PVR Cinemax Special Situation

Need to do an analysis of this one over the weekend but did a quick check of timeline for Jyothy-Henkel and TechM-Satyam ( similar situations)



1. Board meeting of Jyothy Lab for considering amalgamation                15th June 2012

2. Direction by Bombay High Court to convene meeting of

Shareholders                                                                                               19th October 2012

3. Court Convened Meeting(s) held                                                           22nd November 2012

4. Bombay H.C. approval for amalgamation                                           12th April 2013

5. Effective date of amalgamation ( info to BSE)                                    13th May 2013

6. Record date for determining eligibility for allotment

of shares                                                                                                    28th May 2013

Shares were actually allotted sometime in August due to the fact that NSDL/CDSL wanted clearance from SEBI since SEBI had put Henkel’s name in the list of companies that had not complied with the minimum 25% public shareholding norm. SEBI took more than 2 months to give time for hearing then pass order ( talk of height of ridiculousness of it but that’s the nature of the beast)

Total time taken for liquid trade in shares allotted post amalgamation 1 year 2 1/2 months.

In-between I had a running duel with the co sec of Jyothy as to why it was taking them so long but that’s another story.

Tech Mahindra

1. Board meeting of Tech M for considering amalgamation                21st March 2012

2. Direction by Bombay High Court to convene meeting of

Shareholders                                                                                         3rd May 2012

3. Court Convened Meeting(s) held                                                       7th June 2012

4. Bombay H.C. approval for amalgamation                                       28th September 2012

5. Andhra High Court Approval                                                             11th June 2013

6. Record date for determining eligibility for allotment

of shares                                                                                                    5th July 2013

7. Shares allotted                                                                                     8th July 2013

Total Time taken                      1 year 3 1/2 months.

Notice the speed displayed by the company in dates. This process took time due to Ramalinga Raju controlled entities filing objections in the Andhra High Court.


1. PVR Board approval                                                          15th June 2013

2. Direction of High Court                                                    Not informed in the filing with BSE

3. Court convened meetings of

Shareholders and Creditors                                                  7th December 2013

Notice the similarities between Jyothy and PVR. My take is that big law firms can help speed up the process in HC.

I reckon that barring unforseen circumstances this merger should get over and shares allotted latest by end of June 2014 which is about 7 months away.

Cinemax closed at 286 today and PVR at 577. With a swap ratio of 4:7 ( 4 shares of PVR for 7 shares of Cinemax ), the effective cost per share of PVR works out to Rs 500.5. This means a buyer of Cinemax at CMP should be able to realize a gain of about 15% ( not counting the transaction and demat costs ) in 7-8 months time. This assumes no further fall in PVR prices which is what the analysis will try to figure out. Watch this space.

Happy investing

Henkel-Jyothy Lab ( Tax Issues primer )

Found this interesting presentation on tax issues in Mergers & Acquisitions. Hopefully serious practitioners of special situation investing will find it useful.


Based on available information so far, Jyothy can do both- a high court administered Amalgamation or a reverse merger where apparently High Court permission is not required ( not very sure about this ). A reverse merger would mean Jyothy getting merged into Henkel and the resulting company can be called Jyothy or Jyothy Henkel or whatever.

Moot question is the valuation of Henkel at the time of amalgamation. Well, it can be anything. However, I am going by the assumption that Jyothy wants to be a serious player in Indian FMCG space and will not do anything that smacks of hurting the interest of small shareholders.

Well, there are no guarantees in this business and that is what makes investing so fascinating. I mean, it would be totally boring if all thesis panned out the way they were originally thought of and I am sure there will be some twists in this story as well.

So here is to making some money in this as well!

Happy Investing.

PS; if you hv problem downloading this, send me yr email and I will mail it to you

Henkel and Jyothy Lab situation

Jyothy Lab acquired Henkel India, first by acquiring 14.9% from TN Petro, an AC Muthaiah company which was JV partner of Henkel and then 50.6% of Henkel ( the international company). Besides these they acquired roughly 3% before open offer and about 12-13% in open offer at 41.2 ( all number approximate since I am writing this out of memory ). Currently Jyothy Lab holds 83.5%  of Henkel and Public holds about 16.5% ( approx 19 million shares ).

One of the big kickers for the deal besides the strategic move for Jyothy is the accumulated losses of 450 Cr in Henkel. Integration of businesses is happening at a fairly fast clip and I expect that Henkel will be cash positive and profitable pretty soon, given the prudent cashflow management practices of Jyothy ( something about these Tamilians-they are pretty good with prudent action when they do ).

