Punjab Alkalis - Divestment

I’ve had a long break from the blog. Part work pressure part inactivity to do with the current market activity level. Posting on a spl situation opportunity.

Punjab Alkalis - Divestment

CMP - Rs 42

Punjab Alkali is a PSU owned by the Punjab government. The government has initiated a divestment process by which they intend to sell their stake in the company. The government had called for bids for their stake and Aug 16th was the last date for submitting bids. On completion of the process the divestment will trigger a open offer.

News report from the Business Standard - August 16th

Fourteen companies, including Jai Prakash Associates, Nirma, Grasim Industries today submitted bids for buying stake in the Punjab government-owned Punjab Alkalies & Chemicals (PACL).

"We have received 14 bids from the companies for the disinvestment of PACL," Punjab Directorate of Disinvestment Director V.K. Singh told reporters here today.

Other companies which submitted their bids were Surya Pharmaceuticals, KUDOs Resources, Amtek Auto, Nectar Lifesciences, Goyal MG Gases, DCM Shriram Credit & Investment, KLJ Resources, Panoli Intermediates (India), Lords Chloro Alkali, Jay Polychem (India) and Bhushan Power & Steel

Some serious players like Grasim, Nirma and a bunch of players who I have no clue what they are upto.

Opportunity

The company has a 90000 TPA caustic soda plant and the associated chlorine & hydrogen plant. It is a loss making unit currently

Valuations

Market Cap - 86 crores

Debt - 83 crores

Total EV - 169 cores

Replacement cost of this plant

On a conservative estimate setting up a 90000 TPA capacity would cost Rs 350 crores including power plant. Since Punjab Alkalis doesn’t have a power plant and which was the key reason for its losses, we can pare down the replacement cost to around Rs 250 crores.

Factor in additional cost for VRS and transactional costs we can expect conservatively bidding should be around the Rs 225 crores EV minus Debt 83 crores = Equity value of Rs 142 crores as opposed to current market cap of Rs 86 crores resulting in a spread of about 65%.

Risk

Like all divestment programs, there is always the risk of delay. To a certain extent the delay has already taken place. Of the 14 bidders, 12 qualified the technical round to put in the financial bids. The Divestment dept in the Punjab government has put the bids of the remaining 2 bidders to the ministerial committee. Post the ministerial committee meeting the approval for the remaining bidders will come thru and the financial bids called in.

Disclosure: I could have a position in the stock and I recommend readers to do their own analysis before investing in the stock.

Genetically Irrational

Cant blame us for being irrational. Its in the genes afterall. Nice video on TED

Zenotech Labs - Bitter Pill

I had earlier posted on Zenotech Labs laying down the original premise of the trade in a post here.

http://investingvalues.blogspot.com/2009/11/curious-case-of-zenotech-labs.html

After much delay the supreme court judgement came and the court ruled in the favour of Daichhi and the minority shareholders lost the case. The open offer will now happen at Rs 113.6. The stock promptly corrected to the Rs 100 mark where I exited my position taking a loss of about 10-12% on the trade.

A bitter pill to swallow but the downside was factored in the trade in case the judgement came in favour Daiichi.

The stock has subsequently moved down to the Rs 94 level and at some point of time will start becoming attractive considering the high acceptance ratio on the open offer.

Positioning for Luck

In my previous post on Abbott Labs, I had written how part of the returns that the stock delivered for me was good stock picking and part of it was pure luck.

Can u position yourself to get lucky? How do u ensure that u get hit by good luck more often than bad luck.

I want to put across a example from my life in terms of how one can be positioned for luck. On finishing my 12th Std/ HSC/ Jr college, I took up admission into a engineering college in the stream of production engineering. A friend of mine from the same batch took up admission in a stream of medicine called “ Occupational therapy”.

In my batch of 80 students, there were 3 girls and 77 boys. In his batch of 50 students there were 2 boys and 48 girls. I m sure you will appreciate who amongst the two was positioned for luck :-). So even if I was a cute guy with a great sense of humour and extremely sensitive ( I cant claim I m any of the above), the stakes were just loaded against me to be able to woo a charming lady. My friend of course was in such a envious position that he would really have to shoot himself in the foot to get it all wrong.

