Kochi-based ace Investor Porinju Veliyath bet on loss-making Cimmco Ltd, an arm of Titagarh Wagons

KOCHI: Porinju Veliyath, the closely watched Kochi-based fund manager, is betting on loss-making Cimmco Ltd, an arm of Titagarh Wagons.

The apparent reason why maverick fund manager, a popular face on business channels, has picked up around 1% stake in Cimmco is because the wagon maker is foraying into tractor manufacturing.

The new venture is the maiden consumer-facing business of the group which was so far reliant on the Railways.

A pilot run of the models was recently completed and preparations are on for a limited commercial launch, Umesh Chowdhury, vice-chairman, Cimmco, told.

Porinju’s investment firm Equity Intelligence Group has bought 2.12 lakh shares of Cimmco Ltd last week, NSE’s bulk deal data shows.

The development is not lost on the savvy investors who closely follow Porinju’s investment moves much like Rakesh Jhunjhunwala’s, pushing up the stock which got locked at the 20% upper circuit at Rs 88.20 on Friday. Porinju had picked up the shares at an average price of Rs 69.95 a piece.

But what makes a savvy value investor like Porinju bet on little known Cimmco that had in 2015 eroded half of its net worth due to faltering wagon orders and continues to make losses?

Cimmco is now slowly turning into a consumer-facing company with a bold play in the tractor business.

“We have started making the tractors from Cimmco under the brand Titagarh on a modest scale. It’s beyond pilot testing now but not yet reached commercial production levels,” said Chowdhury.

Being executed by Titagarh Agrico, earlier a wholly-owned subsidiary of Titagarh Wagons which has now been merged with Cimmco, the project has started with an initial investment of Rs 150 crore and a 76-acre facility for manufacturing tractors at Cimmco’s 250-acre plant at Bharatpur in Rajasthan.

Cimmco would be producing tractors ranging from 12 horsepower (hp) to 90 hp, with plans to ship 50,000 tractors over 5 years from Bharatpur, which is close to the high tractor-selling states of the north like Punjab and Haryana.

To execute the project, the Chowdharys of Titagarh Wagons had earlier picked up the CEO of Sonalika Group, Pranab Ghosal, to head the division.

Ghosal, as executive director and CEO, was instrumental in creating brand Sonalika, helping it achieve robust growth in sales in India and raise private equity for the group from Blackstone.

Sudhir Kashyap, who had earlier worked with Mahindra & Mahindra, now heads product development at Cimmco’s tractor division.

While wagon orders are now being released by the Railways after several years of glut, volumes are still low and Chowdhury is hopeful of revival.

“Railways currently has 2.5 lakh wagons and carries 30% of freight traffic. It’s a stated objective of the government to take this share to 50%. So, straight away, this 2.5 lakh becomes close to 5 lakh. And, if gross domestic product grows at 7%, this translates into additional demand for wagons. Again, an average life of a wagon is 25 years, which would translate into a 4% growth. So, even if the share of Railways in freight traffic remains at 30%, there could be additional 11% yearly growth,” Cimmco head says.

Porinju is bullish on select infrastructure stocks such as J Kumar Infra, and Sunil Hitech. He said investors should keep railway stocks such as Texmaco and Titagarh Wagons on their watch list.

He continued to hold Talwalkars, as he sees no impact on the business from the recent economic developments. Investors can also look at smaller well-managed companies such as Saksoft, Datamatics, Bombay Burmah Trading Corporation, HSIL, TCI, Orient Cement with a long-term view.