I am considering buying Henkel which was at 22 day before (already at 24 as I write this ). My thesis is that if Jyothy has to take advantage of this accumulated loss then the only way is amalgamation of Henkel in Jyothy. This means delisting by way of buying out the shareholders or issuing Jyothy shares to 19 million shares of Henkel.

Now, the open offer price was 41 so I expect that Jyothy will price the exchange or cash at the same level atleast. I doubt if it is worth rocking the boat by doing the exchange at a lower level since that can be challanged in the court of law ( a la Cadbury ) and the cost is just about 75-80 Cr.

Also it would be advantageous for Jyothy to do the amalgamation sooner than later to take advantage of tax breaks. Anyways market does not expect big shake from this acquisition and Jyothy share price reflects this. Hence even if they were to take the tax break and show notional losses, shareholders would not lose much.

So I am expecting a 70-90% return over 18 months period in which I expect this process to get complete.

Would someone please punch holes in this thesis?

Happy investing


NHAI Tax Free Bonds Issue

NHAI, a Government of India Enterprise is going to hit the market on 28th December ( in next 2 days ) with a 10,000 Crores issue that has maturities of 10 years and 15 years. It is offering 8.2% tax free interest for 10 years paper and 8.4% interest for 15 years paper. Vow. What else could u ask for. A 10 year GOI paper is going at 8.37% in the gilt market on which you are required to pay full tax at your marginal rate of taxation. Now this Gilt is as risk free as they get for Indians ( of course we are all fried if GOI were to default but hey perish the thought on this glorious Monday morning ).

Safety & Returns: So for slightly higher risk ( paper is secured but still there is no explicity GOI guarantee, we only assume that NHAI will not default), we are being offered these rates which are mouth-watering for most of us since most of us are in 30% tax bracket so on a pre tax basis the yield works out to almost  12% per annum


Liquidity:  Bonds will be listed hence there will be enough liquidity ( some may argue with this point though). But you can get out in case of emergency liquidation though do not compare this with liquidity of  a Bank FD


TDS: no TDS hence better than a Bank FD

Tax Angle:  Since these bonds are going to be listed, they will be treated as long term capital asset which means you can transfer them to your sons, daughters and other relatives that you trust and most likely make a capital loss that you can adjust with your other capital gains.

So go for them in drove and lock in this fantastic investment.

Senior citizens and others whose tax liability is low or zero can give this issue a miss.

Happy Investing





Muthoot Finance Public Issue

Muthoot Finance, the largest gold loan company is offering secured, redeemable, non convertible debentures to public and the issue is currently on. Details of the issue are all over the media to I will not put them here. My intention is to see if there is a case for subscribing to these debentures as part of the larger asset allocation program of individuals and also  to look at how market is perceiving the previous issue by this company and other NBFCs

Per tax interest rate of 13.25 % means a post tax rate of 13.25 ,11.925% ,10.6%and 9.275% for tax payers in zero, 10%, 20% and 30% tax brackets. There is No TDS which means if you are lower tax bracket person, you do not have wait for your money to come back to you through the tax refund process ( easily a tedious and time consuming process despite efforts of the last chief of CBDT Mr Satish Chandra)

These debentures are going to be listed at BSE hence they will be treated as long term capital assets. Since there is no STT on these, you get to pay only 10% capital gain tax on unindexed basis if you hold them for more than one year whethere sold through stock exchange or through hand delivery ( this means you can transfer them to anyone including your relatives) through a simple transfer slip of your demat account.

The best debenture is buy are the cumulative options since the IRR on these bonds is little higher and there is no reinvestment risk. Left to ourselves, we will eat up the interest if we subscribed to regular return option. Of course if you need regular income( most senior citizens might fall into this bracket ) then by all means go ahead subscribe to that option. Now because these are long terms assets you can also take advantage of capital loss, short term or long term so for a little experienced player, the advantages over other investments are too good to pass up.

Safety of investment: these debentures are rated AA- primarily because of the leverage that these NBFC have. Though a moving target due to high growth, I think Muthoot leverage is almost 5-6X, the last time I checked. Obviously there is higher than a AA+ company like STFC or a AAA rated company but hey that is why they are offering you higher returns. Now the real risk in case of MUthoot according me are 1. Their ability to manage the scorching pace of growth, possibility of fraud at branch level by employees and of course if the gold prices were to fall big time then the company could be in trouble.

How does the market currently view their existing debt issued in September 2011? Yields to Maturity ( YTM ) on 2 years, 3 year and 5 years papers are 14.92%, 14.34% and 14.21% as of this morning of 26th December, giving an inverted yield curve. Volumes are highest in 5 years paper and extremely thin in other maturity.