There is of course always the probability that I managed to woo one of those three girls and my friend managed to get it all wrong but I would assign a very low probability to it.

He was just positioned to be lucky.

When we come to stock picking, unlike choosing u r graduation stream we have the option of choosing what stocks to buy and what to avoid. We can work our way to get lucky more often than been unlucky. Spot more white swans coming our way as opposed to encountering black swans.

Lets look at IT companies right now. Both Infosys and TCS are great companies with great business models. But at 26 PE with the world economy slowing down, currency turbulence, political pressures etc we are positioning ourselves to get unlucky on this one. These companies could still deliver great numbers and growth but at these valuations there is a high probability that we could get unlucky on these stocks. I cannot at this point visualise what possible events could happen which could make me lucky in these stocks.

I bought Clariant chemicals in my portfolio a couple of months around the Rs 430-440 mark. The stock came on my radar after I heard a global announcement about a plant shutdown in thane which would release some prime property ( about 36 acres) and unlock value. On the operating level the company has been delivering great numbers and improving performance on all fronts. I bought the stock around the 8-9 PE mark.

Beyond this Clariant has about 120 acres of land more at another plant in Kolshet Thane. It has maintained a very high dividend payout ratio over the years. The parent is in a bad shape and is rumoured to be up for sale. A possible sale will trigger a open offer in India.

Of the above variables only the operating performance and the land sale are known variables. All other variables are events that I could possibly get lucky with. They might not necessarily happen but when I bought the stock at 8-9 PE, I was positioned more to get lucky as opposed to get unlucky.

There is of course the other way of doing this

It was to get your parents to name you “Lucky” which would have resulted in you being lucky for the rest of your life :-).

Abbott Labs

I had originally put out a post on Abbott labs about 2 year back when I added it in my portfolio. The link is enclosed below.

http://investingvalues.blogspot.com/2008/05/stock-idea-abbott-india.html

I had bought it around the Rs 540 mark when the markets were around the 16500 range. The stock ended today at 1134 with the index at 17,400 levels. Along the way I sold about 50% of my holding around the 735 mark and continued to hold the rest.

So on a like to like comparison Abbott has delivered me over 110% return as compared to the Index which delivered about 4% in the same period. ( I haven’t factored in the dividends that came thru and the share buyback that took place).

Thought process

1) My original premise on Abbott was the fact that it was a great business with high ROE and throwing out surplus cash every year. Though there are other pharma companies with a similar structure, what I liked about Abbott was the fact that the parent globally had a philosophy of returning cash back to shareholders in the form of dividend or share buybacks which made it more attractive as a holding.

2) I also along the way anticipated that the parent which was generating surplus cash would direct that surplus cash into acquisitions with a greater focus on emerging markets. Abbott acquired Solvay and followed up with its current acquisition of Piramal Healthcare making it the largest pharma company in the country.
The market has of course carried out a round of PE re-rating and assigned it a PE in sync with large MNC pharma companies from the tier 2 pharma company PE that it was getting.

Doesn’t all of the above make me sound like a great analyst?

I want to bring here the interesting concept of “Hindsight Bias”. To quote Wikipedia “Hindsight bias is the inclination to see events that have occurred as more predictable than they in fact were before they took place”. Simply put we believe that we predicted or were prepared for event that have happened in the past. Invariably most people will recognise hindsight bias when something goes wrong. For Ex Most people will tell you that they knew that the sub prime crisis was waiting to happen.

The real challenge of hindsight bias to recognise it when something goes right for you. For ex In Abbott’s case my hypothesis was based on point 1 of the thought process that I have listed above.

Point 2 of how I predicted that they would be acquiring companies in India and become the largest pharma company in the country is complete hogwash and a attempt at making me look very intelligent and insightful.

So the return that the stock generated from about Rs 540 to about Rs 725 was my stock picking skills but the return from there onwards to 1100 bucks is pure luck :-). But then I m not complaining.

