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.
At CMP of 140, the co is trading at a Market Cap of about 255 Cr. Now first lets look at the assets of the company:
Harrisons Malayalam Limited (HML) has huge tea and rubber plantations spanning across 23,417 hectares i.e.. approx 57,800 acres. HML is the single largest producer of Rubber in the country with 18,300 acres under cultivation. It is also the largest grower of tea in South India having plantations spread across 15,000 acres. It is also one of the largest farmer of Pineapples in the region. Over the last few years, the company has also been a major processor of other agricultural produce from neighbouring farmlands.
HML through it’s 100% subsidiary – Harrison Financial, holds investments worth more than 225 Cr of group companies like – CES, KEC International, Ceat etc.
HML also has a small projects division. They won a 50 Cr KRCTC contract in January, 2010.
Though in the past the company hasn’t created value and has had a slow growth, but things seem to be changing and major positives are there for the company.
1. All time high Rubber prices:
The rubber prices have risen from about Rs 90/Kg to Rs 180/Kg.
2. Tea prices have been firming over last several months.
3. Management focussing on growth:
There was an article in Business Today magazine on HML, titled – “Entering unchartered waters”. As per the article, the company is doing the following to improve the performance:
a. “Moving away from selling produce as a commodity”. HML is trying to sell branded tea rather than selling it in auctions.
b. Upping land productivity (through re-planting old tea bushes and rubber trees with new high-yielding varieties and inter-cropping pineapples, bananas and other crops with rubber).
c. Upping labour productivity. (Mechanisation has increased to 50% in 2009 from 20% in 2008).
4. Demerger to unlock value:
HML had announced the demerger plans on 29th January, 2010. As per the details, the company is demerging the investment undertaking into Sentil Tea & Exports Ltd (STEL). The shareholder of HML will receive new shares of STEL in the ratio of 1:1.
The investments are worth 225 Cr+ and the equity capital of the new company would be 18.46 Cr. Even if STEL lists at 50% discount to value of investments, the listing price would be Rs 60+.
If one is to consider the replacement value of the huge plantations HML has, the value is unbelievable. Such huge assets can’t be created again. At such low Market Cap, the potential is huge.
Company Website: Harrisons Malayalam
Hi friends, this is exciting!
Asian Hotels (which we recommended recently for its demerger news) has filed a document with BSE detailing the post-demerger financial aspects including the post-demerger balance sheet of the three new companies. We were flirting with the data to guess the post demerger scenario and here are the possibilities (provided in the excel sheet below).
As per the announcement, a shareholder holding 100 shares of Asian Hotels will get:
– 50 shares of AHL residual company
– 50 shares of Chillwinds
– 50 shares of Vardhman Hotels
The new figures show a significant rise in the book values, as during the demerger, the assets are transfered at their fair values.
Do give it a look at the above numbers and share your comments.
About Asian Hotels:
· They operate three 5 star deluxe category hotels. Locations: Delhi, Mumbai & Kolkattta.
· They operate the Hyatt Regency brand on the above three locations.
The stock is still undervalued based on the following logics:
· The hotel sector is also recovering with the upturn in the economy. Going by the latest newspaper headlines, occupancies are back to 85% though ARRs are still 10-20% below normal peak levels. Hotels stocks are still down more than 50% below the crash levels.
· Usually the per room cost (excluding land cost) is considered to be 1 Cr for a good 5 star property. Asian Hotels has 1144 rooms in total and at CMP of 420, the per room M Cap works out to be around 80 lac only.
· The company is believed to have aggressive expansion plans post demerger
Demerger:
The most noticeable point based on the latest demerger scheme is – Promoters are going to infuse Rs. 341 Cr before the demerger by taking a preferential allotment @ 540…while CMP is 420.
Post demerger, the three hotels i.e. at Delhi, Mumbai & Kolkatta will get listed separately. So a shareholder holding 3 shares of Asian Hotels currently will get 1 share each of each of the separate entity.
Since long Asian Hotels hasn’t expanded its hotel base. It is said that there were conflicts between the promoters and hence the company wasn’t aggressive. With the demerger, the negative synergy should be removed.
The unlocking of the hidden value for the current shareholders can be expected with this demerger.