Monday, March 5, 2012

Provogue (India) Ltd - Follow-up

I had written about Provogue demerger a few days ago. Its surely an interesting case with lots of apparent value, but with a very very questionable management. Although my position in it is not very large, I have never ever been so uncomfortable in any stock in my life!
An interesting thing has happened recently. The following announcement has been made on Provogue on NSE:

Members of the Exchange are hereby informed that the trading in equity shares of Provogue (India) Limited shall be suspended w.e.f. March 07, 2012 (i.e. closing hours of trading on March 06, 2012) on account of Scheme of Arrangement & Amalgamation.

This does not happen normally in demergers. Its happening here due to capital reduction in Provogue, which is part of the scheme. Now the interesting thing about this is made up of two parts; one, that the announcement hasn't been made yet on BSE, and so I bloody missed reading it immediately. It won't happen that it will remain listed on BSE while its delisted on NSE. I think it wont be listed on either for some period of time. Secondly, this is something that I was afraid of, (since there is capital reduction happening in Provogue as part of the scheme), hence, I had checked it with the CS of the company when I had begun research on the stock. He had informed me at that time that Provogue will not be delisted.

Now, it seems that it will be!! So what does this mean for us? We will not be able to sell Provogue shares on ex-date (7th March 2012) since it wont be trading on that day. So there are two options:

  1. Sell out pre-demerger; i.e. before 7th. One will not get shares of Prozone in that case.
  2. Hold on and wait for Provogue to get listed again. Then sell off the original (Provogue) position. One will receive shares of Prozone in that case.

So what is the risk? 

  • Time risk: How long will it take to get Provogue relisted? Usually, it does not take long, its only capital reduction. It could take maximum 8-10 days at best. However, if one invests on the basis of best-case scenarios, one should not be in the market at all!! What if due to some god-forsaken reason, it takes a long long time for Provogue to relist again? The money remains trapped in an already uncomfy position. Not an ideal scenario, at least for me.
  • Market risk: What if the market collapses during the time Provogue is not listed? If it gets relisted during bad times, the price could be severely depressed, resulting in losses on the original position.
  • Provogue risk: This is a special category of risk, applicable only in this case. Under this risk, anything can go wrong! Hehe. (Just kidding)

What am I doing?

I intend to sell of my entire position asap, pre-demerger itself. In a position which is already stretching my risk threshold and making me uncomfy, this event increases the risk phenomenally for me. I am very happy and content with my 30-35% profit and am willing to pass on the baton to make more money to others who are willing to take the risk and are ok with it. :-) In special situations, one has to be nimble, think straight and clear, and be ready to take decisions fast, with changing facts.

On a different note, who says luck does not play a role in making money? Earning money in Provogue is enough proof of luck, imho! :-)

Cheers and happy investing!!

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Anonymous said...

Just chanced to see your blog while seraching for Provogue... Never seen it before ... I sold Provogue yesterday but didn't know or anticipate that it may get delisted from today...

I was searching the price today to make an estimation if I did right or wrong move and had a sigh of relief when found that they delisted the stock...My capital is released...

However, your analysis was pretty detailed and in depth... Very frankly I didn't do so much study. I invested purely as a trading play as I earlier badly got hit by Futura Polyester / Innovasynth episode....

Nevertheless, always looked around for these opportunities but bought after the listing of new entity when dumped by institutions.... Like Jubiliant Industries / Zydus Cadila (this was a 5X for me but failed to hold on and it became a 10X for smart people) ....

Promoter, promoter, promoter .... I guess it is the key in Indian market ....

My question to you is what are the SEBI guidelines on this.... I generally check BSE website (NSE website made it very complex for dimwitted guy like me to understand unless I go to older version) and found nothing very clearly there .... But off course their disclosure of 01/03/12 was there ... Is it sufficient?

Thanks again for reading and hope we can get such reports / analyses from you time to time... I am very bad in putting my thoughts in paper in such a detailed way ....

Warm regards,

Aveek Mitra

Neeraj Marathe said...

Hi Aveek,
Glad that you stumbled upon my blog!
Actually, bse also had put up the announcement. its just that they had not put it up in the regular announcements section. i also had missed the bse announcement, just saw the nse one. a reader updated me about it.
and totally agree with you about the nse site being quite unfriendly. i am also a bit technologically backward and resist seeing nse site as much as possible.

Anonymous said...

Thanks for response and the link...Let's keep in touch over mail or FB ... my mail ID is

Neeraj Marathe said...

Most welcome Aveek..

Anonymous said...

Not as lucky as Aveek. read the blog now and i am struck with the shares. Will wait and see what happens...keeping the fingers crossed.

Neeraj Marathe said...

Hi Anonymous,
Who knows, when it relists again, you might actually get lucky! :-)

Rashman said...

Dear Neeraj, Provogue has re-listed around 15-16 (and might still go down further). My understanding was that the EPS for Provogue would remain unchanged?

Neeraj Marathe said...

Hello Rashman,
Yes, the consol eps of Provogue will remain unchanged. In fact, it would marginally improve.

nirbhay patil said...

Any idea when Prozone shares will be listed/

Neeraj Marathe said...

Nope, no idea as such..

Sachin said...

Hi Neeraj,

I have purchased Provogue in Decent Quantity @ 25-28 before demerger. Stock went to 35 but not able to sell before record date. After Demerger, I have sold all provogue shares in between Rs 18.5 - Rs 19.5. My Cost of Acquisition for Prozone is less than Rs 10. Consideing me as Long Term Investor, Please suggest whether I hold Prozone Shares or sold the same on listing date. If Prozone list at Rs 20 then it will be around 6% of my portfolio allocation.

Neeraj Marathe said...

Hello Sachin,
Prozone certainly has value..and also an interesting business. But the mgmt is something that one cannot be 100% comfy with.
I would not suggest a blind long term hold. Plz keep on studying and analysing the company on a continuous basis.