Mohnish Pabrai Sells 6,746,476 Shares of this Midcap Company

Post market hours on 19 December 2023, substantial acquisition of shares and takeovers (SAST) data revealed that ace investor Mohnish Pabrai sold a massive chunk of his holding in a petrochemical stock.

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 and Why?

In case you haven't guessed it already, the company in question is Rain Industries.

Latest data revealed that Pabrai sold 6,746,476 shares of Rain Industries on 7 December 2023.

In the September 2023 quarter too, Pabrai had reduced his stake in the petrochemical company.

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

He held 6.95% stake in the company or a little over 23 million shares at the end of September 2023. With his recent sell, the stake is expected to reflect even lower percentage figure in the December 2023 quarter.

To give some perspective, 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.

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.

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

In fact, it reported a loss of Rs 660 million (m) for the September 2023 quarter.

Going by its management commentary, volumes across segments have stayed the same or decreased.

The management has attributed the cause of concern to import restrictions on GPC & CPC into India while its divestment of polymers business has also affected the company.

Moreover, the company also had to close production of aromatic chemicals and all these reasons combined have resulted in lower volumes.

How Rain Industries Could Turn Around its Fortunes...

The management is hopeful of better performance in the coming quarters as it begins production at some idle production units.

Meanwhile, the company has also said 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. Rain Industries is planning to reduce debt by 18% in the next 18 months.

The company has also ventured into synthetic graphite anode materials for Lithium-ion batteries and is looking at new products from this space.

Moreover, the management has said that they will consider listing the carbon business in the USA once headwinds subside.

How Rain Industries Share Price has Performed Recently

In 2023 so far, shares of Rain Industries have fallen over 17%.

Today, the stock fell 2.5% to hit a low of Rs 148.

Rain Industries has s 52-week low of Rs 141 touched on 22 November 2023 and a 52-week high of Rs 185 touched on 13 January 2023.

Here's a table comparing it with its peers -

Comparative Analysis

Company	Rain Industries	Oricon Ent	Tamilnadu Petro	Kothari Petroleum
ROE (%)	21.7	1.7	11.9	14.4
ROCE (%)	17.9	2.7	15.6	18.2
Latest EPS (Rs)	8.1	0.7	7.9	1.6
TTM PE (x)	18.9	43.6	11.9	14.6
TTM Price to book (x)	0.6	0.5	1.1	-
Dividend yield (%)	0.7	1.6	1.6	4.2
Industry PE	15.3
Industry PB	0.8

Data Source: Ace Equity

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.

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...