I though however believe in a concept which I call “ Positioning for luck”. Will write a separate post on that.

Nowhere Man

After my previous post on women and investing, I must admit there is one woman beyond my wife that I observe everyday. She is my daughter who is currently three years old and hence, the boss of the house :-).

Is there something to learn from observing her?

If u have a child around the same age or maybe + 2-3 years you will observe a interesting phenomenon. The child has infinite amount of physical energy. It is extremely difficult to restrain the child in a given place or position beyond a few seconds. She is in a constant state of physical motion with arms flaying and legs moving. Try getting a child to do nothing for 10 minutes and u will accept defeat even before you start the task. Getting her to stand still beyond a few seconds is a non starter. It’s like Brownian motion

So the point is

I want to quote Blaise Pascal here. The man I disliked in my engineering days for giving us hydraulics but the man who came up with very interesting insights in human behaviour.

“All human evil comes from a single cause, man's inability to sit still in a room”.

Like the child we crave for activity. Maybe not physically but our brain never stops. It wants action, wants to be in the thick of action and if not anything create action where non exists. The itch to put in the next trade or buy the next stock that you analyse.

And like the child, it really is not in control of its actions.

I have been in the last 15 days working hard to do nothing :-). Caught up on some reading, steered clear of annual reports and spent time thinking.

The title of this post of course comes from a nice song by The Beatles

Nowhere Man

"He's a real nowhere man,

Sitting in his Nowhere Land,

Making all his nowhere plans

for nobody"

Post on Stockshastra

Stockshastra which is a new initiative by Moneyworks4me with the objective of providing timeless principles of stock investing had invited me to participate in a blog carnival tittled " How I arrived at my style of stock investing".

I was in my writing moods so wrote a slightly different post. The link is attached below.

http://stockshastra.moneyworks4me.com/guest-articles/ninad-kunders-style-of-stock-investing/

Time to attain rationality

I had earlier posted about a trade that was carried out in Britannia industries where the company issued bonus debuntures and the markets mispriced the stock post the record date giving reasonable returns in the time frame that the trade was carried out. The link to the post is enclosed below.

http://investingvalues.blogspot.com/2010/04/britannia-bonus-debentures.html

I had a round of email exchanges with a friend whose bone of contention or query was

How do u that the market will misprice when u initiate the trade? Is it just experience or a element of probability or pure luck?.

I am attaching the email response that I had sent him …

The starting point in a trade like this is to ensure

1) The market risk is very low which is to time the trade very close to the actual event date or the record date.

2) More importantly - valuation comfort. If everything else goes wrong are u still comfortable holding the stock from a valuation standpoint.

Without valuation comfort the trade is a strict No go.

Lets look at the markets are irrational part. True markets do turn irrational at times but i want to inverse that statement. Markets are not rational all the times which is not saying that they are irrational but they take time to reach a level of rationality. I dont know whether I am able to spell out the subtle difference by inversing that statement. The time that market takes to attain that rationality is the time window that a arbitrageur gets for the trade.

So it comes both from experience/ insight and probability. The market has diff kinds of participants day traders, arbitrageurs, tech analysts, long term investors who look individually look at diff information points so at a given point a participant would not have not digested all the news points. For ex If i am buying a stock from a long term objective i might not have look at the technicals ( i anyway dont believe in technicals) and vice versa. So not all participants would have digested a particular corporate action. If it is a bonus or a dividend then most participants would digest it but other corporate actions which have a element of complexity dont get digested as fast.

This is more true in the midcap/ small cap segment which is under researched and uder tracked. If HLL had done a similar exercise i would doubt the arbitrage window would have existed.

 It isnt risk free by any stretch of imagination. Its just about how much risk can u eliminate and dont get into a situation of picking pennies in front of a roadroller.

Trust that could add some value.

