We had discussed Riddhi Siddhi at Rs 285 at our blog here. The company did post much better than expected numbers and the stock had a fantastic run but the stock has been falling since last few weeks. The stock is now at Rs 360. Here is the price graph:
We had mentioned in our earlier post about the possibility of the French Co – Roquette acquiring a majority stake in the listed company. The deal has happened and the details are:
- The French co will be doing a complete takeover of the 3 plants of Riddhi Siddhi.
- The plants have been valued at approx. Enterprise Value of 1250 Crores. Today at CMP of 360, the Market Cap of Riddhi Siddhi is 400 Crore.
- To make the transaction, Riddhi Siddhi will transfer the plants to its subsidiary. Initially the French co will aquire a majority stake with an option of total buy-out.
- For the above arrangement, French co will cancel its existing 15% stake in the listed entity of Riddhi Siddhi.
The deal though looks good but the news hasn’t been welcomed by the market. Reasons:
- Nobody was expecting a total sell out by Riddhi Siddhi’s management. Now the listed entity would be left with just Cash and a power foray.
- The structure of the deal is such that there will be No Open Offer for the shareholders of the listed entity. Hence investors won’t get any major benefit of the takeover by French Company.
- The structure of the deal questions the integrity of the promoters. Had it been a direct take-over, the promoters and minority & small shareholders would have been at same level.
- It would take atleast 9 months to 1 yr for the deal to get fully completed.
- The expected cash on the books would be at the disposal of the promoters.
- Our friend – Neeraj Marathe made a detailed post covering this new method of acquisition and how minority & small shareholders are being “robbed”. As there will be a lot of uncertainty in these cases, the market would continue to value the expected cash on the books at a steep discount in the range of atleast 30-50%. We feel SEBI should come forward and protect the interest of minority and small shareholders.
Riddhi Siddhi was an excellent bet on the growing starch business but post acquisition the business is no longer left. The cash expected to come (in the listed company – Riddhi Sidhi) from the deal is around Rs.800 per share.
Like in other cases, market might value the stock at about 50%+ discount till there is enough transparency and comfort from the management. The gap could narrow only if the management is more transparent and shares the cash with the minority & small shareholders in the form of dividend payout, buyback etc.
In the meanwhile, as there has been a good correction in the mid-cap space, we feel there are better opportunities and hence we are switching out from Riddhi Siddhi.
13 thoughts on “Riddhi Siddhi – French Roquette deal impact”
HOW DOES ONE COMPLAIN TO SEBI?
THINKING ABOUT PESTERING THE INVESTOR RELATION DEPT OF EMPIRE INDUSTRIES) CAN U SUGGEST ANY CLARIFICATIONS / QUESTIONS THAT WOULD MAKE IT EASIER TO EVALUATE EMPIRE?
JUST WONDERING WHICH ENTRY ARE U GONNA SEND TO GEOFF?
P.S WOT R UR THOUGHTS ON CALLING UP COMPANIES PETER LYNCH STYLE?
I think this is the relevant link to make a complaint to SEBI – http://www.sebi.gov.in/Index.jsp?contentDisp=Section&sec_id=4
What are your views on Sukhjit Starch( No 2 after Riddhi Siddhi)? Looks good to me.
Yes, Sukhjit is a good company and has similar efficiency like Riddhi. Another good thing is that the promoters give a good div pay-out.
At these levels the stock is not really cheap.
Sucheta Dalal has taken up the business sale issue by Riddhi Siddhi – http://www.suchetadalal.com/?id=5076dcdf-75fe-5bf2-4d398e1894cc&base=sections&f
what they are doing is not illegal in legal term
though we all know that the money would either be siphoned off or would be utlized in value destructive business
no point complaining nothing will happen
just exit your position
I agree that what they are doing is legal but then what is legal may not be correct and moral. And if everyone starts thinking like this then minority shareholders are at a huge disadvantage. It destroys the atmosphere of investing.
I think we should raise the issue and bring it to the notice of authorities. Effort is needed for sure…may be it makes a difference.
In our above post we have advised investors to reduce position.
NEWSFLASH- FB IS A REALLY GUD SITE TO BE ON ESPECIALLY IF U WANT TO WRITE A WRONG…LOL(by the way , even riddhi siddhi has a page on facebiik)
EVEN ROHIT IS THERE NOW!…hoping to c u on fb soon
thanks for the link
p.s decided on ur geoff entry?
Any update on Riddhi Siddhi post the deal? Like the promoters plans as to what they will be doing with the money received, new ventures etc.?
The promoters have been opaque since the announcement of the deal. This is the reason we had advised exit earlier – https://dalal-street.in/riddhi-siddhi-french-roquette-deal-impact/
I do agree with all the ideas you’ve presented in your post. They’re really convincing and will definitely work. Thanks for the post.
The stock has hit UC yesterday, but many more UCs required to reach earlier levels. Your view on the current scenario will be helpful
We haven’t been tracking it after the exit call given at our blog. The issue with the way the deal is structured is that it seems the promoters don’t want to share the wealth with minority shareholders.