CHI Archives | Dalal-Street

Summit Securities–Re listing today

We are happy that Summit Securities is getting listed today after a lot of persuasion.

Summit Securities is part of the RPG group and is a finance company holding shares of group cos of RPG group. The company got created on the merger of five similar finance companies – CHI Investments, Summit Securities, Octav Investments, Brabourne & RPG Itochu (unlisted).

We have been tracking Summit Securities as we had recommended CHI Investments, which got merged on 2 February 2010.

So what is the value in the company:

Post re-structuring the equity of the company is 10.90 Crore.

Some of the major investments held by the company as per consolidated accounts are:

Continue reading Summit Securities–Re listing today

BNK Capital – Hidden deep value

BNK Capital is a small finance company with experience of over several decades. The company provides brokering services across the various products such as equities, commodities etc and serves several HNIs and corporates.

The interesting part is the market value of the investment the company holds. Some of the major investments are:

As on 18th Feb, 2010


Name	Qty	CMP	Value (Cr)
CESC Ltd	30,17,351	378.00	114.06
India Foils Ltd.	2,24,000	10.00	0.22
Mcleod Russel Ltd.	2,74,205	234.00	6.42
KEC International Ltd.	3,75,105	577.00	21.64
Zensar Technologies Ltd.	4,200	286.00	0.12
Jaipraksh Associates	37,500	135.00	0.51

Total			142.97
* Co holds a lot of other investments also totalling 4-5 Cr

At CMP of about 42, the co’s own Mcap is close to 25 Cr while the value of marketable investments on Balance sheet is 143 Cr!! Hence the company is available at a discount of 82.65% to the value of investments. Similar valuations were once found in CHI Investments too, which was then our favorite and yielded very good returns.

Yes, many of the similar finance companies trade at discounts to their market value of investments, but such discounts are usually not more than 30-35%. Here we are getting a company at 83% discount.

Update on Q3 nos

“Its’ the work on your desk…It’s the work on your desk. Do well with what you already have and more will come in.” – Charlie Munger

Dear Friends,

This post is to bring an update and review of all the stocks discussed till now.

Performance till now:

S.NO	SCRIP NAME	Date of Recommendation	Price of Recommendation	CMP	Percentage Returns	Remarks
1	CHI Investment	11-05-2009	25	45	80.00	Exit was advised earlier at higher price
2	Shilpa Medicare	26-07-2009	93	239	156.99	Hold
3	Jaihind Projects	02-08-2009	95	173	82.11	Hold
4	Albert David	25-08-2009	75	119	58.67	Book partial profits
5	Siemens Healthcare	14-09-2009	1100	1270	15.45	Exit was advised earlier
6	Ahlcon Parentals	28-09-2009	37	47	27.03	Hold
7	Fresenius Kabi	28-09-2009	80	120	50.00	Book partial profits
8	Majestic Auto	22-10-2009	68	62	-8.82	Hold
9	Suprajit Eng	26-10-2009	90	155	72.22	Hold
10	IST Ltd	16-11-2009	100	140	40.00	Buy
11	Manjushree Technopack	18-11-2009	32	46	43.75	Hold
12	Asian Hotels	01-12-2009	425	508	19.53	Buy on declines

Individual Updates:

1. Shilpa Medicare: This stock has been a wealth-creater. The company has yet again posted excellent Q3 nos. Based on the same, the future looks bright and the stock is getting the attention of bigger investors (Read: ICICI Prudential mutual fund 🙂 ). On repeat or better financial performance, the stock has potential to reach 350 levels.

2. Jaihind Projects: The company has been doing well. As per a recent ET article, the co has to complete major projects by mid this year. One should continue to hold.

3. Albert David: This stock was picked as more of a value pick to park idle funds. One can consider booking partial profits.

4. Suprajit Engineering: The company has come out with excellent Q3 nos. The stock has also done well. To reward the shareholders, the management has proposed 45% interim dividend, 1:1 bonus and stock split. Though a bit aggressive than required, all these developments can take the stock to higher levels.

5. IST Ltd: As per the recent updates, the construction activities are going at good pace and co has built almost 10 lac sq ft of space. Leasing out of the same in due time will be a very positive development. If things keep going as per the plans, the stock has all the potentials of becoming a multi-bagger.

6. Manjushree Technopack: We have been providing updates in other threads.

7. Asian Hotels: Usually demergers create lot of shareholder wealth. So one should remain invested and look forward to buying on declines.

We are trying to bring some new picks from the Q3 nos. In the meanwhile some of my other favourite cos have come out with very good numbers and investors can consider them for investing: Balkrishna Industries & Poly Medicure.

Majestic Auto

Hero Honda has once again come out with brilliant performance. I have been missing investing into this company for quite some time.

Another beneficiary of the stock price of Hero Honda is Majestic Auto. Majestic holds 16.25 lac shares of Hero Honda valued at 262 Cr, as of today, while it’s own M Cap is just 69 Cr. It also has other hidden assets like factory, land and other business interests. The company will also benefit by way of higher dividend – which Hero Honda should payout this year.

