APW President delisting case (BSE Code: 590033) – Heads I win a little, tail I lose a lot

APW President delisting case (BSE Code: 590033) a Heads I win a little, tail I lose a lot

This delising case is in the final stages and the only risk is whether enough shareholders (15% required) will tender their shares for delisting. I do not think price will be much of an issue. Company should be willing to pay around 240 for delisting. It offers a oppurtunity to earn 10% return in next one month and risk loosing upto 30% if delisting fails.

Bid opening date: 3 January 2012

Read the below links to get the background of the offer. These two blogs provide enough details and analysis, so I am not repeating them again but will highlight the key changes since then and some additional thoughts.

Neeraj Marathe analysis on APW http://neerajmarathe.blogspot.in/2012/08/apw-president-delisting-case.html

Ashish Kila analysis on APW http://perfectresearch.blogspot.in/2012/12/delisting-unfair-binary-game.html (see slide 14).

Katalyst Wealth: http://www.katalystwealth.com/apw-president-systems-ltd-an-investment-opportunity-offering-35-50-annualized-return

Sharehodling strucure & possible final delisting price: Share of so called smart investors (bodies corporte and individuals holding >1%) has increased since June-12 (BC as on 7th Dec 12 holds 8.6% vs 6.5% in June-12 and individuals >1 lac nominal share captial holds 3.7% in Sept-12 vs 3% in June-12). So company requires another 2.7% from retail shareholders. Another important thing to note is that erstwhile promoters have almost diluted their stake in the last few months from 10% to 3%. I guess it might be more because if they tender their shares they will have to pay LT capital gains or during Apr-June 12, price was in the range of 235-240 and erstwhile promoters are not expecting final offer price higher than this. Company has done its open offer in April 2011 at 195 and from that date INR has depreciated by around 20%. Current share price of 211 is only 8% above indicative price of 195. But still if delisting fails share price may fall to around 160-170 from current levels.

Going by past history delisting is doable but not guranteed and there is every possiblity that company may not get enough shares. See failed Ricoh india delisting in Nov 12 http://goo.gl/eQBaV. The main differentiating point for APW is that here we have close to 5% shareholding erstwhile promoters & a risk arbirtrage firm.

Business overview: Company Is incurring losses for the last two years. I guess itas a combine impact of difficult telecom market and account cleaning pre and post sale by old promoters. Capacity utilisation remains at 62% for FY12. FY11 & 12 sales still remains at FY07 levels. Between 2003-08, sales and operating profit increased by 4-5x. Between 2003-09, company earned on average 10% EBITA margin. Applying the same on FY12 depressed sales, company is trading at EV/EBITA of 14x and assuming normalised sales of 140 crs at EB/EBITA of 10x. Pre-tax yield of 7-10% for a company going private is neither expenses nor cheap.

Disc: my views can bebiasedas I am invested in stock.

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