Mohnish Pabrai Trims Stake in Smallcap Realty Stock, Exits Chemical Company

Investing in stocks demands mastery in two crucial decisions: knowing the opportune moment to buy and sell.

Timing is paramount. Sell too soon, and potential gains slip away; sell too late, and you risk missing out on valuable opportunities while facing potential losses.

While plenty of financial literature exists on when to make these moves, finding the best strategy remains a challenge.

To sidestep the hassle of developing their winning strategy and to mimic the achievements of their beloved market gurus, many individuals choose to replicate their investment moves. This saves time and uncovers promising stocks without the need for extensive research.

One such esteemed investor whose every manoeuvre garners attention is Mohnish Pabrai. Recently, Pabrai assumed a bearish stance on two stocks.

In today's article, we'll delve into the two stocks that Mohnish Pabrai trimmed stakes in.

Who is Mohnish Pabrai?

Mohnish Pabrai is an Indian American value investor known for spending US$ 650,000 to have lunch with his mentor Warren Buffett.

His investment preference includes low-risk high stocks in a well-established business with minimal downside and sound management.

Which Stocks did Mohnish Pabrai Cut Down on and Why?

#1 Sunteck Realty

First on the list is Sunteck Realty.

Sunteck Realty is a Mumbai-based real estate and construction company.

It is engaged in the construction, development, and management of commercial and residential properties.

The company is known for its high-end residential properties under different brand names: Signature for ultra-luxury properties, Signia for luxury properties and City for mid-segment properties.

The latest shareholding pattern of Sunteck Realty shows that Mohnish Pabrai sold a 4.5% stake in the company.

The ace investor sold 6.6 m shares or 4.5% stake in the company, dragging his holding down to 2.2% from 6.7% in the December 2023 quarter.

While we don't know why the ace investor trimmed his stake in Sunteck Realty, there are some reasons that we can guess...

One possible reason for trimming stake can be attributed to weak q3 results.

One possible factor contributing to the stake reduction could be the company's weak performance in the third quarter of December 2023.

During this period, Sunteck Realty reported a substantial decline in revenue, accompanied by losses at both the EBITDA and net levels. The company recorded a 52% year-on-year decrease in revenue to Rs 424 million (m).

It reported an operating loss of Rs 156 m. This contrasts sharply with the previous operating profit of Rs 180 m in the same quarter last year.

The real estate firm has reported a net loss of Rs 90 m, a down from a profit of Rs 20 m last year.

Another potential reason for the stake reduction could be the sale of promoter stakes. In the December 2023 quarter, two promoter entities, Satguru Infocorp Services and Starlight Systems, divested their entire 4.1% stake in the company.

Looking ahead, Sunteck Realty aims to launch seven new projects within the Mumbai Metropolitan Region (MMR) over the next four to five years.

This strategic focus on a high-demand area positions the company to capitalize on a sizable potential customer base and drive future growth.

For more details, see the Sunteck Realty company fact sheet and quarterly results.

#2 Rain Industries

Last on the list is Rain Industries.

According to the data available on the exchanges, Pabrai's stake in the company dropped below 1% recently. In the March 2024 quarter, the investor held a 4.35% stake in Rain Industries with 14.6 m shares.

This means perhaps his holding might have slipped below 1% or he could have sold the entire stake in the quarter gone by.

Rain Industries is one of the world's largest producers of materials used as raw materials for aluminium.

The company is engaged in segments including manufacturing of cement, CPC, coal tar pitch, and downstream products, including resins, modifiers, and superplasticisers.

While we do not know the exact reasons why the investing guru decided to sell the stake, there are some explanations.

One possible reason for Mohnish's concerns could be the company's underperformance in the recent quarter. Ajanta Soya reported a disappointing set of numbers in the December 2023 quarter, further adding to the growing list of worries.

Following a weak Q1 performance, the company has shown no signs of a turnaround in the September 2023 quarter and December 2023 quarter as well.

For the December 2023 quarter, the company reported a 25% YoY decline in revenue at Rs 41 bn.

The company reported a net loss of Rs 10.8 bn. For the same quarter last year, the stock had reported a net profit.

The company's carbon business was impacted due to delayed shipments and lower demand, which also impacted margins. Overall volumes declined by 5.3% YoY.

Advanced material business was also impacted during the quarter due to seasonality.

Going forward, the company plans to list its carbon business in the US market and increase its profitability.

For more details, see the Rain Industries company fact sheet and quarterly results.

To conclude

While this approach might seem appealing, it has several potential drawbacks.

First, they can be less liquid than investing in individual assets. This means that it may be more difficult to sell a replicating portfolio quickly if needed.

Second, mimicking portfolios may not track the performance of the target portfolio perfectly.

This is because the underlying assets in the replicating portfolio may not always move in the same way as the target portfolio.

Additionally, the risk tolerance, investment size, and time horizon of successful investors often differ from those of retail investors.

Blindly following their actions without assessing one's own risk profile and investment goals can be risky.

Therefore, it is important for investors to conduct thorough research and analysis before making investment decisions.

Rather than blindly following gurus, it is advisable to focus on investing in fundamentally strong companies that align with individual goals and risk tolerance levels.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...