The most reclusive investor

Last december, at an all-day jamboree in Matoshree Pearl, an apartment block in Matunga, central Mumbai, a resident—a fiftysomething, balding man—was seen handing out sticks of kulfi to everyone. Each year, the housing colony gets together to celebrate ‘Pearl Day’, which includes a fun fair and a sports competition for kids. Later that evening, at a cultural event held at the end of the celebrations, the same man bought a sack of gaily-wrapped gifts for the colony’s children. When asked to come on stage to distribute the gifts, he refused, till he was convinced that no photographs would be taken. When a Pearl resident took a few pictures, he asked for them to be deleted. That’s Shivanand Shankar Mankekar—one of India’s richest private investors, and the most reclusive.

The Pearl incident encapsulates what Mankekar stands for: a man willing to part with a lot, except his privacy. Pictures of him are at a premium and he declines meetings with reporters unless assured that everything is off the record and nobody will write about him. Yet, he is no enigma. He’s more than happy to share his knowledge—formerly a full-time professor at Mumbai’s Jamnalal Bajaj Institute of Management Studies (he’s an alumnus), he continues as visiting faculty, and holds a popular class on finance.

“He is not just media shy. He believes that media glare is the reason for failure,” explains a senior executive of a multinational, who says it is an “honour” to have studied under Mankekar. Huge falls, such as those of Harshad Mehta and Ketan Parekh, only underline Mankekar’s stance.

Yet he’s impossible to ignore. Along with wife Laxmi and son Kedar, the Mankekars have a portfolio worth nearly Rs 625 crore, second only to India’s richest private investor Rakesh Jhunjhunwala (portfolio size Rs 4,592 crore). The Mankekars invest only for themselves, and though their positions are in their own names, the trades are mostly executed through two vehicles they’ve set up—Om Kedar Investments and the Shivanand Shankar Mankekar HUF. An HUF, or Hindu Undivided Family, is a tax-planning legal entity that can be created by any Hindu family. Fortune India’s estimates of Mankekar’s holdings are based on totalling the individual and joint ownership of shares held between Shivanand, Laxmi, and Kedar; there could be much more bought through companies, trusts, and proprietary accounts, which are not in the public domain. Also, stakes less than 1% don’t show up in any public filing.

Kedar, in his mid-thirties, is as reclusive as his father, and his day job is also teaching. His capital markets course at Mumbai’s Prin. L.N. Welingkar Institute of Management Development & Research is hugely popular. He is also part of the visiting faculty at Jamnalal Bajaj. (Laxmi Mankekar’s role as an investor is unknown). There’s a whole lot of financial knowledge given away by father and son—and, perhaps, the secrets to making intelligent investments.

Two of Shivanand Mankekar’s students were Uday Kotak, who set up the Kotak Mahindra financial conglomerate, and ICICI Bank managing director, Chanda Kochhar. In an interview to Moneylife, a personal finance magazine, Kotak spoke of Mankekar’s first lecture. “He asked ‘How do you value a company?’ Someone said, “By net profit”, somebody else said, “By assets”. He said, ‘All wrong. You value a company on its cash flow.’” The underlying logic: A company with positive cash flows must be earning more than it spends.

Generations of Mankekar’s students testify to this obsession with cash flow. It’s also evident in his investments. For example, in March 2002, when Mankekar picked 7.13% of Geodesic, an IT products company, for Rs 9 lakh, its net cash flow from operating activities was poised to rise. From Rs 3.5 crore then, it rose to Rs 30.9 crore by March 2005 when, according to company filings, Mankekar held a 2.93% stake worth Rs 12.3 crore. Last reported, Mankekar held 2.05% as on June 2005. Geodesic’s net cash flow would fall 45% from March 2006.

The father-son duo interprets return on capital employed (RoCE) as an indicator of how the company is growing. And return on equity, relative to RoCE, is meant to check if the company is posting higher growth with lesser leverage. That is what differentiates outperformers, says Ammeet Sabarwal, chief executive of Dickenson Seagull, a Mumbai-based investor relation firm. “We were taught to look at the sufficiency of a company’s cash flow from a scalability viewpoint,” says Sabarwal, who studied under Kedar Mankekar. “That’s how they caught companies early in their investment cycles,” he adds. According to him, Kedar Mankekar always wanted to find out if the balance sheet was scalable from a 10-year horizon and if the cash flow was sufficient for such a scaleup.

