Sil investments ltd- Value unlocking from sale of investments


(iamabhi_2015) #1

Hi all…just wanted to start a value discussion on sil investments ltd…i have certain remnants/ rationale that makes it interesting…
I will refer to some notes that made my conviction even stronger along with my own experience in agri-tech india ltd.
I would start with agri-tech ltd where the stock rose from rs 7 to rs 183 in 2 years time…
My experience for sil investments comes from agri tech ltd where the company held 19.73 lac shares of nath bio genes when it( nath bio genes ltd) was trading at rs 130. It sold its investments in 2nd and 3rd quarter of fy 17-18 where the stock rose from rs 40 to rs 183( 52 weeks high)
The stock posted an eps of rs 6 in q3 of fy 18. Sill it moved from rs 60 to rs 180.

Dear investors, a similar story has panned out in Sil investments where the company has sold its investments in group companies( zuari global and zuari agro) and the eps rose drastically from rs 17 to rs 127.70 YoY( fy 18 vs fy 17)

The stock hit a high of rs 580 on 7th December, 2017 and now it is trading at rs 370.
Now sil investments is a debt- free company…it repaid loan of rs 72 crores and has made its enterprise value shot up like anything…

This is true that in india, holding companies do not get good valuation and they trade at a discount of 60-70% to their Net Asset Value(NAV). I was asked not to invest in holding companies by many investors but what my experience teaches me is that when holding companies start to book profit from the sale of its investments, there is a huge value unlocking that happens. The PE theory is irrelevant for Sil. even comparison with peers is irrelevant somewhat due to the exceptional event of selling of long term investments and consequent booking of gains. the selling of investments is a non-event as it is only bringing the Book Value per share closer to the NAV per share by recognition of the gains inside the Balance Sheet which till now were outside the Balance Sheet…So with 330 crores free cash reserve and with debt free balance sheet, market should reward this sooner.

If you go through the balance sheet of last 12 years, you will find that there is not a single year where the company has posted loss which itself makes it interesting.

Holding Companies tend to trade at a DISCOUNT and usually trade in the range of 65-80% of the NET ASSET VALUE and rarely trade at the net asset value because in 9 out of 10 cases there is hardly any value unlocking. PE wise they generally trade at PE of 25-30, take for example JSW Holdings trading at PE of 26.3 and Bajaj Holdings trading at PE of 28.6 !!

That s not it, the NBFC BUSINESS is growing at a stellar pace and what is MORE IMPORTANT is that the NBFC segment is maintaining an extremely HEALTHY CAPITAL ADEQUACY RATIO of 68.52% !! (PLEASE NOTE : RBI requirement is just 15%) and also the cost of borrowing has come down significantly.
The Co is actively expanding its NBFC business as well. The other source of income includes rental income, advisory services and dividends from share holding.

Do you know SIL holds 3.32 CRORE shares of Chambal fertilizers which trades at Rs 171.20, meaning that just CHAMBAL holdings value is Rs 570 Crs which is very less than the current mcap of sil investments ltd which is mere 380 crores !!

Important note- Sil investments have sold shares of zuari group and have invested maximum of the proceeds towards chambal fertilisers at rs 165( sil investments bought 14.07 lac shares of chambal fertilisers in the fourth quarter of fy 18.

As on 31st march 2018, Sil holds 12.40 lac shares of zuari global which is yet to be sold off…expecting the selling to reflect in q1 of fy 19. Consolidated eps stands at rs 127.70 for full year. It is not apt to talk about pe here but sil is trading at a pe of just 2.79…Mind you, not a single year sil has posted a loss…market value of quoted investment is itself 648.80 crores wrt mcap of 379.01 crores

To add, Sil is a KK birla group company…Birla group is known for not sharing wealth with shareholders…hence even after such a wonderful year, sil has announced dividend of just rs 1.50(15%)… To add , sil is yet to book profits from remaining shares of zuari global…hence the ttm eps could be more…but we should not speculate about this…I had addressed my concern to the company secretary, Lokesh gandhi regarding bonus issue…hence a debt free comopany with no loss history…book value at rs 314 roughly, stock is trading at a PB ratio of 1.14…free float is very limited…there were times when not a single trade took place in this low liquidity stock 2 years back…will look forward to attend AGM this year…

PS-Tl, what i am trying to make investors understand through my experience is that when any dormant holding company starts booking LTCG from sale of shares for more than 3 quarters, then it is no more a dormant company for a certain period of time. Even comparision with peers is irrelevant now because of this one time event which took place…You can have a look at agri tech india ltd once to understand what i am talking about. This stock( agri tech) had a same story of one time event of booking LTCG and the stock rose from rs 7 to rs 180 roughly in 2 years time…plus agri tech had a loss making mango business since years…still the stock rose because the enterprise value rose tremendously…i feel the stock is undervalued in this front and still has more to go…when the stock had debt of rs 72 crores in its balance sheet, still the stock hit rs 580 on 7th dec,2017. Market didn’t expect debt repayment from company side… one factor which is missed by everyone here is the quantum of dividend which has been kept paltry at the last years level of 1.50 per share. regardless of whatever is the EPS and the retained profits, a major chuunk of investors are interested in current income in the form of dividends. no scrip runs without operators involvement. and operator will be busy playing in other group company scrips whose results are due as follows in May : Chambal-10, Sutlej-11, Avadh-14, Ganges-14, Magadh-15, Zuari Agro-25, Zuari Global-25. another major factor is circuit filter which is being mocked by a few people here. operator doesn`t get enough leg room to play in circuit filter of 10 percent. and continuous 3 or 4 upper circuits are enough for downward revision of circuit filter to 5 percent. therefore, operator is playing sanely and letting the circuit filter get revised upwards to 20 percent in first week of June. this debt-free version of Sil Investments commands a much much higher price. and operator is there is earn for himself, not for you. be mentally prepared for all sorts of tactics by operator to frustrate you. he deserves to play this professionally.

Disclaimer- I have substantial investment in this company… My views might be biased…i am not a sebi registered analyst…Please do proper research before investing…happy investing!


(Tarun) #2

Congratulations on your vary post/ topic on the forum. It started out with impression of ‘value discussion’ and ended with target of 1000 (current 371.45) within 6 months.

Can you be kind enough to add the missing value discussion and explain why Rs. 1000, not 999 or 2000.

Thanks in advance,
Tarun


(iamabhi_2015) #3

Greetings tarun. I am talking about 4 digit price in 6 months from now(at max). I will tell you why i am not talking about 2000 or 999.
Since the sale of investments is a non-event, taking my experience from agri tech, this 1000 digit mark will be also short termed. It will cool off then just as agri tech did cool off from 180 levels to 130 levels now.
Sil investments have bought 14.07 lac shares pf chambal fertilisers in the month of march. Sil has 65% of its portfolio in chambal fertilisers ltd. But do you know why i did not talk much about the NAV of the company at present? Had it been a dormant investment company just like a normal holding company, i would have talked about NAV and its discount… but since this one time event has taken place, comparison with peers is irrelevant now. This one time event has shot up the enterprise value along with book value of the company nice now debt is zero and balance sheet looks beautiful!
The 2000 mark you are talking about could be talked only one year down the line when we will be eligible to consider it just a normal and dormant holding company. Then we could talk about valuation discount of 70% to NAV. I hope i have tried to make myself clear…
Thanks,
Abhishek


(Manish Vachhani) #4

(Manish Vachhani) #5