To my mind an important point in this case would be the time it take to monetise the land. A parallel case in point is Hemisphere properties, demerged from Tata communication. On paper the company is undervalued because of the massive value of its landbank, assuming all of it is freely available unencumbered. Managements ability to execute of the land monetisation will be a key monitorable
@sougataG :- U hv hit the nail on the head. Thrâs a third parallel here too - the Shipping Corp Of India case. Similar story.
When considering these demerger\monetization cases, it is always better to go with promoters who move decisively and quickly. E.g - Look how Allcargo and Aarti Inds promotera move to close the deals.
In Gov. cases, by the time the formalities are cleared, the business conditions change and assets get marked down. Proper value is never realised.
Disclosure :- No investment in BEML. Tracking pos in Shipping Corp for similar demerger arbitrage
â1. Land parcels measuring 560 acres at Mysore costing 307.58 Lakhs (including additional compensation of Rs. 183.57 Lakhs demanded by KIADB) for which title deeds have to be obtained from KIADB. As per the demand of KIADB, provision of interest amounting to 593.33 Lakhs (Previous Year - 566.48 Lakhs) up to period 31st March 2021 has been made. Karnataka High Court vide order dated 11.02.2021 has ordered BEML to make payment of 183 Lakhs along with interest @8% p.a. from 26.04.1988 (till the month of payment) within 6 months from the receipt of order for execution of the sale deed. The same is in progress.
2. Out of 1870.30 Acres of Land alloted to BEML Limited- KGF by Government of Karnataka (under Goverment Grant order - free of cost), 114 Acres are under reconciliation with DC,Kolar. 967.20 Acres (294.00 acres in survey no.3 and 673.20 acres in survey no.2) of unutilized land have been taken back by Government.â
Extracted this from the latest annual report. Most of the land holdings are lease holdings and I found these two as significant. But going in to details they still donât have the title Deed of land in Mysore and looks like the litigation would continue for some more time.
And in KGF almost half of 1800 acres is taken back by the govt.
I also have doubts on valuation put by the news article. The data doesnât look accurate and I donât see 50k crore value in their land assets
From TV Interviews of BEML Management, its mentioned that the primary assets of BEML Land assets Ltd will be 124 acres of Land in Bangalore and 401 acres of Land in Mysore & some insignificant guesthouse etc building properties. Does anyone know, specific locations of these assets in Blore & Mysore, so that we can arrive at approximate value?
At todayâs price @200 rs (Mcap 838 cr), we will need 80% discount for proper margin of safety. For that, the land valuation needs to be: 838x5 = 4190 cr
If the Bangalore property is inside the city (i.e CV Ramannagar): 124x20 cr = 2480 cr
If the Mysore property is inside the city (i.e. Hebbal): 401x4 cr = 1604 cr [pure guesstimate]
Total: 2480 + 1604 = 4084 cr
The risk being that the govt had to demerge it to take the divestment in BEML forward, these Lands have become obstacle in disinvestment process? Thus monetizing the land itself may not be feasible in near or far future?
Another risk being, since these lands are unused for long, it seems, they have become like forests. There might be lot of protests, if monetization of these lands is initiated.
The third risk being: Hopefully, they will get the title deed of the Mysore land by paying the money directed by the court. Hopefully, they do have clear deed for Bangalore property.
The fourth risk being: The balance sheet is not out yet. So, we dont know, how much liabilities are shared.
Discl: 2.5% of PF @200.5 rs. Biased. Plz do your due diligence. Not a registered SEBI advisor.
Feel I should have waited for another 20% correction before jumping the gun.
One risk taken out: no liabilities in the books of BEML land assets ltd except for 1 cr borrowing from BEML.
They have valued the assets by a valuer: 2325.37 cr
Hope it is conservatively valued. It would be great if we can get hold of that valuation report.
Now, we need to know the plans govt for these assets.
