In today’s newsletter, we will have a look into the investment philosophy of Dolly Khanna, the low-profiled, Chennai-based investor. Although the portfolio is owned by Dolly Khanna, it is managed by her husband, Rajiv Khanna. We will first look at the background of the Khanna’s and then understand their approach to investment.

A background on Rajeev Khanna

Rajiv Khanna is a Chennai-based businessman and investor. He and his and family maintain a low profile when it comes to media and interviews. Rajiv Khanna founded the popular Ice cream brand Kwality walls in 1980, which he grew successfully in Chennai and later expanded in other parts of Tamil Nadu. In 1995, he sold his company to the FMCG giant Hindustan Unilever Limited (HUL) for a valuation of 1.5 times the sales. He later founded another company known as Kwality milk foods and is still part of the company as Managing Director.

After selling his first venture to HUL in 1995, Mr. Khanna decided to enter the world of the stock market as an investor with the capital he had acquired after the sales. He stumbled upon the stock market when he heard about his neighbor’s son working at a company called Satyam, whose stock were experiencing a boom before the Dot com bubble of 2001-2002. Although the bubble busted, he managed to exit with a profit, after which he took a step back but would enter again later.

Investment Philosophy

Although Mr. Khanna does not have a background in finance, he possesses experience in managing and expanding a business. This practical exposure proved invaluable when he ventured into investing. His investment strategy closely aligns with the philosophy of American fund manager Peter Lynch, who advocates for investing in companies whose products or services are regularly used by the investor.

This principle guided Mr. Khanna’s investment in Unitech, a real estate company. He became acquainted with the company while utilizing its services during his relocation to Delhi. In 2003, he invested ₹5 lakh in Unitech, and within three to four years, during the real estate boom of 2008–09, this investment grew to ₹25 crore.

Small companies: Mr. Khanna’s investment philosophy is built on several key principles, one of which is a strong focus on small companies. He recognizes both the risks and potential associated with such businesses. A key advantage of investing in small companies lies in their ability to grow rapidly and adapt to industry changes with agility and efficiency. This emphasis on small-cap investments is a common theme among many successful investors. In Mr. Khanna’s case, he likes to invest in companies from small-cap and mid-cap group.

Growth in fundamentals: Rajiv Khanna can be characterized as a growth investor. A consistent trait across his past and present holdings is their ability to achieve double-digit growth in both sales and profits. Additionally, the companies he invests in typically maintain an interest coverage ratio of less than 4 and a return on capital employed (ROCE) exceeding 15%. Furthermore, these companies sustain this level of performance for years.

Preference of sectors: Mr. Khanna seems to be interested in companies form specific sectors like Textiles, Chemical, Rubber, Manufacturing, and Automotive among other sectors, companies whose products and services that are usually seen and used in daily lives. He also shy’s away from banking and financial services companies or government owned companies.

Knowing when to exit: Mr. Khanna appears to have mastered the art of timing his exits from stocks. Notably, he exited Unitech just before the Global Financial Crisis (GFC) of 2008 and Satyam ahead of the Dot-Com bubble burst. However, beyond his well-timed exits, there is a lesser-known criterion he employs—he relies on the 30-day Exponential Moving Average (EMA) to detect early signs of trouble. He uses this indicator as a cautionary tool, helping him anticipate potential downturns. Additionally, he exits a company when its performance begins to decline or when there is an over-allocation of funds, ensuring that his investments remain strategically balanced.

Final thoughts

Rajiv Khanna has mastered the art of identifying companies with promising products and acquiring them at attractive valuations. His valuation approach is firmly rooted in fundamental analysis and follows a "buying a business" mindset rather than merely trading stocks.

For instance, when evaluating Unitech, he observed that the company's valuation at the time was approximately ₹100 crore, with major foreign banks holding a stake of 5% or more. Additionally, the company’s quality of service met his expectations, reinforcing his investment decision. Over the years, several of his investments have turned into multibaggers, including Fem Care and Nutralite.

As of the writing of this newsletter, Rajiv Khanna’s portfolio is estimated to be valued between ₹3,800 crore and ₹4,000 crore.

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This newsletter has been written using data available in the public domain, including research articles, podcasts, and interviews of Mr. Rajiv Khanna. While we have made every effort to ensure accuracy and minimize errors, we do not claim absolute correctness of the information provided. This newsletter has been published with due diligence to ensure the material is error-free to the best of our ability