Brothers in arms: Abhishek (behind) and Chaitanya at their modest headquarters in Delhi's Connaught Place

In the middle of March this year, some banking sector stock watchers woke up with a start. The shares of Indian Overseas Bank had been steadily climbing and trading volumes had jumped to 35 lakh shares a day compared to as little as a couple of lakh in late November to early December. The stock price, which had been sub-20s early last year, had touched Rs 55 and yet there was no sign of it slowing down. What had set the counter on fire? As the stockmarket soon discovered, it was a wiry 35-year-old man called Abhishek Dalmia, who had acquired 30 lakh shares (or 0.5 per cent of the equity) over six months without-incredibly for a stockmarket-anybody getting an inkling of his identity. Today, the stock that the Delhi-based Dalmia acquired for an average price of Rs 30 is hovering close to Rs 60.

A Big Bull for the new millennium? Hardly. The CEO of Renaissance Group, a five-year-old investment firm, likes to think of himself as India's Warren Buffett, a value investor and a man he near hero worships. For that reason too, the chartered accountant-turned-investor keeps a Buffett encyclopaedia (Of Permanent Value: The Story of Warren Buffett by American journalist-turned-investor Andrew Kilpatrick) handy on his desk in his spartan office at New Delhi's central business district of Connaught Place. "This is the book I always pick up for reference," says Dalmia, who has already reserved tickets for Buffett's annual shareholders meeting in Omaha on May 1, by virtue of owning seven shares (through a family trust) in the Oracle of Omaha's Berkshire Hathaway.

Unlike the 73-year-old Buffett, Dalmia, who sports a tuft of hair for religious reasons, doesn't run a $100-billion investment colossus. He operates on a vastly smaller scale with Rs 200 crore as his war chest, but what makes him stand out from among the thousands of brokers and investment managers is his keen eye for under-valued stocks. His 25-stock portfolio has compounded at 20 per cent annually over the last five years, multiplying 2.5 times in value. No mean feat, given that the stockmarket has been through at least two big crashes in that period. Says Amit Goel, co-founder of Delhi-based stock broking firm Pace Financial Services: "They are eagle-eyed investors. They have a knack for picking the hidden gems and unlocking their value."

But just who is Abhishek Dalmia, where does he come from, and why do managements feel threatened when he trains his sight on them?

Bargain Hunters

Dalmia and his 29-year-old brother Chaitanya, who is in charge of equity investments and manages the 25-stock portfolio, are the scions of the Ajay Hari Dalmia group, which at one time was part of Orissa Cement and Dalmia Cement. In 1999, the brothers started off with Rs 56 crore in corpus, but no business. The money had come their way after the family sold its 16 lakh shares in Bajaj Auto given to them in exchange for exiting Orissa Cements after the families split (the Bajajs and Dalmias are related and had cross-holdings). That corpus has now grown to Rs 200 crore, of which 60 per cent is still sitting in cash, meaning only Rs 80 crore has been invested.

Delhi boys, the brothers (specifically Abhishek) first hit the headlines when they made a hostile bid in October 2000 for Gesco Corporation, a real estate company owned by the Mahindras and the Sheths of Great Eastern Shipping. What attracted the young men to Gesco was its valuation: back then, Gesco was quoting at half its book value of Rs 50. "Given our age, we decided to go for a hostile takeover," recalls the older Dalmia. "We had the cash, and the regulatory environment was conducive." With the Mahindras and Sheths upping the ante, a bidding war ensued, and when Gesco's promoters-counselled by hdfc's Deepak Parekh-offered to buy out Dalmia's 10.5 per cent holding at Rs 54 a pop, the young raiders readily agreed. In the process, the duo made a profit of Rs 18 a share, or Rs 5.6 crore in total. "We decided to get out when the valuation reached beyond lucrative levels," says Dalmia, who lives on Delhi's tony Prithviraj Road with his brother and parents and counts Deputy Prime Minister L.K. Advani among his neighbours.

Having tasted blood, value hunting became the central philosophy of their investment mantra. Today, the brothers follow a twin strategy of investing in undervalued companies and acquiring profitable and well-run companies. Investments-at least Rs 1 crore apiece and made through a network of brokers including Kotak Securities, JM Morgan Stanley, DSP Merrill Lynch, among others-are held on to for at least three years or until when the stock attains its "fair value", meaning a return of anything above 50 per cent.