Cheers
Ninad

PS: Remembered a interesting exchange from Alice in Wonderland
Alice: But I don't want to go among mad people.
The Cat: Oh, you can't help that. We're all mad here. I'm mad. You're mad.
Alice: How do you know I'm mad?
The Cat: You must be. Or you wouldn't have come here.
Alice: And how do you know that you're mad?
The Cat: To begin with, a dog's not mad. You grant that?
Alice: I suppose so,
The Cat: Well, then, you see, a dog growls when it's angry, and wags its tail when it's pleased. Now I growl when I'm pleased, and wag my tail when I'm angry. Therefore I'm mad.

HSBC Investdirect - Exit

This one worked out better than I expected. I had earlier posted on the delisting opportunity of HSBC Investdirect. The link is enclosed below

http://investingvalues.blogspot.com/2010/04/hsbc-investdirect-delisting.html

As the book opened for delisting the initial bids came at the Rs 350 mark. The markets promptly anchored to this price and the stock ran up from the 300 band to a high of 335 yesterday. I promptly exited my position at a average rate of Rs 328 without waiting to find the delisting price. Afterall there is a huge risk that the 2 large players Mathews and Deutsche could tender it at a price lower than 350. This was better than my initial expectation of delisting in the 315-325 mark.

This transaction delivered me a return of 41% on my original investment in a 3&½ month period and about 16% on the second tranche of my investment in a months time.

Off to searching newer opportunities which are becoming very scarce with the run up in stock prices.

Breaking (Zee) News - Demerger

There was breaking news of a different variety in Zee news. Zee News went through a scheme of arrangement involving demerger of the General entertainment channels from Zee news and merging them into Zee entertainment.

The shareholders of Zee news as per the arrangement were eligible for 4 shares of Zee entertainment for every 19 shares held in Zee news. They would continue to hold the news business in Zee news.

We tracked the deal from the initial announcement stage and monitored the price movement at every milestone. Find below the various milestones and the cost of creating the residual Zee News

The record date for the transaction was set for 16th April. Arpit had arrived at a fair value for the Zee news share in the Rs 9- 10 bracket.  Post the ex date the market traded the stock in the Rs 18-20 price band and there was clearly returns to be made on the deal.

This however is with the benefit of hindsight. I never invested in this deal as there was clearly time risk involved with no clear timelines on when the court order could come thru. Though I think there was a opportunity just after the court approval came thru. It was a interesting transaction to monitor in terms of price movement at every milestone.

But once in a while it is ok to be a spectator and stay away from the news :-)

HSBC Investdirect - Delisting

I had created this note on HSBC Investdirect's delisting around end of January 2010. I had also invested in the stock around the same time.

I have a history of investment in this particular counter betting originally on the delisting happening. Links to those post are enclosed below.

1) This was betting on the delisting in Nov 2008.

http://investingvalues.blogspot.com/2008/11/dabur-pharma-il-investmart-two-to-tango.html

2) Subsequent posts when the delisting got announced and my exit

a) http://investingvalues.blogspot.com/2009/06/il-investmart-bingo.html

b) http://investingvalues.blogspot.com/2009/10/long-hiatus.html

The note that I had written in Jan 10

Opportunity Type - Delisiting

Company: HSBC Investdirect

Exchange - BSE

CMP - Rs 231

Equity Base – 70.39

Current market Cap - 1626

Public shareholding – 6.89%

Free float - 112 crores

HSBC InvestDirect was originally floated by the ILFS group and was called ILFS Investmart.

Historical Milestones

• HSBC acquired IL&FS Investmart from the IL& FS group and acquired 73.21% stake by a share purchase agreement.

• It subsequently made a open offer to acquire 20% of the shares by its letter dated May 20th 2008 at a price of Rs 200.

• On completion of the open offer HSBC raised its stake in the company to 93.86%.

• Having acquired 93.86% stake which is higher than the listing agreement, HSBC had to either dilute stake below 90% or initiate the delisting process.

• Company name changed proposed from Il&FS investmart to HSBC Investdirect by a board resolution in April 2009.

Delisting Milestones

• HSBC initiated the delisting process on June 16th 2009 on receipt of a letter from the promoters to initiate the delisting process.

• Notice of postal ballot for shareholder approval was despatched on June 26th 2009

• Result of postal ballot with the approval of shareholders was acquired on July 28th 2009.

