ISPAT Industries – Special Situation

JSW-Ispat

Hello readers,

We are always interested in Special Situations and do keep a tab on some of them.

Prof. Sanjay Bakshi Ji has posted a very educative and practical special situation on his blog. The situation is related to JSW’s takeover of ISPAT Industries. Please read all the facts on his blog and try to participate in it.

Prof. Sanjay Bakshi is a renowned teacher of Behavioral Finance and Value Investing and often shares practical situations and learning examples.

Read his interview

Sanjay Bakshi’s blog | Ispat Special Situation

  • Hi, Just wanted a quick check. i did go through the document, but could not find a mention that the company will issue 1 EQ share for every 1.985 P1 held…
    though if we assume that for the number of equity shares to be issued in conversion then the ratio comes out to 1.985. But why are we assuming that the conversion is not happening for the other types of preference shares?
    I would be thankfull if someone here could point me to the same.

    Thanks and regards

    • Ayush

      Hi Aman,

      As per the document -http://fundooprofessor.files.wordpress.com/2011/02/ispat_pa_22122010.pdf , have a look at point 33 and point 3. The co has 48.59 Cr Preference share which would convert into 24.479 Cr Equity shares. Now divide these two nos and you get the conversion ratio.

      The other pref shares are of different series and only this series has been mentioned for conversion.

      Regards,

      • Thanks for the reply Ayush, but pardon me for the trouble.
        But where have they mentioned that only 0.01% prefrence shares will be converted and not the rest?

    • Ckbhartia

      conversion to other type is not happening because other series carries dividend @ 10 and 12% while the series which is getting converted is 0.01%. Moreover, majority of this class of preference share is held by Mittal. Why would Mittal hold preference shares at 0.01% and wait for redemption in 2018 when control of the company is being passed on to Jindals. The conversion ratio is also informed to BSE in their letter of 21/12/2010.

  • Ayush

    Hi Aman,

    As per the document – http://fundooprofessor.files.wordpress.com/2011/02/ispat_pa_22122010.pdf , have a look at point 33 and point 3. The co has 48.59 Cr Preference share which would convert into 24.479 Cr Equity shares. Now divide these two nos and you get the conversion ratio.

    The other pref shares are of different series and only this series has been mentioned for conversion.

    Regards,

  • SHRAVANRAYHAANPAUL

    HI AYUSH
    i understand nbfcs can be difficult to understand as well as risky .
    however i believe there are a few stocks worthy of investigation-
    ceejay finance-.44 book value , low p/e and extremely strong balance sheet (i think it has 21 percent tier 1 capital , also i guess patel is on board), gud div yield
    sumedha finance-7 percent div,3 p/e,awsum roe and roce. in short gr8 numbers 4 the last 5 yrs. also new promoters have come on board this year. interesting discussion on theequitydesk . com
    brescon finance- almost same as above above, low p/e ,b/v, awsum roe and roce
    tcfc finance- 8 percent div, cmp-23,b/v-65, trading quite below nav
    ( alas! couldnt get the time to calcul8 the nav). one caveat though – has positions in the commodity market , which SEEM to be a small part overall
    btw, all the co.s mentioned above have promoter stakes above or around 50 percent
    EAGER TO HEAR UR THOUGHTS

    • Ayush

      Hi,

      Among the above stock ideas, we haven’t been tracking any of them closely but as you had mentioned the names, we took a quick look:

      1. Ceejay Finance – Though ratios seem to be attractive but there isn’t much growth in the company. The balance sheet size and topline has remained sort of stagnant over last few years.

      2. Sumedha Finance – Yes, this seems to be an interesting company and should be tracked.

      3. Brescon Finance – Couldn’t understand much about the company and sustainability of the same.

      4. TCFC Finance – The co has been holding stocks worth about 20-25 Cr and MF worth 40 Cr as on 31st March, 2010. Today the M Cap of the company is 20-25 Cr. The div yield which seems to be high may not be right (as profits are lower in first 9 months)

      So here is a company at approx 60% discount to NAV. While we have other options like BNK Capital & Summit Securities which are trading at almost 80%+ discount to NAVs. Hence we would prefer them.

      Regards,

  • SHRAVANRAYHAANPAUL

    hey aush,
    i know its kinda silly to ask about this, but with my interest in stocks getting deeper my tendencies to get overwhelmed by reams after reams of financial data is also increase
    SO CAN U PLEASE SHARE UR THOUGHTS ON HOW TO READ AN ANNUAL REPORT?
    p.s. hows the thesis on empire industries?

  • Sandy

    Hi Ayush.. forgive my low knowledge on this matter .. but when i went thru prof.bakshi post and the snapshot of futures market quote, the expiry date of the contract is 24th feb.. doesnt that mean that we have to settle the futures contract on that date.. and if thts true and we dont knw when our preference share will be converted how does this hedge work.. can u pls explain..

  • Sandy

    Hi Ayush.. forgive my low knowledge on this matter .. but when i went thru prof.bakshi post and the snapshot of futures market quote, the expiry date of the contract is 24th feb.. doesnt that mean that we have to settle the futures contract on that date.. and if thts true and we dont knw when our preference share will be converted how does this hedge work.. can u pls explain..

