Orient Refractories has a
interesting past and a interesting future. It was born by demerging itself from
Orient Abrasives which is a part of the Rajgarhia group. Orient Abrasives
initiated a scheme of demerger through which for every one share of Orient
Abrasives the shareholder received one share of Orient Refractories. The
company got listed in March 2012 and had a interesting first few weeks in terms
of price movements.
It was a demerger that I had
tracked but didn’t see any potential value unlocking by virtue of the demerger
transaction. What however piqued my interest was trying to understand the
potential driving variable behind the demerger process. The refractories
business was a great business with high ROE versus the Abrasives business which
had poor financial ratios. The thought that crossed my mind was that the
management was looking at selling off one of the businesses though it was tough
to ascertain which one.
Fast forwarding in the month of
May 12 there was a news article in the economic times talking about German
group RHI being interested in buying Orient Refractories, The link is attached
here. The stock of course rose on the back of this news and started trading in
the 32 – 38 trading band as there were periodic news of this takeover. This
made it interesting to dig deep into the company.
Some reading up on RHI and the concall
+ presentation for the June 12 quarter mentioned the fact that they were
looking at a acquisition in India and the same would be closed by the end of
the year. Parallely, Orient Refractories also initiated a VRS scheme, expenses
for which were booked in the June 12 quarter. With the resultant time delay the
market lost interest in the stock and stock drifted down to the 29- 30 levels
where the position was built into the counter.
The month of Oct and Nov saw
flurry of activity again as the news of the takeover started surfacing again.
Here’s a link to a new story in the Economic times.
Though there were standard
denials from the company, what is really interesting is the current investor concall
of RHI for Sept 12 - Link. The CFO in the
concall in response to a question explicitly mentions that they are talking to
Orient Refractories and of course a few other players :-). Of course the deal
horizon has got pushed back. The market in the meantime has pushed up the stock
in the 38-40 range.
The market has anchored itself to
the price point mentioned in the ET article of Rs 42 for the deal though I
would be surprised if the deal was to happen at this price point. Factoring in
valuations and precedents on some global deals coupled with control premium my
expectation would be that the deal ( if it takes place :-)) should happen in the
Rs 55-60 price range. It would be a interesting
next couple of months to check if things are heating up.
Disclaimer
1)
The articles that are posted on this blog either stock
specific or otherwise should not be construed as investment advice to buy/ sell
stocks. These are sharing of my thoughts for discussions.
2)
As a analyst and investor I may have positions in
stocks discussed on the blog and may exit these positions without intimation.
3)
Please do not base your buy/sell decision purely based
on the articles in the blog. Do carry out your own diligence before your base
your decisions.
