Sunday, April 10, 2011

DISA India - An Interesting Case

Before I begin blabbering about the company, a disclosure from my side. (Usually I dont give disclosures, but I feel in this case, it is a must). I have been a constant buyer in this stock below 1330 levels and I intend to do it again if I get the chance! I had presented this as an investment idea at a couple of investor conferences during that time, when I was buying, but could not post it on the blog due to paucity of time and in-general-laziness! So please keep this in mind before taking any 'action' in Disa India. Also, PLEASE do read my introductory post.

Now that I have gotten that out of the way, let us look at this particular case...

On the face of it, Disa India Ltd. looks like this:

Nothing worth jumping up from the chair, it would seem.. Well, if we do a regular excel sheet, it would look even sadder.

Disa is one stock idea you just cant express on the excel sheet!!!
To be honest, in case of a lot of interesting investment opportunities, one has to get out of the excel sheet!

I am looking at Disa from two angles; as a delisting candidate and as a business.

Disa - the delisting candidate

If one goes through the latest shareholding pattern, promoters hold 74.27%. However, if we look at the 1%+ holders, another 12.01% are held in an escrow account, these are basically shares that the parent had acquired through an open offer in 2009. However, SEBI contested the open offer price calculation, hence, the shares are held in escrow till the matter is solved. SEBI has lost the case in SAT and has now appealed in the Supreme Court against Disa. More details can be found here.
So effectively, Disa promoters hold 86.28% shares of the company. So they will have to either bring down their holding to 74% or delist in due course of time. As far as I have searched, there are no other subsidiaries of the Norican Group (the parent), which are listed.
This makes Disa India a prime delisting candidate. Time will tell if at all they will opt for delisting, and when. Delisting is anyway going to be difficult, given the super-scattered shareholding pattern. FYI, Disa had tried delisting in 2007. The 'discovered price' came to Rs.2960 per share. This was rejected by the management and delisting failed.

Disa - the business

Disa India is a subsidiary of the Norican Group, a Denmark based entity formed from the merger of Disa (a forging and moulding machinery and equipments manufacturer) and Wheelabrator (a surface treatment and preparation equipment manufacturer) to form a global leader, renamed as the Norican Group. More info here.

For a number of years, Disa was just floating aimlessly. There was virtually no growth, no innovations, no product launches..nothing. The formation of the Norican Group seems to have changed it all. Disa is now expanding, going in for higher R&D, better innovations, launching new products and basically becoming very much proactive. I urge you to please read and absorb this and this article fully. It will surely give you an idea about the 'change' in the company, which I am talking about and the scope for growth for its products.
The December 2010 quarter results do show the improvement in the business. (Most of the new launches were done in mid 2010, so the December 2010 quarter results were of great interest to me.)

Click to enlarge

Disa seems to be quite on track to improve business and financial performance significantly. The product launches, the R&D, the industry feedback, all suggest so.

If I can get India's largest foundry and surface treatment equipment manufacturer at a market cap of Rs.200 cr and an EV of Rs.150ish cr, I think it is a good deal. The delisting angle adds to the goodyness of the deal!
I intend to attend the company's AGM, where I hope to get more information and feedback on the same.

In order to keep the length of the article to a reasonable level (so that the reader will not fall asleep on the keyboard), I have omitted certain details which I felt weren't absolutely critical. Please do get in touch with me in case of any queries or feedback.

Cheers and happy investing!


Kiran said...

Hi Neeraj,

Very interesting case. Business case aside (I haven't looked into it yet), I have few doubts on delisting. There are many MNCs (I list them below) with fantastic businesses and yet have not delisted. Any particular reason of why would this delist? Here is a brief list with promoter holding greater than 70% -

Company Promoter holding(%)
Astrazeneca Pharma 90
BOC India 89.48
Gillette India 88.73
Elantas Beck India 88.55
Kennametal India 88.16
Foseco India 86.48
Saint-Gobain Sekurit India 85.77
Fairfield Atlas 83.91
Atlas Copco 83.77
Tudor India 83.63
Ineos ABS (India) 83.33
SI Group-India 83.21
Honeywell Automation India 81.24
Blue Dart Express 81.03
Oracle Financial Ser Soft 80.56
Lotte India Corporation 80.39
Timken India 80.02
Sharp India* 80
Alfa Laval (India) 76.73
Matrix Laboratories 76.13
3M India 76
GMM Pfaudler 75.69
Micro Inks* 75
Multibase India 75
Seamec 75
Whirlpool India 75
Timex Group India 74.93
Thomas Cook (India) 74.89
Disa India 74.27
Albright & Wilson Chemicals 74.14
Panasonic Carbon India 74.05
Voith Paper Fabrics India 74.04
Goodricke Group 74
Goodyear India 74
Ingersoll-Rand (India) 74
Ricoh India 73.6
Denso India 73.46
Insilco 73.11
Areva T&D India 72.18
Monsanto India 72.15
DIC India 71.75
Caprihans India 71.64
BASF India 71.18
Bayer Cropscience 71.11
Castrol India 71.03
Grindwell Norton 70.64
Panasonic Home Appliances 70.42

Neeraj Marathe said...