This means that you are better off giving a miss to these issues and better off buying from the market.

How do these returns stack up against other opportunities available in the debt markets given the sad state of affairs in equities.  You could move into fixed income mutual funds ( long terms ) and gilt funds offered by practically all MFs as there is expectation of rate cut by RBI. Relatively safe, these funds are expected to provide a return of atleast 10-11% over the next one year if not more. Its better to hold these mutual funds in growth option and take advantage of lower taxation by way of capital gain of 10%, if you hold them for one year or more.

There are of course fixed deposits of banks ( FDs of companies are definitely not advisable at this juncture. You could go for FDs of banks like Tamil Nadu Mercantile Bank, Laxmi Vilas Bank, Karur Vyasya Bank etc and if you are making an FD of Rs. One lac then the safety of deposit is guranteed since these are all scheduled commercial Banks.

I do think we have not yet seen the peak of interest rates offered on FDs by banks and these rates will rise as we go along even if RBI decreases the Repo rate. I clearly remember making FDs at 11.25% at LVB in January 2009 and if you recall, RBI had started cutting rates from August onward and was done with rate cuts largely by January 2009.

Risk is in knowing what you are doing and being able to evaluate the likelihood of the identified risk factors playing out. All things considered, I would think that it is worth buying Muthoot Finance debentures from the secondary market and give the primary issue a miss. You will ofcourse be bombarded by the interested agents asking you to subscribe but be firm, ask them about the YTM on secondary market of the earlier issue and see them either give you a blank stare or slink off.

Perhaps 5-10% of your debt allocation could go into debentures of companies like Muthoot Fin and Shriram Transport Finance in the secondary market.

Happy investing.


Piramal Health-LifeSciences Special Situation-update

Piramal Healthcare and Lifescience, both, made an announcement to the exchanges on 25th November about having received the high court sanction to the scheme. From the time that they made the announcement in May 2011, it has taken approx 6 1/2 months for the procedural work. This is the link to the announcement. http://goo.gl/KojrY

I expect that exchanges will make the announcement regarding the record date soon the record date may be about a fortnight away ( total time about 7 months). 

If you bought PLSL at the time of announcement and are either still holding it or have made a arbitrage trade like me should have seen good profits. If you were smart, you would have sold out PLSL above 90 and made a rather tidy bundle ( sweeter given that broad markets have been screwing us lately).

Curious to see how the FNO trade in PHC will be handled ( i.e would there be an adjustment)- I don’t have an idea about this and second what will be the price of residual  PLSL since it will continue to be a listed entity.

Why is Piramal keeping this company listed is a question that only future will answer but he may well transfer some pharma business to it going forward. 

I am of course long on PHC given that it is quoting at wide discount to cash ( what better safe haven than this in falling markets)


Happy hunting…….


Rupa & Co.-another Lingerie Company-Is it truly widely held

One more undergarment company, Rupa & Co.  got itself listed recently at the Bombay Stock Exchange. This was a company that had done an IPO long ago and was listed at Calcutta and Jaipur Stock Exchanges ( management is Marwari hence the choice of exchanges ). With almost all regional exchanges dead and not trading, the stock had been dormant for quite a few years.

Enthused by the huge valuations that Mr Market has granted to Page Industries ( Jockey licensee) and Lovable ( a split from VIP ), Rupa & Co. also decided to launch itself on the pockets of the investors and chose BSE as the exchange since here is an exchange that is desperate for business and is willing to be more tolerant of corporate governance issues.

Interestingly Microsec, a Calcutta based investment house ( it would like to itself as an investment bank but I will not grant it that title) came out with a report on the eve of its listing at BSE. Now if that is not a managed operation then what is. Nevertheless, dubious that it may be, it is not illegal. I have engaged reputed investment houses, both multinational and Indian, in the past, to write reports in companies where we needed to place equity and they generally did a thorough job ( Its like a credit rating company that charges you to do a rating on you and again they do a good job normally).

I was intrigued by the huge volumes that were generated on the first day of trading and decided to run through the annual report of 2010-11 and the shareholding pattern and this is what emerged.

