This low-profile, Pune-based investor has created waves on the Street with his investing prowess
Look! Up in the sky! It’s a bird! It’s a plane! It’s… Anyone who’s spent even a fraction of his childhood poring over comic books will instantly recall this iconic sentence, which refers to the most popular superhero of all times. Pardon the hyperbole, but something similar is being mouthed on the Street and this time the ellipsis ends with… it’s Bhavook Tripathi!
For regulars on the Street, the big names in investing have always been that of Rakesh Jhunjhunwala, Radhakishan Damani, Nemish Shah and Shivanand Mankekar. But, of late, what has caught the market’s eye is Bhavook Tripathi and his obsession with a mid-cap IT stock called R Systems International. Investing blogs are abuzz with talk of a battle royale brewing between the promoters led by Satinder Singh Rekhi, on one side and Tripathi on the other. Fanning the flames is the fact that Tripathi is still little known in investing circles. Blogger Ketan Damani writes, “We have never seen Tripathi but we can imagine what he must look like. Dark complexioned, about middle-age, slightly overweight. Fond of paan, gutka and maybe even the occasional tipple. An expressionless face but with sparkling eyes. Soft-spoken. Quiet and reserved. Keeps to himself. If you brush past him on the street, you wouldn’t give him a second glance.” While you can take a look at the photo on your right and see if Damani’s word-image was accurate, read on to know more about the Indiana Jones of D-Street.
About the man
To begin with, Bhavook Tripathi is just 40 years old and arguably the youngest investor to make it to the billionaire club. That’s not all he does, though: Tripathi also runs a Rs.120-crore auto component manufacturing unit, Sanshu Industries, which supplies sprocket assemblies and clutch items to two-wheeler major Bajaj Auto. Sitting in his plush office, Tripathi, who has a nine-year old daughter, recounts his early days when his parents who hail from Uttar Pradesh migrated to Punjab. It was an interesting childhood since his parents shared a strong bond with a Sikh family.
“Till I was six, I wore a turban and was called Kashmira Singh. My mother had originally named me Vibudh, but the extended family and locals ended up pronouncing it as Bebudh (one without brains), so she changed my name to Bhavook,” chuckles Tripathi. His father had a job with Escorts, and in the 1980s, the family moved to Bangalore. It was here that Tripathi finished his schooling before heading to Banaras Hindu University to pursue metallurgical engineering. “My IIT rank wasn’t good enough,” admits Tripathi, whose father, Chandrakant, incidentally, is an engineer from IIT-Kharagpur.
Tryst with markets
Unlike his peers in school who would bury their heads in novels and comics, Tripathi preferred spending time with a newspaper, especially the financial dailies. But the habit didn’t last for long as the youngster drew a blank when his father asked him whether he understood what was written and could make money from it. “In hindsight I realised my dad’s question had more to do with the opportunity cost of reading a pink paper given the shoestring budget on which we ran our household,” explains Tripathi. It wasn’t till college that he got his feet wet in the investing game. Borrowing Rs.50,000 from his father, the young engineer-in-making bought a clutch of stocks, including Dr Reddy’s Laboratories, Hero Honda, Gujarat Ambuja Cement, Mahavir Spinning and Madura Coats. “For me it was all about companies that were growing and in an attractive business,” he says.
Poring over company reports became commonplace. “If you read the annual reports of Gujarat Ambuja, the company would consistently talk about how it was innovating. The report would have facts such as: how it set up its plant in record time at the lowest cost or the energy levels required to run these plants,” elaborates Tripathi. Ambuja was not the only one; there were several other bluechips that fascinated the young investor. Hero Honda, for instance, was the only listed company making motorbikes at the time, which quickly caught the fancy of novice buyers. Dr Reddy’s, meanwhile, was making hay with its copycat pharma products. What was common to all these companies was that they were all focused players in exciting businesses — an essential requirement if you are investing for the long-haul.
Those were also the days when even rudimentary research often yielded good results. Recalls Tripathi, “A relative comparison of a company’s return on equity with risk-free return was, at most times, adequate to determine the prudence of an investment.” In 1992, at the peak of the rally, Tripathi urged his father to sell their holdings because they had become multi-baggers within a year or so. But his father chose to stick to advise sought from friends who thought it would keep rising. The subsequent crash proved that his son’s fears were right, and the lessons learnt from that incident have stayed with Tripathi ever since. One, that staying away from the mania helps you arrive at an objective decision. And two, that if you buy quality stocks they will go up along with the market but when they fall, it won’t be as precipitous. The bigger learning, though, was still to come.
Learning curve
Engineering degree in hand, Tripathi moved to the US to pursue a course in finance at the University of Wyoming. “I was slated to do a PhD in economics but I found that too theoretical,” he says. Tripathi returned to India in 1994 after a stint with a boutique investment bank in San Francisco and started looking for the right opportunities here. Both father and son had nurtured a common dream of having their own manufacturing unit. That wish came true after Tripathi’s father started working at Bajaj Auto. In 1999, the duo set up Sanshu Industries to supply pressure dye casting and aluminium machinery for the company. It was around this time that Tripathi looked at setting up a bearings manufacturing unit, but soon realised that it would cost anywhere upwards of Rs.100 crore. “Further, working capital and brand building to compete with established brands would require additional money. The math worked out to Rs.250-300 crore,” he recalls.
