Meghmani Organics Ltd


(sagararya) #256

one should consider the promoter shareholding in MOL to calculate this… Promoters own 50% in MOL. Below is my understanding

  1. In a simple transaction all promoters had to do was get 225 cr for 25% stake and they would have increased their stake to 43%. NBFCs provide funding for promoter buyback (in that case a pledge on cash flows/stock would have been seen as a negative) However the fact that they resorted to such a complicated structure means there is something fishy.
  2. Effective payment -
    Initial 220 cr - Promoters paid 18%*220 i.e their stake in MFL + 83%*50%*220 i.e their stake in MOL which amounts to 131 cr. Therefore the minority bore approx 90 cr

For the repayment of second tranche of 211 cr @ 8% over 10 years - Present Value of 163 cr at 12% discount rate
Promoters will pay 43%*163 i.e their effective stake post transaction + 57% * 50% * 163 i.e their stake through MOL post transaction which amounts to 117 cr

Total Payment = 163+220 i.e 383 cr out of which promoters pay only 131+113 i.e 244 cr

Cant help but ask the question why couldnt the promoters borrow a relatively smaller amount of 225 cr in their personal capacity? May be not to create any pledge on their personal assets or stock … maybe they dont have enough market cap or personal assets to pledge as NBFCs normally ask 2x cover on stock plus hard collateral


(arunjacob) #257

there is nothing to get confused here . promoter took money from minority share holder .

even in the best case scenario , promoter took 225 cr (consider as loan for better understanding) from MOL & they pay back 43% of (220cr + 211 cr (asuming 211 cr will come back)) which is 185 cr.That still leaves minority share holders with a loss of 225 -185 = 45 cr & a loan which will be paid back in 10 years.

Disc : invested . Not selling but keep track of management behaviour in future .


(Raj A A) #258

Meghmani Tanks 18% on Stake Recast Concerns

[email protected]

Mumbai:

Shares of Meghmani Organics (MOL), a diversified chemical company, declined up to 18% Thursday after the management failed to clear lingering concerns over restructuring during a conference call with investors and analysts.

“When asked about the reason for increasing the promoter stake in one of its subsidiaries, Meghmani Finechem, without investing any money from their pockets, the management was evasive during the conference call on Wednesday,” said Arun Kejriwal, founder & CEO, Kris Advisory. “It did not explain clearly the restructuring process and that led to the slide in stock prices.”

The stock almost trebled in 2017 but has declined 42% so far this year. On Thursday, the MOL stock ended at ₹61.75, down 14.65%.

MOL held 57% of Meghmani Finechem, while International Finance Corporation (IFC) and promoters owned 24.97% and 18.03%, respectively. Recently, Meghmani Agrochemicals Private Limited (MAPL), a wholly-owned subsidiary of MOL, acquired 24.97% equity stake held by IFC in Meghmani Finechem for ₹221.2 crore.

After this transaction, MOL announced the merger of Meghmani Finechem and Meghmani Agrochemicals by paying back ₹221 crore to MOL, which was given to Meghmani Agro to buy back the IFC stake.

During the conference call, the management said that the board of directors of MOL has decided against increasing its stake in Meghmani Finechem, and the merged entity will pay ₹211 crore to MOL with a coupon rate of 8% over the next 10 years. It also said that the promoter holding in the merged entity climbs from 18.03% to 43%, but failed to explain the rationale behind the increase in stake.

An email query sent to the company did not elicit any response until the publication of this report.

In 2008, MOL had brought in IFC, a member of the World Bank Group, as a strategic investor in its basic chemicals business. The fund made an investment of ₹46.1 crore in MFL for setting up a cutting edge environment-friendly caustic chlorine project using the energy-efficient membrane cell technology. In 2012, IFC further invested ₹6.9 crore on a rights basis to further expand the capacity of the plant.

The company reported a consolidated revenue growth of 8.84% to ₹501 crore for the September quarter. Operating profit or earnings before interest, tax, depreciation and amortisation (EBITDA) came in at ₹116.78 crore, up 13.61% year-on-year. EBITDA margin stood at 23.29%, up 98 bps. Net profit for the quarter came in at ₹61.79 crore, up 12.11%.

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(Hardikjuneja) #259

As per my understanding MACL is 100% subsidiary of MOL and the investment is bought by MACL. Now, whether preference share gets converted to equity or not should not effect the % holding of MOL.
On consolidation of financials of MOL, this investment of MACL will be reflected in the financials and preference share capital transaction will get knock off.
So ultimately at console level MOL will have 57% + 25% which belongs to all the shareholders.
I believe there is no fraud in this transaction its only confusion which has been created around it.

Please correct me if my understanding is wrong.
Thanks


(ASG) #260

This was my understanding too. but MD said that this 25% will go to promoters and
MFL will return the 200 odd crore to MOL… This is bcos as per MD, MOL board does not want exposure of more than 57% in MOL.


(Asuthosh T) #261

In April 2018, IFC was given exit on 25 % stake which was valued @ 221 cr

Valuation prior exit would be as followed:
IFC 25% 221 cr
MOL 57 % 503.9 cr
Promoter 18 % 159.1 cr

How 221 cr is arranged for IFC exit? using spv( Special purpose vehicle ie MACL new subsidiary company formed)
And MOL will provide loan of 221 cr , and MFL uses that money to exit IFC.

