Pulak Chandan Prasad

Pulak Chandan Prasad, the founder of Nalanda Capital Pte Ltd, is the man
with the golden touch. He is 45 years of age and has rich experience in
identifying winning companies. He did his MBA from IIM Ahmedabad in 1992
and joined McKinsey. Thereafter, in 1998, he joined Warburg Pincus where
he learnt the ropes of equity investing. He is credited with several
investments (such as Kotak Mahindra Bank, Sintex Industries, Nicholas
Piramal India, Satyam Computer Services) which gave Warburg Pincus
multibagger returns. He is best known for the $300 million investment that
Warburg made in Bharati Airtel which was sold for $1.9 billion.
In May 2007, Pulak Chandan Prasad decided to strike it on his own and
started Nalanda Capital for making investments in India. Thanks to his
McKinsey & Warburg Pincus pedigree, he had no problem attracting
investors who pumped in $400 Million. He raised another $475m in April
2011. Fortunately, he has lived up to the promise and has had an incredible
track record of finding multibagger stocks and enriched Nalanda’s investors.
Pulak Chandan Prasad makes it clear that when Nalanda Capital seeks to
invest in a stock, it subjects the company to the same rigorous screening
process that a private equity investor seeking to invest in an unlisted
company would do. The criteria that a stock has to fulfill before Nalanda
makes an investment are:
(i) High return on capital: The company must have a consistently high
return on capital because return on capital is a very good indicator of the
quality of the management team and the competitive advantage of the
business.
(ii) Attractive industry: The industry structure, the conduct and

performance of the companies therein is analyzed to determine the long-
term prospects for value creation.
(iii) Quality management with good credentials: The entrepreneurs
must be clean and transparent and have an outstanding track record. Also,
the management must be open to external ideas, discussion and debate.
(iv) Risk-reward ratio must be in favour of the investment:
NALANDA CAPITAL’S SECRET FORMULA FOR FINDING WINNING STOCKS
- Invest only in top quality stocks with high ROE, good business model and ethical
management;
- Invest only after thorough research into all pros and cons. Never invest on an
impulse;
- Diversify into different sectors to avoid risk;
- Prefer Mid-Cap and Small-Cap Stocks instead of Large-Cap stocks;
- Have a concentrated portfolio of a few stocks that you can watch carefully;
- Invest for the long-term. The minimum holding period is 5 years;
- Avoid Banks & Financial Stocks.
Now let’s take a look at Nalanda Capital’s latest portfolio and the rationale
for a few of those investments:
Nos of
Sr.
Company shares % holding CMP (Rs. Cr)
No.
(lakhs)
1. Mindtree 47.04 11.22 664.61

2. Page Industries 11.11 9.96 575
3. Exide Industries 460.74 5.42 528
4. Havells India 66.09 5.29 497
5. Berger Paints 181.24 5.23 406
6. AIA Engineering 79.19 8.40 377
7. Supreme Industries 81.77 6.44 361
8. DB Corp 129.94 7.09 348.24
9. Great Eastern Shipping 105.24 6.97 303.09
10. Carborundum Universal 212.02 11.3 301
11. Vaibhav Global 41.11 12.80 235
12. Triveni Turbine 346.96 10.52 179
13. Info Edge India 38.53 3.53 174
14. Kirloskar Oil Engines 108.96 7.53 167.80
15. Kewal Kiran Clothing 12.00 9.74 133
16. V-Guard Industries 20.94 7.02 100

Ratnamani Metals and
17. 19.74 41.51 67
Tubes
18. Voltamp Transformers 16.53 16.34 61
19. Triveni Engineering 257.88 10.00 35
20. NRB Bearings 96.83 9.99 33
21. Lovable Lingerie 9.48 5.64 26
22. Ahluwalia Contracts India 74.15 11.82 19
23. Cera Sanitaryware 2.16 1.71 16
Total Value Of Nalanda Capital’s Portfolio As Of 19.12.2013 5606.74
Mindtree is Nalanda Capital’s single largest investment. It bought a 2%

stake in February 2009 and has been steadily increasing its stake by buying
more in 2009 and 2012. The purchase price ranges from Rs. 212 to Rs. 400.
The confidence in Mindtree is justified because the stock has given a return
of 595% since 2009. The stock is still a great buy owing to its consistent
strong growth, strong deal pipeline, and reasonable valuations (P/E of 16.9
FY 13).
Page Industries was bought by Nalanda Capital in October 2008 at the

price of Rs. 450 per share. It was one of the first large investors in Page.
Page has been a rocket stock, giving a return of 1191% since October 2008.
It continues to be expensive (P/E 43) but continues to enjoy investor
confidence owing to its strong brands and high ROEs. Interestingly, Nalanda
Capital also bought a big stake in Lovable Lingerie in July 2013. However,
Lovable Lingerie has not given great returns so far.
Exide Industries is a stock where Nalanda has lost money since it starting
buying in March 2011. However, Nalanda has been buying steadily and
trying to average its purchase price. The stock has been pummeled because
it reported poor results. However, the stock appears to have bottomed out
and is ripe for an upmove now. This is a stock where the risk-reward ratio is
now in favour of a purchase.
Havells India was bought by Nalanda Capital in July-September 2011 at an

average price of about 350 per share. At that time Havells had been
pummeled because the Sylvania’s lighting business was not doing well.
However, Havell’s restructured its operations and the result is that the stock
price has nearly doubled at Rs. 752. Havells is still a good buy because it
reported strong results in Q2FY14 with strong operating performance and
high EBIDTA margins. Havells has guided for a revenue growth of 11-12%
and EBIDTA margins of 13-14% in domestic business. It reported a ROE of
32% in FY 2013 and is trading at a P/E of 24.
Berger Paints has been another multibagger for Nalanda Capital. It

increased its stake in Aug 2009 by a preferential issue at the price of about
Rs. 45. At the CMP of Rs. 224, Nalanda has gained a 419% appreciation on
its investment. Berger Paints India is the second largest paint company in
India (the first being Asian Paints). It has a consistent track record of growth
and well known brands. However, the stock is not cheap and is trading at a
P/E ratio of about 30x FY14E.
AIA Engineering was bought by Nalanda Capital in September-December