Distribution of Shareholding as of 31-3-2011

No. Of shares Shareholders Shares
1-500 532 81.84% 54,645 0.69%
501-1000 50 7.7% 43,884 0.55%
1001-2000 12 1.85% 17,682 0.22%
2001-3000 7 1.08% 17,600 0.22%
3001-4000 4 0.61% 15,500 0.2%
4001-5000 1 0.15% 4091 0.05%
5001-10,000 5 0.77% 36,720 0.46%
10,001-above 39 6% 77,62,334 97.61%
Total 650 79,52.456 100%

Just before listing, the company decided to split the stock in the ration of 5 for 1 so we will just multiply the shareholding by 5 t which only change the 4th column

No. Of shares Shareholders Shares
1-500 532 81.84% 273,225 0.69%
501-1000 50 7.7% 219,420 0.55%
1001-2000 12 1.85% 88,410 0.22%
2001-3000 7 1.08% 88,000 0.22%
3001-4000 4 0.61% 77,500 0.2%
4001-5000 1 0.15% 20,455 0.05%
5001-10,000 5 0.77% 1,83,600 0.46%
10,001-above 39 6% 3,88,11,670 97.61%
Total 650 3,97,62,280 100%

Now look at the shareholding pattern as of 30th June 2011

Category of Shareholders No. Of Entities Shares held Demat % holding
Individual 38 3,62,65,510 3,62,65,510 45.6%
Corporate 3 2,33,20,880 2,33,20,880 29.33%
Total 41 5,95,86,390 5,95,86,390 74.93%
Bodies Corp 16 1,83,78,900 1,83,43,900 23.11%
Individual Shareholders
Up to 1 lac 612 13,75,100 6,36,530 1.73%
Above 1 lac 1 1,84,170 0.23%
Total 629 1,99,38,170 1,89,80,430 25.07%
Grand Total 670 7,97,24,560 7,85,66,820  

If we consider the public shareholding,  we will notice that individuals hold only 1.96% whereas the bulk (23.11%) is concentrated in the hands of  16 corporates of which 5 corporates hold 1,79,26000  ( 22.54%) and 11 Corporate bodies hold only 4,52,900 shares.

Further of the 612 individuals holding 13,75,100 shares, 532 shareholders hold only 2,73,225 shares  ( if you multiply 532 by 500 you will get 2,66,000 but we will let it go ). Interestingly  of these  less than 50% were held in demat form as of 30th June 2011.

All this means that there were only 7.38 lac shares available for trade for public.

Of course the BC could trade and nothing can stop them from buying and selling and there is no bar, it is perfectly legal. But that would be a travesty of the whole idea of listing being for the purpose of wide holding of the stocks.

I am sure promoters would not trade their shares on the first day of listing itself

There are 613 individuals. My take is that these are or were people who were employees and/or relatives of employees who were made to subscribe to 500 shares each at the time of IPO and lsiting at Jaipur and Calcutta stock exchanges. Reason for less demat is clear. Most of these people are not traceable. They would have left the employ of the company or may simply not be the kind of people to hold demat accounts on their own. Usually physical shares can be held benami by holding the share certificate and the transfer deed with the signature of the original holder. This transfer deed can be revalidated by ROC for a fee of Rs 50 and lodged with the company. So if the company management is mine, there is no difficulty in transferring the shares. Problem comes in the demat part. For shares to be held in the demat account, holders need to have KYC and that gets a little tricky.

If I had the patience, I would ask the company for its register of members ( I can get it from ROC/MCA  ) if they have filed and do some research on the 16  Body Corporates who are holding 23.11% ( 18.378 million )( Average 1.14 million- do you smell the rat as yet? )  shares of the company by looking at their registered office addresses  and directors. Usually the registered office address of these companies would be related party address or residential addresses of friends and relatives.

The whole point of this note is we should not get taken in by stated fact that it is a widely held company. It is not. Which makes the share price  to be highly susceptible to manipulation.

Trading data from BSE from 9th September to 18th October reveals this. This is a T2T stock which means unless you have shares, you cannot sell and obviously on day 1 of trading only the old shareholders could trade. On day 1, 2,42,257 shares were traded. This implies that effectively  1/3rd of the shareholders sold their shares which is highly unlikely. Most likely ( and I do not have proof though if SEBI dug into it, it could establish this ) this was a managed operation and after first few days of high volume trading, it is back to 5K trade per day.

For FY 11, after the split, the EPS of the company is about Rs 4 and at current CMP of 150, it carries a PE of 37.5. Management has been shouting from rooftop that they will do a 25% growth in topline and bottom line. Even if, we were to believe it, it would it still mean an EPS of 5 for FY 12 and at current price, a PE of 30 leaving hardly any scope for appreciation in the short run.

Company is highly leveraged with Debt : Equity at more than 1 though it may have some concessional loans under TUFT( did I get this right?) wherein a company pays only 5% interest.  It is fairly clear from the pronouncements that company desperately wants to place its equity and at current Market Cap of about 1200 Cr, a 20% dilution will net it Rs 300 Cr. This alone may make for swings in stock prices so it will bear watching though T2T makes it strictly a cash upfront kind of stock.