Wednesday, January 16, 2013

Orient Refractories - Update

Orient Refractories made a announcement to the BSE last evening stating the intent of the existing promoters to sell 43.62% of their stake in the company to M’s Dutch US Holding B.V Netherlands which is a entity wholly owned by RHI AG Austria.
I had written in my previous post about the likelihood of this deal. The hypothesis played out on that variable however one is disappointed by the stated price of the transaction and the open offer price. The deal was stuck at a price of Rs 43 per share. This is clearly far lower than the number I had, benchmarking the superior financial ratios that Orient displayed coupled with the valuations that Vesuvius trades at in the Indian market. The interesting part is the existing promoter Rajgarhia will continue to hold 5% in the company and will be on the board of directors.
The stock should trade in the 38-39 mark factoring relatively higher acceptance ratio as the public shareholding also contains members of the promoter family coupled with large retail holding.
The deal though disappointing cant be complained about since the investment yielded a return of 30% in  3 months.
It would be worth watching this transaction over the life of this deal as the market could provide additional investment opportunities
a)      Use the open offer route to make cheap shares in case the price drifts down as the market’s interest in the deal diminishes.
b)      Post open offer correction would be interesting to see as to where the stock settles down and the likelihood of investment opportunities.
The eternal search for the next situation is on …..