Milestones Pending

• Filing with exchanges for delisting approval. - Approval process takes 15 days post filing.

• Initiation of reverse book building process for arriving at the delisting price - Process takes one month post receipt of approval from exchanges

• Acceptance of the delisting price and despatch of acceptance amount - 15 days post the reverse bookbuilding process.

Current Holding Structure

Company - HSBC InvestDirect

Promotor – HSBC group - 93.86%

Public

Mathews Fund – 2.05%

Deutsche Mutual Fund – 1.21%

Other public shareholders - 2.88%

Delisting Laws

There are two important criteria in the delisting laws

• The promoters have to acquire a minimum of 50% of the public shareholding when arriving at the reverse bookbuilding price.

• The promoter stake should go above 90% post the delisting process.

In the case of HSBC Investdirect, the stake of the two institutional holders would be sufficient to cover for the 50% criteria. HSBC anyway holds more than 90% of the stake to fulfil the other criteria.

Deal Analysis

In any special situation case there are three important risk to be ascertained.

1) Price Risk - Deutsche mutual find which is one of the large shareholders had acquired its stake post the delisting announcement in the 260-270 price band. That effectively creates a floor for the delisting price. Our estimate is that the delisting price would be in the 315 -325 mark.

2) Time Risk - HSBC has to complete the entire process within 12 months of the board resolution which will expire in June 2010. So effectively we have about 4 months as the outside time limit on the deal.

3) Deal Risk - The delisting process has got delayed so far because with new SEBI amendment in the takeover code the company has to extinguish all convertibles like GDR’s, ESOP’s etc before it carry’s out the delisting process. The company has existing Esop’s which need to be extinguished and hence there has been a delay in the process. Our understanding post talking to the company secretary and the merchant banker is that they would be able to manage the timeline.

Return Matrix

Scenario 1 - Exit thru Bookbuilding Process

Current market Price – 231

Exit Price – 325

Period ( months ) – 4

% Absolute return - 40.7%

Scenario 2 - Exit prior to bookbuilding Process

Current market Price – 231

Exit Price – 280

Period ( months ) – 2

% Absolute return - 21.2%

Current Update

The company has managed to overcome the ESOP hurdle and made the public announcement on the delisting schedule. The reverse bookbuilding is to open on the 28th of April and will close on the 5th of May. Post the PA the stock jumped from the 230-240 band that it was trading at to the 280-285 band. I bought some additional position ( thought my major position was built in the 230-240 range) at the 281 mark factoring in the clear timelines and my expectations of 6-7% return from here in a months time.

Micro Inks - Delisting exercise

Micro Inks is the subsidiary of the German chemicals company Huber. Huber announced a delisting on the 9th of Dec. The event unfolded with the following time schedule

1) Board meeting for delisting announcement - 9th Dec 2009

2) Postal ballot result – 16th Jan 2010

3) Announcement of delisting schedule - 3rd Feb 2010

4) Opening of Reverse Bookbuilding process – 2nd March 2010

5) Closure of the reverse bookbuilding process. - 5th march 2010

Risk / Return analysis

Let me run thru the risk/ return analysis of the deal based on the framework that I had put out on a guest post on Rohit’s blog. The link to that is as attached below

http://valueinvestorindia.blogspot.com/2010/02/special-opportunity-framework.html

1) Time Risk

The time risk in the deal was managed by entering the deal only after the delisting schedule had been announced. So there was clear timeline defined on the trade.

2) Deal Risk

Deal risk in a delisting opportunity could stem from two fronts

a) Inability to garner the requisite shares

In the case of Micro Inks the promoters held 74% of the stake in the complete. For delisting to succeed they had to garner 16% shares so as to reach the 90% hurdle that needs to be covered for delisting to be successful

In Micro Inks, Reliance Mutual fund held 7.23% stake and HDFC mutual fund had 3.69% stake. They along with other institutions held 12.25% stake in the company. This ensured a high probability of the transaction happening.

b) Likelyhood of the discovered price being unacceptable to the promotor

In the case of Micro Inks, Huber launched the delisting offer even before appointing the merchant bankers to the deal. It was a strong cue to the fact that the company was confident that the delisting will go thru. Our assumption was that some kind of indicative price would have been discussed / agreed with the institutions.

