Pennar Industries Limited

(deeps2884) #61

NCLT application is a key formality but as we have discussed the real key now is Pennar Industries share holder approval (PEBS shareholders are anyways gaining from merger ratio so I don’t see them voting against the merger)… As part of the NCLT process… Pennar Industries and PEBS would be asked to submit proof of lender and shareholder approval to NCLT… so Pennar Industries has to call for shareholder vote and approach lenders for approval (generally lenders would not have a problem in approving the merger till their security is not weakened)

@armchair invest - i read a few con call transcripts of Pennar wherein promoter is thinking about Land monetisation as you have spoken about (good finding)

(chiragp) #62

So if your of the opinion that shareholder approval of pennar industries is doubtful then going by this pennar should fall if the merger goes through .

You have take into account that nearly 20% of the shareholding in pennar industries is by big fii and mutual funds (saif, clsa, franklin) - in dead sure these guys will vote for it - remainder is to be seen . I also know the head honcho of clsa in India and by the little I know these guys do months of research before investing in any company and for them to invest in a 500cr small cap company they must have done a thourough search

I’m 100% sure that the arbitration gap has to close as @armchairinvest_ also mentioned . The movement of the prices is to be seen

(deeps2884) #63

@ chirag - Just because a big fund has invested - doesn’t mean they would agree with everything management is doing… they have not openly come out and said anything with regards to the merger…
Even i am of the opinion the merger is good for Pennar Industries in the long run (PEBS is a excellent business to own once the Indian Capex cycle starts) and synergyt benefits …but you have to agree that funds have to do their own DD and take an informed decision and that decision may not be what we think they should do
Btw i am playing the merger story via PEBS shares and taking the risk - if merger goes through I get Pennar Industry @ 30 and if it doesn’t go through also I feel in 2/3 years PEBS by itself would be 2x as Indian capex cycle is on verge of restart…

(Rajat Setiya) #64

@ chiragp - 1) yes i do find value in pennar from a 3-4 years perspective. 2) either of the two may play out :slight_smile: A) PEBS price goes up or B) pennar price goes down to match PEBS price


(vv15) #65

There was an insider trade as well recently in PEBS. MD of PEBS acquired shares worth 10 lakh from open market. I think merger will go through, management would have gone forward with the proposal knowing it will go through else they wouldn’t have put in so much effort.

(deeps2884) #66

I feel the situation when the management had proposed merger was much different to how things are standing right now (ratios looked much better)… hopefully they are speaking to the big non-promoter shareholders and convinced them of the rationale…

(chiragp) #68

Is the valuation of pennar industries mispriced?

Any views would be more than welcomed.

(deeps2884) #69

yes definitely… Pennar holds very good potential to grow revenue and eps at 15%+ for at least 4-5 years (multiple revenue triggers - Railways, Engineering Components, Water Treatment, Engineered Buildings etc.) … it should conservatively do an EPS of 10 in FY20/21 and yield would be 25% at current price… which is terrific…

(chiragp) #70

a recent article from the management

(charish) #71

Hi Chirag

Any update on the merger ratio. I spoke to the management yesterday regarding the swap ration of 23:13 … I asked them about the arbitrage i see in selling PENIND and buying PENPEBS at the current market prices as i see it advantage to hold PENPEBS… they have not been able to clarify why the market has discounted the ratio…I’m holding huge chunk of penind and i stand to gain the number of shares post merger even if PENIND lists at a discount…

Am i right or i’m misinformed?

(chiragp) #72

Hey charish
This arbitrage opportunity has been there for a while but I’m still holding onto penind. I believe the long term indicators are very much intact for penind.
I have always noticed that in case of mergers swap ratio at some point the arbitration closes. In this case I am guessing that pennar industries will fall once shareholder approvals from both companies are in favour of ratio which has been slated for Dec 14/15.

(chiragp) #73

Is any case the results will be a non event today . The thing to watch out for is whether the top line has increased yoy. Company is constantly expanding its capacities yoy . Operation leverage should be in place once it’s sales touch the 3500-4000cr mark but that is still 2-3 years away

I think pennar is well placed in context to sectors it caters to if one has a view for the next 3 years.

(chiragp) #74

Very strong set of numbers posted by pennar industries .

(charish) #75

Thanks Chirag… I was expecting Penind to go lower post merger… So i sold PENIND and purchased PENPEBS at current market price and hope to gain more PENIND shares post merger as arbitrage narrows down… Hope I’m right…

Disc:- Invested with large percentage of PF

(chiragp) #76

Hi Rajat, @armchairinvest_

Just a few questions I was pondering over - thought I could get your valuable advice on the same.
A) YOY (September quarter to September quarter), the standalone entity has grown its top line by 33% approximately (i.e. 285CRS to 380CRS) which is no mean feat and upon speaking to the management they are confident of this run rate (they are guaranteeing 20% + but are confident of 30% + growth in top line) for the next 3-4 years for pennar industries on standalone. - Do you feel this is doable or they might falter somewhere down the line? They are committing that go one year forward and the top line for the standalone entity should be in the range of 470-500CRS. I just can’t figure it out but this growth rate is quite impeccable.

B) After many quarters they have suddenly turned very positive for the PEBS business. Speaking to them multiple times in the past they were always of the view that PEBS will be flat for quite some time but upon speaking to them a week back they have suddenly turned very positive. Do you have any idea what has suddenly changed and where is this bullishness coming from? They are even confident of hitting 1000CRS topline in 2, 2.5 Years.

C) Thirdly, they want to exit their solar business. Can they just decide to exit a business vertical like that. Aren’t there some costs associated with setting that business vertical up or can they just slowly shift and streamline that capacity towards some other vertical like railways or PEBS like they are mentioning? What are your thoughts?

D) Regarding Land Monetization process – They have started the process for the patancheru plant but they have clearly said don’t expect anything for the next 2 years?.

(chiragp) #77

Pennar will be a direct beneficiary of all wagon orders. strong traction in wagon vertical over the next 2-3 years

(Rajat Setiya) #78

Hi Chirag,

Below are my thoughts on your points -

  • Railways, autos and white goods are major segments behind growth of standalone entity. While outlook is positive for next few quarters, it is not easy to predict what will happen over 3-4 years

  • in my view lot of industries (steel, oil & gas, chemicals, sugar, and Auto) have started spending on capex - mostly brownfield/de-bottleneck though. Commentary and quarterly financials from some of the capital goods companies such as ABB, Triveni, Voltamp, ESAB etc are indicating positive trend. This coupled with impact of GST seems to be driving the demand in PEBS business. Another, interesting thing is that steel prices globally have seen sharp decline. If domestic steel prices stabilize, it will give a much needed boost to PEBS’ profitability.

  • On Solar exit, this is something we need to clarify further with management. However, my view is capacity is fungible and can be put to use for other products.


(chiragp) #79

Hi Rajat @armchairinvest_.

appreciate your thoughts .Thanks for the inputs . :smiley:. The merger is a done deal.