40% Off Stocks Nemish Shah Swears By: 5 Shocking Truths Behind Elgi & Hi-Tech’s Deep Discount

Nemish Shah’s enduring conviction in Elgi Equipments and Hi-Tech Gears—both trading ~40% below peaks—demands scrutiny beyond the discount. Shah’s decade-long hold reflects deep faith in their long-term potential, not short-term trends. Elgi boasts stellar growth (24% profit CAGR) and global leadership in compressors, but its premium valuation (49x PE) requires sustained execution to justify. Hi-Tech Gears offers a more reasonable valuation (24x PE) and strong clientele, yet faces concerns: modest sales growth (4% CAGR) and a significant recent profit dip needing explanation.

The critical question isn’t the discount itself, but why the market devalued them despite Shah’s confidence. Investors should prioritize understanding the underlying causes—sector headwinds, execution risks, or cyclicality—before action. These stocks warrant research for their proven resilience under a master investor’s lens, but blind replication ignores Shah’s unique timeframe and deep analysis. True value lies in independent verification of their enduring business strengths. 

40% Off Stocks Nemish Shah Swears By: 5 Shocking Truths Behind Elgi & Hi-Tech’s Deep Discount

The headline screams opportunity: two stocks held by Nemish Shah, India’s revered “Warren Buffett,” trading at a staggering 40% discount. It’s a siren call for value investors. But before diving in, let’s move past the sensationalism and dissect the real story behind Elgi Equipments and Hi-Tech Gears, exploring the nuances Shah might see and the critical questions every investor must ask. 

The Shah Factor: Patience Over Panic 

Nemish Shah’s reputation hinges on deep value investing and extraordinary patience. Holding just six stocks signifies intense conviction, not diversification. His decade-plus ownership of both Elgi and Hi-Tech Gears speaks volumes about his belief in their long-term potential, regardless of market noise or recent price slumps. This isn’t trend-chasing; it’s bedrock belief. 

Stock Deep Dive: Beyond the Discount Tag 

Elgi Equipments Ltd (₹501, -38% from ATH): 

• The Bull Case: Global air compressor leader (6th worldwide, 2nd in India). Impressive financial trajectory: 12% Sales CAGR (FY19-FY24), 20% EBITDA CAGR, and stellar 24% Profit CAGR. ROCE of 23% indicates efficient capital use. Strong FII holding (29%) signals institutional confidence. Trading near its 10-year median PE (49x vs 52x median), suggesting valuation normalization after a peak. 

• The Questions & Caveats: A 49x PE is undeniably high, even near its historical median and slightly above the current industry median (48x). While growth is strong, sustaining such a premium valuation requires continued high growth and execution excellence. The discount exists because the market might be questioning the sustainability of its growth rates or facing margin pressures not fully reflected yet. Why did it fall 38% if fundamentals are robust? (Sector slowdown? Specific competitive threats?). 

The Hi-Tech Gears Ltd (₹623, -43% from ATH): 

• The Bull Case: Established auto component player with a solid blue-chip clientele (Hero MotoCorp, JCB, Cummins, etc.). Profit growth outpaced sales (11% Profit CAGR vs 4% Sales CAGR FY19-FY24), suggesting improving margins or efficiency. Valuation appears more reasonable: trading at 24x PE, aligning perfectly with both its 10-year median and the current industry median. The deep discount offers a potential margin of safety if execution improves. 

• The Questions & Caveats: Top-line growth (4% CAGR) is modest, raising concerns about market share or end-market saturation. Recent 9MFY25 profits (₹36 Cr) appear significantly lower than FY24’s ₹114 Cr – this demands scrutiny. Is this a temporary blip (supply chain, one-off costs) or a concerning trend? The company’s focus on “improving asset utilization” and “cost mitigation” hints at underlying operational challenges that need resolving. Can they reignite sales growth? 

The Real “Secret” Shah Might See (And You Should Too) 

Shah’s edge likely isn’t mystical insight, but a combination of: 

• Ultra-Long Time Horizon: He invests for decades, ignoring short-term volatility. A 40% dip matters less if you believe in the company’s 10-20 year trajectory. 

• Deep Understanding of Business Moats: Does Elgi possess unassailable technology, distribution, or brand loyalty? Does Hi-Tech Gears have irreplaceable relationships with key OEMs? Shah likely sees durable competitive advantages. 

• Management Trust: A decade of holding implies immense faith in the management’s capital allocation, integrity, and long-term vision. 

• Cyclicality Play: Auto components (Hi-Tech Gears) and industrial equipment (Elgi) are cyclical. Shah might be betting on a strong upcycle rebound others are missing. 

Should You Buy, Watch, or Pass? Adding Genuine Insight 

• Don’t Buy Just Because Shah Holds (or Because of the Discount): His cost basis, holding period, and risk tolerance are vastly different from most retail investors. A 40% discount from an all-time high doesn’t automatically mean “cheap” if fundamentals have deteriorated. 

• Investigate the “Why” Behind the Discount: For both stocks, the critical missing piece is why they fell so sharply. Dig into: 

• Quarterly reports (especially Hi-Tech’s profit dip). 

• Management commentary on future outlook and challenges. 

• Sector trends (industrial capex cycle for Elgi, auto demand for Hi-Tech). 

• Competitive landscape shifts. 

• Valuation Still Matters (Especially for Elgi): Elgi’s high PE demands near-perfect execution. Can they justify it? Hi-Tech’s valuation is more palatable, but hinges on reversing the sales growth stagnation and profit dip. 

• Conviction vs. Contrarian: Shah’s holding is conviction. Buying now, without his decade-long perspective and deeper analysis, might just be being contrarian – which carries significant risk. 

The Verdict: Worthy of Your Watchlist, Not Blind Investment 

Nemish Shah’s continued ownership of Elgi Equipments and Hi-Tech Gears through a 40% drawdown is a powerful testament to his conviction. It makes them compelling candidates for deep fundamental research. However, the discount is a starting point, not an endpoint. 

• Elgi offers exciting growth but carries high valuation risk. Monitor its ability to sustain growth rates and defend margins. 

• Hi-Tech Gears presents a potential value play but has clear operational questions. Scrutinize upcoming results for signs of sales growth recovery and profit stabilization. 

The real takeaway? Shah’s strategy teaches us to look beyond headlines and discounts. Focus relentlessly on the underlying business quality, management, competitive advantage, and long-term prospects. These two stocks deserve a spot on your research list precisely because a master investor sees enduring value. But your buying decision must be rooted in your own thorough analysis, understanding why the market is discounting them now, and whether you share Shah’s decade-long conviction. That’s the true path of value investing.