big/super investors.

These So-called Super Investors Got It Horribly Wrong!

As the chart shows, some big funds (Mutual funds and Private Equity Funds) had a big stake in the company as of March 2018.

Investors who blindly followed them are now trapped. They are not able to exit the stock as it is hitting lower circuits ever since the auditor resigned.

I am glad to inform you that this company would have never passed our Smart Money Score.

This is because...

  • The management had been decreasing its stake - A big no-no for the Smart Money Score
  • Management's salary was questionable (abnormally low) - A red flag in the Smart Money Score
  • Questionable sources of growth - It was growing much faster than its industry

In investing, you will always make some mistakes. In fact, some of the best investing minds in the world will make mistakes. Thus, blindly following your super investors can be suicidal.

However, you can drastically limit them by following the right super investors and investing only if the stock passes your own check list.


Kunal Thanvi
Kunal Thanvi (Research Analyst)
Editor, Smart Money Secrets

PS: If you act today, you can get not only Kunal's latest stock recommendation, but also... instant access to 2 special guides (worth Rs 950 each) as well as all 12 open positions in Smart Money Secrets. But you must hurry! This is a limited period offer. Click here for the details...

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.

Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement

Disclosure & Disclaimer: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. The Author does not hold any shares in the company/ies discussed in this document. Equitymaster may hold shares in the company/ies discussed in this document under any of its other services.

This document is confidential and is supplied to you for information purposes only. It should not (directly or indirectly) be reproduced, further distributed to any person or published, in whole or in part, for any purpose whatsoever, without the consent of Equitymaster.

This document is not directed to, or intended for display, downloading, printing, reproducing or for distribution to or use by, any person or entity, who is a citizen or resident or located in any locality, state, country or other jurisdiction, where such distribution, publication, reproduction, availability or use would be contrary to law or regulation or what would subject Equitymaster or its affiliates to any registration or licensing requirement within such jurisdiction. If this document is sent or has reached any individual in such country, especially, USA, Canada or the European Union countries, the same may be ignored.

This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Our research recommendations are general in nature and available electronically to all kind of subscribers irrespective of subscribers' investment objectives and financial situation/risk profile. Before acting on any recommendation in this document, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The price and value of the securities referred to in this material and the income from them may go down as well as up, and subscribers may realize losses on any investments. Past performance is not a guide for future performance, future returns are not guaranteed and a loss of original capital may occur. Information herein is believed to be reliable but Equitymaster and its affiliates do not warrant its completeness or accuracy. The views/opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. This document should not be construed as an offer to sell or solicitation of an offer to buy any security or asset in any jurisdiction. Equitymaster and its affiliates, its directors, analyst and employees will not be responsible for any loss or liability incurred to any person as a consequence of his or any other person on his behalf taking any decisions based on this document.

As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst) 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407