    • Ayush

      Hi,

      In the futures, the contracts are available for 3 months i.e.. at the time of post by Prof. Bakshi, Ispat Ind’s future was available for Feb, March and April. One can buy the next month contract when the Feb contract is about to expire (this is called as rollover). Hence one can continue the short position in the futures market till the pref shares get converted or the arbitrage decreases significantly.

      Regards,

      • Sandy

        Ya.. that clarifies it. thnks

  • SHRAVANRAYHAANPAUL

    hi ayush,
    thanks for replying atlast
    kinda having a joel greenblatt hangover ( just read you can be a stock maket genius too.extremely awsome!, PLEASE PLEASE CHECK IT OUT IF YOU HAVENT) anyways prof greenblatthas pointed out to spinoffs as an area rich with mispricing, with that that in mind just saw the recent bio green industries demerger on the bse rss feed,the co. is persuing a demerger in a ratio of 1:1 between its kraft paper and duplex board division and bio fuels division.(sorry no a/c or a.r available yet) please have a look.
    just thinking about tcfc finance, here are reasons (i maybe quite wrong considering i scored bad marks in a/c , have very ltd. experience in investing , have no gray hair yet and am a big sucker to confirmation bias,hence please bear with me) why i think at least the dividend shall be maintained a)the promoters have a stake of 59 percent presently and have increased their stake by 10 percent approx in the past year, atleast their interest seem quite aligned with the shareholder b)the 1 year(2009-2010) they did stop the dividend it was because they had incurred a loss,unlike this year where the eps is rs11 c)a dividendof rupees 2 wud cause an outfow of rs2 crore approx,which seems quite affordable by the co.
    eager to know ur thoughts. another thing i couldnt understand was tcfc finance shows revenues of 265 crores or so and margins of 40percent or so but profits are like 20 crores only, why is there such an anomaly ?its an investment firm right?
    also about ceejay , i agree that growth is quite stagnant but is the cmp which is at .44 b/v and a p/e of 3 fair? i mean its being priced like its going to crash tommorow with growth , if any thrown in 4 free. in short , IT SEEMS CHEAP AT THIS PRICE.
    EAGER TO HEAR UR THOUGHTS

    • Ayush

      Hi,

      If you are confident on the above ones, do make some positions in those stocks. That is the only way to learn.

      Its not easy to go in-depth until n unless something is really attractive on the initial glance.

      Thanks & Regards,

  • SHRAVANRAYHAANPAUL

    hi ayush,
    thanks for replying atlast
    kinda having a joel greenblatt hangover ( just read you can be a stock maket genius too.extremely awsome!, PLEASE PLEASE CHECK IT OUT IF YOU HAVENT) anyways prof greenblatthas pointed out to spinoffs as an area rich with mispricing, with that that in mind just saw the recent bio green industries demerger on the bse rss feed,the co. is persuing a demerger in a ratio of 1:1 between its kraft paper and duplex board division and bio fuels division.(sorry no a/c or a.r available yet) please have a look.
    just thinking about tcfc finance, here are reasons (i maybe quite wrong considering i scored bad marks in a/c , have very ltd. experience in investing , have no gray hair yet and am a big sucker to confirmation bias,hence please bear with me) why i think at least the dividend shall be maintained a)the promoters have a stake of 59 percent presently and have increased their stake by 10 percent approx in the past year, atleast their interest seem quite aligned with the shareholder b)the 1 year(2009-2010) they did stop the dividend it was because they had incurred a loss,unlike this year where the eps is rs11 c)a dividendof rupees 2 wud cause an outfow of rs2 crore approx,which seems quite affordable by the co.
    eager to know ur thoughts. another thing i couldnt understand was tcfc finance shows revenues of 265 crores or so and margins of 40percent or so but profits are like 20 crores only, why is there such an anomaly ?its an investment firm right?
    also about ceejay , i agree that growth is quite stagnant but is the cmp which is at .44 b/v and a p/e of 3 fair? i mean its being priced like its going to crash tommorow with growth , if any thrown in 4 free. in short , IT SEEMS CHEAP AT THIS PRICE.
    EAGER TO HEAR UR THOUGHTS

  • Ajay Garg

    Hi Ayush ,

    U might have realised i m sure that the discount now in ISPAT is as high as 50% … Does it make sense or are u smelling something fishy about this one … do lemme know your thoughts on the same …

    • Ayush

      Hi Ajay,

      Yes, it could be that something is wrong and the market knows more than us. The gap is increasing on high volumes…its better to be cautious and not to make aggressive position.

      Regards,

      • Siddharth

        Hi Ayush,

        It has been quite some time now and the difference hasn’t really converged as expected. I am wondering if there is any way to get some more information from management/ investor cell about the proposed conversion if at all?

        Regards,
        Siddharth

        • Ayush

          Hi,

          I tried taking an update. It seems this conversion will take another 6-8 months.

          Regards,