3) Price Risk

Huber had defined the floor price at Rs550 for the transaction. I entered the stock around the Rs595 mark. Our assumption was that the deal should close in the 650-675 mark giving a possible return of 10 – 12 % in a 1 month time period. We were also comfortable from the underlying valuation standpoint.

Post deal analysis

The reverse bookbuilding opened on the 2nd of March and I must admit it was well managed by Kotak Securities the investment banker. They had done a good job of sealing the institutions and lo and behold both HDFC and Reliance tendered at the same day around the same time at the same price of Rs 640. This effectively created the anchor price for the delisting exercise.

The company successfully managed to close the book and delist at Rs 640.

I had 2 options

1) Either to exit through the stockmarkets around the Rs 625-627 mark post the closure of the bookbuilding exercise.

2) Wait for the stock to get suspended followed by the delisting and then tender to the company at Rs 640. I chose this option bcos along the way Micro Inks also announced a dividend of Rs 6 with a ex date of 12th April. Considering the current level of markets with not too many alternatives to deploy capital, I was comfortable letting my capital lie here and earn the extra 1% tax free return.

So the way I see it I will wind up making about 8.5% on invested capital in a period of 2-2.5 months. Good for me.

Innovative Foods - Money for Nothing, Sequel 2

I had written earlier about a special situation opportunity in Innovative Foods. The link is enclosed below.

http://investingvalues.blogspot.com/2009/11/innovative-foods-money-for-nothing.html

The interesting part in this opportunity arose post the closure of the delisting offer that the promoter made at Rs 34.5. As per SEBI laws a company has to provide the last open offer/ delisting price to all the remaining shareholders post delisting of the company for a period of 6 months.

So you are assured of Rs 34.5 for your holding even if u hadn’t tendered it in the delisting offer. Typically it takes around 45-60 days post the closure of the delisting offer for the actual delisting to take place. It should on the outside take about a month more to tender your shares to the company and get your money.

So the opportunity arose bcos post the closure of the offer, I was able to buy the stock in the market between Rs 31.75 and Rs 33 with a average acquisition cost of Rs 32.05.

It took me about 4 months in the entire transaction. Part of the delay was bcos I went on a vacation and hence missed one of the redemption cycles. But overall it gave me risk free return of about 7.5% in a four month tenure. Might not excite too many ppl but I love risk free return like this.

Britannia - Bonus Debentures

There was a scheme of arrangement in Britannia which involved issuing bonus debentures to shareholders with a face value of Rs 170 and a annual coupon of 8.25% redeemable at the end of 36 months.

I will not get into finer details of this transaction as there is a nice post put out by Prof Bakshi whose link I have enclosed below

http://fundooprofessor.wordpress.com/2010/03/15/britannias-bonds-are-tastier-than-its-cookies/

I had a very small miniscule position in this special situation and the record date for this transaction was March 9th 2010.

Now I come to the interesting part and the reason for this post. The bonds got listed today on the exchanges and lo and behold they got traded as high as Rs 177 on the NSE.

This one completely beats me. The guy who bought it at Rs 177 will make a compounded annualised return of 6.69% on this bond over a three year tenure without factoring in brokerage costs.  HDFC Bank is currently offering 8% for a 3 year fixed deposit. Though one must admit it doesnt offer the thrill of sitting in front of a trading terminal and experiencing the dopamine kicking in.

No wonder they say beauty lies in the eyes of the beholder.

Delisting - Interesting Play

I have been involved in multiple delisting opportunities where I work closely with my friends Rohit Chauhan and Arpit Ranka.


