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  • Oct 7, 2023 - Mohnish Pabrai Trims Stake in Underperforming Chemical Stock

Mohnish Pabrai Trims Stake in Underperforming Chemical Stock

Oct 7, 2023

Mohnish Pabrai Trims Stake in Underperforming Chemical Stock

It's that time of the year again...

The pivotal time of the quarter where superstar investors share their portfolio moves as part of their shareholding filings.

Now there are two aspects as to how these significant changes can be looked at.

First is considering the fact that learning from successful investors is invaluable.

And vice versa, blindly replicating their trades can be fraught with pitfalls.

While mirroring top investing gurus and 'following the smart money' might sound strategic, sometimes even financial gurus' falter.

That is why we believe the key to savvy investing is self-awareness and forming your own opinion. Because at the end of the day, your goals, time horizon, and risk appetite are unique.

With all this said, let's take a look at a recent shareholding change in Mohnish Pabrai's portfolio.

Who is Mohnish Pabrai?

Mohnish Pabrai is a seasoned investor and the managing partner of the Pabrai Investment Funds.

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

For a more detailed view of his portfolio, check out Mohnish Pabrai Portfolio: Top 3 stocks.

Which Stock did Mohnish Pabrai Sell Recently and Why?

According to the latest shareholding pattern of Rain Industries, Mohnish Pabrai sold 1.87% stake in the company in the June-September 2023 quarter.

He now holds 6.95% stake in the company or a little over 23 million shares of the total equity, against 8.82% in June 2023 quarter.

Pabrai's investment in Rain Industries goes long back and he has over the years made changes to his holding.

But never to such great extent that he did this time...

His rationale for buying into the counter initially?

  • In the years that we have owned Rain, I have seen Jagan Reddy (Rain's Managing Director and 40+% shareholder) make one smart decision after another.

    In fact, I have never seen Jagan make even one dumb decision. He has made very large capital allocation calls over the last 12+ years and they have been flawless. It is a remarkable record. He is a dream manager.

He invested in Rain industries back in 2015. Here's how Pabrai's holding in Rain Industries has varied in recent quarters.

Quarter Ending No of Shares Stake (%)
21-Mar 29,343,458 8.72
21-Jun 14,639,748 4.35
21-Sep 18,855,206 5.6
21-Dec 25,626,173 7.62
22-Mar 26,449,473 7.86
22-Jun 28,224,219 8.39
22-Sep 29,680,000 8.82
22-Dec 29,680,000 8.82
Data Source: BSE

Pabrai was first attracted to Rain Industries because the stock was cheap. He later declared that it was trading at a price to earnings (PE) multiple of 1, putting it in that rare bucket of super cheap value stocks.

Coming to his recent move on reducing exposure in the petrochemical stock.

While we don't know why he decreased stake in the company, here are some explanations...

The company's performance in Q1 was subdued as it posted a substantial drop in numbers in June 2023 quarterly earnings, compared on a YoY basis.

Profit fell from Rs 7.1 bn in June 2022 to Rs 2.1 bn in the most recent quarter.

The company said in a filing that renegotiation of sales prices in India led to margin loss.

Petrochemical stocks have been battered as energy prices in Europe went for a toss this year following geopolitical unrest between Russia and Ukraine.

Performance was also impacted by weather conditions in North American segments.

chart

The performance is expected to stabilize in the coming quarter though, as Rain Industries is expected to start production at some idle production units.

Meanwhile, its management is of the view that energy situation in Europe will be better for the next couple of months as prices spike during winter season.

A key focal point now is to reduce debt as most of its expansion is now completed.

Share Price Performance

On a YTD basis, shares of the company are down around 6%.

Rain Industries share price has largely underperformance in the past five years. With expectations of a recovery in the coming quarter, it remains to be seen whether shares could see a rebound from here on.

Rain Industries touched its 52-week high of Rs 191 on December 2022 and it touched a 52-week low of Rs 142 on 29 March 2023.

Rain Industries Share Price - 1 Year Performance

chart

About Rain Industries

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.

To know more, check out its financial factsheet.

Investment in securities market are subject to market risks. Read all the related documents carefully before investing

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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...

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