That’s when he chanced upon FAG Bearings, whose market cap was just Rs.35 crore. The groundwork done for bearings came in handy as he bought into the stock, which was then quoting at Rs.20. “When I was buying FAG, many people told me to buy IT stocks such as Wipro, Infosys and DSQ, which were on a roll. But I was confident about FAG even though the stock was dead for four years,” says Tripathi, who cumulatively bought in excess of 6 lakh shares and sold the bulk of it in 2006. That was his first big jackpot, fetching him over Rs.10 crore from a single stock sale. Elaborating on his approach, Tripathi says, “I like to time my purchase when a stock is out of favour. I have grown on minimal capital, so I have to play it safe.” He had estimated that the fair value of FAG was Rs.500, and once the stock hit that target, he started selling all that he had bought dispassionately.
While FAG remained his favourite till 2006, Tripathi also bought into stocks such as Neyveli Lignite, Hindalco and Karnataka Bank. Between September 2001 and March 2003, when the market was in a lull, he picked up stocks at throwaway prices. “The market cap of Hindalco was below the replacement value of just one of its power plants. It was dirt cheap.”
Of all the bets he placed during that time, one stock that would make other investors sit up and take notice was Solvay Pharma. As Tripathi was winding down his holdings in FAG, he was tanking up on Solvay. The bulk of his buying was around Rs.400-500 levels and when Solvay announced a deal in 2009 to sell its pharma division worldwide after four to five years, Tripathi bought even more aggressively as the prices zoomed past Rs.3,000. “As the global deal took a long time to consummate, Tripathi had the perfect hunting ground,” says Ankur Jain, who tracks special situations at the Gurgaon-based Tactica Capital. Other investors, too, piggybacked the rally and made a killing on the stock. After making his pile of cash at the counter, Tripathi exited the stock entirely in 2010 — this time not because of the price. Abbott had decided to merge Solvay with itself. “The Abbott management was too opaque for comfort,” he says.
Tripathi is immodest about his success with Solvay. “If you look at the valuation at which the Piramals sold their domestic formulations business, Solvay should have probably sold at Rs.5,000 a share,” he explains. Being a hardcore value seeker, Tripathi is less appreciative of the fact that in stock markets everything has its time and the Solvay deal was done in 2009, just a year before it bought Piramals formulation business for $3.7 billion.
Battle royale
In 2007, Tripathi entered R Systems International for the first time. Founded by Satinder Singh Rekhi in 1993, the IT company received investments from Intel Capital and GE Capital in 2001 and 2002 and grew through a string of acquisitions. In 2006, it went public at Rs.250 a share. The stock hit an all-time high of Rs.325 in May 2006 but hit a low of Rs.40 in the market crash of 2008. The Satyam scam in early 2009 further impacted sentiment in mid-cap IT stocks. It was just the opportunity Tripathi was waiting for. “They had real estate and cash on their hands. But more importantly R Systems is like a kitchen for technology firms,” he explains. R Systems has 13 development and technical support centres and generates 82% of its revenues from the US and Europe.
Initially, Tripathi built a 4% stake but exited the stock by September 2009 and subsequently re-entered in late 2010. Incidentally, when the new takeover rules were announced, in just one quarter (December 2011), Tripathi ramped up his stake beyond the takeover limit of 25%. And as mandated by the law, announced an open offer at Rs.122, (further revised to Rs.150.05) to buy an additional 26% stake. This is where the market sensed a hostile build-up.
However, Tripathi dismisses fears of an aggressive takeover. “I am just an investor who believes the company will do exceedingly well going forward,” he says, declining to comment further on the issue since the open offer is not yet complete. Analysts such as Tactica’s Jain believe that Tripathi could be waiting for an M&A deal to come along. Jain believes, “It is possible that the liquidation value of the company is much more than the price Tripathi has paid.” Meanwhile, with everyone piling on to the stock (including the promoters, who continue to buy even after their stake has crossed 50%), R Systems’ share price has surged past the open offer of Rs.150 a share and is now quoting around Rs.170.
Interestingly, the case has created a piquant situation for the regulator. The management has claimed that Tripathi’s move of buying an additional 7% from the secondary market before the expiry of the open offer period, violated takeover norms. However, in an informal guidance to R Systems, Sebi clarified that Tripathi can increase his stake in the company beyond 25% through open market purchases, as he has already made the mandatory 26% open offer to minority shareholders.
Legal experts believe that Sebi’s advice is in consonance with the takeover code since, typically, in the case of market purchase, an acquirer buys shares from the open market without entering into any private arrangement with any shareholder. The market regulator, however, has asked Tripathi to deposit 100% of the money required to complete the open offer in an escrow account. Tripathi has appealed against the regulator’s conditional approval with the Securities Appellate Tribunal. The tribunal, on its part, has directed the regulator to take into account the acquirer’s views before issuing final observations in the matter.
Currently, the promoters are sitting pretty with a 51% stake but are anxious about Tripathi’s presence. Here, too, time is of the essence. “The promoters can seek to transfer the cash and other assets of the company by way of a loan or some other agreement, thus reducing the value of R Systems,” points out Tactica’s Jain. “It will be interesting to watch if Tripathi cements his reputation of a clever strategist or like Abhimanyu in The Mahabharata, finds it difficult to get out.”
But Tripathi is not perturbed. “My confidence may be misplaced but only time will tell. When I was buying FAG no one had any hopes from it. In fact, I want more and more people to be sceptical about R Systems.” Currently, his stake in R Systems is worth Rs.71 crore and he will need to shell out at least another Rs.51 crore for mopping up an additional 26% stake in the company. It is not clear whether he is playing for keeps, but it sure is the biggest wager of his lifetime.