Bulking up battered stocks (facing allegations of scam) appears to be the new fad for large institutional investors and now even private equity firms. The latest to join the bandwagon is Nalanda Capital, the $400-million fund headed by former Warburg Pincus India MD Pulak Prasad. Nalanda India Fund has acquired 1.4% stake in Ahluwalia Contracts (India) Ltd for Rs 12.3 crore ($2.7 million) on Friday.
This is the first real estate cum construction sector exposure by the fund that has been one of the most active PE investors picking small minority stakes in Indian listed companies over the last three years.
The investment comes at a time when Ahluwalia Contracts’ scrip has crashed by almost half since hitting a 52 week high in April this year and hit a yearly low during intra day trade on Friday. The firm is alleged to be embroiled in some irregularities related to payments for a construction work for the Commonwealth Games village that itself was the epicentre of multiple scams.
The stock pick by Nalanda Capital also appears to have boosted other investors’ interest in the scrip that buoyed the stock 3.45% on Friday to close at Rs 156 against the PE firm’s transaction price of Rs 135 per share.
This comes after a similar transaction where CLSA (Mauritius) Limited purchased shares worth Rs 440 crore ($100 million) in LIC Housing Finance Ltd, a company that is the epicentre of a separate corporate bribery scandal. This came even as UBS downgraded LIC Housing Finance from neutral to sell.
Nalanda Capital had recently increased its holding in power transformer maker Voltamp Transformers Ltd through market purchase of shares since mid-October for Rs 26 crore ($5.8 million). The Singapore-based firm that invests in listed Indian companies took an exposure in the firm between April-June quarter and held 1.6% stake as of June 30, but has continued buying since then. With the latest deal Nalanda India Fund has upped its holding by 2.8% to 8.75%, as per a disclosure.
This comes soon after Nalanda increased its holding in mid-sized IT services firm MindTree by 1.7% to 8.4% through open market transactions, taking its total exposure in the company to over Rs 157 crore ($35 million).
The firm that also has investments in companies such as Berger Paints, Carborundum Universal, Kewal Kiran Clothing Ltd, Kirloskar Oil Engines, Mastek, Page Industries, Vaibhav Gems, Triveni Engineering and WNS had early this year exited Chennai-based broadcaster Sun TV Network Ltd with 2.5x returns on its 14-month-old investment in Kalanithi Maran-owned Sun TV. It also part exited its investment with a multibagger from Kirloskar Oil Engines with an estimated return of around 4x in less than two years.
During the economic downturn that saw stocks of Indian listed companies crash suddenly without any significant change in fundamentals, Nalanda picked up stakes in over half a dozen listed companies and is sitting on neat returns and appears to be banking on a similar turn of events with its latest investment.