To understand how the Mankekars operate, I spoke to the companies they’ve invested in, other investors, and their students. The problem, however, was that most of them were unwilling to go on record, since they knew how the Mankekars valued their privacy. After much persuasion, I met Kedar. It was All Fool’s Day and we drove around parts of central Mumbai in his Wagon R. But once he figured out that I was reporting for a story, and had no plans of dropping it, the meeting ended. All through, he was very polite.

Shivanand Mankekar’s early bets were on L&T, Castrol, and Sesa Goa, and later, Infosys, Wipro, and Bharti Airtel. His students say he often talks about how he bought stakes in companies he thought were undervalued during their primary issues in the ’80s. At the time, the Controller of Capital Issues (CCI) enforced a complex mechanism that determined how firms priced their IPOs, rather than the current, market sentiment-based pricing. Discussing investment strategies with students isn’t uncommon, and many of them know parts of his portfolio. One of them says they all knew he had exited Infosys before the tech meltdown of the early 2000s. (From an average share price of Rs 9,835 in 2000, the Indian IT giant Infosys lost Rs 5,050 a share in 2001. This, after a spectacular rise from an average Rs 1,293 in 1997 to Rs 7,632 in 1999). What they often speculated was whether Mankekar had anticipated the meltdown, or was just plain lucky.

The Mankekars’ close relationship with their students works principally in two ways. One, the students double as a sort of research team, helping analyse companies. Two, once they graduate, they become a valuable network for the Mankekars to tap.

While Shivanand Mankekar was clearly a gifted investor, his legend grew in the last decade because of a series of bets. At a time when investors are pursuing the once-in-a-lifetime 10-bagger (stocks whose value appreciates 10 times the purchase price), Mankekar has pulled off a 13-bagger in his characteristic low-key style. In 2010, he paid close to Rs 30 crore for 1% of pharma major Wockhardt. Run by Habil Khorakiwala, it was in trouble at the time over unaccounted derivatives deals and its corporate debt restructuring process. Mankekar bet on Wockhardt when its stock was close to its 52-week low. It was a huge risk, as the company was in a legal battle with some of its investors who had filed a winding up petition (‘The Inside Story of a Recovery’, Fortune India, January 2013). Today, the Mankekars’ stake in Wockhardt is worth Rs 357 crore—a 13-fold increase.

Wockhardt wasn’t Mankekar’s first multi-bagger. In 2004, he invested in Financial Technologies, a financial products firm, promoted by entrepreneur Jignesh Shah. It went on to be the backbone of the Multi Commodity Exchange, of which Shah is non-executive vice chairman. When Financial Technologies first reported Mankekar’s 1%-plus shareholding, it was valued at Rs 3.2 crore. Two years later, he owned 1.6%, valued at Rs 123 crore. The similarities in the two deals? He bet on people (Khorakiwala and Shah) and products: Wockhardt’s bet on generic drug metoprolol succinate, and Financial Technologies’ multi-exchange, multi-segment software Odin for capital markets.

Mankekar is also seen as one of the first long-term investors who spotted the retail opportunity in India. He picked up 2.19% in Pantaloon Retail, the company behind the Big Bazaar chain of supermarkets, in June 2002 for around Rs 30 lakh, and stayed invested till June 2008. But while he may have witnessed the rise of retail, he didn’t quite spot its fall. On Dec. 31, 2007, his 1.52% stake in Pantaloon was worth Rs 190 crore. When he sold out barely two quarters later, the value of his 1.07% holding was worth Rs 60 crore.

Then there are bets that have gone horribly wrong. In 2010, Mankekar bought Chennai-based Orchid Chemicals, despite knowing that it had a troubled history. Orchid’s promoter was known to pledge shares to raise capital. In 2008, the company suffered a huge setback when Bear Stearns, in a fire sale, dumped 650,000 shares of Orchid. Mankekar trusted that the management was strong enough to weather such troubles, but soon realised that his trust was misplaced when the promoters defaulted on foreign currency convertible bond payments. He did not stay invested even for a year and cut his losses early. “If he makes a mistake, he would suffer a loss rather than question the management,” explains Nirmal Jain, founder and chairman, India Infoline, another outfit where Mankekar was invested between June 2006 and December 2011.

Unlike Rakesh Jhunjhunwala, who often takes a board position in a company he has invested in, the Mankekars stay hands off. Indeed, before buying into one, they don’t even talk to the management. So, Mankekar senior never bothered meeting Khorakiwala prior to putting money in Wockhardt; he only met a few former employees. One of them says he asked only broad questions. “He asked things like ‘What are the two big problems with Wockhardt?’ and ‘Is the problem one of strategy, or operations?’ and little else.”

