Friday, November 26, 2010

Binani Cement - Delisting

A big hello after a long time folks. And my apologies for not being able to post often. However, past performance (or lack of it) may not be sustained in future! :-) So, unlike the recent past, I aim to be more proactive now.

Coming to the point, the post is to discuss the Binani Cement delisting play and a possible opportunity to earn some dough here.

Some basics:


As can be seen, at present EV, Binani Cement is not very expensive. However, given the present scenario in the Cement sector, it is not very cheap either!

Let us now look at the shareholding pattern:


The promoters need 20.1% to delist. J P Morgan Special Situations Mauritius Ltd. and Ganesha Prime Holdings Mauritius Ltd (a subsidiary of Stansen Holdings Singapore) together hold 21.4%. So the delisting would require the co-operation of only these two parties.

So let us check out the history of what these big guys have done:

  • J P Morgan had acquired 25% stake in Binani Cement @ Rs.24 in 2005. Out of this, they disposed 10% @ Rs.75 through an offer for sale in 2006-07 IPO. They further sold 3.4% more in the 2010 buyback @ Rs.90. They hold remaining 11.6%.
  • Ganesha had also acquired its 10% stake pre-IPO. They haven't sold anything yet.

Now to the key question; what would be the delisting price?
The floor price has been set at Rs.82.  The company had recently done a buyback @ Rs.90, in which JP Morgan had participated. So logically, they would not tender shares at a price less than Rs.90. Being the majority non-promoter shareholder, they can surely influence the price. In my view, the minimum delisting price would be Rs.90.

Let us also do a risk analysis:

Valuation risk:
I have not participated in a lot of delisting cases, because valuations did not make sense. However, in the present case, the valuations are not very expensive. This risk is low in my opinion.

Event risk:
This is the risk of the event not happening at all and the delisting getting cancelled. However, the promoters have already taken all the steps to go for delisting. They have increased their stake through buyback. The shareholding is also not scattered, making delisting relatively easy. The promoter who is delisting (Binani Industries) has about Rs.500 cr cash on its balance sheet. The financing for delisting is also not a problem. The event risk is therefore low in my opinion.

Promoter risk:
This is the risk of the quality of the promoters. The Binani Group has not been minority shareholder-friendly in the past. Their actions in Binani Metals in the past speak for themselves. In my opinion, the promoter risk is high. I wouldn't trust them 100%.

Time risk:
This is the risk of the delisting getting delayed. However, I think that the time is ripe for them to delist, considering the depressed market conditions and negatives associated with the sector. The postal ballot for going ahead with the delisting has already been sent. In my opinion, it will take 40-45 days for the reverse book-building process to start. The time risk is therefore low, in my opinion.

To conclude:
With a floor price of Rs.82, Binani offers an opportunity with relatively less downside. A minimum 10% upside is visible, with a holding period of about 2 months. Delisting can be very much successful, due to the concentrated shareholding. However, given my discomfort with the promoter quality, I would not take a huge position in this situation.

Cheers and happy investing!

30 comments:

rajsmusings said...

Hi Neeraj Sir,

Thanks for the post. I have been tracking this one since sometime now. I didn't find the corporate announcement of floor price on the bse or sebi site. Can you please share the link mentioning the floor price with the readers.

Regards
Raja

Neeraj Marathe said...

Hi..
ya i have also been tracking it..waiting, as the price drifted down..
the floor is mentioned in the nse announcements..chk it out..cant paste the link here :-(
cheers!
Neeraj

Janak Naik said...

Neerajbhai,

Seeing your bolg after a long time... I regularly check my google reader... to see if you have something to share...

Now on Binani Cements: How about buying the Binani Cements and not selling or giving back while de-listing process...

please share your thoughts on this one if time permits...

Thanks,
Janak.

Neeraj Marathe said...

Dear Janakbhai,
Nice to hear from u..and my apologies for not being active in between..
WRT ur query, heres wat i have in mind..
It is very much possible that post delisting, Binani Industries (parent) could sell off Binani Cement to some MNC cement company. In this case, the scenario is very much in ur favour and u could gain really good returns over the long term.
However, if they dont do this, i think its a very risky proposition. The Binani Group is KNOWN to be unfair to minority shareholders. And u wud never realise the worth of ur holdings as long as this group holds the company.
Personally, given my discomfort with the promoters, i will not hang on to it..
Of cors, if u r comfortable, u cud take a chance with part of ur holdings, even post delisting..
Hope this helps..
Cheers!
Neeraj

Excel said...

Looking at the price movement of Binani Cement in the recent mid cap carnage
the de-listing would happen
and the price would be dependent on Market condition at the time of reverse book building
Rs. 90 looks likely if the market stays where it is
I have started a similar thread here

http://www.theequitydesk.com/forum/forum_posts.asp?TID=3059&KW=binani+cement

Neeraj Marathe said...

Thnx Excel,
Yes i think the same..
cheers!
Neeraj

Raja said...

Hi Neeraj Sir,

The price is now close to 90. Do you think it makes sense to sell in the open market now or would you suggest seating out and going through the de-listing process in anticipation of a higher price ?

Regards
Raja

Neeraj Marathe said...

Hi Raja,
I would suggest going through the delisting process..90 is the minimum price i expect..of cors if it spurts up to 105-110 or sumthn, i would start selling out..
Cheers!
Neeraj

Raja said...

Hi Neeraj Sir,

The declaration is out now.

http://www.bseindia.com/xml-data/corpfiling/announcement/Binani_Cement_Ltd_200111.pdf

I will go through the details, but thought, will keep you informed.

One question:
1. Do we now expect some kind of communication from the company individually to all shareholders ? Like some form or something ??

Regards
Raja

Neeraj Marathe said...

