Disa India - follow-up post

I had written about Disa India about an year ago and had followed it up with my AGM notes on the company. 
Well, today something happened which necessitates a follow-up post about Disa, imho. Disa declared its results for the quarter and year ended December 2011. The results are extremely good in my opinion, with the company posting an EPS of Rs.150 for the calender year 2011.
Well, that is not the extra-ordinary part. What is extra-ordinary is that the company declared 2000% (Rs.200 per share) dividend, rather out-of-the-blue. So, on an EPS of Rs.150, thats a payout of 133%! Generous indeed!
The question which arises, of course, is - have they gone bonkers?! The company had total cash of about Rs.60 crores as on December 31, 2011 and they are going to pay out Rs.30 crores of dividend (pre-tax). Now why would they do this? I believe there is more than what meets the eye here.
Let us consider a few points...

• If one looks at the promoter holding in the September 2011 quarter, it was 74.27%. For the December 2011 quarter, it has become 74.48%. Thats a small (but significant) difference of 0.21% or 3101 shares.
• If one goes through the September 2011 shareholding pattern, note no.5 says that "Individual upto one lakh (Non-institutions) includes 3,101 shares received in the Open Offer made by the Acquirers in the year 2009, which are still to be transferred in the name of the Acquirer. Transfer pending since the matter is subjudiced." Now, that seems to have been transferred.
• Note no.4 in the same says that "Bodies Corporate ( Non Institutions) Includes 181,384 shares in Escrow Account received in the Open Offer made by the Acquirers in the year 2009, which are still to be transferred in the name of the Acquirer. Transfer pending since the matter is subjudiced."
• So, now, if the 'individuals' part is transferred, they could well be on their way to transfer the 'bodies corporate' part too, which so far has been held in escrow account.
• If they transfer the same too, the promoter holding goes up to 86.49%, suddenly making it a prime delisting candidate.

Now, if we relate these to their decision of this large dividend payout, a few dots can be connected and a (bit hazy) picture emerges...

• Who would be the biggest beneficiary of dividend? The largest shareholder of course, i.e. the promoters!
• So, take out money from the company and (maybe) use it to delist the company! As a side-effect, we minority shareholders can also enjoy dividend!
• Secondly, how would be balance sheet look like if its stripped of cash? Not very attractive, right? Well, a lesser attractive balance sheet means that less premium needs to be paid on delisting!
• Another possibility (although remote) is that the company is up for sale, before which, the present owners are stripping the cash. (This is exactly what happened the last time they declared Rs.200 dividend in CY 2007)
• And of course, if we leave the conspiracy theories and my hyper-active-had-too-much-coffee-brain aside, it could be just a 'normal' payout since they do not need so much cash for capex. (Although I do not think so.)

So, finally, what to do! At a market cap of Rs.300 cr, the company is not dirt-cheap anymore. Although, it is not over-the-top-expensive to sell. I intend to keep on holding and keep a watch on what happens in future. At this market cap, get into it only if you are adventurous and whole-heartedly want to punt on the 'delisting theme', like so many people seem to to doing currently! :-)

Cheers and happy investing!



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