Rakesh Jhunjhunwala

Rakesh Jhunjhunwala – or RJ, is a name that every active Indianinvestor knows. Almost every Indian
business magazine, newspaper,web site and blog has discussed him. He is a value investor.
Heattempts to spot those stocks with good business fundamentals, scopefor growth, management
credibility, proven results and low risk. The India Streetpublished his portfolio “Rakesh
Jhunjhunwala Holdings” few weeks ago. One interesting point to note in his portfoliois that there is
not a single stock that belongs to the Sensex or Nifty. This clearly means that he doesn’t want a large
cap stock in hisportfolio (at least for the time being).

The Rakesh Jhunjhunwala Approach to Investing

His approach to stock picking is somewhat similar to Warren Buffet –buying an undervalued stock
when the crowd is least interested. Thisis one of the reasons RJ is known as the “Warren Buffet of
India”.For example, during the technology stocks boom in 2000, Rakesh Jhunjhunwala stayed away
from those stocks. Instead, he was buyingsome humble public sector stocks. Bharat Earth Movers
Limited(BEML), in which he holds 1.47% stake, had appreciated nearly 64times between January
2001 and April 2006. So, RJ had a vision andhis judgement was perfect in this case. The India Street
attempts to find 5 top stock picks which RJ might beinterested in investing. All the companies
discussed here belong to theBSE Midcap index. These companies had performed reasonably well
inthe stock market in the past; but of late, these are not the hotteststocks. But fundamentally the
stocks are good; we won’t be surprisedif these companies bounce back strongly.

Incidentally, these stocks have fallen more than 45% from their all timehighs. So, we can consider
these as ‘value’ stocks.

Traded names that pass the Rakesh Jhunjhunwala test:

Company / ScripIndustry EPS Stock Price*

Arvind Mills (BSE:

500101)

Textiles5.5452.20Cambridge Solutions (532616)BPO Services6.26113.45Engineers

India (532178)Engineering Services25.84456.95

GTL Limited

(500160) Telecom6.44237.95Orchid Chemicals andPharmaceuticalsChemicals/Pharma14.70216.85

*As of Sept 14, 2007

Arvind Mills Limited:

Arvind Mills belongs to the Lalbhai group and it is one of the populartextile stocks that the market is
not quite interested. The company’schairman Arvind N. Lalbhai has been associated with the
company forover 60 years. Arvind Mills produces fabrics such as denim, shirtings,khakhi, knitwear
etc. as well as garments including those for export. The denim manufacturing capacity alone is 110
million metre per year. The company has declared consistent net profits over the last 3financial
years at around Rs.120 crore. Its EPS stands at 5.54 and hasa book value of 62.87. The long term
debt equity ratio is 0.48. Theoperating profit margin is 17.42%.But the stock price has fallen to 48.05
last month, from a high of 142.30 in May 2005. In other words, it has already lost more than 66%in
value.One notable textile stock that has been on the uptrend since May 2005is S.Kumars Nationwide
Limited. But Arvind Mills is a neglected starthese days.

Cambridge Solutions Limited:

The company was formerly known as Scandent Solutions Limited. Ithas two divisions viz. IT
(banking, financial services and insurance) andBPO (nsurance and risk management, finance and
accounting,banking, mortgage and healthcare services). The services includesbusiness consulting,
application maintenance support and applicationimplementation service. Cambridge solutions is
headed by ChristopherA. Sinclair (Executive Chairman & CEO).In the last financial year it declared a
net profit of Rs.65.7 crores at anEPS of 6.26.

In the stock market though, it is an unwanted commodity. From 329.80in August 2005 it has fallen to
114.75 last month (more than 65%erosion in value).In contrast, the stock prices of NIIT Tech,
another company in the samesector, went up nearly 4 times between June 2005 and May 2007.

Engineers India Limited:

Engineers India Limited (EIL) provides engineering and relatedtechnical services for petroleum
refineries and other industrial projects.It also executes turnkey projects from concept to
commissioning.EIL’s activities are now diversified into oil and gas processing,petrochemicals,
fertilizers, power, metallurgy, offshore structures andplatforms, ports and terminals, airports,
highways and bridges andnon-conventional/renewable energy sources. EIL is headed by
MukeshRohatgi, Chairman & Managing Director. Government of India holds90% stake in this
company.In the last five financial years, the company has shown consistentincrease in net profits. In
2006 – 07 it declared a net profit of Rs.145crores at an EPS of 25.84. The operating profit margin was
26.70% as of March 2006. The stock’s highest ever monthly close was 858.85 in March 2006.Last
month, it closed at 450.35 (a loss of 48%). The stock looksinteresting at the current price levels.

GTL Limited:

GTL is a leading network services company, offering services andsolutions to address the entire
network life cycle requirements of telecom carriers and technology providers. GTL has executed
projectsin over 25 countries, has built over 35 cellular networks, installed andcommissioned over
20000 cell sites, connecting over 20 millionsubscribers and has set up over 500 corporate networks.
Manoj G Tirodkar is the Chairman and Managing Director of the company. The company declared a
net profit of Rs.67.4 crores for the periodbetween July 2006 – March 2007. The operating profit
margin was16.39% as of March 2007 and long term debt equity ratio was 0.51.Latest available EPS is
6.44 and book value is 106.40.

The stock’s highest ever close at NSE was 3310.85 on March 8, 2000.Last month it closed at 229.90
(a loss of 93% from highest close).
Orchid Chemicals and Pharmaceuticals Limited:

Orchid Chemicals is a globally recognized, integrated pharmaceuticalcompany with core

competencies in the development and manufactureof active pharmaceutical ingredients (APIs) and
finished dosage formsas well as in drug discovery. Orchid has two manufacturing sites forAPIs (at
Alathur near Chennai and at Aurangabad, near Mumbai) andthree manufacturing sites for dosage
forms (at Irungattukottai andAlathur in Chennai), besides two R&D centres (at Sholinganallur
andIrungattukottai).Orchid is headed by R Narayanan (Chairman) and K Raghavendra Rao(Managing
Director). The company’s net profits for 2006 – 07 was Rs.96.6 crores (at an EPSof 14.7), more than 3
times from 2003 – 04 (Rs.31 crores).On March 31, 2006 the stock closed at 371.35 while last month
itclosed at 203.85 (loss of 45%).

Conclusion:

All the five stocks discussed above have lost reasonably from theirhighest close values. They are
fundamentally good too. If Jhunjhunwala is currently not considering these stocks as investments,he
probably should. Regardless, we feel these stocks arefundamentally attractive for a long term
investment.