We have been tracking RHI (erstwhile Orient Refractories) for over a decade. We have seen its journey from a hidden promoter-driven microcap with sub-500 cr market cap to becoming a subsidiary of a global giant RHI and how rewarding this journey has been for its shareholders - at one point recently its fully diluted market cap crossed Rs 17,000 Cr.

In Treasure Trove basket, we own this since 2017 when the stock price was Rs 149, while today it is Rs 625.

It continues to be a fabulous fast moving industrial goods (FMIG) business being a low risk proxy to country’s steel growth. However, off late we have developed discomfort with management’s capital allocation strategy. Their aggression to consolidate market share by acquiring large competition even at the cost of massive equity dilution is starkly different from the DNA company used to have. If they had continued with smaller acquisitions, even though debt-funded, along with major focus on organic growth, it would have created more sustainable value for its stakeholders.

This has been such a high-quality business that we were willing to hold it (against our usual valuation discipline) even at elevated valuations (which is why we did not sell it earlier), however the recent capital allocation decisions have pushed us towards the exit door.

We are still getting a good 4.2x returns and we shall continue to look for better opportunities to deploy the released funds.

We are not in a hurry to deploy this capital unless we get good bargains, which was explained in this recent memo:
https://investor.stalwartvalue.com/investor_memos/17