Hi Raja,
Yes, they had published the announcement in ET on 19th Jan itself..
The company will dispatch the forms to u on the date specified..u will have to mention the price u wud like, for delisting and send back the form..the RBB would be on from 7th to 11th Feb and the result wud be announced on 21st Feb. i think
Cheers!
Neeraj
P.S. Whys u callin me Sir?

Ajay said...

Neeraj, thanks for your posts/chain. A newbie question: at current price of 231.60 for Binani Industries (ISIN: INE071A01013), what might be good options to pursue ? I was in for a long haul, not sure whether to just sit tight or act. What happens if I do nothing. Not a very big holding though.

Ajay
nm123456@gmail.com

Raja said...

Thanks. I thought you are teaching somewhere in Mumbai/Pune, right ??

Regards

Neeraj Marathe said...

Hi Ajay,
Although i have not studied Binani Industries, i think that Binani Industries will sell Binani Cement post delisting. But i have my doubts whether anythin will be passed on the shareholders.
due to management concern, i myself would not invest in Binani Industries.
Cheers!
Neeraj

Neeraj Marathe said...

Hi Raja,
Yes, i do teach in 3 B-schools in Pune..but u really dont need to call me Sir :-)
Cheers!
Neeraj

Raja said...

Hi,

I have really been learning a lot from you about value investing and really appreciate your thought process and the zeal to share it with all for no benefit of yours.

One more question i had. You said, we should be mentioning the price we want for our shares. Can you suggest any realistic figure for that ?
If i understand the process right, suppose if i mentioned a price of say 100/- but most of the shares come in at 90/- then mine might not get accepted at all. right ?

By the way, i write about organic kitchen gardening. Do visit my blog sometime.

Regards
Raja

Neeraj Marathe said...

Hi Raja,
We all learn from each other and i always try to share what little i know..am glad u found it helpful..
Regarding Binani Cement, right now, u have to mention the price of your choice..i am planning to mention 110 bucks..now, if the 'discovered' price comes to lets say 90, its not that ur offer wont b accepted..u have one year to tender your shares at the discovered price if u want..so dont worry about the price right now..right now, only the price discovery is going on..
hope this helped..
And really nice blog..ur interest is very uncommon...
Cheers!
Neeraj

Anonymous said...

Hi Neeraj

Considering the present market price of Rs 92. It is highly probable that the institutional investors would bid at a price greater than 92, say 95 or more.

Regards
devang

Neeraj Marathe said...

Hi Devang,
Very much possible, but buying now, based on this, would be too risky for me..
Cheers!
Neeraj

Anonymous said...

Hi Neeraj

If you have already bought at 82 I can't understand your risk. Since the co. bought back at 90 it is not going to be delisted below that price and also there is no event risk considering the huge institutional holding. The max loss per share could be Rs. 2 if it is delisted at 90.

Regards
Devang

Neeraj Marathe said...

Hi Devang,
I have already built my position below 83 bucks..
What i think is risky, is buying at THIS price.
Firstly, as far as i know, there is no legal compulsion to delist at buyback price..so its not right to assume that 90 is guaranteed..
As regards the risk i feel, its my own perception..i am saying that i feel its risky to start buying at this price..u may, of cors, have a totally different (and possibly correct) opinion..
Cheers!
Neeraj

Suresh said...

Hi Neeraj,
Suppose if I dont tender my share for delisting, what will happen? Will I get the shares of Binani industries if Binani cement is merged with it? What are the issues or benefits of not participating in this delisting offer?

Thanks
Suresh

Neeraj Marathe said...

Hi Suresh,
There is no annoucement/talk of merger of Binani Cement into Binani Ind..so if you choose not to tender the shares/sell them while they r listed, u will be left holding shares of an unlisted company.
The Binani group is not exactly shareholder-friendly, so i personally wouldnt recommend that..
Cheers!
Neeraj

Anonymous said...

Hi Neeraj

The discovered price is most likely to be 90 since the major public shareholder JP Morgan has bid at Rs 90 (unless they revise it upwards which is not likely)

In the circumstance you should sell your holding on the market an pay 15% short term capital gains tax instead of tendering in the delisting offer. Short term Capital gains from tendering will be taxable at your normal tax rate which could be 20% or 30%.

Do your tax calculations and decide based on CMP of the share.

Regards
Devang

Neeraj Marathe said...

Well, thnx a lot for the info Devang..Do u still advocate buying at 90-92?
Neeraj

Suresh said...

Hi Neeraj,
Thanks for your response; I have decided to sell the shares of Binani cement instead of tendering for delist process. Please let me know how many days we have for selling this stock through stock exchanges

Regards
Suresh

Raja said...

Hi Neeraj,

Any update on the discovered price for de-listing ? I think yesterday there was supposed to be a announcement of the discovered price. But am not seeing any press release or news on that.

Regards
Raja

Neeraj Marathe said...

Hi Raja,
The delisting is successful at the discovered price of Rs.90. I saw the announcement in yesterday's (21st Feb) Financial Express, 3rd page.
Cheers!
Neeraj

Raja said...

Oh that's great news!!

However, i have failed to render the shares for de-listing due to some technicalities like my address not being up to date with my broker etc..

What's the best option available to me now ?

Also one more cheeky idea. Assuming i still have the option to render the shares held with me at 90/- within a reasonable period of time, and the market price now being 87/- won't it make sense to go ahead and buy from open market to take advantage of this 3-4% guaranteed arbitrage.

Regards
Raja

Neeraj Marathe said...

Hi Raja,
Do keep the following in mind:
1) Tax implication if u tender in the delisting v/s if u sell in the open mkt.
2) Time, that will be taken by them to pay your money, which could be 2-3 months..
i think the best option is to tender at 90..if the market price goes beyond 89, one call sell it in the mkt itself..
cheers!
Neeraj

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