Hi Kiran,
Nice to hear from u..yes, u r absolutely right about there being so many delisting candidates. (in fact, currently there is so much talk bout delistings goin on, it makes me uncomfy)
Regarding Disa, i did not start looking at it as a delisting candidate. It came to my attention due to its new and interesting product launches.
Co-incidentally, it also happens to be a delisting candidate. (due to high promoter holding..and they have tried it before)
I cannot say FOR CERTAIN that they WILL delist..its just something that shud b kept in mind, imho..
Hope this answers ur query..

Robin Thomas said...

Hi Neeraj
I was wondering how you came up with the price of 1330. Is it some valuation you have done, or is it some value at which your bought this company earlier?

'Bade mian' said...

Nice blog. About DISA, without going into details, I am confused about one thing - the price behavior.
Going back 5 years, it was only briefly in 2007 beginning where you could get DISA for under 1000. Otherwise, it has been mostly around 1300 - 1400 - 1500, briefly running up to 2400 also (again near end 2007)
Now, if I were an investor, the share has gone NOWHERE for me in the last 5 year. Traded in a 10 - 15% range.
How do I earn money on that?
What is keeping this rangebound?

Neeraj Marathe said...

Hello Bade Mian..
1) how many product launches has Disa done in the said period? Has financial performance improved in the said period? So why would the price rise?
2) i do not believe in technical analysis and i do not see past price movements..(its just my approach and not everyone may agree)..
3) does the future hold potential for Disa? if it does and financial performance improves, stock price has to rise..
hope this helped..

Neeraj Marathe said...

Hi Robin,
Based on my reading, i was comfortable at that market-cap..hence the price..

Sangram Pradhan said...

Hi Neeraj,
I was very excited to see your blog. Its great to finally meet someone from value fraternity! Hope to communicate and build a connection here. I am definitely reading about Disa after work today!
Thank you,

Neeraj Marathe said...

Thnx Sangram,
Gud to hear from u..

Raja said...

Hi Neeraj,

You have mentioned about presenting the idea in few "investor conferences".

My question is, how does a normal small time aspiring investor get to participate in such conferences ?

I live in Bangalore(if that might matter).


Raja said...

Hi Neeraj,

Sorry to bug you with few more questions. The AGM is getting held on 6th May as per the info available.

Do you plan to attend it ? Do we require some kind of invite from the company to attend it ? Or the existing shareholders can just walk in ?

I too want to attend the AGM. This will be a first for me (i.e., if i get to attend it). I do own a few shares of it now, more from a learning experience.


Neeraj Marathe said...

Hi Raja,
U dont bug me at all..communicating with ppl is the basic motive behind the plz dont say that..
Attending investor conferences n all is no big deal really..i get to speak at some conferences coz i have been in this industry for quite some time and know some ppl..
regarding attending disa's agm, u must have received the annual report, right? just come with the annual report and ur demat account details at the place and time for the agm (mentioned in the annual report)..other formalities u will have to fulfill at the venue, its not a case u have not recvd the annual report, just come with ur latest demat account statement showing that u r a shareholder. usually, they do admit u at the agm when u show the statement, in absence of the AR.
hope this helps

anmol sekhri said...

hi Neeraj,

whats your feedback after attnding agm of disa?

anmol sekhri

Anonymous said...

sadder is not a word

Neeraj Marathe said...

Hi Anmol,
I have written a separate post on the AGM..hope it helped..

Neeraj Marathe said...

Dear Anonymous,
U have made me sadder by commenting on a single word, rather than the contents of the post..
I hope u excuse me..i do not have a phd in english literature..(although i am doing my phd in investing)..

(FYI, if u chk out any online dictionary, 'sadder' IS, in fact, a word) :-) i hope u dont mind this smiley, coz it surely isnt a word!

Dinesh Shirvaikar said...

Just read on moneycontrol that SEBI has lost the court case against Disa India and the shareholders who surrendered the shares in the open offer 2 years back will get nothing. Disa India in its recent announcement has added these shares into their a/c and now the shareholding of the parent company has gone up to 86.48% leaving only 13.52% with the public. In other words just around 204,000 shares are held by the public. For delisting the company just needs 50% of the total outstanding shares from the Public i.e. 102,000.

Neeraj Marathe said...

Thnx for the info Dinesh..

Neeraj Marathe said...

Thnx for the info Dinesh..

Austin Victoria said...

Hi Neeraj! hope you are well. Any idea why Disa India price has crashed so badly post ex-date? Any delisting in sight?

Neeraj Marathe said...

Hi Austin,
No idea why the price dropped mate, other than it dropped because lot of people sold! :-)
No talk of delisting as such..