Gesco Dit It: It took the combined might of Ghanshyam Sheth, Deepak Parekh and Anand Mahindra to stave off the Dalmias

Over the past four years, the brothers have built up positions in more than two dozen companies, with investments ranging from Rs 25 lakh to Rs 6 crore. Some of the stocks that have caught their fancy of late include LIC Housing Finance, Karur Vysya Bank, and Lakshmi Vilas Bank. In each of them, they hold between 0.5 per cent and 2 per cent (See The Five Biggest Positions). Just last fortnight, the brothers nabbed a lakh of shares of Tata Investment Corporation at Rs 170 apiece. Why? Their rationale: The stock is a low-risk, high-dividend play, besides which the company owns shares in a gaggle of Tata companies, including Tata Steel and Tata Motors. Explains Chaitanya, who his brother says would have been a chess champ had he not turned to equity investment: "Although these shares are unlikely to be sold, they provide a stable income stream to the company."

Another thing that the brothers like to do in the stock they pick is to catch them early. Take for example Unitech, a Delhi-based realtor, whose shares the Dalmias have been accumulating over the past few months. So far they have mopped up 2 per cent, but the going is getting tougher because the stock is thinly traded. What's hot about Unitech? According to the brothers, the stock price only reflects the value of a single property, the Radisson Hotel near Delhi's international airport, but not the 27 subsidiaries and JVS that started forming a part of Unitech's consolidated accounts two years ago. Moreover the company, points out the younger Dalmia, has an order book worth nearly Rs 2,000 crore that should be completed over the next two to three years.

Stocks Are Good; Companies, Better

The Gesco episode taught the Dalmias an invaluable lesson in investing: That hostile bids aren't always the best way of acquiring a company, and keeping one's eyes peeled may, in fact, be a better strategy. Like it happened in the case of Revathi Equipment, a Coimbatore-based mining equipment company. In April 2001, the Dalmias got wind of the fact that Swiss multinational Atlas Copco wanted to sell its 40 per cent stake in Revathi as part of its global restructuring. The brothers struck a deal with Atlas to buy its stake, and picked up another 20 per cent via an open offer. Once again, it's proved to be a great bargain. In 2003-04, Revathi is expected to clock Rs 50 crore in revenues and Rs 10 crore in profits. "One of the main criteria (the brothers) look for is cash generation at a company," points out Ashish Chugh, a research analyst with personal finance portal Valuenotes.com.

If Dalmia has learnt something from his idol Buffett, it is to let good managements be. In Revathi, Chairman Dalmia only looks at strategic issues, while the day-to-day operations are left to the management team that came with the company. "We have linked the management compensation to how much shareholder value they create, which is a combination of the EVA (economic value added), rate of growth in profits, and the return on equity," says Dalmia.

Buoyed by his success with Revathi, Dalmia has been scouting for more such deals (Rs 50-100 crore in revenues, growing profits, low technological obsolescence, and good management), but with little luck. In the last two years, the brothers have come close to acquiring at least four companies, but hit last-mile road blocks. For instance, a contract pharma research company based in Mangalore walked out of the deal at the last moment over pricing. Similarly, the promoter of a Faridabad-based auto ignition company had a change of heart when the sector started looking up on Dalal Street.

However, the duo is hardly the one to lose heart. At the moment, they have trained their sights on a listed, mid-sized beverages company, where they are collaborating with non-promoter shareholders to attempt a takeover. "We prefer non-hostile acquisitions, but if there's value, we like to give it a shot," says Dalmia with a grin. As for their stock portfolio, the brothers are on the prowl for shares of Cholamandalam Finance and DSP Merrill Lynch, both of which, Dalmia says, are at a discount to their intrinsic values. The only hitch: There are few sellers of these shares around.

With more than Rs 100 crore in his bag to spend, Dalmia will almost certainly rack up a lucrative portfolio of stock and companies. Whether he gets anywhere close to where his idol Buffett has gotten is anybody's guess. What's sure, though, is that he's got plenty of time left to try.