Question of bought back 25 % stake to allocate :

MOL board decided to not increase their original stake of 57 % in MFL, so they increased stake of promoter from 18 to 43% ( 18+25)

Now current stake in MFL would be as follows

MOL - 57 % and Promoter 43 %

Resulting valuation

159.1 cr of Promoter becomes 43 % => total valuation of MFL became 370 cr
And 503.9 cr of MOL stake in MFL became lesser by 210.9 cr.

Final Decision :

MFL will pay back 221 cr Loan in March 2019 with 8 % interest.
+
the 211 cr( 210.9 cr - because of 503.9 cr of MOL stake in MFL became lesser by 210.9 cr.)

The 211 cr will be paid in 10 years time with 8 % ineterest rate.

Conclusion : Promoters motive was to increase their own stake from 18 to 43 % in MFL ,when IFC decided to exit their 25 %. If promoter had gone to take loan from Banks, or NBFC they themselves had to pay back.
But , here they introduced very clever financial move to use MFL cash itself is the end of the story.

Forget about MACL( the subsidiary company formed as SPV ) . The whole confusion is around this.


(sagararya) #262

MOL stake should be calculated at 82% and not 57% and hence the effective value will be 724 cr


(Asuthosh T) #263

i mentioned prior to exit of IFC MOL was having 57 % and promoter 18 % and IFC 25 % =100%
How MOL is having 82 % here ?


(sagararya) #264

This should be 724 cr to 210 cr


(ASG) #265

Bottom line: MOL promoters have shown disregard for minority shareholders


(Bikram11206178) #266

If they really don’t want to increase stake in commodity cyclical business which is MFL where MOL holds 57% stake, what would be an ideal decision ?
Who should be allocated these 25% stake if not promotor ?
Can they sell it to some new investors and get the money and put it back into MOL ?
If they really don’t have any option ,promotor could have paid money to MOL for buying stock.
They have clearly did a unethical work which may be legally correct but how it will affect the minority shareholders mindset? Will they forget or will they dump the stock is a real question .
It was one of my high conviction and high weightage stock and I am currently in loss ,that’s why I am not selling the stock thinking shareholders will forget and will buy taking advantage of dips . If It start falling another 10% I have to sell the stock irrespective of the companys performance. Further after this incident it will not attract new investor.


(bala.y.krishna) #267

Forget it many people are already gave exit decision and i dont think this is right of what they have done to minority shareholder’s. Listen to the concall and they did disconnect the call while asking questions in between and how do you feel ? atleast i’m not happy the way the call went.

Disc :- Exited.


(Raminder) #268

How is it possible that promoters can increase their holding in MFL without paying anything against these 25 % shares. Also in case MAL is merged with MFL and common shares holding i.e. 25 % held by MAL is killed the promoters holding post merger will be even than 24 % and not 42 % . Something seriously fishy and shared with the minority shareholder , a clear case of 420.


(Asuthosh T) #269

How 82 % ? MOL is giving money as loan…nt buyng 25 %… giving money doesnt mean buying always…please read my post once more… how then original 57 becmes 82 %?


(Asuthosh T) #270

Simple logic… ifc require 221 cr to exit their 25 % stake… Where this money came in the end? Mfl cash …whose stake increased by 25 % ? Mol? Or promoters? Its promoters? Did they pay this amount from their own pocket or by taking loan frm bank? No… They cleverly deviced… I appreciate this puzzle move… But stil people r expectng to believe the opposite… if promoters had increased their stake using their own capacity stock wudnt have falln…or if mol stake had become 82 % from 57 % stock wudnt fall…


(kush.pawan) #271

Its a clear cut case of cheating with the minority shareholders.
There was no satisfactory answer from the management - neither in the conf call (was part of it) and disconnecting calls of the investors asking questions was really bad. Nor Mr Ashish Soparkar was able to answer the queries asked at CNBC for clarity.

Disclaimer: Exited.


(kush.pawan) #272

Digged down more and found below:

Updated: Jan 12, 2012
The executive director of a city-based manufacturer of pigments and agrochemicals was arrested in an import scam on Wednesday. Directorate of Revenue Intelligence (DRI) officials arrested Ramesh Patel of Meghmani Organics in a more than Rs 4-crore duty evasion case.

Read more at:
http://timesofindia.indiatimes.com/articleshow/11455912.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

And he is still a Director:


(adiparihar) #273

I hope this video will provide ample clarity on this matter. https://youtu.be/ux8y1j839lo

Disc- Invested & plan to add more.


(prnwin) #274

This is what i do not understand. The devaluation of MFL happened only because promoters stake increased from 18% to 43%. So ideally this 211 cr should hv been paid only by the promoters. But instead it is MFL that is going to pay this amount. i.e. as per the percentage distribution, 57% of 211 will be paid by MOL to MOL , and 43% of 211 by promoters to MOL.


#275

Don’t you think you should have brought this earlier before investing rather than at the time of any negative event. Alarm bells should also have been raised when the stock price refused to respond to good earnings. Market certainly knew their shenanigans. This is an another accident that reminds us that large universe of stocks is simply uninvestible however attractive their fundamentals might be.

DIsc: No interest