In the Q & A session at this AGM, someone asked a question on Poona Bottling Company (PBCL) but the management did not reply. From the latest Annual Report, I find that Grauer & Weil (G&W) has sold its 91,960 shares of PBCL and exited the company totally.
Though the AR does not clearly say so, it appears from Other Income and Cash Flow Statement that the sale has been done at PBCL’s Face Value of Rs.100 per share, fetching the company Rs.92 lacs and an accounting profit of Rs.88 lacs. But how much is PBCL really worth?
Back in the early 2000s, G&W held a 77.22% stake in PBCL. At that time, PBCL was a profit making company, had no debt and owned a large piece of land near Pune. The company planned to develop the land into an I.T. Park. But in FY2007, G&W sold 49,980 shares of PBCL @ Rs.83.40 per share, reducing its stake to 50.78% (in favor of whom is not known), valuing PBCL at Rs.1.50 crore.
In Oct-Dec 2009, PBCL acquired an 18.07% stake in G&W. And so, over the years as market cap of G&W has increased, PBCL has become more and more valuable. But strangely, as PBCL’s value has increased, G&W has quietly reduced its stake in the company, often without adequate compensation (or at least disclosures).
In FY2012, G&W sold 4,000 shares of PBCL “at market value”. Though G&W does not reveal the price at which the shares were sold, back-of-the-envelop calculations suggest the shares were sold for around Rs.22 lacs, valuing PBCL at Rs.10.40 crore. More importantly, the effect of this sale was that PBCL ceased to be a subsidiary of G&W with its stake coming down from 50.78% to 48.66% and became an Associate Company.
In FY2015, G&W further reduced its stake in PBCL from 48.66% to 30.89%.
However, Annual Report shows the number of shares held by G&W remained the same.
This implies PBCL made a fresh issue of shares to someone else. It is not clear to whom these shares were issued, at what price, who did the valuation and why G&W was giving up its stake without getting anything meaningful in return.
In FY2017, G&W reduced its stake in PBCL further to 18.27%, with the same modus operandi. At the 2017 AGM, I met Mr. Umesh More and enquired about what was happening with the company’s stake in PBCL and why it was being reduced. He said something about de-risking the main company which left me unconvinced. I asked him whether there was any plan to reduce the stake further to which he did not reply. A mail sent to the company at that time went unanswered.
In FY2021, G&W has exited the company completely, selling its remaining holding of 91,960 shares for just Rs.100 per share. PBCL has effectively disappeared from Grauer & Weil’s balance sheet. But it is safe to assume its value has increased substantially over the years. At the current market cap of Grauer & Weil of around Rs.1,400 crore, PBCL’s 18-odd percent stake in G&W itself is worth around Rs.250 crore. In addition, the large piece of land which the company can (or already has) commercially develop(ed) would be worth quite a lot.
Grauer & Weil’s minority shareholders seem to have missed out on their rightful gains.
Disclosure: Was a shareholder in the past but no positions currently. This is not a recommendation to buy or sell. My opinion may change if more information comes to light, please do your own analysis before taking any decision.