Rohit had written on his blog about one of the delisting opportunities that we had analysed and were involved together. The company involved was Elantas Beck. The link to it is attached here

First post
http://valueinvestorindia.blogspot.com/2010/01/arbitrage-case-study-elantas-beck.html

Follow up post
http://valueinvestorindia.blogspot.com/2010/01/clarifications-on-previous-post.html

I had subsequently written a guest post on Rohit’s blog talking about the framework that is employed by us to look at evaluating delisting and other special situation opportunities. The link to that post is attached below.
http://valueinvestorindia.blogspot.com/2010/02/special-opportunity-framework.html

Subsequent to these posts we also analysed / invested in the delisting of Micro Inks and I plan to put out a separate post on how this particular opportunity was evaluated and the returns it generated.

Zenotech Update - Final closure

The case hearing has finally concluded :-). We should hopefully have the judgement within a week bringing to close a long drawn saga. The link to the earlier post is given below

http://investingvalues.blogspot.com/2010/01/zenotech-update.html

From the Supreme Court site

UPON hearing counsel the Court made the following

O R D E R

Mr. F.S.Nariman, learned senior counsel, made his submissions from 10.35 a.m. to 12.40 p.m. Mr.Ashok Desai, learned senior counsel, thereafter, made his submissions for fifteen minutes. Mr.C.A.Sundaram, learned senior counsel, thereafter, advanced his arguments upto 3.05 p.m. Learned Attorney General made his submissions for about fifteen minutes.

Hearing concluded. Judgment reserved.

Liberty to parties to file written submissions within one week.

Hungry Kya ?

Are we Indian’s more hungry than the Americans. Afterall what else can justify the following comparison

Jubliant Fooodworks ( Domino’s Franchisee) -  Dec quarter
Market Cap - 1500 crores
Sales – 117 crores
Profit - 11 crores
P/E- 30

Domino’s Pizza ( US – parent company) - Sept quarter
Market cap - 3000 crores
Sales – 1350 crores
Profit - 82 crores
P/E- 9.74

So we have the Indian company which is just a licensee of the Domino’s brand and doesn’t even own it sells at 3 times PE of the parent company.

I guess one needs to have a appetite for it. I am off on a diet.

Tail wagging the dog - Solvay & Abbott

I had earlier posted about the global takeover of Solvay by Abbott.

http://investingvalues.blogspot.com/2009/10/kahi-pe-nighaein-kahi-pe-nishaana.html

I had subsequently posted about exiting my position in Solvay.

http://investingvalues.blogspot.com/2009/10/flurry-of-activity-altered-annual.html

What has happened subsequently is very interesting. The Solvay stock has skyrocketed from the 900 mark to over Rs 3000 in a span of 4 months. ( Ooch that hurt me :-().

Lets examine the fundamentals of both the companies.

Abbott - FY 09 = Nov 09
Sales - 766 crores
Net Profit - 77 crores
Market cap - 1096 crores

Solvay - FY 09 – Dec 09
Sales - 243 crores
Net Profit - 40 crores
Market cap - 1555 crores

So we have Solvay which got acquired by Abbott, has nearly 1/3rd the sales and ½ the profit of Abbott but is selling at 50% more market cap.

Interesting case of cornering and ramping up the stock so as to push up the open offer price. Would be interesting to see the endgame.

Zenotech Update

Back on the blog after a break.

I had earlier posted on Zenotech as a special situation opportunity. The link is enclosed below.

http://investingvalues.blogspot.com/2009/11/curious-case-of-zenotech-labs.html

The case has had 2 rounds of hearing and now the next round of hearing is lined up for Feb 25th – 27th. From the original premise there has been clearly delay in terms of the opportunity cost of time. This will applicable if the minority shareholders lose the case. In case Daiichi loses the case they have anyway agreed to pay interest for the time delay so it isn’t such a detrimental variable.

Trade within the trade

What however interesting is the trade within the trade that I have been observing over the last few months. The stock has been inching to the 118-119 mark as we near the hearing date and then moves down to the 113 once the next date is lined up. So there is a 3-4% return on a 1 month’s time frame. Might not be good for a lot of ppl but good for me :-).

It closed at 114 today and it would be in interesting to see if it follows the same pattern as the hearing date nears.