Ditto for Pantaloon Retail. In the early 2000s when Pantaloons founder Kishore Biyani was just about changing India’s retail landscape, Mankekar became a regular at the Big Bazaar outlet in Dadar, not too far from where he stayed then. In his book It Happens In India, Biyani writes of how the Mankekars visited the outlet for four consecutive days to observe people’s reactions to retailing. He quotes Mankekar as saying: “We didn’t do any of the typical things expected from finance professors, i.e., analyse the balance sheet or meet the management. The simple reason for this was that the Big Bazaar outlet spoke much more. It screamed out that there was a guy who really understood retailing the Indian way.”

The Mankekars like being in touch with the company management after taking a position, but remain non-intrusive. Biyani recalls the long, slow walks he took with Mankekar around Shivaji Park, discussing the business among many other things. Though the frequency of interaction has reduced considerably, Biyani still counts Mankekar as one of his trusted advisors.

If Mankekar is not walking around Shivaji Park with his business associates, he meets them at a nearby Barista coffee shop, where he and his son are regulars. Predictably, nobody in the shop will talk of them; when I persist, I am told that it’s the policy across the chain not to talk about customers and respect their privacy.

In April 2012, Mankekar and his wife picked up 4.9% of MT Educare for around Rs 17 crore. The investment triggered excited comment in the virtual world across several investor forums that track ‘Professor’ (could be either Mankekar, depending on the forum) and ‘RJ’ (Jhunjunwala). Since education is a field that’s closely associated with the Mankekars, there was speculation over whether they would interfere with the management of the company.

Mahesh Shetty, chairman and managing director, MT Educare, admits he was worried about this when Mankekar first expressed a desire to meet. But Mankekar assured him that he was a long-term investor, who was not really fussed about falling profits in the short run.

Chhaya Shastri, a director at MT Educare, and the person responsible for meeting investors, adds that “Mankekar sir” does not behave like a typical Indian high net worth investor. “Rather, he’s like a dispassionate foreign institutional investor. He knows what he is doing and where the business is going.” She recalls that at one of the long meetings with Mankekar at the Shivaji Park Barista, he told her the business would be in good shape if revenue grew at 25% to 35% annually. The only time he commented on the business was when Shastri specifically asked him for advice on pricing digital content. “He questioned the idea of pricing online content, when content was free all over the world,” says Shastri. The management took Mankekar’s views seriously, and Shastri says the content was priced significantly lower than they had planned, though she refuses to say what the difference was. Till December last year, the stock had risen 40%, though it has fallen 28% since.

There are some in Mumbai who say it is Mankekar’s credentials as an academic and a conservative Maharashtrian that sometimes opens the doors of Maharashtrian entrepreneurs. Take the Talwalkar family, which has been in the fitness business since the early ’30s, but was a closely-held company till 2007. The Talwalkars live in Shivaji Park, and have known Mankekar for long. In fact, the professor introduced the fitness family to the world of high finance, and even bought 10% of the company (Talwalkars Better Value Fitness) in 2006 before it went public. The investment showed that Mankekar was willing to extend his bets beyond listed companies.

Similarly, Mankekar bought 6.6% in Brainworks Learning Systems, a company in the preschool business. Kangaroo Kids Education, an educational chain promoted by teacher-turned-entrepreneur Lina Ashar, and Better Value Brands (a Talwalkars Better Value group company) owned 40% each in Brainworks, while 13.4% was held by India Infoline as of March 2010. (Mumbai-based Tree House Education & Accessories recently signed a term sheet to purchase 100% equity share capital of Brainworks. The transaction will be closed after the conclusion of due diligence, Tree House informed stock exchanges on March 4.)

Perhaps the best description of the Mankekars comes from their neighbour Bharatkumar Raut, a member of the Rajya Sabha, representing the Shiv Sena. Raut and his wife Neena talk about the Pearl incident when Mankekar had to be persuaded to get on stage to hand out gifts. It’s not that Mankekar is unsocial, they are quick to add. “He believes that neighbours should know each other well and meet regularly,” says Raut. In fact, adds Neena Raut, when they moved into their flat two years ago, the Mankekars were among their first visitors and gifted them an idol of Lakshmi, the goddess of wealth.

But what gets the Rauts emotional is when they talk of January last year, when Bharatkumar was seriously injured in an accident when travelling from Mumbai to Pune. The family set off to Pune as soon as they heard of the accident without informing anyone in the apartment block. Mankekar and a few others saw the news on television, and rushed to Pune, where Mankekar insisted on giving Neena cash to take care of expenses. “It touched my heart,” says Bharatkumar, who made a slow recovery from the accident. “We are fortunate to have noble neighbours like the Mankekars, but honestly, I don’t know what they do.”