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.

“Everybody has a plan …..”

“Everybody has a plan till they get punched in the face”. This brilliant quote can be credited to the famous American philosopher “Mike Tyson” :-) . ( His detractors might point out his fetish for ears but didn’t Vincent Van Gogh also cut off his ears).

It’s a extremely impactful statement with implications for any participant in the stock markets. We plan for all kinds of scenarios that the market throws at us. For ex Looking at the market right now we could plan that if the market corrects by 20% we could deploy additional capital into the markets. Simple statement of intent or plan factoring in a possible scenario.

It becomes easy to implement this plan if the market gradually drifts down a percent or two every week and winds up going down 20% over a six month period. It’s a series of small punches that the markets throws at you which tires you out but keeps you in play to deploy the action plan that you had thought thru.

The challenge is when you get punched in your face by the markets when they correct 20% in a week or fortnight. At that moment the mind freezes and all the best laid plans of men and mice go waste. Fear and self doubt seeps in and the reptilian brain takes over.

The R-complex as it is called overrides the more rational functions of the brain and results in primitive behaviour where the survival instinct takes over. We of course see that in the rush to the exit door that happens with market participants.

Can we work our way thru this and retain our rationality? I think the first step is being able to recognise when our mind starts moving into this state.
The awareness of it might helps us deal with a few punches thrown between our eyes.

Paradox of Choice - Prof Barry Schwartz

Prof Barry Schwartz's Talk on the "Paradox of Choice" at the TED conference. It has very interesting implications beyond the fact of why we still savour the limited choices that Doordarshan used to offer as opposed to the plethora of channels now which seem to have nothing to offer.

As the markets offer us more and more instruments and asset classes like equities, debuntures, options, gold, copper, art, interest rate futures, forex futures etc, we start spreading ourselves thin not willing to limit or restrict our choices to particular asset classes.