Thursday, March 1, 2012

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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Raja said...

Hi Neeraj,

Thanks for the all the invaluable learning, and of course not to forget the financial gains :)

I now rue my decision of not buying more in 1300-1400 range, when my orders will not get executed because i'll not compromise Rs.20/- or so in my bid :)
I don't know if it's an apt example of greed or fear ?

This quarter end result was definitely a little surprise for me. The EPS for this Q is more than first 3 Q's combined. And i was definitely not counting on a Rs. 150/- EPS for whole year, expecting somewhere around 115-120/-. Any comment on this ?

Am sure you didn't take into account the 20% surge in price today at the time of writing this post, right ? Any view on at what price one can consider an exit ?

Neeraj Marathe said...

Hi Raja,
Yes, it often happens to all of us..and in hindsight, all of it looks so obvious, leaving us wondering how could we be so stupid at that time!
The result didnt surprise me much, to b honest..the dividend did!
This 20% up and down etc chalta rahega..i am interested in looking at the bigger picture and am still holding on..its a decent % of my portfolio..lets see how things shape up in future..

Ankur Jain said...

Hi Neeraj,

1. Astute observation on the shareholding pattern of Disa. I checked up with
the company. Since the company has received the completion certificate
from the merchant banker, the shares held in the escrow account are
getting transferred to the acquirers. Even the shares tendered by the
corporate bodies are on their way of being transferred.

2. Checked on the Supreme court website. Seems the "spectrum thieves" have
kept the lordships very busy. Disa case hasn't been heard since August
2010. So the case is still subjudice.

3. Agree with you on the valuations. Current price is not a price to sell.
Having said that the Sep and Dec quarters are the best quarters for this
company. March numbers might again be volatile.



Neeraj Marathe said...

Cool! thnx for the update Ankur..and totally agree with you..

Dhwanil said...

Hi niraj

Another excellent post! Some of your inferences based on eye for details are worth replicating. Kudos to you for sharing your insights/views.

Even though I do not have holding in Disa....It made my day!

Neeraj Marathe said...

Hey thnx Dhwanil..
I am sure lotsa people must have noticed it..its just that i wrote about it! :-D

Kaushal said...

does not look like a normal payout at all...a 20% uptick on the core part of one's portfolio! awesome and congratulations.

Neeraj Marathe said...

Thnx kaushal. Ya, awesome for the day..but tomorrow is another day! ;-)

Ayush said...

Excellent work, Bose :)

Neeraj Marathe said...

Hehe..thnx big bose! :-)

Rohit Chauhan said...

doode is all set to retire on this one :)


Neeraj Marathe said...

Lol..yaaa right, if it goes @ 20% per day for a coupla months..then sure! extrapolation, u see! :-)
cheers mate!

Purushottam said...

Neeraj very good blog.. Greatful of you to out your thoughts online..
I see one castor related stock jayant agro to be very interesting..
It is the largest producer in india and seems to have a Moat due to its business of moving towards castor late promoters are buying heavily..
your views and thoughts...

Rohit Chauhan said...

what it will not keep going up by 20% every day :) ? come on ...put on your broker hat :) !


Neeraj Marathe said...

hehe..sorry bad! :-)

Neeraj Marathe said...

Hi Purushottam,
very sorry, but i havnt seen the company, so cant say..

Rohit Chauhan said...

see i told you the stock will keep going up almost every day !!

it is forming a neck and shoulder pattern :) and soon there will be support at 3300 and no resistance as the stock races to 10000 :)

Neeraj Marathe said...

Lol..doode, sarcasm shouldnt be soooo obvious! i mean, neck and shoulder!! hahaha...cummon man..

shiachin said...

DISA came with the March'12 q numbers. Numbers are bad in comparison to awesome dec q numbers and comparable to last march q numbers.
No dividend declared for this q.

Another point to note, promoters now have ~86% holding in DISA

Btw had 2 lower circuits of 5% each in this one .. wait and watch game now i guess

Neeraj Marathe said...

Hello Anchin,
IMHO, if one has to compare quarterly numbers, it has to be a like-to-like comparison. Compare the numbers with the same quarter of the previous financial year, not the preceding quarter. Thats a better way of comparing i think.
WRT Disa, i dont give a lot of importance to the quarterly performance. Its not a FMCG like company where there will be predictable growth every quarter. Performance is going to be lumpy, thats the nature of business..

Neeraj Marathe said...
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