CHI Investments – Update

ETIG has recommended deep discounted holding companies for long term investment in it’s article: http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=ETNEW&BaseHref=ETM/2009/09/07&PageLabel=19&EntityId=Ar01900&ViewMode=HTML&GZ=T

CHI Investments has topped the list and is still available at approx 84% discount to it’s NAV J. We had recommended CHI Investments at just Rs 25 in our blog post: https://dalal-street.in/chi-investments-interestingly-mis-priced/

With better discovery by investors, this mispricing should reduce going forward. The gap can reduce to 50% of NAV like in other holding cos. If so, the stock has potential to reach Rs 125-150+ in long term. Another positive factor in this stock is – that it is listed both on NSE & BSE and has decent liquidity unlike other small holding cos (which are illiquid). Also, CHI Investments has investments in cos which are related to power sector and have high growth plans.

With increasing media coverage and shareholders, the risk of unjust merger is also getting reduced.

CHI Investments – proposed merger impact

Dear Friends,

RPG group has proposed the merger of the listed finance cos viz. CHI Investments, Summit Sec, Octave Investments, Brabourne Ent with RPG Itochu Finance. As per the preliminary analysis, I feel the scheme and ratios are unjust to the shareholders of CHI Investments.

There are two issues in this amalgamation:

1) RPG Itochu Finance Ltd shouldn’t be a blank company i.e. it should offer value equivalent to the value being offered by the merging companies. Explanation: We have been informed that RPG Itochu is having equity of close to Rs. 5 Cr without having any significant operations, assets or profitability on balance sheet. If so, it will reduce the current value of the merging companies by 50+%.

2) The swap ratios seem unjust:

The logic in all these four cos is: They are just holding cos, so the best way to value them is – consider the market value of investments they have and consider the exchange ratio accordingly, while RPG is trying to give benefit to Summit Securities which has the least value (refer column F below) among all the four listed companies.

Here is the calculation sheet:

Merger Impact (as on 13th July)
	Equity	CMP	Current Mcap of Company	MV of Invest.	Ratio (MV of Invst/Mcap of Co.)	1 Share of RPG Itochu for	New Equity creation in RPG Itochu	Cost to shareholder in new co.
	A	B	D	E	F = (E/D)	G	(A/G)	*H = BG**
Summit	48.51	8.4	40.75	165	4.05	16	3.03	134
Brabourne	14.39	7.75	11.15	58.04	5.20	28	0.51	217
CHI Investments	11.46	28	32.09	258.80	8.07	6	1.91	168
Octav Investments	3.01	20	6.02	26.11	4.34	21	0.14	420
				507.95			5.60

MValue of Investments per share in new company (436.93/5.60)		907.19

RPG group is trying to give more value to Summit Securities where the ratio of MV of investments to MCap of the company itself (i.e.. column F) is the lowest. i.e.. 4.05 times vs 8.07 of CHI Investments. So the company having the least value has been offered the best swap ratio (refer column H) and other companies i.e.. CHI Investments and Octave are being penalized L

The approximate damage to the shareholders of CHI is:

Damage to shareholders of CHI Investments
	Earlier		After Merger
M Value of Investments per share	225.83		907.19
Cost to shareholder	28.00	(CMP)	168.00	(As per merger ratio of 1:6)
Ratio (of Value of Investments per share)	8.07		5.40

Damage:	33.05%

This is a clear case of unjust value erosion to the shareholders of CHI Investments. We should take the matter to the company and SEBI etc.

If the management’s intention is to just consolidate the cos into one company, why merge these into RPG Itochu?? Why not merge the other 3 companies into CHI Investments which itself is listed on both BSE & NSE.

At the bare minimum, they should revise the swap ratio for shareholders of Summit Securities to 1:56 from 1:16 (Logic: CHI holds value 8.07 times while Summit has value of only 2.31 times so swap ratio for Summit should be 2 times more than current ratio). Ideal swap ratio for Summit Securities should be 1:40, if swap ratio for CHI is 1:06, to bring the shareholders to the same level.

Management should provide details on RPG Itochu and the rationale for these swap ratios.

If the swap ratio gets corrected it will result into value-unlocking for CHI Investments.

Assumptions:

All calculations have been done considering RPG Itochu finance to be a new company created for the purpose of merger or having a very small equity capital.
I haven’t considered the value of unlisted investments in the above companies (they are less than 10% of the total investments).
Haven’t considered the impact of merger of Instant Holdings with KEC, which is a subsidiary of Brabourne Enterprises.

P.S. There were few updates on the Value of investments in the companies the effect of which has been updated on 26th July 09.

UPDATE: The most important question in this amalgamation scheme is – What does RPG Itochu Finance Ltd has to offer ?

As per recent updates, it has been known that RPG Itochu Finance Ltd is having an equity of close to 5 crores with no significant operations. If so, then this merger will reduce the value of merging companies by 50+%. The effect of the same is not reflected in the tables above.

The ride of CHI Investments

CHI Investments has hit an another upper circuit closing at Rs.44.25. What a wonderful ride it is going on.

We recommended CHI Investments on 15th May on this blog, when its price was Rs.25.

CHI Investments may reach Rs.70 in near future and the old investors should start reducing their average costs (and enter into other value picks). However, we still recommend in holding a major part of the stock for a long term.

The real beauty of the stock is that it is still discounted at around 85% as KEC (forming 50% of its portfolio) too has seen a similar price rise. Seeing the recent trend, it wont be hard for the stock to reach the optimum levels and reduce the discounting.

Keep circuiting up CHI Investments!