2011 at the price of about Rs. 310 per share. The stock has done quite well
with a 45% return. However, the good times are just starting for AIA
Engineering. It is a debt free company and is engaged in the manufacture of
high-chrome grinding media for which there is a great demand. AIA
Engineering plans to increase its high-chrome capacity by 60,000 tonnes in
FY14 and 1,80,000 tonnes in CY15, resulting in 120% capacity expansion by
FY15. There is a very good report on AIA by Jwalit Vyas in the Economic
Times.
Supreme Industries was bought by Nalanda Capital in April 2010 at the

price of about Rs. 98 (adjusted for split). Nalanda has been steadily
increasing its stake since then. The stock has given a return of 350% from
the first purchase. Supreme Industries is an evergreen stock that is
renowned for its steady growth. It is one of the fastest wealth creators for
equity investors as per Motilal Oswal’s Wealth Creator (2008-2013) study. It
is also amongst Motilal Oswal’s best midcap plays.
DB Corp, the publication house, was bought by Nalanda Capital in June

2012 at the price of about Rs. 200 per share. It increased its stake in
September 2012. The stock is a steady performer and has churned out a
return of about 35% since the first purchase. The stock has done quite well
in Q2FY 2014 due to the spate of advertisements by the political parties on
the eve of elections. By the end of Q3FY2014, DB Corp is expected to enter
Bihar by launching the Patna edition. Bihar’s advertising market size is about
Rs 400 crore. DB Corp’s valuations are quite reasonable at 17 times the TTM
EPS of Rs. 15.
Great Eastern Shipping was first bought by Nalanda Capital in July-

September 2012 and it has been steadily increasing its stake. Great Eastern
Shipping is suffering owing to the oversupply of tankers in the dry bulk
segment. There is also a slowdown in the global oil demand and freight rates
are soft. However, once the global economy improves, Great Eastern
Shipping can be expected to take off. Nalanda Capital probably bought the
stock because it wanted a stake in the logistics sector.
Vaibhav Global is a very interesting case. Though the stock has been on
fire with a 531% YOY return and a 2065% return in 2 years, Nalanda Capital
has not seen those gains because it invested in October 2007 at the price of
Rs. 170 to Rs. 230. After that the stock got into serious trouble and touched
a low of Rs. 11. Warburg Pincus, which had invested Rs. 245 crore in
Vaibhav Global sold its holding in March 2011 for Rs. 18 crore and suffered a
loss of 92%. However, Pulak Prasad and Nalanda Capital remained invested
and now have a 2 bagger to their credit.

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Pulak Chandan Prasad, the founder of Nalanda Capital Pte Ltd, is the man

(ii) Attractive industry: The industry structure, the conduct and

(iv) Risk-reward ratio must be in favour of the investment:

NALANDA CAPITAL’S SECRET FORMULA FOR FINDING WINNING STOCKS

- Diversify into different sectors to avoid risk;

- Prefer Mid-Cap and Small-Cap Stocks instead of Large-Cap stocks;

- Invest for the long-term. The minimum holding period is 5 years;

- Avoid Banks & Financial Stocks.

1. Mindtree 47.04 11.22 664.61

3. Exide Industries 460.74 5.42 528

4. Havells India 66.09 5.29 497

5. Berger Paints 181.24 5.23 406

6. AIA Engineering 79.19 8.40 377

7. Supreme Industries 81.77 6.44 361

8. DB Corp 129.94 7.09 348.24

9. Great Eastern Shipping 105.24 6.97 303.09

10. Carborundum Universal 212.02 11.3 301

11. Vaibhav Global 41.11 12.80 235

12. Triveni Turbine 346.96 10.52 179

13. Info Edge India 38.53 3.53 174

14. Kirloskar Oil Engines 108.96 7.53 167.80

15. Kewal Kiran Clothing 12.00 9.74 133

16. V-Guard Industries 20.94 7.02 100

18. Voltamp Transformers 16.53 16.34 61

19. Triveni Engineering 257.88 10.00 35

20. NRB Bearings 96.83 9.99 33

21. Lovable Lingerie 9.48 5.64 26

22. Ahluwalia Contracts India 74.15 11.82 19

23. Cera Sanitaryware 2.16 1.71 16

Total Value Of Nalanda Capital’s Portfolio As Of 19.12.2013 5606.74

Mindtree is Nalanda Capital’s single largest investment. It bought a 2%

Page Industries was bought by Nalanda Capital in October 2008 at the

Havells India was bought by Nalanda Capital in July-September 2011 at an

Berger Paints has been another multibagger for Nalanda Capital. It

AIA Engineering was bought by Nalanda Capital in September-December

Supreme Industries was bought by Nalanda Capital in April 2010 at the

DB Corp, the publication house, was bought by Nalanda Capital in June

Great Eastern Shipping was first bought by Nalanda Capital in July-

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