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Following is extract from Q4FY23 Result docâs notes section:
Book value of land Rs. 636.58 Lakhs and buildings Rs. 327.89 Lakhs identified for demerger as per the MCA approved Scheme of Arrangement filed with ROC have been transferred from BEML Ltd to BLAL on the Appointed date i.e., 25.08.2022
2 Land & Buildings have been carried as Investment property as per Ind AS-40. In line with the disclosure requirements under Ind AS-40, the fair values of the property valued at Rs. 232537 Lakhs as per the report of a certified valuer have been disclosed in the Financial Statements. Buildings have been depreciated as per Companies Act, 2013. The process of transfer of Title Deeds from BEML to BLAL have been initiated and are in progress
3
The authorized Share capital of the company has been increased to Rs 50 crores of Equity Shares of face value of Rs 10 each. The company has issued Equity shares in BLAL to the shareholders of BEML in the ratio of 1:1, based on the record date of 9th September 2022 as per the MCA approved Scheme of arrangement. Issued & Paid up Equity Share Capital as on 31.03.2023 is Rs. 4164.45 Lakhs consisting of 416.445 lakhs shares @Rs. 10 each
4 The BLAL Equity shares have been listed in the Stock Exchanges viz BSE/NSE on 19 April 2023.
5 Amounts paid by BEML Ltd on behalf of BLAL has been treated as Inter-Corporate Loan and interest on the same has been applied as approved by the BEML & BLAL Board
Disc: invested. 2.5% of PF. May avg Down at around 150 rs or below.
Sir, Thanks for your response, i could not find anywhere that the blal property value is Rs 232537 lakhs,
Coukd you kindly provide supporting documents. ?
Mkt cap around 600cr for 500 acre land propertyâŚu are paying 1.2cr per acreâŚwhich is very cheap for land anywhere. Will this stock monetize / double in 5 yrs? Patient money has high probability for decent 15% returns. Buy and forget if entry is near here âš147/sh (mkt cap600cr).
550 acre is in Bangalore & Mysore. Estimated value about 4.2cr / acre (total ~2300cr). Govt could sell at half price even today and investor still gets a double on his investment of 600cr.
Diversification into real estate tooâŚLike buying land with no property tax, no maintenance, no visits, no registration/stamp duty, no black money and 10% tax on sale profit.
Can it go lower? Sure. Can monetization be delayed for 10yrs? Possible but govt has to pay salaries & maintenance for holding this property. Why did govt carve out a land bank if they donât want to sell. Govt wud love to encash & carry on. If they donât get good price they will use for govt buildings so rental revenue like reit. In any case its got margin of safety for principal.
I was looking for some value buys recently and found this to be a good value buy. However, once I started discussing BLAL with my friends (who are also investing enthusiasts like me), it was clear that it was undervalued however there were 2 risks that stood out.
It can take years and years for the land sale to happen. One example that comes to mind is GOCL. I know about this since it is a Hyderabad based business. It took 10 years for them to monetize its lands. Though it can be argued that they were waiting for more appreciation as Kukatpally (where the lands were located) did become a major developed hub in the city and fetched a good sum in 2022.
The official price of sale is going to be extremely lesser than fair market price. In the case of GOCL, they sold it for 10 Crores per acre whereas in Kukatpally, the going rate is way higher (an acre of commercial land will cost to 50-80 crores). So the benefit which will be passed to the shareholders is also going to be much lesser than market rate basis.
Disclaimer - I took a small entry position today but going to wait and watch before adding more. This is not a Buy/Sell recommendation and I am a newbie investor.
Timing is an issue but then a company with business of âholding just landbankâ has no good reason to keep holding asset and keep reporting losses (via maintenance expenses). One expects such clean cases to move faster than GOCL.
Re: pricing, letâs ignore news article, an acre is 4047 sqmts. Any decent metro in India will cost u much more than 15k / sqmtr. This translates to about 6cr per acre. We are getting land at Rs 1.1cr per acreâŚabout 2.5k per sqmtr.
I am not debating about the actual market value of an acre. I wouldnât be surprised if it is more than 6 crores/acre also. My point is how much of it will be paid âofficiallyâ at the time of sale. A lot of palms to grease in such govt sales, so I am going to temper my expectations. Even if the official sale value if more than 2 Cr per acre, it makes for a good investment, which is why I am planning to add more to my investment but a risk is a risk!
One last point about expensesâŚthey are looking to hire a CFO for only two years and pay him only about 7lacs per annum. You can infer that costs matter and why would they specify âtwoâ year contract.
Itâs a trade that can test patience like hemisphere properties.
Hemisphere is a way more complicated case main Delhi land under litigation for some small portion due to which everyhing stuck. More than 80% value from delhi land only
BLAL is much cleaner. No pending litigation as per last time I checked
